The strategic role of Engineering Asset Management

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Abstract

The current concept of an asset management (AM) system focuses on the lifecycle of engineered assets and little has been done in the literature on its link to organizational strategy. In this paper, the AM system′s position within an organizational structure and its role in competitive strategy has been explored. Two case studies involving AM have been analyzed using a proposed framework which is comprised of a set of planning and control activities maintaining a control mechanism and a relationship with the strategy-making process. It is argued that the AM system structure and the mechanism play a key role in the organizational strategy. The existence of the AM system is hypothesized by this framework which stipulates the asset performance required for strategic success. The use of this framework allows for conclusions to be drawn on the requirements for building an effective connection between AM activities and strategy development. This connection is achieved through planning and control mechanisms acting on the asset-related activities. On one hand, the effect of inadequate or missing elements of the framework has been shown to result in negative impacts on cost, productivity, quality, business outcomes and ultimately strategy achievement. On the other hand, the existence of elements of this framework has been shown to have positive impacts on strategy achievement.

Introduction

Engineering Asset Management (AM) as a discipline addresses the value contribution of AM to an organization′s success (Amadi-Echendu et al., 2007). The AM system may be defined as: “the system that plans and controls the asset-related activities and their relationships to ensure the asset performance that meets the intended competitive strategy of the organization”. This system has significant potential to influence all aspects of asset′s life cycle activities from concept design to disposal. The AM activities focus on controlling the life cycle activities of assets but their nature is both interdisciplinary and collaborative.

Most reported research on AM focuses on discrete activities e.g., maintenance, and rarely extends to AM as a holistic system. Frolov et al. (2009) state that historically AM was viewed as a technical activity driven by engineering design and narrowly focused on reliability and maintainability of assets. Charles and Alan (2005) explain that the concept of the AM system has not been considered from the whole life cycle approach and the whole related activities. Ouertani et al. (2008) explain the importance of considering life cycle activities in AM.

It is suggested that the usefulness of a holistic system view of AM has been identified but is not fully developed. The concept of AM which involves more business related engineering disciplines has only emerged and reported in literature relatively recently (see, for example, Dornan, 2002, LoPorto and Udo, 2003, Mohseni, 2003, Amadi-Echendu, 2004, Charles and Alan, 2005, Narman et al., 2006, Stapelberg, 2006, Haffejee and Brent, 2008, Asset Management Council, 2009). It has become the focus of industry groups, professional societies and research organizations including IPWEA (2011) and Asset Management Council (2009). Based on the practice of particular organizations, several frameworks resulted from experience or specific personal understanding have been reported or published by individuals or their organizations. In general these are not grounded in existing theory nor analyzed and investigated to determine their usefulness. Verification of the fitness of frameworks for the academic research or particular AM purpose is essential. According to Frolov et al. (2009), the collaboration between organizations and academic researchers is under way to extend the body of knowledge in this area.

This relationship between the competitive strategy and asset-related activities such as maintenance has not been explicitly developed and is usually anonymous in most organizations. Literature reviews by Alsyouf (2006) and Pinjala et al. (2006) indicate a lack of studies on the contribution of maintenance to positive business performance. Ouertani et al. (2008) argue that maintenance has an impact on the capability and performance of assets and that this should be viewed in terms of value contribution. Maintenance is typically considered by organizations to be a ‘cost center; for example, Alsyouf (2006) and Muchiri and Pintelon (2008) show that maintenance is often treated within organizations as ‘subordinate to operations’ or a ‘necessary evil’. The link between the inputs to the maintenance process and the outcomes for manufacturing has not been explicitly established (Dwight, 1999). Bamber et al. (2004) indicate that both lean and agile manufacturing consider the role of maintenance as a key of competitive advantage.

