Who Needs an Asset Performance Improvement Strategy?
Author : Herbert Lichtenberg, SVP Production Practice, Strategic Asset Management Inc.
Asset performance is the efficiency by which a company converts its investment in plant, equipment and inventories, into sales and profits. In today’s rapidly changing business climate, challenged by global competition, reaching the maximum level of asset performance is essential and should be among a company’s strategic objectives. Therefore, Asset Performance Improvement initiatives are vital to enhancing or maintaining a company’s competitive position. However, the data shows that the majority of operational improvement initiatives fall short of expectations.
When Is Asset Performance Improvement Important?
Getting the highest possible return from a company’s assets should be a strategic objective for any company’s leadership team. However, focusing on asset performance improvement is critical for any company that needs to:
- Improve operating expense
- Achieve profitable growth
- Obtain the advantages of merger synergies
- Improve shareholder value
- Improve competitiveness in an over-capacity industry
Since attention to this issue is vital, why doesn’t every company use it to effectively improve performance, profitability, and competitive advantage?
Improvement Initiatives – What’s Wrong?
“We have met the enemy and he is us.” This cartoon quote from Walt Kelly’s 1970 Earth Day poster was originally applied to an environmental message but can also be applied to corporate improvement efforts. Numerous studies have shown that, by the companies’ own admission, more than two thirds of these efforts do not achieve expected results. The findings from the studies that involved customers and suppliers found that from their vantage point, the improvement performance was even worse. That’s a dismal track record considering increased global competition for both markets and investment dollars. Most companies have a sound understanding of their operational challenges and competitive leverage points. They take unprecedented actions to improve their performance, yet these efforts fall short of their goals. Why?
The most common explanation is that the initiatives failed because top management lacked commitment or failed to stay engaged. Once the efforts were initiated, they moved their attention to a host of other market opportunities. Consequently, interest at lower levels waned and improvement slowed down. This often resulted in eventual under-funding and under-resourcing of the improvement effort.
A related factor is that often specific improvement methods were selected because of their popularity or “curb appeal” and forced on operating level managers who did not understand the approach or how it would strengthen the company’s competitive position. These managers lacked enthusiasm and commitment which resulted in poor implementation particularly when they focused on tools and not systemic issues.
A third reason is that the selected methodologies lacked alignment, or were in conflict with the company’s strategic goals. As a result, initiatives had conflicting goals and were in competition for common resources.
Fourth, the improvement efforts lacked a documented plan, structure and metrics for accountability. As a result the organizational alignment needed to produce the desired results was missing.
Although many other reasons for the lack of success can be found in the studies, the factors illustrated above, either individually or in combination, are due the lion’s share of the credit. It is therefore logical to conclude that the following conditions are key success factors for implementing operational improvement initiatives:
- Top management must be visible and stay engaged.
- Middle managers and their staffs must understand and buy into the philosophies and tools. They must also understand the impact these philosophies and tools can have on the company’s ability to compete.
- The philosophies and tools that are selected must be compatible and aligned with the company’s strategic objectives.
- A structure and process must be developed that aligns the organization around the same objectives and provides a means of tracking progress.
The Keys to Success
Developing an Improvement Strategy
In order to ensure that an Asset Performance Improvement initiative is successful, provisions must be made to provide for the success factors outlined above. The first step on this road is to ensure that achieving the highest possible level of asset performance is among the company’s strategic objectives. This puts the focus on strategic rather than improvement opportunities and raises the level of visibility and commitment of the effort. It requires that the company’s senior managers be involved in the development of the Asset Performance Improvement strategy and that they guide the process so that:
- The decisions that are made are based on a complete understanding of the company’s goals.
- The Asset Improvement Initiative fits with others that are underway. It must support or be supported by the company’s other strategic initiatives to insure they are all pointing in the same direction and don’t conflict with one another.
- The resources are available for initiative support. Starving an initiative of resources is a quick way to insure failure. Although many opportunities exist, company leadership must be selective about which projects to pursue so they do not overwhelm or overextend available resources.
- The strategy fits the current needs of the company and meshes with its management style and philosophy.
- The strategy includes the five basic aspects of any improvement strategy and:
- Provides a direction to focus the organization’s efforts
- Establishes and cultivates expectations and goals
- Provides organization and structure for implementation
- Provides appropriate resources
- Is flexible so it can adapt to changes in the company’s competitive environment
Company leadership must also develop a business case for implementing the initiative with a clear definition of the strategies, financial impact, and the metrics that will be used to track progress. This should be communicated in a clear way so that all in the organization have an understanding of reasons for the initiative, the rewards of success and the consequences of failure.
In order to develop the long-term commitment required for success, the initiative must generate internal motivation at all levels of the organization. Ongoing communication about the goals, resources, constraints, progress and changes to plans is a must. Feedback about the impact of the initiative and a coordinated program of training, rewards and communication are essential.
Once the strategy has been defined, individual ownership can be achieved by involving managers and employees at all levels in defining the tactics to be employed in the strategy and the development of the implementation plan. After the initiative is underway and has achieved some morale-boosting successes, a phase comes when problems get harder to solve. Gradually, as the problems or constraints become more difficult, as the “low-hanging fruit” is harvested, company leadership must provide the recognition, tools and resources to deal with these more complex issues. Continued support is critical. Company leaders must also recognize and prepare for the consequences of improved performance. If the growth in sales does not keep up with the rate of improvement, provisions must be made so that those who will be unfavorably impacted by the success of the plan will not be punished by it.
Finally, for the initiative to progress over the long term, it must be guided within a disciplined organizational structure that has a consistent focus and is driven by clear metrics, closely linked to customer needs. The improvement infrastructure must be organized in such a way that it provides a means to involve those who will ultimately make the effort work. It must have a process for reviewing, assessing, communicating and developing ongoing improvement plans.
A robust implementation plan and process is another key factor to maintaining focus. In addition, an organizational structure to manage the effort should be put in place. The implementation structure must include:
- High-level oversight such as a steering committee,
- Defined roles and responsibilities at all levels,
- A process for reporting progress, resolving issues and making course corrections,
- Provisions for on-going communication, training and education,
- Metrics and indicators that tie directly to the financial objectives of the initiative,
- A managing process and reporting mechanism for plan implementation.
Company leadership has the means to greatly impact the probability of success of an Asset Performance Improvement initiative. To ensure success it must:
- Elevate asset performance to the strategic level and stay engaged,
- Work to ensure that all levels of the organization understand the reasons for the effort and the expected outcomes,
- Ensure that their management staff have an understanding of the methods and philosophy employed by the strategy,
- Supply the resources, infrastructure and training to make the implementation plan work.
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Revised: Thursday, 08-Oct-2015 11:51:38 AEDT