Demystifying Strategic Asset Management

Elephant RoomWhat is Strategic Asset Management?

There are various definitions of Strategic Asset Management but their underlying messages are consistent. It should:

– Be strategic at a corporate business and planning level
– Look to the future asset and capital needs of the organisation
– Cover all types of assets
– Underpin a sustainable business

It is not, as is commonly thought, maintenance, property management or facility management – although it involves all these disciplines.

Why is Strategic Asset Management so important?

Recent research from the Economist Intelligence Unit shows Australia is falling behind in productivity at a global level and there is academic consensus that Australian productivity and efficiency has been in decline over the last ten years, most noticeably in the agriculture, mining and utilities sectors.

If productivity is an efficiency measure of how labour and capital are combined to generate output, then the management and performance of an organisation’s assets will have a significant impact on its overall productivity.

Put simply, Strategic Asset Management can help organisations become more productive and help them to achieve their strategic goals. When effectively executed, it is also a major element of an organisation’s financial planning.

Conversely, without a proper Asset Management strategy – underpinned by a clear policy and plan – the value and condition of an organisation’s capital base will quickly erode. Capital will be misdirected and the operating efficiency and effectiveness of the organisation will be put at risk.

The elephant in the room

The benefits are clear and measurable, so why have so few Australian organisations truly embraced the approach?

We believe Strategic Asset Management remains the elephant in the room and there is evidence to suggest that the role and significance of assets and their management is:

  • Not understood
  • Considered too difficult
  • Simply ignored

A report by Ernst & Young into Corporate Real Estate (CRE) – a key part of Strategic Asset Management – indicates the lack of commitment from Australian corporations. Its findings showed that:

  • 58% of corporates did not have a documented CRE strategy in place.
  • Only 20% of companies thought that a CRE strategy should be considered at board level, compared to 60% of international companies.
  • Organisations were principally focused on operational risk and facilities management and were ignoring poorly allocated capital and residual value risk.

DEGW research, designed to complement the Ernst & Young paper – also found that Australia was well behind in its approach to asset management and confirmed that assets were not considered a ‘C suite’ issue.

The public sector doesn’t fare any better with only a few organisations seriously embracing Strategic Asset Management. Neither the Commonwealth Government nor the Western Australia state Government have high-level sponsors for the management of their assets and they are by no means alone.

Ironically, most state governments have legislated or introduced regulations over local governments that require them to implement asset management frameworks, as part of their larger corporate and financial management reforms, whilst not imposing similar standards over themselves.

This is unfortunate but partly understandable as governments have so little data and knowledge of their significant asset bases. For example, we estimate that ‘real’ property in the general government sector (excluding local government) is worth well in excess of $1 trillion – clearly there are opportunities to unlock value.

 A fresh approach

Efficiency is a culture that should be a part of everyday organisational management. Strategic Asset Management is not only part of remaining efficient, it also enables better strategic outcomes.

We recommend public and private organisations:

  • Seek to understand their asset base
  • Plan to ensure their assets enable business strategy and corporate goals and objectives
  • Consider assets as a portfolio and in a whole-of-organisation context
  • Elevate Asset Management to a strategic level – without good leadership and sponsorship it will not be implemented effectively

The US and UK governments have made savings running into billions of dollars and pounds respectively, and private sector organisations around the world are gaining competitive advantage by embracing strategic asset management. Isn’t it about time Australian organisations followed suit?