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“Growth does not mean size!”
This is the kind of comment that you might expect from a new economics, or a new age group, but you probably would not expect to hear it from a major multinational. Yet that was how the new CEO of Suez Environment, a major global water and waste organisation, opened his announcement of the company’s 2030 Vision. He was referring to physical size for he went on to speak of reducing capital (physical structures) and increasing IT, of focusing not on ‘growth’ as such, but on selecting just those areas in which they could add most value. In other words, to grow performance and profit. And yes, profit is a ‘good thing’, if it is a reflection of good performance.
I have a feeling we are about to see more of this kind of growth take place from now on. We can contrast this approach to the older approach where companies seek to grow simply by amalgamations and mergers. In the recent past, there has been a lot of this ‘growth’ but it really isn’t growth at all, because nothing has been added by the merger (despite claims to the contrary). It is just a re-packaging of what already exists. This has been particularly prevalent in engineering and consulting, and yes, also in asset management, companies. Yet it seems that every time a merger occurs, not only do we add more ‘administrative’ levels (i.e. more cost) but many of those employees who are most able and innovative, leave the mega businesses and set up their own businesses as small, more flexible, more imaginative units – and thrive.
Many thanks for this – it chimes with concerns I see over here in the USA. I work with power and rail transit, both sectors where there is a real challenge to growth, in different ways. Where is the demand for electricity going? And what’s the justification for building new commuter rail lines, when rail’s ridership is not generally going up? (And the city of Berkeley in California just passed a regulation against any new houses being built with gas.)
“ ‘Sustainability’ has, in practice, been interpreted as longevity and our life cycle cost models have enabled us to make the right decisions. But now we need to consider the ability of our infrastructure to adapt to changes not yet foreseen (and thus not built into our models). This means asking different questions. If we wish to avoid adding to the great pile of ‘stranded assets’ already in existence, we need to ask ourselves questions such as – ‘What assets should we absolutely NOT build if we want our infrastructure to be future friendly’. “ – Penny, May 2018.
The issue for asset managers in these sectors in the USA is – well, we aren’t yet at a point that Penny’s lifecycle models are in place here, and so we are not yet making good decisions about existing assets, but some people get this now. BUT the US has a serious issue with building new assets, often funded or subsidised by the Federal government, that communities don’t want to fund to maintain. Federal MAP-21 and the Transit Asset Management rules are desperately trying to address the issue of ‘state of good repair’ backlog in transit; but construction goes on.
And the private Californian power companies are going to have to make some much more strategic decisions. Instead of connecting new homes in wooded canyons – not so much fire hazards, as fire certainties – and then turning off the power when the hot Santa Ana wind from the east comes in, to universal howls…. Maybe if people must live in those areas, it would be safer and cheaper for them to have their own local renewables, to avoid thousands of miles of lines that inevitably fail sometimes. My brother (who doesn’t live in a canyon, but in an over 55s’ fancy trailer park in urban Orange County) essentially generates all his electricity, even for his over-fierce all-year round air conditioning, with Tesla solar panels; this means everyone else in Southern California could do so.
So what should we not build? How should we run our infrastructure smarter and more compact, no more construction and actually abandoning some that is already there? How do we equip asset managers to challenge prevailing wisdom about growth?
I work with at least one asset management team that is starting to challenge Big Planning. I think about the tools we will need, and how to build up AM practitioner confidence. A lot of teams I work with lack enough authority, yet, to take this on.
Can we accelerate through Revolution 2 (strategic AM to optimise what’s already there) to Revolution 3?
Thanks Ruth, The experience of many asset managers in projecting demand only meant guessing how fast it would increase. We now live in more challenging times. Times where demand can decrease as well as increase. Your point about the wooded canyons is well taken. It could be said that the problems you mention are not asset management problems – or not only asset management problems. And that would be right. So our question is how might we contribute? And where would we look, what would we measure, how could we change, to make that contribution?
I look at this from Climate Emergency standpoint, where net zero carbon needs to be achieved by 2050 to limit temp rise to 1.5 degrees. Since building and construction sector is among highest emitting sectors, as well as consuming 40% of global resources, this challenge is attracting lot of attention. Focus is now shifting from operational emissions (due to heating and cooling etc.) to ’embodied’ carbon associated with production of materials and construction. Life cycle carbon. World Green Building Council recently issued report on ‘Bringing embodied carbon upfront’. This highlights that greatest opportunity for carbon saving lies in inception and planning phase of projects, when the demand and need for the project should be questioned (the no build option) , as well as ‘build less’ (adapt existing stock etc).
This is where strategic asset management comes into play, seeking to grow smaller and smarter. I am presently focusing on commercial real estate, where the property industry continues to expand supply, expecting demand will catch up. They also expect they can be carbon neutral by continuing to build big, but are in for a big shock – many stranded assets will result as recognised by this EU report:
https://www.crrem.eu/wp-content/uploads/2019/09/CRREM-Stranding-Risk-Carbon-Science-based-decarbonising-of-the-EU-commercial-real-estate-sector.pdf.
But changes are afoot with approaching ‘Progressive Property’ conference, following claims that “For too long the property industry operated as a product industry”. Issues being discussed include ‘asset moonlighting and flexibility’, co-working, digital transformation etc.
How can strategic asset management contribute to such ‘smart growth’? …..good question Penny.
I believe the real question should be rephrased to state “How can strategic asset management contribute to such ‘smart outcomes’?”
As you mention, organisational growth in size only does not necessarily deliver the desired “outcomes” that are needed.
So what do we imply by the adjective “smart”? To me, smart is all about explicitly linking actions (by strategic asset managers) to desired outcomes (needed by the community we are serving) in a manner that explicitly ties “cause” to “effect”.
To explain further, I would like to see that when asset managers carry out an action, it causes an effect that delivers the outcome we desire. This outcome is delivered within the constraints (eg budget, environmental impact etc) and with minimal side effects (eg disadvantaging customers with disabilities etc).
There are two important aspects of “smart” that tend to be glossed over.
1. We need to fully understand all the mechanisms that link our actions to the outcomes…cause to the effect. Do we fully understand the impact of our actions?…..now and in the future eg under different environments and different political regimes? Naturally we are usually not that well versed in all these matters but describing these boundaries allows the decision makers (who should be more informed) to make better informed decisions – now that would be smart!
2. Have we considered all the unintended consequences of our actions? For example, by placing infrastructure in areas of limited/difficult access, have we considered the long term maintenance issues that may arise in the future? – smart thinking!
The above two statements are related to our bias to consider only those impacts that support our actions….and not those that would have a detrimental impact. Unbiased thinking is truly smart.
Happy smart thinking………..