Professionals Australia provided a link (as part of their Better Infrastructure campaign) to a very humorous YouTube clip from the US Last Week Tonight with late night talk show host John Oliver: Infrastructure (HBO) Mar 2 2015.
This topic would be funny if it was not so serious but what has it to do with human resources? The clip raises the question, who is John Oliver really making fun of, is it just those maintenances engineers or is he criticizing the organisation’s broader “good governance”.
The John Oliver clip is brilliant at getting across the message of the importance of infrastructure maintenances from a retention of the value and safety aspects. While it is probably not difficult to find a measure like Return on Assets (RoA) or something like this in most organisations, it is not as easy to find measures on how well we are looking after those assets. In a Human Capital Management approach to organisational management it is critical to have a balance between all the measures. While the John Oliver clip highlights the obvious importance of looking after the infrastructure, it is the practical setting of the level of this maintenance and monitoring that we find is essential, but unfortunately often missing. In organisations Maxumise often find two (2) gaping holes when it comes to asset management. The first hole is the human asset value – why isn’t this included as a real and significant assets in all organisations? Secondly there are rarely any maintenance measures for the assets including infrastructure, plant, equipment and yes the human assets who also need to be maintained.
Professionals Australia describes John Oliver clip as “an informative and humorous insight into America’s crippled infrastructure, and a look into the near future of Australia’s infrastructure”. We suggest that in Australia we might already be there and facing a repeat of the 1970’s when we discovered that we were not maintaining the infrastructure including railways, roads and bridges. There was a sudden rush to assess all these structures from bridges to pavements. As the inspection reports of dilapidated bridges and cracked and potholed pavements were brought in from the field the “do nothing estimated life to failure” was plotted on a chart and anything beyond a June 1999 red line was ignored i.e. the coordinating engineer’s retirement date. Tarban Creek Bridge on the approaches to Gladesville Bridge was new at the time, but is one of these that is currently undergoing major reconstruction. There had been temporary fixes done in the late 1970’s which were necessary due to a poor construction practice and the lack of early maintenance checking.
The do nothing estimated life to failure was a necessity as the Government did not have the resources to address all the neglected infrastructure. Consequently, a burst of infrastructure replacement commenced in the late 1970 boosted by special bi-centennial infrastructure funding in 1988. People shortages meant that projects like the North Western freeway across Darling Harbour in Sydney were largely constructed with migrants referred to then as “un-skilled labour” and hastily trained to provide very specific “outcomes”. There was no time for 4 year apprenticeships, this training was measured in weeks.
The John Oliver clip could have also applied to the wider issue of general asset maintenance including plant and equipment. Moving the focus from infrastructure to plant and equipment especially in the manufacturing sector again the 1970’s and 80’s are good examples. At this time a lot of Australian businesses, especially manufacturing, were struggling to survive or had already made the decision to move offshore. These included battery makers that had not updated their plant to non-mercury processing, photographic film manufacturers, lawn mower and iron makers, textiles, electrical cables, breakfast foods and the car industry; the latter “saved” by the Button plan. On many occasions we were told the plant and equipment is obsolete but we are getting great returns on our assets. Yes great returns on those depreciated, obsolete and poorly maintained assets. At one site, the right side of the grass catcher was made in Australia as the injection moulding machine for the other side had failed and wasn’t worth fixing. So where did the other half come from? In this situation very few organisations were going to spend money on that other most important asset, their people. A part of the Australian workforce were about to become redundant and “skilled” on obsolete equipment so where was their next job? Yes, there were a few exception that extended the life of plants like Kellogg for a few more years and the propping up of the car industry.
In modern progressive organisations, human capital management (HCM) is recognised as a critical driver of organisational success. The main principles of HCM is to ensure there is a longer term strategic focus, that strategic outcomes are measurable and that the organisations has the capacity to deliver ,including having competent people to deliver the organisation’s goals both now and in the future. To avoid the disastrous situation presented by John Oliver, organisations need to establish a performance framework that measures all the critical outcomes which, for a number of organisations, will include strategic maintenance measures as these will be part of the organisation’s lifeline. However, for an organisation like ours that is involved in setting up many performance frameworks we often find difficulty in introducing firstly, the maintenance ratios for the physical assets/infrastructure, secondly the recognition of the value of the HR assets and thirdly, a commitment to and measurement of the maintenance and growth of the human assets.
