AAAARRRGGGH! “THE NEW NORMAL”

THE POST COVID-19 OPPORTUNITIES TO INTEGRATE CORPORATE ASSETS FOR VALUE CREATION

Is anyone else tired of hearing about the “new normal” in a post Covid-19 world? Albert Einstein once said “the definition of insanity is doing something over and over again and expecting a different result.” He also famously said, “In the midst of difficulty, lies opportunity.” Maybe normal didn’t really ever exist; maybe when managing a corporate enterprise’s operations, it is really about how one responds to the opportunities to improve your operations to maximize value that defines if progress is made.

So, what is this insanity? Companies repeatedly trying to maximize the value of their operations without fully Integrated Assets and expecting an uplift in valuation. After all, can one bake an apple pie without apples? Without understanding how all of your company’s assets need to be integrated into your business strategy and those assets working together seamlessly to improve bottom line results, only the same outcome can be expected. Assets are defined broadly here, beyond the balance sheet, as any component or resource of a business that can and should contribute to bottom-line growth. The opportunity for companies in a post Covid-19 environment is to take those broadly defined assets like employees, property/plant, stakeholders, locational infrastructure, etc. that would not traditionally collaborate or even be aware of each other and have them integrated into a cohesive agile ecosystem that creates a sum greater than its parts. Proactively managing every part of the business will drive maximum enterprise value that is resilient and able to pivot when confronted with various external pressures. By the way, do not forget the ice cream for the apple pie.

A HOLISTIC INTEGRATED VIEW OF CORPORATE ASSETS

What is the definition of corporate assets? Well traditionally, one would look at the corporate balance sheet to define assets. In this new Integrated Assets way of thinking assets should include:

•  Land plant and equipment – those traditionally fixed assets;

Buildings, location and equipment may all lend themselves to capturing opportunity different from their use today. Ford Motor Company was able to pivot and convert plants from making cars one-day to ventilators the next day.

• Labor skills – not traditionally thought of as a hard asset;

Training employees is costly and seeing how those skills can be used today and more importantly tomorrow is strategic and a value-add to the enterprise. Trying to compete on the world stage with Low Cost Countries (LCC’s), demands that American workers have the manual and technological skills to keep up. For example, in one small southern town a labor pool that had manual dexterity skills played a role in attracting a new manufacturer to an old spinning mill that was being shut down.

• Location of the assets;

Access to the markets and ultimately the customers they serve will add speed to the operations and keep you close to demand. The cost may be higher today, but the value generation to be able to respond to crises should make it worth the investment. Speed to market to take advantage of demand is key to the agile and resilient enterprise.

Reassessing a company’s access to suppliers and raw materials and major markets can play a role in first-mover advantage.

• Stakeholder Engagement;

Success of an operation is reliant on creating long-lasting relationships with all stakeholders. These relationships can be either assets or tremendous liabilities, if not nurtured and managed correctly.

Governmental support for a company’s operations can contribute to its ability to find skilled labor, obtain permits/other entitlements and speed product development and contribute to manufacturing agility.

One major manufacturer of consumers goods was able to get a new 1 million square foot warehouse approved, permitted and gain infrastructure improvement entitlements within 6 weeks because of its excellent relationship with the local community.

• Unique processes, skills and equipment that can be repurposed;

As we have seen during the pandemic, the ability of a company to pivot in an agile manner to produce other products (i.e., ventilators, masks, etc.) adds long-term value to the enterprise. It may also add to the adaptability and flexibility value of that specific location. In the long run, the location’s process, skills and equipment assets may add value if the operation ever needs to be sold, or repurposed within the existing enterprise.

DIFFICULTY OR OPPORTUNITY?

So, here we are today, dealing with a pandemic, trade wars, geopolitical forces and racial and social injustice issues that are tearing at the very fabric of our daily lives. Opportunities to improve, stemming from these external pressures abound. Remember what Einstein said about difficulty (see above); we have before us all the ingredients to capture a brighter future and a better way of delivering bottom line returns to corporations, generating new jobs and economic recovery if we have the guts to be innovative and creative in our response to these challenges.

Develop a 360-degree holistic view through Integrated Assets and respond to situations utilizing data and analytics. We live in an age of technology that purports to make our lives better and connects us in a global way unthinkable just 50 years ago. How we use that technology to engage people and improve their lives by strategically integrating all of the enterprise assets is today’s opportunity for agility, sustainability and resilience.

So, how does one capture those opportunities within today’s challenging environment? Certainly, one way for companies to deal with today’s disruptions and plan for future challenges is by “near or reshoring” manufacturing and logistics.

