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by Daryl
Mather
This column
is based on the upcoming book from Daryl Mather titled
“The Maintenance Scorecard: Creating Strategic
Advantages”. This book is due to be published September
of 2004.
Click
here for a printable 37k pdf version
Outsourcing as a
Source of Competitive Advantage
Outsourcing
is usually one of the more predictable suggestions of
managerial consultants throughout the world. Generally
these suggestions are made with either the intention of
reducing direct costs, incorporating specialist
knowledge , or avoiding the problems associated with
hiring and keeping employees.
This trend
has been behind the massive swings of technical and
administrative functions from economies such as the UK,
Canada and the USA to countries where lower wages are
paid to people with equivalent levels of competency.
In asset
management it has meant that large swathes of the
workforces of maintenance intensive industries to be
replaced by service providers of some form or other.
This is particularly the case in areas such as
specialized services (predictive or other technical
analytical service) as well as short term / high volume
work such as outage management.
In general
this has allowed corporations to become more competitive
through reducing direct costs and allowing the
organization the ability to tap into the industry
knowledge of best practices that are often found in the
providers of specialist services.
Changes in the Asset
Management Environment
However over
the past five years, and more importantly during 2003,
there have been some dramatic changes within the
legislative environment that call into question the
justification for outsourcing in this area. These have
been part of a wider global trend focusing on the
inherent dangers associated with asset management and
the growing level of intolerance in society with regard
to preventable disasters in this area.
These
changes include such items as:
·
The
legislative reaction to the Longford disaster in
Australia where two people were killed and an entire
state cut off from its gas supply for two weeks .
Following an explosion at a Gas Plant in the state of
Victoria.
·
Introduction
of the ESQC 2002 regulations in Great Britain to force
higher levels of risk management in electrical power
transmission.
·
6 people
charged with manslaughter in relation to the Hatfield
train disaster in the UK. These people included
management of the asset owner company as well as those
from the service provider company. This included the
ex-CEO of the asset owner company. The action is
currently in progress and is being defended by those
involved.
·
The enactment
of legislation in Canada, due to take effect as of the 1st
of January 2004, providing harsh penalties for negligent
or deliberate actions leading to injury or death. These
include up to 25 years imprisonment for individuals and
fines of up to $100,000 CND for corporations.
The
primary effect of this trend is a growing realization
that in the future all decisions regarding asset
management could be called into question at some stage.
And it is increasingly individuals rather than
corporations that are being asked to provide the
answers.
Responsible
Outsourcing
While the
responsibility for maintaining and operating assets is
able to be delegated, there is no current way of
adequately transferring the accountability for safe
asset performance.
Regardless
of contractual arrangements the asset owners remain
those with primary responsibility for managing and
mitigating the risks associated with their physical
asset base..
As such
there is a driving need for asset owners not only to
make the correct decisions in this area, but also to be
able to defend them. In particular by being able to
prove that all reasonable efforts that could have been
taken had been taken to reduce or mitigate risk levels.
To ensure
defendable decisions in an outsourced asset management
service, then there is a need to change the way that
these forms of contracts are traditionally managed. Can
the mere delegation of responsibilities continue to be
seen as the responsible way of managing assets?
Asset owners
must have involvement in decisions concerning what is
to be done and how it is to be done. The combination of
doing the right job and doing the job right that are the
underlying concepts of responsible asset management.
This
requires the asset owners to retain control over the
management function in this area. In particular over the
specific functions detailed below:
·
Determining
what the asset management strategies are, or clearly
defining how they are to be determined.
·
Defining
exactly when these tasks will be executed, in accordance
with the frequencies determined under the strategy
formulation step.
·
Defining how
these will be executed ensuring adherence to all
reasonable safety measures, procedures and regulations
where relevant.
Outsourcing
remains a viable business solution in many area of
corporate activity,. However within asset management it
is imperative that it is done so under the control,
guidance and auditing of the asset owners.
This change
in focus is a part of a much wider change in the area of
asset management. A change that will impact on every
area of this managerial discipline requiring that
decisions are taken:
-
By the
right people
-
With the
right knowledge
-
In the
right way
Daryl
Mather is an author, speaker and management consultant
from Australia currently working in the United Kingdom.
darylm@klaron.net
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