Research Spotlight

Asset Performance Management as a

Cornerstone of Operational Excellence

In todays competitive business

climate it takes more than
business as usual to thrive.
Global competition, increasing
regulatory burdens, economic un-
certainty, labor and material short-
ages, and a host of other forces
are all challenging businesses.
Delivering consistently high quali- Operational Excellence
ty and value to customers re- has its roots in different
quires significant effort. process improvement
This Research Spotlight focuses on the process of balancing all of the de- methodologies em-
mands placed on a business to achieve Operational Excellence. In particular it ployed over the last 30+
will focus on how the physical assets used to produce goods and services de- years, including Six Sig-
livered to customers can contribute to overall Operational Excellence. It is LNS ma, Lean, continuous
Researchs belief that Healthy assets are the foundation of a healthy busi- improvement, and oth-
ness.
ers.
What Is Operational Excellence
Most organizations consider Operational Excellence as a business environ-
ment that allows the achievement of optimal performance in all aspects of
the business on an ongoing basis.
It has its roots in different business process improvement methodologies
employed over the last 30+ years including Six Sigma, Lean manufacturing,
continuous improvement, business process management, and process ex-
cellence. In some companies eyes these are all seen as synonymous while
in others they are seen as part of the evolutionary path to Operational Excel-
lence.
The simple fact is that businesses have now realized that they can no longer
excel in a single dimension. To possess a great product but not have the
ability to manufacture it effectively does not lead to success. Likewise, being
able to produce the most sought-after product in the market will not result in
business wins if coupled with pollution, a terrible safety record, or a

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Research Spotlight

Asset Performance Management as a Cornerstone of Operational Excellence

reputation for worker exploitation. In every dimension that is relevant to the

industry a business must operate in the top tier among its competitors for suc-
cess.
In LNS Researchs recent APM end-user survey respondents overwhelmingly
chose improving operational performance as the number one strategic driver
of their investment in APM, and 90% named it as one of the top three drivers,
so it is clear that businesses are indeed keenly focused on Operational Excel-
lence today.
There is a notable caveat concerning Operational Excellence, however: If ini-
tiatives are framed strictly around financial performance using only financial If Operational Excel-
measurements to gauge success failure is all but assured. This is not to say
lence initiatives are
businesses that excel at achieving Operational Excellence perform poorly fi-
framed strictly around
nancially; quite the opposite. What they realize, however, is the need to
financial performance,
measure the direct objectives that compose this success, such as improved
productivity, higher quality, greater customer satisfaction and, ultimately, using only financial
greater market share. Attempting to measure solely by financial performance measurements to gauge
involves measuring the derivative value, which is far more difficult to actually success, failure is all but
determine the success of actions taken. assured.

The Importance of Balancing All the Pillars of Operational

Excellence
Virtually every business has at least five core pillars to its Operational Excel-
lence platform. Some such as manufacturing may have additional pillars re-
lated to product design and introduction, or in highly regulated industries
could include the need for achieving excellence in Governance, Risk and
Compliance (GRC) activities. However, for most asset intensive companies
and many manufacturers the five key pillars are:
Asset Performance Management (APM)
Energy Management
Environmental, Health & Safety Management (EHS)
Operations Management
Quality Management

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Research Spotlight

Asset Performance Management as a Cornerstone of Operational Excellence

Figure 1 below illustrates the typical view most people have of how the pillars
support a business platform, and for simplistic discussion this is enough. LNS
Researchs position, however, is that this two-dimensional view is inade-
quate. When viewed in the two-dimension perspective it gives the impression
that the absence of any one or two pillars can still result in stable Operational
Excellence capabilities.

The five pillars of Opera-

tional Excellence are
crucial for success. Fall-
ing short in one area
can result in instability,
and in more than one
can result in collapse.

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Research Spotlight

Asset Performance Management as a Cornerstone of Operational Excellence

However, when the same figure is viewed in a three-dimensional perspective,

it becomes clear that all the elements of Operational Excellence are required
for full stability. Falling short in one area can result in some vulnerability, and
if in more than any one area, the collapse of the Operational Excellence plat-
form is inevitable.

