Linking the function of asset management to achieving competitive advantage.
For more than 25 years, there has been a steady increase in the acknowledgement of the strategic importance of maintenance. One of the driving factors has been the continued pressure on costs attributable to maintenance.
There has also been a growth in the awareness of the part played by maintenance in managing the risk exposure of a corporation. In some instances, this is driven by legislative changes in the areas of safety and the environment. In other instances, it is driven by the increasing understanding of the dramatic effect that maintenance management can have on end product quality.
While cost is the issue that generally receives the majority of attention at a corporate level, the issues associated with risk management are equally important and vital issues to the responsible management of physical assets.
Although there are overwhelming moral and legal arguments for comprehensive risk management processes, one of the features of catastrophic events is the lasting effect on corporate image. This realization is part of the continued progression of maintenance that incorporates a number of advanced business tools and changes in thinking.
As the understanding of the strategic importance of maintenance has risen, so too have the efforts to control and better manage this function. There are a vast number of methods, tools, and computerized systems that claim to be able to optimize maintenance, improve performance, or reduce costs associated with maintenance management.
One of the tools in the management arsenal is metrics. Yet despite changes to thinking and to management efforts, the way in which key performance indicators (KPIs) are used remains the same as it always has been.
KPI current practice
When a maintenance department begins to focus on KPIs, it generally does so in an uncontrolled and unfocused manner. This usually occurs in one of the following ways, regardless of whether the department has some indicators in place:
• A request for regular information from higher management.
• A new manager putting in place familiar management tools (legacy metrics).
• Suggestions from employees or others wanting to put in place familiar management tools (legacy metrics).
• Suggestions from employees based on an article or indicator they have heard about.
• Employees using database or spreadsheet skills to create indicators in an ad hoc manner.
In all cases, a list of indicators is delivered. However, they are based on a purely reactive focus and in a way that incorporates a number of inefficiencies into the process of measuring maintenance including inefficiency in measurement, indicators used in a reactive manner, and inefficiency in implementation.
Inefficiency in measurement. Deciding what to measure can create one of the primary reasons for failure of KPI regimes. Regardless of how well documented they are, a long list of indicators results in different people referring to different indicators and coming to different conclusions and the courses of action that the indicators dictate.
Long lists of indicators lead to poor use. Certain indicators may remain unused and unnoticed despite the fact that they may represent vital decision-making information.
Most importantly, indicators may not be linked to corporate goals and objectives—or at best they are loosely linked. One of the key points regarding metrics is that they drive behaviors, particularly if people know they are being reviewed regularly. In an uncontrolled application of KPIs, they may drive behaviors that are detrimental to organizational objectives. Or in a worst-case scenario, they may unintentionally cause dangerous situations.
As an example, at a mining company in Latin America there was a management initiative to increase production levels. Part of this initiative was to measure team performance and financially reward teams with higher outputs. Initially this provided surges in production levels until a point was reached where it leveled off. After this production began to fall, in some cases dramatically.
On further inspection it was found that sometimes the off-going shift was sabotaging the equipment to make it difficult for the oncoming shift to reach targets. It also was determined that the original surge in production was due in part to an unacceptably high level of risk taking among the workforce to achieve higher production levels.
This well-intentioned initiative was actually driving detrimental behavior. It reduced production and created an environment of high risk for the work force.
There were other side effects of this particular application of metrics. The company had a stated goal of high levels of safety and teamwork as two of its key objectives. Along with the dangerous and unproductive behaviors that the KPI encouraged, it also caused the company to drift significantly from two of its prime objectives.
Indicators used in a reactive manner. Using maintenance indicators has been seen as a purely reactive measure—measuring what has happened in order to make decisions.
This is a key point behind many management initiatives using metrics. Management at various levels decides they want to know what is going on, how their plant and teams are performing, and how the corporation’s investment is performing.
It is also one of the key reasons for inaction. Any organized measurement and monitoring initiative can highlight opportunities for improvement. However, this may not be done efficiently or in a manner that drives the correct behaviors and sends the correct messages regarding physical asset management.
Inefficiency in implementation. As with most reliability projects, there is often a difference between the theory and strategic planning and the eventual reality. There is a lack of understanding of whether the software and systems are in place to produce the metrics or what administrative processes are needed to capture the data.
This is particularly startling as most maintenance management organizations, large or small, have a CMMS. The majority also have some form of reporting system.
In advanced reporting systems, there are a number of tools available for representation and analysis of information. As with many other functional tools, maintainers either do not know they exist or are not able to access them.
There is little focus on the element of embedding KPIs. Few in the organization actually understand what they are measuring, why they are measuring it, or what the supporting processes are (including how to access them regularly).
