Organisational effectiveness can boost asset management operations

20 July 2017 Consultancy.uk

Organisations seeking to ramp up the efficiency of their asset management (AM) footprint intuitively turn to enhancing their AM activities, however, new research shows that placing more structural emphasis on organisational and governance related facets of operations can bring rise to more long run value.

The study, conducted by UMS Group, was held across twenty large asset management owners in the energy and utilities landscape, of which 9 Electricity Distribution System Operators and 11 Transmission System Operators. Combined, the twenty organisations have a total portfolio size of over €10 billion in TOTEX (OPEX + CAPEX), with TOTEX per organisation ranging from €3.5 billion for the largest respondent company to €29 million for the smallest player included. 

The study found that, in the eyes of asset managers, achieving a lower interest rate for financing is the largest benefit of improving asset management strategies and processes. The second most cited point is a better alignment between strategy, policies and plans – which, according to the researchers is a key aspect that facilitates the top-down side of asset management. Professionalisation also benefits the relationship with the regulator, with an improved negotiation position ranking third, and a larger likelihood for a swifter audit from the governing body fourth. Not surprisingly, enhanced portfolio planning allows for a more rigorous budget prioritisation, which down the line lifts the potential for better portfolio execution.

Asset management professionalisation initiatives can yield a return of 2.5

Commenting on the results, Jan Schipper, author of the study, remarked, “Interestingly, the value driver ‘better understanding of risks’ was only rated average in added value, somewhat unexpected as much focus in maturing asset management is placed on ‘risk based asset management’. I would have expected ‘better understanding of risk’ to come out as a major improvement area.”

Across the board, the average value derived from asset management professionalisation reported by the organisations stood at 2.5%, which translates to a €2.5 million efficiency gain for every €100 million in investment. Leaders – those with higher AM maturity – however significantly outperform the rest, with the maximum value reaching 7%, more than 4% higher than the average.

Schipper added that despite the clear correlation between best practice asset management and financial gains, the percentages are sizeably lower than previous benchmarks and case studies, which have found improvement potential of up to 20%. “One of the hypotheses we have is that participants in this survey are aware of the significant cost for capturing such improvements, and have incorporated not only the benefits but also the effort (costs) of implementing the improvement, leaving only the net benefits.” He added, “the improvements percentages found now are much more accepted as realistic by the peer group compared to the previous claims.” 

Organisational effectiveness

Besides the identification of the benefits, respondents were also asked to earmark the difficulty of achieving the respective value drivers (‘implementation feasibility’). The results portray two main patterns. Firstly, drivers which are notoriously hard to influence in the short term, such as improving overall reputation or ensuring a more harmonised and integral approach from strategy through execution. These require the most effort to implement. Secondly enhancing collaboration with the regulator – another area to enjoy relatively high benefits – is also considered to come with a significant workload, however.

Organisational effectiveness can provide a boost to asset management operations

Secondly, Schipper highlighted that there is little variation between the feasibility scores, meaning that there are no benefits which are far easier to realise, in management jargon also known as “low hanging fruit”. This has implication for asset management implementation strategies, said Schipper, as it means that prioritisation and roll-out plans will more carefully have to consider company and context specific considerations, opposed to following a pre-defined approach that stipulates quick wins up for the grabs. 

Building on the analysis, the author said that the current wave of maturing asset management from re-active to pro-active (risk based) is apparently a difficult step for many organisations. Those seeking to significantly boost their maturity should focus on culture change and organisational effectiveness, he said, a term which touches dimensions within the wider governance of asset management. Examples include internal alignment, risk management and investment optimisation – “these are found to have a far greater leverage in achieving value but are also in the centre of the culture change needed.” The role of stakeholder governance is herein also key, in particular for organisations that operate in a highly political or publicly charged external environment. 

Looking forward, the researcher already foresees in the near future a next wave of asset management transition, through which Schipper envisions a new landscape in which conventional risk-based processes will be overtaken by their digital version creating a major impact in terms of new skills and capabilities. He concluded, “Where we now are in a stage that industries move from re-active to pro-active (risk based), the next major change will be from pro-active to predictive. The flight of Internet of Things and the reduction of cost of measuring devices creates a new world called ‘data driven asset management’, where the new question will be how to create value out of all available high quality data instead of the question what data do I really need before I start collecting it.”

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