'Companies should adopt a broader asset management horizon'

29 October 2020 Consultancy.eu

When an asset intensive company is enjoying a period of healthy performance, it is difficult to remain focused on preparing for possible challenges in the longer perspective, according to UMS Group expert Gunnar Norström. However, by trying to anticipate trouble ahead, organisations can maintain a stable value of their assets, while adapting to major changes for a competitive edge.

An “asset intensive” industry is a sector which requires above-average levels of capital to operate. The nature of such a capital intensive business model means asset heavy companies – such as players in utilities, oil and gas, housing and manufacturing – often leaves them facing increasingly difficult decisions.

Trends in digitalisation, changing consumer behaviour, a shift towards sustainable operations, and even the supply chain disruption of a global pandemic can mean that companies fall into an asset trap, in which they can be left with “stranded assets” if the demand or other requirements shifts.

Gunnar Norstrom, UMS Group

In order to survive and thrive in such industries, effective asset management is therefore vital. Managing infrastructure capital assets to minimise the total cost of owning and operating these assets while delivering the desired service levels can help improve business practices, enabling better decision making to reach a company’s long-term goals.

Best practices in asset management can also lead to improved regulatory compliance, higher levels of reliability and long term system integrity, as well as finding cost savings and meeting sustainability targets.

Over the course of his long career within the electric utility sector, Gunnar Norström has seen exactly how proactive asset management can make all the difference. In his roles with complex technical challenges – such as providing nuclear reactor fuel and core design – his positions in professional services – including being a Managing Director for a multinational technical consultancy firms supporting a wide spread of needs for asset heavy businesses – and his life as a consumer, Norström is well aware that failing to weigh up future threats can make huge problems for any asset intensive organisation.

Speaking on UMS Group’s ‘The Strategic Asset Management Podcast,’ Norström explained, “I think for some businesses it is a huge problem at the moment. For example, the housing sector. Suddenly landlords are lacking a lot of money, and in some cases they are responding by raising the rent higher than their tenants can pay. On the outset, this is placing them in a tricky position.”

“Elsewhere, some companies are finding they have assets on their hands which the world no-longer accepts – that is a massive waste. If you had known this or seen this from the beginning, with a good risk assessment, this could have been avoided – look to the horizon, not just at the short-term.”

“I’m not saying this is easy of course,” he added. “You can always find the right information after something is happened – but using information to anticipate and minimise future costs is the key. It’s a difficult question, but by doing that you can minimise your risk, just by implementing a good asset management system.”

Cultural challenge

Cultural change is key to implementing more effective asset management, Norström went on. “It is partially a human problem. Who prepares for their death when they are 17 years old? If you told a teenager about money management and encouraged them to start a pension for their old age, you might get a funny look from them. It’s very easy, even if you are aware, to postpone things when the situation seems good,” he theorised.

On top of this, Norström noted that often the system of individual incentives and bonuses private companies leverage to motivate their management teams can contribute to the situation. While they may be aware of long-term asset management needs, some top managers “have bonus systems where they are measured on their results divided by the length of their balance sheet.”

Norström suggested this might lead to short term cost savings getting rid of skills and competence that in the long run becomes problematic, which typically is realised beyond their tenure. However, Norström also contended that incentives can provide a solution to this.

He expanded, “If you have an asset, and you know you are going to sell it, your interest is probably just to dress it up to get a good value. I can’t say that is wrong. But if I were to own an asset I wanted to keep hold of, I would probably try to make sure that there were financial incentives in place for the managers who are taking care of that asset to look at the longer-term.”

This incentive structure can be very broad in terms of what makes staff and management “tick.” This is not only money then; communication can also be an excellent incentive – with Norström noting that simply being publicly thanked by an organisation’s leadership can help motivate people to come forward with suggestions. This feeds into a broader need for bosses to ensure they have a culture which supports feedback from all ranks of a firm and ensure a “360 degree” perspective on a company’s asset profile.

Norström explained that in order to produce an accurate picture of the state an organisation is in, and what risks it will face in the future, “you have to do more than just draft a report alone.” This means asset intensive organisations need to do their best to listen to maintenance, or other people on the shop floor, to ask what they see as a risk or a problem, and consider how that can be channelled to managers and directors as they plan for the future.

He concluded, “A well implemented asset management system, structure and culture can achieve several benefits. Including the views of staff, empowering them to contribute to idea generation and change, sound communication, an open dialogue and re-using existing best practices within the organisation are among critical success factors for success.”