In worst-case scenarios, KPIs begin to be generated by people who are able to manipulate databases, spreadsheets, or the company reporting systems. This is a particular area of danger as the integrity of the information and the resulting decisions are no longer guaranteed. The other point is that people are wasting their time creating reports instead of analyzing them.
Myths in measuring maintenance
Deciding what to measure is a key element of a structured approach to measuring maintenance. So is deciding how to measure it.
Many of the indicators that are used in maintenance are traditional indicators. But there are new indicators gaining prominence in maintenance management, some of which are accepted without question as a new way of driving continuous improvement.
There are dangerous and misleading forms of measuring performance in these myths. Any measurement regime can highlight opportunities for improvement. Companies that previously had few or no measurements in place may adopt fad measures and find that they assist with improvement initiatives. This disregards the fact that the measurements may be inefficient, inaccurate, or encourage behaviors not in line with corporate objectives.
A structured approach to KPIs
Financial analysts say that developing strategy is good, but it is the implementation of strategy that separates successful organizations from average and failing organizations.
The structured approach to developing KPI regimes provides companies responsible for physical asset management with a tool to implement and communicate corporate strategy throughout the company. The measures developed and the KPI structures themselves are a road map to achieving maintenance goals and objectives.
Corporate goals and objectives
When beginning a measurement regime, first understand what needs to be measured and why. Corporate goals and objectives need to be linked with the competitive advantages that an organization wishes to achieve. While other parts of managing physical assets are best suited to a bottom-up method, creating measurement regimes requires a top-down management approach.
Competitive advantages can exist in many areas. They can be based on productivity, knowledge retention, employee skills improvement, risk reduction, service improvement, and other areas where there is corporate activity.
Competitive advantages are typically described as the set of unique or hard-to-duplicate abilities, competencies, and capacities within an organization that allow it to better compete within its market.
Competitive advantages can be represented in a hierarchy of advantages and goals. This provides the first step in communicating corporate objectives. It also allows for the initial step in creating the strategy map that will be used to drive these goals and objectives through the organization.
Instead of taking the approach to measure everything and anything, the process first should identify what is needed to achieve the overall goals of the company.
For example, a company is a leading manufacturer of engine components for a popular SUV. It has determined that, as part of its corporate planning, it needs to achieve a competitive advantage by achieving a high level of continued overall quality of the parts it sells while remaining competitively priced.
During the strategy mapping process, key strategic advantages necessary to achieve the competitive advantage are determined (in a real-life example there would be many more):
• Best possible purchasing of quality raw materials at the best competitive prices (low failure rate from raw materials).
• Best possible continued performance from machine operators (low failure rate due to human errors).
• Low leakage rate of high talent levels in operating the equipment (low failure rate due to inexperience).
• Continuous high levels of performance from machines in use (low failure rate due to machine failures).
• Cost effective operation of machines (supporting the cost effective production goals).
Four of the five strategic advantages defined above can be affected by, and may require some effort from, maintenance management.
Strategic advantages can be described as the set of unique or hard-to-duplicate abilities, competencies, and capacities in an organization that support the company’s competitive advantages.
Achieving competitive advantage is determined by the strategic advantages that can be created. A company seeking to retain high-quality craftsmen may have as a strategic advantage a profit sharing plan or a career improvement plan. These two capacities separate it from other employers.
Define strategic assets
The last level of the hierarchy used in the structured approach is strategic assets. The principal goal of using the top-down structured approach is to develop strategic assets. Strategic assets are the abilities, competencies, or capacities that are required in order to achieve the strategic advantages.
In the engine parts plant example, one of the strategic advantages highlighted was continuous high levels of performance from machines (low failure rate due to machine failures). In order to determine what strategic assets are required, this needs to be analyzed and then broken down into the component capabilities, skills, and capacities required.
In this case the strategic assets may include high amounts of time (quantified) available at full capacity for production and low failure rate of machines (quantified) leading to quality failures.
Once the strategic assets that are required have been determined, measures and initiatives required to achieve them can be highlighted. These will vary depending on the equipment and situation in each case. However, some alternatives include applications of RCM, root cause analysis, or maintenance administration efforts.
Part of the benefits of this system is that by driving down requirements from the top of the organization, measures and actions for specific areas of the operation can be identified. It also promotes the reevaluation of measures and activities in place. If an activity does not contribute to the achievement of competitive advantages, there are generally few reasons for the company to continue doing it.
Development of strategic assets
The hierarchy of goals and objectives needs to be translated into measures to be useful to the company. Fig. 1 shows the representation of goals and objectives in terms of KPIs that will ensure the true measurement of performance.