The Asset Performance Management Pillar

As one of the five core pillars of Operational Excellence it is important to un-
derstand the LNS Research definition of APM, which is broad and inclusive.
APM is understood as encompassing all of the processes and supporting
technology that are used to ensure that the physical assetsboth hardware
and softwareused to produce or deliver a companys goods and services
are operating at optimal levels. It means those assets operate reliably, effi-
ciently, and deliver the maximum value that their capabilities allow. This in-
cludes tools such as Enterprise Asset Management (EAM) or computerized

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Research Spotlight

Asset Performance Management as a Cornerstone of Operational Excellence

maintenance management systems (CMMS), which are primarily used to

schedule and manage the workforce and procure the materials required for
maintenance activities, and then track and report those efforts to the real-time
data acquisition used in condition-based maintenance, (CBM) or even just
usage based preventive maintenance (PM).

All of the activities and processes between these are also included within
APM, such as lubrication monitoring, vibration monitoring and analysis, ther-
mography, and reliability centered maintenance activities (RCM), to name Poorly operating equip-
some common examples. ment has adverse ef-
fects that result in pollu-
Why APM Is a Cornerstone of Operational Excellence tion, non-compliance,
The Healthy assets equal a healthy business axiom stated at the introduc- energy inefficiencies,
tion of this report sets the stage for why APM is so critical to achieving Opera- worker injuries, and
tional Excellence. It should be obvious that machinery or equipment that is more.
not operating properly and is prone to breakdowns is going to impact produc-
tivity. It also will result in quality issues because equipment not operating at
spec cannot hold tolerances, and with frequent shutdowns and startups there
always exists the problem of achieving steady state. This is when quality is
most easily maintained.

Equipment Integrity Has Far Reaching Effects

At the most obvious and immediate level, equipment failures or deteriorations
directly affect the function of that particular business asset, but there are far
reaching and less obvious effects as well that erode Operational Excellence
goals.
Equipment failures are one of the main causes of injury, resulting in poor
safety performance. Likewise, poorly operating equipment is often a leading
contributor to pollutant production and one of the major causes of out-of-
compliance performance in the area of environmental regulation. Finally,
poorly maintained equipment is a major contributor to energy waste. In both
the commercial realm and personal transportation, the EPA has determined
that poor maintenance of tire pressure in cars and trucks, while only impact-
ing gas mileage by one or two miles per gallon at most, is in aggregate one of
the top contributors to energy waste.

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Asset Performance Management as a Cornerstone of Operational Excellence

Without appropriate
technology, personnel
struggles in trying to ex-
ecute APM processes,
and as they become
frustrated, Operational
Excellence pursuits are
often abandoned.

In the commercial world there are numerous case studies on how poor
maintenance impacts energy performance. LNS Research has written exten-
sively about how APMs contribution to reducing energy cost has been one of
the earliest and most frequent examples of the value of the Internet of Things
(IoT). So if asset reliability and performance suffer it impacts not only the
APM pillar but, as shown in Figure 3 on the previous page, the EHS, Energy,
Operations and Quality pillars as well, creating a no-win environment in which
to pursue Operational Excellence.
APM, as an element of Operational Excellence, encompasses the people,
processes, and technologies associated with asset optimization. All three ele-
ments interact with and are dependent on one another. People execute the
processes, many times through the use of technology. Likewise, certain tech-
nologies are required to execute key APM processes. Without the appropriate

