THE VALUE OF INFORMATION TO THE FUTURE OF SACON
THE VALUE OF INFORMATION TO THE FUTURE OF SACON
A Discussion Paper
April 1989
"The Otis Elevator Case"
Otis Elevators built and serviced elevators. Its large-volume business had been built on the premise of shaving the once-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 attacked on two fronts: first, it improved its service by enhancing the training provided to its service staff, whilst at the same time staffing its telephone line centres with highly trained operators to record details of the problems found and answer questions accurately.
Then, using the information obtained, Otis designed and installed diagnostic equipment in all its lifts, which fed information directly back into the centralised record system. When combined with maintenance and system records, this enabled Otis 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.
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. At the same time, it turned a liability - its wide geographic dispersion - into an opportunity for improvement.
And Otis regained its competitive edge.
Can we use the Otis approach?
Where we are now
To a large extent, SACON has a captive market for school maintenance. But the cost
imposed by a wide geographic dispersion and non-uniform service has already sparked agitation for change and could result in the loss of this market. Similarly, we have, if not exactly a captive market, at least a strong position in our design and construction work. However, as the total market for new government building work falls off, with funds becoming tighter, the Department is facing ever-greater and keener competition. SACON has an advantage now, but we risk losing it if we make strategic choices that remove or fail to develop our information-based competitive edge.
Information and Value Added
Like Otis, we are well placed to develop information-based value. No other maintenance contractor has access to the maintenance and building information we do. And, for that matter, no other designer or builder. This is a significant advantage.
By capitalising on our information strengths, we can improve our competitive position and make ourselves less vulnerable to institutional changes (such as the transfer of school maintenance funding to the Education Department) and the wider structural changes that may be expected. Government capital funding remains tight, and the Government seeks more value for money.
Improve Our Information Reliability
We can improve the value we add to our information in many ways. For one, we can improve the reliability of our information. At the moment, because we use an ancient Treasury legacy system and are required to pay each time we access it, we tend to wait until we have enough changes to warrant access, so that, while we have up-to-date information in-house, few of our customers can see it. If we automatically linked information from our Asset Information System to the client’s system, we 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 our district offices will reduce their costs and enhance their chances of being selected to do the work. Both factors would increase our competitive advantage in maintenance. Of course, if we do not win the maintenance work, clients will not wish to make use of our information services either. The two are interdependent. The strength of one is the strength of the other.
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 our favour, as far as design work is concerned, is that, as an organisation, we are involved in all stages of the building process, from the initial feasibility concept through design and construction to the eventual maintenance of the building.
We therefore have the ability to use our wide information base to help us design
more flexible, cost-effective and low-maintenance buildings. No private company can match us on the extent of the information we have to draw upon. But we have to demonstrate that we have the capability and will to use this information.
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 the company's information with other specialists for critical review and project appraisal. We have the opportunity to draw on a wide range of talents (professional and trade) within our organisation. Routine application of this technique to all large-value projects would not only establish our equality with the better-run private companies, but our stronger information base should enable us to achieve even better results.
Using Value Management techniques, the New South Wales Public Works Department
has secured cost savings of more than 10% on projects submitted to it while, at the same time, redesigning to increase the benefits to the client. In the case of the Long Bay Gaol, the savings were about $3m in a total budget of $17.4m, and in the case of the Swansea Channel Estuarine Investigation Research Program, costs were reduced by more than 50% by eliminating non-viable research options. This has done a lot to increase the credibility of the PWD department in N.S.W.
If we do not move to set up such value-for-money techniques, someone else will - Treasury or the Government Management Board, for example. Both of these bodies
are interested, and Treasury, particularly, is actively extending its sphere of influence in the project appraisal area. Neither have the necessary technical expertise, but using their management skills, they would be able to buy outside expertise - and it may not be us.
Then, not only will we have lost control, but we will have lost the opportunity to sell our design superiority - and the opportunity to attract new work in the review of other large infrastructure and engineering projects. A value management study is to be carried out on the very high-profile entertainment Centre. We could build on this to demonstrate our ability to manage this type of review on a routine basis for large capital projects.
Outside Pressures for More Information
There are currently a number of moves in the public sector, all having increased information as their main thrust. Among them are the Treasury’s move to require Asset Register information from all agencies as a statutory requirement, and its recently released draft document on project appraisal guidelines, which require costed alternatives for all proposals, including a do-nothing option. The Department of Services and Supply is moving to provide detailed information and policies for use across various aspects of plant and machinery management. There is a requirement to report twice yearly to the Resources and Physical Development Committee on departmental moves towards
better asset management and replacement policies. And there is continued audit pressure
for review and project appraisal, as evidenced in recent reports to the Auditor-General by the department's auditors, on the financial Management System.
The source of these pressures is such that they cannot be escaped. We cannot
avoid them, but we can benefit from them