Social Responsibility as an Organizational Capability: The Case of Building Maintenance

John Lyneis MIT-UAlbany-WPI PhD Colloquium April 25, 2008

When and how do organizations adopt socially responsible practices?

A

large amount of work: should organizations engage in CSR?

Friedman (1970): The social responsibility of business is to increase its profits Others: CSR does increase financial performance need to consider all stakeholders Many large, empirical studies

Copyright John Lyneis, 2008. All rights reserved.

Another approach: issue selling within organizations

Rather

than study the logic of top managers, look at how individuals advance issues from the ground up

Copyright John Lyneis, 2008. All rights reserved.

An Example MITs buildings

One important socially responsible practice: reducing building energy use Here, I study one organization where leadership agrees that emissions are important

Website displays clear goals: reduce GHG emissions, invest in energy conservation Analogous to CSR, such investments are not directly related to the Institutes mission of education and research

There are also many employees that champion this cause internally

Facilities employees have made progress on small issues

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CSR as a Capability

Even with strong support, reducing energy use is extremely difficult Hart (1995) suggests a natural resource based view of the firm

In a world with limits to growth, sustainable organizations will have a competitive advantage Sustainability is a capability: it is valuable, rare, and difficult to imitate Hart argues that pollution prevention is one such capability

But why exactly is pollution prevention so difficult to implement and maintain?

Hart says only that firms must possess an effective quality management process

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An example Existing buildings

Nine Month Study of Repair & Maintenance department at a large organization Data Collected:

Interviews with 30 individuals including managers, supervisors, mechanics, senior facilities people Work order and financial data from computerized system

How strong is the state of buildings? How strong is the maintenance organization? Would it be difficult to make improvements to reduce energy use?

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The Expanding Campus

Gross Square Feet Maintained
10,000,000 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 2000 2001 2002 2003 2004 2005 2006 2007
2000 2001 2002 2003 2004 2005 2006 2007

Total Maintenance Spending

The last seven years has seen a 21% increase in the number of square feet maintained

Yet spending on R&M has not increased

How is this possible?

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Deferred Maintenance

Facilities greatest challenge: Deferred maintenance

According

to managers & mechanics, a great deal of equipment is running past manufacturers recommendations

If its meant to get 20 years, we get 30 years. Once its in you know its going to be in for a long time, [so you need to] get the best you can. Employee on Building Design & Construction side

Over

the years, buildings have undergone many smaller, uncoordinated renovations without attention to the overall design and use of mechanical systems
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Size of Campus

Defects Defect Resolution

Defect Creation

Age of Buildings

Deferred Maintenance can be represented as a stock of Defects Over time, new defects flow into the stock (Defect Creation) and are removed as they are resolved (Defect Resolution) As the campus ages and expands, more defects will flow in
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<Budget for Materials and Replacement Equipment>

Desired Equipment Repair & Replacement + Size of Campus B

+ + Defect Resolution through Planned Repair & Replacement

Planned Maintenance + Defects + Defect Resolution Defect Creation

Age of Buildings

The balancing feedback loop Planned Maintenance illustrates how the stock of defects can be controlled: Currently, defect Resolution is limited by resources; meanwhile the campus continues to grow and age Therefore, as long as Creation>Resolution, the stock of Defects will continue to rise
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Reactive vs. Proactive Maintenance

A second challenge: Maintenance is mostly reactive

On average, over a two year period:

25% of closed work orders are emergencies or requests that must be resolved that day

Leaks, Alarms, Heating and Cooling

55% of work orders are responses to less immediate requests for repair work

Examples: Replacing light bulbs, replacing ceiling tiles

20% of work orders are planned preventive maintenance Were just running around, were the firemen. Were not even the fire chief. Were the firemen, running around trying to put out fires, and cant see past that next call. R&M Employee

Work hours are more skewed towards emergencies given that PM work orders on average take the least amount of time.

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<Staff Level> Work Order Backlog B + + Closed Work Orders + +

Opened Work Orders

Reactive Work Pressure Maintenance Labor Hours per WO Staff Level + Hours Spent on Repair

Reactive Maintenance can also be expressed using a causal diagram.

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Reactive Maintenance

Regression Results also confirm a modest negative relationship between Work Pressure and time per work order
Model: LHWO = Normal LHWO*(Backlog/Normal Backlog)a

Estimate: a = -.149 Significant at the .001 level

Interpretation: A 10% increase in backlog yields a 1.5% decrease in time per work order

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Reactive Maintenance

Why is reactive work dominant?

Work

orders are driven by defects and we know already that defects are rising! Managers must wait until something breaks in order to fix it

If it breaks, then youre lucky. Then, you have to have the money.
- Facilities Employee

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Size of Campus

Defects Defect Resolution + + Breakdowns + Defect Resolution from Repair WOs + Fraction of Work Orders Resulting in Defect Resolution <Staff Level> + Opened Work Orders Work Order Backlog B + Closed Work Orders + +

Defect Creation

Age of Buildings

Reactive + Maintenance Work Pressure Labor Hours per WO Staff Level + Hours Spent on Repair

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Adding Planned Maintenance

Adding time on Preventive and Predictive Maintenance forms the familiar reinvestment feedback loop

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<Budget for Materials and Replacement Equipment>

Desired Equipment Repair & Replacement + Size of Campus B

+ + Defect Resolution through Planned Repair + & Replacement

Planned Maintenance + Defects + Defect Resolution + + Breakdowns + Defect Resolution from Repair WOs + Defect Creation