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Research Spotlight

Asset Performance Management as a Cornerstone of Operational Excellence

technology certain processes will never be able to be performed correctly or

in a timely fashion. Because of this, APM technology is a critical part of
achieving Operational Excellence.
The proper technology enables people to execute the processes that lead to
increased reliability, equipment stability within specifications, and consistent
performance. Without the appropriate technology personnel struggles in try-
ing to execute APM processes, and as they become increasingly frustrated
eventually will abandon any attempt to drive towards Operational Excellence.
This means that companies must invest in technology that performs the APM
elements critical to their business. This will vary by industry, process com-
plexity, and even geography, but typically APM investment should be driving Companies today are
towards CBM for the majority of assets and RCM for critical assets. Business- approaching how they
es must invest in data acquisition and collection technology such as the IoT, leverage APM to drive
and then predictive analytics tools that can use that data to aid in determining towards Operational Ex-
which maintenance to perform and when. Finally, in supporting these efforts, cellence, where they are
companies need tools to display and monitor their performance, so key per- on the APM process
formance indicator (KPI) dashboards and effective reporting tools are re-
evolution spectrum, and
quired as well, and for those businesses that need to achieve world-class
performance to survive, benchmarking is also a critical component of their which technology ven-
APM portfolio. dor classes they see as
being the most critical to
Companies today are approaching how they leverage APM to drive towards
Operational Excellence, where they are on the APM process evolution spec-
their APM success.
trum, and which technology vendor classes they see as being the most criti-
cal to their APM success. Almost one quarter of users consider a balanced
strategy of APM, Enterprise, and Automation vendors as important to their
APM success. End users also view APM and automation vendors as critical
elements, with nearly 10% either attributing their success to a combination of
the two or their APM vendor alone.
Specialist APM solutions are a key element in managing APM processes as
businesses move away from paper-based systems, as shown on the chart on
the following page. Enterprise-wide APM suite solutions are gaining in ac-
ceptance as they now match standalone point solutions as the preferred ap-
proach.

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 Research Spotlight

Asset Performance Management as a Cornerstone of Operational Excellence

How do you currently manage APM systems, processes, and performance?

When it comes to selecting solutions, the ability to integrate with existing applica-
tions and functionality are tied with just over 40% of respondents ranking these
two criteria as most important to their selection of APM solutions as shown be-
low. When pursuing next-generation APM solutions these criteria will be the ones
to which users must pay the most attention in order to ensure their overall portfo-
lio of enterprise applications enables their pursuit of Operational Excellence.
Which Criteria are most critical for your company in choosing an APM soft-
ware vendor?

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Research Spotlight

Asset Performance Management as a Cornerstone of Operational Excellence

Key Things to Consider When Pursuing Operational

Excellence
There are four key things that users should keep in mind about deploying
APM when beginning to pursue Operational Excellence:
Operational Risk Management
It is not an effort in standardization
Continuous improvement element
One of APMs greatest
Strategic versus Tactical
benefits, particularly as
APM Enhances Operational Risk Management CBM and RCM are de-
One of APMs greatest benefits, particularly as CBM and RCM are deployed, ployed, is that the over-
is that the overall operational risk profile is impacted. Today, Operational Risk all operational risk pro-
Management (ORM) has gained in importance as companies look to both file is impacted. Today,
minimize risk due to the cost implications but also to maintain shareholder Operational Risk Man-
value and avoid litigation for not managing risks properly. APM has become a agement has gained in
critical tool in managing operational risk. importance as compa-
By increasing reliability, APM also ensures enhanced ability to meet produc- nies look to both mini-
tion targets, avoiding outages that reduce the ability to meet customer ship- mize risk due to cost im-
ping deadlines or commitments and quality issues, both of which may lead to plications, but also to
damage claims from customers. Through the use of predictive analytics com-
maintain shareholder
panies can better understand the consequences of their maintenance deci-
value and avoid litigation
sions and act in a more informed manner, better understand the risk profile
that deferring preventive maintenance may cause, and balance that against for not managing risks
the benefits delaying maintenance may offer in meeting production demands. properly.
This makes APM a key tool in any risk mitigation program.

APM Is NOT About Standardization

Some companies view APM as a way to standardize maintenance practices.
In fact, APM permits greater variability in maintenance activity. By practicing
CBM and RCM companies can vary both the type and timing of their mainte-
nance based on actual operating conditions as well as those produced by
predictive analytics. When companies have a clearer understanding of the
options available to them, they are more able to do what is right, and not nec-

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Asset Performance Management as a Cornerstone of Operational Excellence

essarily what is considered the standard. This allows companies to be intel-

ligent about the way they leverage their assets. While APM benchmarking
can help companies set targets to strive for in their own performance, this
should not be viewed as achieving the standard, but rather understanding
their rank against other comparable companies as well as industry as a
whole. This information can then be used to set improvement goals.