It has long been recognized that organizations experience significant shortfalls in their strategy realization because of asset performance. Miles and Snow (1978) have shown that new strategies have failed due to inadequacy in the activities required to manage the new assets, systems or technology. Some studies have focused on the interface between project management and strategy (Morris, 2004, Srivannaboon and Milosevic, 2005). Other studies, e.g., Donovan (2002) showed that inadequate feasibility studies and other system engineering activities have resulted in inconsistency between the strategic goals and the delivered system. It is shown that life cycle cost analysis rather than the accounting measure is required to allow for optimal replacement interval and supplier selection decisions (El-Akruti, 1999). Kaplan (1990) and Kaplan and Norton (1992) stated that financial measures are misleading and the constraints based on short-term financial performance measures alone destroy the true value.

It is proposed that capital intensive organizations have inadequate awareness of the potential role of the AM system in organizational strategy setting and implementation. Further, it is argued that the nature of activities, relationships and mechanisms in the AM system have not been adequately defined in literature. The activities of the AM system that are related to the development of an effective competitive strategy are not yet defined. The proposition is that the required AM system activities and relationships between these activities are not sufficiently in control in organizations. It is therefore to recommend that the AM system activities are inseparable from various other activities and relationships within an organization system as a whole. These general concepts raise questions such as to what extent is this recognized by organizations and if not, then why not and how can an organization set up the missing elements?

It is believed that the AM system can play a key role in strategy making. In order for this role to be effective, certain AM system activities, relationships and mechanism need to be managed adequately within an organization. This paper establishes an AM framework that provides a holistic approach exploring the AM role in organization strategy development and implementation. The novelty of the developed framework is related to its holistic approach and systematic tactic in mapping AM activities and relationships. Two study cases are given in extensive detail to illustrate the approach utilizing the developed framework and demonstrating its potential in analyzing relationships of AM related activities to establish proper links for strategy success. The case studies present a valuable contribution evidencing of the role of AM system activities in the success of an organization′s strategy.

Section snippets

A framework for Asset Management system

Utilizing the idea and format of Porter’s value chain (1985), a typical representation of the main asset-related activities in an organization has been developed by El-Akruti (2012). The relationships of the asset-related activities exist between the asset life cycle activities and the supporting activities. The AM system framework as shown in Fig. 1 (El-Akruti, 2012), incorporates coordination activities to control and maintain relationships between asset-related activities.

The AM activities

Research approach

The approach adopted is based on the ideas of the contextualist methodology in case study given by El-Akruti and Dwight (2010). It uses a retroductive research strategy to explore the complicated processes in the case study to facilitate theory building (Ragin and Becker, 1992). The research design uses the hypothesized system model as shown in Fig. 2. In this approach, cases are defined by identifying strategy events to which the asset-related solutions respond. Each AM-related solution has to

Identification of cases

An un-named company was selected with a large number of manufacturing plants and a working capital of about 1.3 billion US dollars. Over the preceding years, the company instigated improvements in quality management and therefore evidence of events or changes is expected.

In order to identify suitable cases, 25 company employees were interviewed and various documents reviewed. The strength of the findings rely on multiple sources of evidence: in-depth investigation by interviewing is done

Establish the asset solution in response to a strategy event

Case-1 is summarized in Table 1. Interviews indicated that the two projects were undertaken in response to the mission of growth to gain a better position in the international market by increasing and diversifying products. It is also indicated in the quality manual that the policy of the ministry was to make the industrial sector become a major contributor to the economy.

Establishing indication of provision actions

With reference to interviews held with managers in charge of flat mills, there were many problems encountered in the

Overall findings from the two cases

Overall, having the AM activities in place as proposed by the framework and managing the inter-relationships between asset-related activities for decisions related to development, performance, strategic planning are of essential requirements for success. The role of these AM strategic planning and control activities is critical to achieve any production or quality improvement strategy for the organization to compete successfully.

Case 1 and 2

show that the existence of proper AM system activities and

Conclusion

An AM framework is proposed in this paper that described the role of AM system activities in strategic decision-making. Although the linkage between the enterprise strategy and AM activities is suggested to exist previously, this framework is a reflection of the AM system elements required for proper strategy making. It provides a more AM-oriented, systematic and holistic approach to analyze activities, relationships and mechanisms that constitute the linkage between AM and strategy. In this

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