Why would you own a Ferrari when you can rent one on the few occasions you would get to fulfil its potential?
The only answer is status. Driving it as your daily transport is not what the car was designed for, and you now have a very expensive maintenance bill. High cost assets such as luxury cars and boats require a lot of maintenance, but you only access the value they provide for a fraction of the time.
Ownership only makes sense when you need the value for a high percentage of the time. Even then you want to minimise the operating costs. So even if you own the car nobody employs a mechanic, you outsource the maintenance.
How will we keep the costs down in the future? Peter Drucker suggested the low operating cost asset of the future would have one man and a dog, the man to feed the dog and the dog to keep the man away from the machinery. In other words maintenance and operation will be automated where possible.
In truth we don’t really want assets at all, we want the value the assets produce, and the asset is nothing more than a means to the end. We don’t have to own an asset to gain value from it. We drive the car to get somewhere, or for the thrill of performance, but it is the end we want and we can hire the car.
Whatever approach you take to gather value from an asset; all of the process should be described in a comprehensive asset management strategy. Again, for emphasis, just because you are managing something you don’t have to own it.
Where possible we obviously want to minimise the cost of the value production process (in all senses of the word cost, safety, finance, environment), and hence Drucker is right, if we could automate the whole thing we should, but we aren’t always there yet, so what else is needed to produce the value apart from a strategy? The answer is competent people to carry out the functions that can’t be automated.
There is no getting away from it talented people create value and deliver value where machines haven’t reached. No matter the quality of the asset you own people will always be needed to improve it. As we discussed in our article ‘Right People Right Time’ at different points in the life of a value-generating proposition, different competent people are needed, but not everyone is needed throughout the lifecycle.
Hence, as part of our strategy the only permanent employees should be the competent people needed during the repetition of the value production process to perform functions that can’t be automated. Other periodic functions that require personnel should be outsourced and outsourced to the most efficient provider of the required services: Efficiency being defined as producing the highest quality with the least input.
This applies especially to knowledge work and skilled work. You only need knowledge and skills occasionally. The temptation is to employ knowledge and skill workers full time to ensure availability of expertise, but the problem is if you keep us around we inadvertently add complexity. We seek to be creative but is that our function within the relevant business process? How does that align with the asset management strategy? If there is no alignment we are adding complexity.
Hence, outsourcing to a provider intent on adding value is a good value proposition in an asset management strategy. Yet a lot of service companies are providing bodies rather than value creating a dependency we don’t want. Differentiating between commodity (routine) services and premium (value adding) services is therefore essential.
If you’re going to pay a premium for services you need to be able to spot a winner. It makes no sense to procure premium services in the same way you procure commodity services. One is all about the return on the investment the other is all about minimizing the expense.
So the asset management strategy of the future becomes clear. Rent, if you can generate a return in excess of ownership. Automate if you have to own. Only employ the minimum of people needed for what can’t be automated. Outsource all occasional services and learn to tell the difference between premium (value add) services and commodity services.