Successfully marketing AM to the Board

When I first moved to what was effectively our SA public works department in 1987, it had just changed its name from the Public Buildings Department to SACON, standing for South Australian Construction, which indicated what it wished to be, rather than what it was. With its heart set on construction, it was not open to considering Asset Management. Yet there was little future for it in public-sector construction, which was already tapering off at that stage. Then came the ‘director’s retreat’, a weekend away where the directors were to set directions for the following year. My director wanted me to write a paper that would lead them to focus on Asset Management.  I did.  The paper did not mention the words ‘Asset Management,’ and my name was not on the paper, which would have been a dead giveaway.  Instead, I focused on what they really wanted: to be important and to have something to contribute that would elevate their standing.  I told them the following story about Otis Elevators and showed them the opportunities to move in the direction the Director wanted, whilst warning them of the dangers of not moving.

This general approach can be applied in many cases.  Here is the Otis Elevator Story.

Otis Elevators built and serviced elevators. Its large-volume business had been built on the premise of shaving the one-off construction costs and recouping them through ongoing, lucrative service contracts. But now Otis had a problem. Its initial captive service market and its profit were in danger of disappearing.

Its very wide geographic distribution, combined with a non-uniform standard of service, had encouraged the development of smaller, localised service firms, many of them staffed by ex-Otis employees. These were in a position to provide quicker and cheaper service. So how did Otis react?

Otis intelligently attacked on two fronts: first, it improved its service by enhancing training for its service staff, whilst at the same time staffing its telephone line centres with highly trained operators able to record details of the problems encountered and answer questions accurately.

Then, a master stroke. Using the information obtained, Otis designed and installed diagnostic equipment in all its lifts, which fed information directly back to the centralised record system. When combined with maintenance and system information, this enabled Otis to use current condition to predict future problems and carry out corrective services in advance while addressing routine maintenance.

In other words, it turned the extensive geographical distribution, which had driven the growth of small competitors, into an information asset, because it meant that Otis had more information on how its elevators performed across a wider range of climatic and operating conditions than any competitor could have.

Critically, Otis realised its customers did not want elevator outages fixed cheaply; they wanted these outages not to occur in the first place! Switching from thinking about what they did (maintenance) to what their customers wanted (trouble-free operation) was the key to Otis’ revival.

Otis also realised that information linked to operational activities is a source of value that consumers are prepared to pay for.  It turned a liability - its wide geographic dispersion - into an opportunity for improvement.

And Otis regained its competitive edge.

Then the paper asked, How could SACON use the Otis approach?

It pointed out that, like Otis, SACON was well placed to develop information-based value. No other maintenance contractor has as much access to the maintenance and building information. And, for that matter, no other designer or builder. This is a significant advantage. To a large extent, SACON has a captive market for school maintenance. But the costs imposed by wide geographic dispersion and non-uniform service have already sparked agitation for change and could result in the loss of this market. Similarly, it has, if not exactly a captive market, at least a strong position in design and construction work. However, the total market for new government building work is likely to decline as funds become tighter, and the Department is facing ever-greater and keener competition.  SACON has an advantage now, but risks losing it if it makes strategic choices that remove or fail to develop its information-based competitive edge.

So what can be done?

Information and Value Added

By capitalising on its information strengths, it can improve its competitive position and reduce its vulnerability to institutional changes (such as the transfer of school maintenance funding to the Education Department) and to the wider structural changes that may be expected. As Government capital funding remains tight, and the Government seeks more value for money, preservation is likely to become more important.

Improve Information Reliability

At the moment, SACON uses an ancient Treasury legacy system and is required to pay each time it is accessed, so it naturally tends to wait until there are enough changes to warrant access. However, this means that while it has up-to-date information in-house, few customers can see it.  If it automatically linked information from the Asset Information System to the client’s system, it could drastically reduce the update cycle.  Most of the database update work would then be done in-house and over the phone, greatly reducing costs.  And since this advantage would apply only to those using SACON for alterations, additions, replacements, and maintenance, there would be less inclination for others to arrange their own contractors.

At the same time, access to a reliable, up-to-date information system by the district offices will reduce their costs and enhance their chances of being selected to do the work. Both factors would increase competitive advantage in maintenance.  

Improve the "Information Value Added" Component of Design Work.

Current moves towards privatisation and commercialisation are fuelled by the belief that private companies are more efficient and cost-effective. This doesn't have to be the case. One major factor working in SACON’s favour, as far as design work is concerned, is that, as an organisation, it is involved in all stages of the building process, from the initial feasibility concept through design and construction to the eventual maintenance of the building.  It therefore has the ability to draw on its extensive information base to help design more flexible, cost-effective, and low-maintenance buildings. No private company can match SACON in this way, but it must demonstrate that this capability.
 One way to do this is to adopt Value Management practices. Value Management is a technique widely used by leading companies in the private sector to integrate their information with that of other specialists for critical review and project appraisal. SACON has the opportunity to draw on a wide range of talents (professional and trade) within our organisation. Routine application of this technique across all large-value projects would not only establish equality with better-run private companies but also, by leveraging its stronger information base, enable it to achieve even better results. Others have achieved cost savings of more than 10% with such techniques, and if SACON does not move in this direction, others will. Both the Treasury and the Government Management Board have indicated their interest, and while neither has the technical expertise, they can buy outside expertise. This may not be SACON.

These changes cannot be escaped, but SACON can benefit from them.

On the Monday following the Retreat, my Director happily announced that his fellow directors had been convinced.