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Social Responsibility as anOrganizational Capability: TheCase of Building Maintenance

John LyneisMIT-UAlbany-WPI PhD Colloquium

April 25, 2008

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Copyright John Lyneis, 2008. All rights reserved. 2

When and how do organizations adoptsocially responsible practices?

A large amount of work: should organizationsengage 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

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Another approach: issue selling withinorganizations

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

the ground up

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An ExampleMITs buildings

One important socially responsible practice: reducingbuilding energy use

Here, I study one organization where leadership agreesthat emissions are important Website displays clear goals: reduce GHG emissions, invest in

energy conservation

Analogous to CSR, such investments are not directly related tothe 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 isextremely difficult

Hart (1995) suggests a natural resource based view ofthe firm

In a world with limits to growth, sustainable organizations willhave 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 departmentat 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

The last seven years has seen a

21% increase in the number ofsquare feet maintained

Yet spending on R&M has

not increased

Gross Square Feet Maintained

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

2000 2001 2002 2003 2004 2005 2006 2007

How is this possible?

Total Maintenance Spending

2000 2001 2002 2003 2004 2005 2006 2007

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Deferred Maintenance

Facilities greatest challenge: DeferredmaintenanceAccording to managers & mechanics, a great deal of

equipment is running past manufacturersrecommendations 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 Bu i ld ing Design &Construct ion side

Over the years, buildings have undergone manysmaller, uncoordinated renovations without attentionto the overall design and use of mechanical systems

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Deferred Maintenance can be represented as astock of Defects

Over time, new defects flow into the stock(Defect Creation) and are removed as they areresolved (Defect Resolution)

As the campus ages and expands, more defectswill flow in

DefectsDefect

CreationDefect

Resolution

Size of

Campus

+

Age of

Buildings

+

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The balancing feedback loop Planned Maintenanceillustrates 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 ofDefects will continue to rise

DefectsDefect

CreationDefect

Resolution

Defect Resolution

through Planned Repair& Replacement

+

Desired EquipmentRepair &

Replacement

+

+

Size ofCampus

+

Age of

Buildings

+

B

Planned

Maintenance

+

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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 mustbe resolved that day Leaks, Alarms, Heating and Cooling

55% of work orders are responses to less immediate requests forrepair work Examples: Replacing light bulbs, replacing ceiling tiles

20% of work orders are planned preventive maintenance

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

Were just running around, were the firemen. Were not even thefire chief. Were the firemen, running around trying to put out fires,and cant see past that next call. R&M Employee

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Reactive Maintenance can also be expressedusing a causal diagram.

Work OrderBacklog

Opened Work

OrdersClosed Work

Orders

Work Pressure

Labor Hoursper WO

+

-

+

Staff Level

-

B

Reactive

Maintenance

+

Hours Spent on

Repair+

+

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Reactive Maintenance

Regression Results also confirm a modest negativerelationship between Work Pressure and time per workorder

Model:LHWO = Normal LHWO*(Backlog/Normal

Backlog)a

Estimate:a = -.149

Significant at the .001 level

Interpretation: A 10% increase in backlogyields 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 inorder to fix it

If it breaks, then youre lucky. Then, you have to

have the money.- Facil i t ies Emplo yee

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DefectsDefect

CreationDefect

Resolution

Work Order

BacklogOpened Work

OrdersClosed Work

Orders

Breakdowns

+

+

Work Pressure

Labor Hours

per WO

+

-

+

Fraction of Work OrdersResulting in Defect

Resolution

Staff Level

-

Defect Resolutionfrom Repair WOs

+

+

+

B

Reactive

Maintenance

Size of

Campus

+

Age of

Buildings

+

+

Hours Spent on

Repair+

+

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Adding Planned Maintenance

Adding time on Preventive and PredictiveMaintenance forms the familiarreinvestment feedback loop

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DefectsDefect

CreationDefect

Resolution

Work Order

BacklogOpened Work

OrdersClosed Work

Orders

Breakdowns

+

+

Work Pressure

Labor Hours

per WO

+

-

+


Resolution

Resources Available for

Preventive and PredictiveMaintenance

Defect Resolutionthrough Planned Repair

& Replacement+

+

Staff Level

-

Defect Resolution

from Repair WOs

+

+

+


Replacement

+

B

Reactive

Maintenance

+

Size of

Campus

+

Age ofBuildings

+

B

Planned

Maintenance

Reinvestment

R

+

+

Hours Spent on

Repair+

-

+

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Proactive vs. Reactive Maintenance

To its credit, R&M is currently not responding to workpressure by cutting back on preventive work

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0.4 0.6 0.8 1 1.2 1.4 1.6

Backlog/Normal Backlog

FractionofClosedWorkOrders

Reactive

Although the amount ofpreventive work is small, PM

work orders are consistentlycompleted

Therefore, theReinvestment loop has the

greatest potential to be

virtuous in the future.