Part of the responsibility, as HR professionals, is the driving of the HCM in our organisations ensuring the performance framework is in place and balanced, reflecting the organisations’ strategic objectives. When there is a clear measurable strategic direction then it is essential we have the capacity to deliver. This capacity includes the structure (current and future) necessary to deliver the strategic goals including future changes and physical resources in a condition to deliver.
The good governance of any organisation incorporates an understanding of the strategic direction over the next 3 to 5 years and ensuring the organisation has the capacity to deliver. The assurance that it is being delivered is in the performance framework and performance reporting together with the identification and continuous analysis of the corporate risk situation. So who is John Oliver making fun off; the people that are supposed to be looking after the assets, the people that should be facilitating the balanced strategic measures or both?
What type of organisation needs these maintenance ratios? If we consider the physical assets and infrastructure I would say all organisations, but obviously if your core business is providing transport infrastructure then maintenance is critical. However this is where we are failing and exactly what the John Oliver clip is ridiculing. If you think about your organisation’s reliance on plant and equipment we get a broader picture of the need for overall asset maintenance measures. If you have a yard full of construction machinery or a manufacturing line then the need for maintenance is obvious. However they are not alone and just to mention some other examples; a not-for-profit with emergency accommodation and essential specialised equipment, the local dentist who calls and shifts your appointment because the equipment has broken down (not spending money on it because I am planning to get the more modern machines down the track), call centres and media broadcasters that struggled with the analogue digital transition but are possibly not providing for the next generation upgrades. The need for physical asset maintenance, including preparing for future needs with upgrades, is clear. If the maintenance or upgrade justifies an increase in the asset value on the balance sheet, then the Return on Assets may drop unless the improved efficiency offsets the increase. A possible drop in RoA may not look good and can be a deterrent to spending money on assets.
The human asset considerations are a little less clear but possibly as important. In modern human capital management, the contribution value can be calculated when positions are designed and this value can be included as a HR Asset Value. While most of the international accounting/reporting standards do not allow us to officially include HR assets on the balance sheet there is no reason not to include them as a balance sheet note and consider a range of measures based on the HR asset value including total combined asset value as a comparison against the standard physical RoA. In reality this HR Asset provides a substantial amount of the gap between the company’s book value and market capitalisation in commercial organisations as well as a more realistic indicator of the asset base for government, NGO’s etc.
While establishing the HR asset value the current position contribution is considered. The appointment of an incumbent will most likely have a different value and may have gaps that need to be filled i.e. maintenance. Furthermore, the position is likely to change over time and therefore the incumbent will need to be “maintained” for growth so they keep up with the position’s development and change. Quantitative assessment of the competence of the incumbent against the position would be undertaken on appointment and if the future position profile is available, then an assessment of potential to grow with the position can also be assessed. Succession planning today is about organisational readiness and this is a 2 step process for employee development. Firstly, the development for changes in current position referred to as transitional readiness. Secondly, the development for a future progression position referred to as progression readiness. The maintenance of the HR assets is a dynamic process focussed on both the current and future strategic capacity needs of the organisation. Without the maintenance of the HR assets we will return to the 1970’s and 1980’s and loose what competitive advantage we have.
The need for maintaining the physical and people assets is probably obvious and hopefully we will see a change in strategic measures to include, where appropriate, maintenance ratios. To develop a clear future direction the organisations need to have a clear picture of where they want to be in the next 3 to 5 years. While from an organisational growth and competitive positioning this might be achievable, it is the uncertainty in the national and international business environment that starts to fog up the “crystal ball”. Governments have a responsibility to provide at least a sense of direction in the national business environment but that appears to be less certain and predictable these days. This should not deter organisations from strategic planning, especially if they adopt a dynamic approach where the strategic plan is reviewed annually and rolled out by 1 year. Unfortunately we see so many of the so called strategic plans focussing largely on the past achievements and so called strategies that lack measurements. These are really old “road maps” that have not moved into the GPS era.
Well who is responsible for the condition of the infrastructure and assets? We could start with the accounting standards, lack of resources etc. but we feel it is a more fundamental issue of a lack of application of good governance principles.
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Maxumise Consulting Pty Ltd