Utilising Disruptive Innovation and Digital Transformation for Positive Change in Asset Management

DR ABE NEZAMIAN, Global Leader, Asset Management, Aurecon

DR ABE NEZAMIAN, Global Leader, Asset Management, Aurecon

Direct Economic Contribution demonstrates a pointer to areas of infrastructure demand and need. It presents an indication as to where reforms might lead to increased efficiency across our existing infrastructures. Hence, safeguarding asset utilisation is becoming more relevant in customer facing organisations in sectors such as transport, education, utilities and health where disruptions can impact our lives. 

Asset management is amid a metamorphosis, and so are the asset owners, Government and wealth managers. Below the surface, pressure on margins (due to continued fee erosion, cost pressures, political and geopolitical risks and asset deterioration) will persist. Another sign of metamorphosis: asset managers continue to follow the shift in investors’ product preferences from traditional active products to passives, solutions, and real assets. Consequently, asset managers are widely considered to be on the cusp of physical asset management innovation disruption and digital transformation. Indeed, digital has the potential to generate significant value add through robotics and automation, asset performance-based business models with digitally enabled and assisted advice. 

However, large-scale organisational change and digital transformation has always been difficult, and there is no shortage of research showing that most transformations continue to fail. Today’s dynamic environment adds an extra level of urgency and complexity. 

Critical asset operators have incorporated technology for many years, but the potential for disruptive digital technologies to solve major asset management challenges is just beginning to be realised. Using digital technology, it’s now possible to capture the most important information related to asset operation and condition and create smart solutions to drive an organisation's asset management program and to assist strategic decision-makers for intelligent investment decisions and priorities. Few companies appear to be making the fundamental changes their leaders believe are necessary to achieve these goals. 

The transformation from a traditional asset management program to a ‘smart’ and ‘integrated’ operation and management program does not just happen. Smart and competent people are required to drive this transformation. The role of technology, including artificial intelligence, machine learning and case-based reasoning comes in to play as organisations recognise the need to understand the efficient operation and condition of their asset based as the starting point for forward planning of the investment priorities, renewals or diversification. A case-based reasoning approach to asset management combines data, people, and technology in a way that breaks away from traditional methodologies and focuses on more humanistic, innovate thinking. 

Classical knowledge- or rule-based decision support systems draw conclusions by applying generalised rules, step-by-step, starting from scratch; a prescriptive asset management strategy. Case-based reasoning systems offer an alternative based on problem-solving performed by applying experience or remembering and historical performance of the operation considering the asset current condition as a baseline. This strategy focuses on how to exploit asset performance, instead of rules, in problem-solving, improving the performance of decision support systems related to the operation of the asset and to develop an asset performance-based business model. 

Disruptive innovation theories introduced more than 30 years ago as a revolutionary concept that transformed the business world to support strategic decision-makers understand how disruption works and determine when to invest in core versus disruptive business models. As you gain insight into the asset information that evolving industries, technologies, and competitive forces can affect asset intensive businesses, the asset operator will be better prepared to harness innovation, lead breakthrough change, and sustain enterprise success. 

As companies tend to innovate faster than their operating team needs evolve, most organisations eventually end up developing AM program or services that are process based and actually too sophisticated, too expensive, and too complicated for implementation. However, by doing so, companies unwittingly open the door to “disruptive innovations” at their operation. Characteristics of disruptive businesses, at least in their initial stages, can include: lower gross margins, lower reliability, and faster asset condition deterioration that may not appear as attractive as existing solutions when compared against traditional AM practice. 

To aid in understanding why some innovations are more (or less) disruptive to the long-term health of incumbents, we offer terminology and a framework complementary to current business transformation and disruptive innovation theories, focusing on the diffusion pattern of an integrated asset operation and management moving toward asset performance-based business model from current compliance and process-based models. Our framework and model suggest that when an innovation diffuses from the low end upward toward the high end, a pattern that we call low-end encroachment, the incumbent may be tempted to overlook its potential impact. We illustrate three possible types of low-end encroachment, the qualitative assessment, semi quantitative assessment, and immediate scenarios. Conversely, when the pattern is one of high-end encroachment, the impact on the current operation and asset condition is immediate and striking, thereby helping a firm determine the threat and/or opportunity that an innovation represents

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