APM Is a Significant Element of Continuous Improvement

Companies that pursue APM and Operational Excellence are committing to With a companys expe-
adopting a philosophy of continuous improvement. APMespecially RCM rience of improvements,
delivers the most benefits when the knowledge gained through good APM an effective APM solu-
practices and methods is used. With a companys experience of improve-
tion will continuously
ments, an effective APM solution will continuously learn about this upward
trend and guide to ever better performance until a point is reached where in- learn about this upward
cremental gains no longer exceed the cost to implement them. trend and guide to even
better performance until
At this point it is important to remember that this is likely to only be a tempo-
rary condition, because equipment will continue to wear and age ultimately
a point is reached where
takes its toll. Therefore, companies need to keep applying RCM tools to bet- incremental gains no
ter model the equipment over its entire life. Likewise, any benchmarking longer exceed the cost
should be performed over the life of the equipment to better understand its to implement them.
maintenance needs and plan for them as the equipment reaches the end of
its lifecycle.

The Pursuit of Operational Excellence has Both Tactical and

Strategic Elements
Both APM and its application to Operational Excellence have strategic and
tactical facets. From the strategic perspective APM and its application in the
pursuit of Operational Excellence is about establishing a culture where APM
is accepted as an everyday element of doing business, driven by leadership
throughout the enterprise. In this sense, APM can be about the goals and ob-
jectives of the program in general. However, the tactical elements of APM, as
applied in the pursuit of Operational Excellence, are all about execution. The
tactical focuses on the day-to-day application of APM best practices, hones in
on the metrics, and is very process and procedure oriented. Figure 4 on the
following page provides an illustration of the differences between the strategic
and tactical aspects of APM within Operational Excellence context.

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Research Spotlight

Asset Performance Management as a Cornerstone of Operational Excellence

Most importantly, APM

requires leadership in
establishing an environ-
ment where it is viewed
as a critical pillar that
aids in achieving the
companys goals, not
as a cost center to be
minimized or as a nec-
How to Start Leveraging APM in the Pursuit of Operational essary evil to deal with
Excellence unwanted equipment
failures.
As with any continuous improvement journey and business process improve-
ment initiative, achievement of Operational Excellence does not occur over-
night. Likewise, APM projects also do not take root and instantaneously deliv-
er results either. Leveraging APM as a key component of an Operational Ex-
cellence program requires the investment of both time and money.
Most importantly, though, it requires leadership in establishing an environ-
ment where APM is viewed as a critical pillar that aids in achieving the com-
panys goals, not as a cost center to be minimized or as a necessary evil to
deal with unwanted equipment failures. It is critical that management elevates
maintenance to be on par with the other pillars that support the companys
Operational Excellence goals. To get started using APM as a path to Opera-
tional Excellence businesses need to follow some simple steps. Some will
have completed one or more of these already as they are on the path, while
others will need to start from square one and progress through the steps as
part of their continuous improvement journey.

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Asset Performance Management as a Cornerstone of Operational Excellence

Still others will have checked some boxes but also neglected some critical
early steps, likely inhibiting them from achieving the results they were expect-
ing. In these cases organizations need to go back and fill in the blanks. The
key steps to getting started are:
Develop an APM Architecture: It is important to understand what the
elements of APM are and how they need to be connected to accomplish
your objectives. LNS Researchs APM Best Practices Guide can provide
helpful guidance on how to do this.
Identify Critical Assets and the Processes to Support Them: It is im-
portant to know which assets have the greatest impact on all aspects of
your business, be it Operations, Quality, EHS, Energy or some other pillar
specific to your industry or organization. Then, companies need to under-
stand what APM processes are appropriate to minimize the operational
risk failure of those assets presents.
Invest in Appropriate Technology: APM cannot be performed with
yesterdays tools. With Cloud delivery of even the most advanced APM
solutions available, cutting-edge APM technology is within reach to almost
every business. Huge capital investments are no longer the only way to
gain access to the best technology on the market.
Structure the Organization for Success: With the right architecture,
the right technology, and an understanding of the processes needed to
achieve individual objectives, organizations will only be able to drive to
Operational Excellence if its people are empowered and motivated to do
so. It is the combination of people, processes, and technology that is es-
sential in using APM to achieve Operational Excellence.

Distribution of this report made possible by:
LNS Research provides advisory and benchmarking services to
help Line-of-Business, IT, and Industrial Automation executives
make critical business and operational decisions. LNS research
focuses on providing insights into the key business processes,
metrics, and technologies adopted in industrial operations.
Author:

Dan Miklovic, Principal Analyst, dan.miklovic@lnsresearch.com

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