R Reinvestment

Age of Buildings

Fraction of Work Orders Resulting in Defect Resolution <Staff Level>

+ Opened Work Orders

Work Order Backlog B

+ Closed Work Orders + + Resources Available for Preventive and Predictive Maintenance -

Reactive + Work Pressure Maintenance Labor Hours per WO Staff Level + Hours Spent on Repair

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Proactive vs. Reactive Maintenance

To its credit, R&M is currently not responding to work pressure by cutting back on preventive work
Although the amount of preventive work is small, PM work orders are consistently completed Therefore, the Reinvestment loop has the greatest potential to be virtuous in the future.
Fraction of Closed Work Orders Reactive
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
0.4 0.6 0.8 1 1.2 1.4 1.6

Backlog/Normal Backlog

Chart As backlog increases, emphasis does not shift to reactive work

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Size of Campus

What about quality and rework?

+ Defects Defect Resolution + + Breakdowns + Defect Resolution from Repair WOs + Fraction of Work Orders Resulting in Defect Resolution <Staff Level> + Opened Work Orders Work Order Backlog B + Closed Work Orders + + R Rework +

Defect Creation

Age of Buildings

Budget for Materials and Replacement Equipment +

Quality of Diagnosis and Solution + +

Reactive + Maintenance Work Pressure Labor Hours per WO Staff Level + Hours Spent on Repair

Resources Available for Planning and Diagnosis -

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<Budget for Materials and Replacement Equipment> Desired Equipment Repair & Replacement + Size of Campus B Planned Maintenance + Defects + Defect Resolution + + Breakdowns + Defect Resolution from Repair WOs + Fraction of Work Orders Resulting in Defect Resolution <Staff Level> + Opened Work Orders Work Order Backlog B + Closed Work Orders + + R Rework + Defect Creation R Reinvestment + + Defect Resolution + through Planned Repair & Replacement

Age of Buildings

Budget for Materials and Replacement Equipment +

Quality of Diagnosis and Solution + +

Reactive + Work Pressure Maintenance Labor Hours per WO Staff Level + Hours Spent on Repair

Resources Available for Planning and Diagnosis -

Resources Available for Preventive and Predictive Maintenance -

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This is the capability trap (Repenning & Sterman, 2001) This organization is already in a reactive mode with high defects and very little time spent on improvement

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Working Harder
Work Order Backlog

Working Smarter
Work Order Backlog

Time

Effort
Time on Improvement Time on Reactive Work
Time

Effort

Time

Time on Improvement Time on Reactive Work

Defects

Time

Defects

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Maintenance and Energy Use

Why does this impact efforts to reduce energy use?

When

all of your time is spent firefighting, its hard to keep the buildings running efficiently, or think about new investments that are not related to minimum building performance For example, many dampers are not operational, and as a result outside air is not used to help cool buildings

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Maintenance and Energy Use

Real cost savings are available from improved maintenance During March 2007, a commissioned analysis of one building found $400,000 in annual savings from issues such as:
Simultaneous heating and cooling Using mechanical cool instead of an economizer Heat wheel not working Running systems in occupied mode 24/7

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Conclusions
The current capability trap makes reducing energy use extremely difficult A proactive maintenance department is an organizational capability that is difficult to develop and maintain Without this capability, buildings are less efficient

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What can be done?

Specifically:
To

capitalize on the Reinvestment Loop:

Make funds available for needed upgrades to equipment, before equipment breaks Invest in predictive and preventive maintenance

To

capitalize on the Rework Loop:

Invest in engineers and experienced staff at the managerial level to improve the way that problems are diagnosed Emphasize the quality of solutions, even if work orders initially are not closed as quickly Ensure that mechanics understand new buildings completely following the Design & Construction phase

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Price of Energy +

+ Spending on Energy R

Overall Facilities Budget

-+ Budget for Materials and Replacement Equipment + + Defect Resolution + through Planned Repair & Replacement

Energy Use of Buildings +

Energy Savings Pay Desired Equipment Repair & Replacement +

Size of Campus

B Planned Maintenance + Defects + Defect Resolution + + Breakdowns + Defect Resolution from Repair WOs + Defect Creation

Age of Buildings

And pass on energy savings

+

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What can be done

The presence of an additional reinforcing loop makes the period of higher costs from any improvement strategy milder
Total Costs

Constant Energy Costs

Energy Savings Reinvested Initially, investment increases costs, but total costs fall once defects are eliminated, reducing breakdowns and the amount of reactive maintenance
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Time

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Price of Energy +

+ Spending on Energy R

Overall Facilities Budget

Energy Use of Buildings +

Energy Savings Pay Desired Equipment Repair & Replacement +

-+ Budget for Materials and Replacement Equipment + + Defect Resolution + through Planned Repair & Replacement

The Full Conceptual Model

Size of Campus

B Planned Maintenance + Defects + Defect Resolution + + Breakdowns + Defect Resolution from Repair WOs + Fraction of Work Orders Resulting in Defect Resolution <Staff Level> + Opened Work Orders Work Order Backlog B + Closed Work Orders + + R Rework + Defect Creation R Reinvestment

Age of Buildings

<Budget for Materials and Replacement Equipment> +

Quality of Diagnosis and Solution + +

Reactive + Work Pressure Maintenance Labor Hours per WO Staff Level + Hours Spent on Repair

Resources Available for Planning and Diagnosis -

Resources Available for Preventive and Predictive Maintenance -

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