Thomas Industrial Library

Validating Corporate Objectives

Almost all maintenance professionals in the world have a feeling that they are under-appreciated by the organization as a whole. There is a belief that their efforts are both misunderstood and that the importance of what they do is not realized. However when speaking with professionals from other areas of corporate activity the same picture emerges. Marketers don’t believe that the company realizes the benefits they bring to the table; accountants don’t believe that the benefits of fiscal solutions are truly understood and operators think that nobody realizes the efforts that go into being the “only bread winners in the company.” This is a part of the corporate condition and to some extent, the complaints of all of the disciplines mentioned are correct.

The common sentiments among different managerial disciplines serves to emphasize the need to accurately portray how asset management fits in with the corporation as a whole. Within the MSC this is done through applying several validating questions. The point of these questions is to ensure that the strategies that have been developed accurately take into account both the position and responsibilities of asset management within the corporation, as well as the effect of such decisions on universal factors affecting the entire organization.

Do the corporate objectives in this area contribute to the overall commitment of the organization to its shareholders and (or) stakeholders? This question can be difficult to ask as asset management can contribute to both short-term and long-term goals of the organization. It highlights the balance required and the level of compromise that is a part of everyday decision making within the area. In order to be truly aligned with corporate objectives this point will need to be guided by executive leadership.

Do the corporate objectives in this area satisfy the understood needs of the corporation’s customers? Customer requirements are a large part of all asset intensive industries. However, the way that their requirements affect the overall objectives will change from company to company. Within mass transport operations, timeliness and comfort of the ride are key issues regarding customer satisfaction. Within electricity utilities, it is often demonstrated by the continuity and lack of variability of the supply. Within manufacturing operations it revolves around satisfying demand and repeatable levels of product quality. All of these issues can be grouped under the quality perspective of the MSC.

Customer satisfaction in asset management can also be a contributor to the cost-effectiveness perspective within the MSC. Here again we see the need for balanced perspectives when reviewing asset management. While there are often opportunities for reducing direct costs, it can sometimes only be achieved by trade-offs in other areas of the asset management function. If we are establishing our maintenance strategies in a scientific manner, then we will arrive at what is the minimum level of maintenance for a particular mode of operation, and for a particular level of risk that the company is willing to accept. As such, cutting of direct costs can mean that we need to reduce the level of risk we are willing to accept. When contemplating this area, again, there will need to be a level of guidance offered by executive leadership, particularly as there are potentially some very serious issues that will need to be balanced.

What are the needs of asset management, in this area, by other functional areas of the corporation (human resources, commercial, financial, marketing, materials management or other)? This area stresses the importance of including leaders from all functional areas in the development stage of the maintenance scorecard process. Even in capital-intensive industries strategy cannot be created in isolation. Financial leaders, for example, will have some very specific needs of the maintenance function. As mentioned earlier there is often the intention to maximize profitability by reducing the costs of asset management.

Inclusion at this point will enable all functional areas to have an understanding of the specific and unique challenges faced by management of the physical asset base. It will also have a dramatic effect on the ability of asset managers to understand the business drivers behind financial requirements.

At the corporate level not all indicators will be what maintenance professionals recognize as classical maintenance indicators. An example may be the inclusion of operational unit costs as opposed to only maintenance unit costs. In this case it may be due to the fact that the activity may increase the unit costs of maintenance, but it will lower the operational unit costs, therefore making it a desirable activity overall. In the case of increasing the environmental efficiency, it may require higher capital or operational spending in the area of maintenance, but it will reduce the costs of energy consumption and, potentially, government-imposed tariffs such as emissions levies.

What are the effects of corporate objectives in this area in relation to the other areas of the MSC? The purpose of this validation check is to ensure that there is a joined-up thinking that runs throughout the strategy definition process, that is, that all efforts are focused on the achievement of the same goals. Not all objectives and their subsequent measures will align with others. The main reason for this check is to ensure that they do not conflict or cause any form of confusion within the organization.

When the Executive Level is not Engaged

The MSC can be applied at the corporate level, the departmental level or the equipment level. At all times it serves to turn goals into reality through linking strategic thinking and strategic actions. To apply the MSC in a rigorous form it is best applied with the full buy-in and involvement of the executive level of any company. When this occurs, it represents a strategic direction of the company through maximizing the value creation of the physical asset base. When applied in this manner the corporate goals, strategies and objectives can become key differentiators between the company and its market competitors.

Yet if the company as a whole does not recognize the value that can be added within this area, then this is unlikely to occur. This changes the exercise from one of challenging and improving the strategic direction of the enterprise to an effort to translate current known goals within the range of understanding of senior or middle level managers.

At this level there is still the ability to achieve large improvements as well as setting strategy options consistent with understood goals. However the ability for cross-functional improvement and for challenging currently held paradigms becomes limited. The principal option for implementation in this situation is that of assumption, and the use of a number of stand-alone MSCs, deriving what the goals and objectives of the organization could be from published materials, conversations with executive leadership, or through the interpretation of published mission and vision statements if they exist. Chapter 6 deals with this issue in more detail.

Alignment of Corporate Objectives

One of the capabilities of the MSC is that it allows, in fact it obliges, people to understand the relation between corporate objectives. The creation of measurement regimes is often seen as being vertical only, that is, derived in a hierarchical form from the corporate objectives and applied throughout the organization. However there is also a need for alignment of these objectives in a horizontal fashion.

Alignment of corporate objectives enables an overview of the causality between objectives, that is, which objectives contribute to and are synergistic to others. In some cases this may not be applicable; however, at all times this exercise enables people to see where corporate objectives are actively working against each other. One of the eventual benefits of this approach is the identification of a number of levers throughout the company that can be manipulated to change the corporate results.

In Figure 2.4 we can see two identical sets of indicators. However each set is structured to reflect a different strategy theme within a particular organization. The first represents the strategy theme of cost effective improvement whereas the second represents the theme of performance improvement.

In the first example the key performance indicator of the theme (KPI) is the reduction of unit costs. This is the measure that sums up the achievement of goals within this area and all other indicators are used based on their relation to this measure. For example, elimination of defects contributes by reducing spending on work where it is not required and raising the overall ability of the equipment to produce. Similarly the increased energy efficient operation of the equipment reduces unit costs by reducing energy consumption.

In the second example the exact same indicators are used but in a different configuration. Within this strategy theme, the key performance indicator is now the elimination of inefficiencies or the delays index. As with the first example all indicators related to the corporate objectives are analyzed to ensure that they are not working against one another and to see where there may be causal links.

When developing the strategy themes in the MSC, it is important to remember that each indicator does not have to have causal links to the others; however, it is often the case that they do. Elimination of safety defects increases performance by reducing downtime for safety reasons. An increase in energy efficient usage of plant may contribute to performance by allowing the plant to produce more when it is required to produce more.

Each MSC may have any number of strategy themes depending on the company involved. These could include areas such as performance improvement, d ecision data improvement, risk management quality improvement, optimizing of capital expenditure or a range of other potential areas.

Each time that a strategy theme is determined, there may be one or more key performance indicators for that theme, that is, indicators that give an overview of the performance of strategy initiatives in achieving the goals originally set out. If all the indicators are linked and supporting one predominant indicator, then that becomes the KPI, or key measure, for that strategy theme.

Although it will be dealt with in length later on in this book, the linkages at this stage represent causality. They do not necessarily represent a direct mathematical relation or an ability to “drill-down” to the measure using standard reporting software. They merely infer a linkage between one area of performance and another, which at times cannot be quantified.