The structure of KPIs is best represented by corporate level indicators, strategic level indicators, and functional level indicators. Each of these represents the goals that have been determined in the strategic planning stage of the process. This process gives many immediate benefits to an organization including:
• Communication of corporate goals and objectives in a manner that is clear and understandable by all in the organization.
• Easy and deliberate diagnosis of any deviations from stated goals.
An effect of applying the structured approach is that when determining measures there is more of an effort to develop requirement-specific measures instead of the generic widely used measures.
Implementing the structured KPI approach
The implementation of the structured approach needs to be flexible and inclusive. While it is best applied from an organizational standpoint, it also can be applied at either a departmental level or a project-specific level.
There are three steps to an implementation of the structured approach to measuring maintenance: development, creation, and embedding.
The development phase of the approach requires participants to understand how to create a focused KPI structure, recognize the common myths in measuring maintenance, and ensure the benefits. This leads directly to a facilitated strategy workshop.
The intention of the process is to be inclusive in the development of a structure. This involves the participation of various people throughout the organization. The only prerequisite for this step is a good understanding of the corporate objectives (preferably with documentation) or the competitive advantages sought. Ideally the development phase of the implementation process will include a short strategy workshop to set out the goals and objectives.
All members of the workshop need to understand their business and markets as well as the issues affecting their functional area of the company. A typical workshop may include maintenance managers, maintenance engineers, operations supervisors, craft level workers from maintenance and operations, inventory management representatives, and representation from the company IS or IT department.
Attempting to carry out this work in isolation can generate many difficulties for an organization. Also, although the use of reporting software is recommended, it is not an essential element.
Among the outcomes of the workshop should be the development of causal links between the competitive advantages desired and the actions that contribute to them, an understanding of the work to be done to achieve these indicators, and which indicators are to be used by which roles in the organization.
The creation phase of the project needs to be managed as any other improvement project.
During this phase much of the work defined in the development stage is carried out. This can include report creation and implementation of reporting software if necessary, staged implementation of administrative processes and reliability initiatives, and preparation of material for the embedding process.
Embedding is vital
The embedding phase of the project is the most vital part of the project and is designed to ensure its success as a permanent strategic initiative. This stage actually begins from the start of the entire process.
Embedding involves two basic actions. First, communicate the work to be done. It is recommended that the project team members use a combination of tools to do this; however, a prime tool would be a training course for all employees, “Understanding Our Indicators,” run by the measurement implementation team. This course would generally focus on the myths in measuring, the indicators chosen and the reasons why, as well as what the indicators mean to the various levels of the organization.
The second part of embedding requires a close monitoring of the results of the management initiatives and communicating these results, along with the achievements of those involved, to the remainder of the organization.
As the project progresses, it will involve more people throughout the organization which will help build the momentum needed for the embedding phase.
A structured approach
There are myriad benefits to be gained in using a structured approach to KPIs. However, the strongest and most obvious is the communication and execution of goals and objectives throughout the organization. This can be at the organization, department, or specific improvement project level.
The effect of a structured approach is principally one of inclusion and communication. Using the three-step approach, everyone in the organization knows what the indicators represent, understands the overall goals and objectives, and recognizes his part in achieving them.
A structured method changes the overall approach to maintenance and to managing strategy. Rather than measuring what has happened and making decisions based on this information, a structured approach uses indicators to drive future events. Instead of looking at what has happened, it focuses on what should happen. This occurs through the goal setting integral to the process.
There are many other advantages to a structured approach. Some are immediate; others take time.
• All corporate resources are focused on achieving corporate goals and objectives from inception through execution.
• Interdisciplinary and interdepartmental thinking and working take place.
• Processes and initiatives required to achieve a desired end state are understood.
• Deviations from stated goals can be easily diagnosed.
• A process for attacking specific problems or issues at a corporate, departmental, or improvement project level is developed.
• There is full use of corporate reporting tools where they exist.
Maintenance is strategic
Maintenance management is one of the strategically vital areas of corporate activity.
Although it is still largely misunderstood, corporate leaders are beginning to appreciate the benefits available in terms of cost effectiveness, risk management, productivity, and quality.
It is also an area where many methodologies, technologies, and systems claim to improve maintenance performance. Despite this, there are still many failures in the implementation of maintenance improvement initiatives.
This is partly due to the weakness of some of the solutions offered and partly to the lack of embedding of these solutions. In all cases, part of the cause of failure is attributed to a lack of managerial support.
As the discipline of maintenance management progresses it is vitally important to adequately link the function of asset management to the achievement of competitive advantages.
The structured approach couples these linkages with a comprehensive method for defining and implementing strategy and improvement throughout the organization. MT
Daryl Mather is a management consultant, author, and conference speaker specializing in the development of strategic advantages in maintenance and reliability.
GOALS AND OBJECTIVES