Chart As backlog increases, emphasisdoes not shift to reactive work

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DefectsDefect

CreationDefect

Resolution

Work OrderBacklog

Opened Work

OrdersClosed Work

Orders

Breakdowns

+

+

Work Pressure

Labor Hoursper WO

+

-

+

Quality ofDiagnosis and

Solution+


Resolution

+

Staff Level

-Resources Available

for Planning andDiagnosis

+


+

+

+

B

ReactiveMaintenance

Budget for Materialsand Replacement

Equipment

+

Size of

Campus

+

Age ofBuildings

+

R

Rework

+

Hours Spent onRepair

+

-

+

What about quality and rework?

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DefectsDefect

CreationDefect

Resolution

Work Order

BacklogOpened Work

OrdersClosed Work

Orders

Breakdowns+

+

Work Pressure

Labor Hours

per WO

+

-

+


Solution+


Resolution

+

Resources Available forPreventive and Predictive

Maintenance


& Replacement

+

+

Staff Level



+

Defect Resolution

from Repair WOs

+

+

+


Replacement

+

B

ReactiveMaintenance


Equipment

+

+

Size of

Campus

+

Age of

Buildings

+

B

Planned

Maintenance

R

Rework

Reinvestment

R

+

+

Hours Spent on

Repair+

-

-

+

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This is the capability trap (Repenning &Sterman, 2001)

This organization is already in a reactivemode with high defects and very little timespent on improvement

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Effort Effort

Defects Defects

Work Order Backlog Work Order Backlog

Time on ReactiveWork

Time on Reactive Work

Time on Improvement

Time on Improvement

Working Harder Working Smarter

Time

Time

Time

Time

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Maintenance and Energy Use

Why does this impact efforts to reduceenergy use?When all of your time is spent firefighting, its

hard to keep the buildings running efficiently,or think about new investments that are notrelated to minimum building performance

For example, many dampers are not

operational, and as a result outside air is notused to help cool buildings

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Maintenance and Energy Use

Real cost savings are available fromimproved maintenance

During March 2007, a commissioned

analysis of one building found $400,000 inannual 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 reducingenergy use extremely difficult

A proactive maintenance department is anorganizational capability that is difficult todevelop and maintain

Without this capability, buildings are lessefficient

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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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And pass on energy savings

DefectsDefect

CreationDefect

Resolution

Breakdowns

+


& Replacement

+

+

Defect Resolution

from Repair WOs

+

+

+


Replacement

+

+

Size of

Campus

+

Age of

Buildings

+

B

Planned

Maintenance


Equipment

+

Energy Use of

Buildings

+

Overall Facilities

Budget

Spending on

Energy+

+-

R

Energy

Savings Pay

Price of

Energy+

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What can be done

The presence of an additional reinforcingloop makes the period of higher costs fromany improvement strategy milder

Total Costs Constant Energy Costs

Energy Savings Reinvested

Time

Initially, investment increasescosts, but total costs fall oncedefects are eliminated, reducingbreakdowns and the amount ofreactive maintenance

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DefectsDefect

Creation

Defect

Resolution

Work OrderBacklog

Opened WorkOrders

Closed WorkOrders

Breakdowns

+

+

Work Pressure

Labor Hoursper WO

+

-

+


Solution

+


Resolution

+

Resources Available forPreventive and Predictive

Maintenance


& Replacement

+

+

Staff Level



+


+

+

+


Replacement

+

B

ReactiveMaintenance

+

+

Size ofCampus

+

Age ofBuildings

+

B

PlannedMaintenance

R

Rework

Reinvestment

R


Equipment

+

+

Hours Spent onRepair

+

-

-

+

Energy Use ofBuildings

+

Overall FacilitiesBudget

Spending onEnergy+

+-R

EnergySavings Pay

Price ofEnergy

+ The FullConceptualModel

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