One major lesson presented by this pandemic is the need for an enterprise to be agile in its sourcing of raw materials, products and manufacturing capabilities. That lesson includes taking stock of all of your assets, as defined above, to gain insights into how they all relate to one another in terms of providing an integrated way forward. Your company is an ecosystem and every portion of it is interconnected and affects all parts of the business. As an example, social distancing may require your real estate assets to be redesigned or repurposed to deal with greater separation or redistribution of your workforce. This will affect your capital investment in machinery and where it is placed and utilized and so forth and so on. Interconnection requires us to focus holistically and make sure that lines of communication and data help support integrated business decisions. Those integrated business decisions may lead to new interconnections with small manufacturing entities (SME’s) and logistic service providers to create a larger ecosystem that will provide greater resiliency.

Having made the decision to subscribe to the idea of an Integrated Asset enterprise, now has an opportunity to take a step-back and reassess how to move forward by shortening those global supply-lines and providing redundant capabilities closer to markets and consumers by either near-shoring or reshoring manufacturing and warehousing. AT Kearney’s 2020 reshoring index noted a 98-basis point decrease from the previous year. What does that mean? The Reshoring Index compares US manufacturing gross output to import data from 14 Asian low-cost countries (LCCs). The index compares how the degree by which gross domestic output exceeded imports.

In other words, the decline in the index shows a positive trend of companies bringing manufacturing back to the USA. Of course, some of this is driven by the last few years of trade wars, but it illustrates that enterprises are beginning to think that stretched supply lines and the effect of disruptions are more expensive than the cost of manufacturing and distribution in the USA (in other terms, maximizing value over cost).

The pandemic completely upended companies and consumers ability to source products and to quickly adjust to those disruptions. How could health care providers not have the ability to source PPE for their front-line responders? As a COO, Integrated Assets will help companies quickly identify within its own asset base, opportunities to retool, use other facilities or source materials from other providers and to use other assets like local governmental entities for assistance to adjust your operations.

Reshoring or near-shoring with decisions based on Integrated Assets will allow American enterprises to distribute and mitigate the risk of disruptions and become more resilient. This dynamic of proximity allows value creation by providing enterprises a way to produce products closer to the moment of demand. Companies that are able to quickly adjust supply-lines, manufacturing capabilities and labor will be the ones that are resilient in the face of adversity, be it pandemics, civil and geopolitical unrest and/or climate change.

As an example of resiliency planning and utilizing the integration of assets for those decisions, years before Hurricane Katrina barreled into the Gulf Coast and sowed destruction and disruption, I was approached by a manufacturer with operations near the Gulf of Mexico looking for a back-up factory in case a hurricane closed down their facility. On behalf of a client, I was redeveloping an 800,000 square foot former manufacturing and distribution center in Mississippi 120 miles inland. The plan our team designed, subdivided the facility into 6 different opportunities for other companies. This Gulf Coast manufacturer wanted to lease one of those units and was way ahead of its time in their thinking of resiliency. They were preparing a location they could power up in case of an emergency that knocked out their main location.

Can your company become resilient and think like the previous example? Fully integrating all of your assets, as defined herein, as part of strategic oversight will give you the data, tools and the assets to implement plans to think globally, but act locally and act quickly to proactively manage any situation.

This course of action may be simpler to state than to implement, because unfortunately, the flight of manufacturing to LCC’s over the past decades has left many companies without the skilled labor necessary to operate the machinery used in today’s tech enabled processes. In a 2018 report to President Trump by an Interagency task force, they identified a serious problem to compete globally and protect our national interests because of, “manufacturing and defense industrial base companies’ inability to hire or retain U.S. workers with the necessary skill sets that has led to significant gaps in skilled labor. A lack of skilled manufacturing workers and a decreasing number of jobs is destabilizing workforce readiness and leading to skill atrophy.” 

On the flip side of this report’s dire warning, is another opportunity for domestic economic development through integrated assets. Private industry and communities should work with educational institutions and to create “Manufacturing Education Clusters (MEC’s).” Communities need to take advantage of their locations and their own assets, including abandoned factories, warehouses, military bases and infrastructure to reinvent themselves as MEC’s. Recognizing adaptive reuse opportunities in their communities can then drive economic rebirth, promote worker training and give technologically competitive jobs to disadvantaged populations within their own communities to better spur economic growth in the United States. As we come out of this pandemic the federal Government would do well to investigate funding community redevelopment through these MEC’s.

IDLED ASSET OPPORTUNITIES 

Obviously, this integrated approach to transformation will take time and of course investment. To keep those costs down, one need only look to real estate brokers’ websites to see the thousands of vacant assets available for lease and sale obviating the need to greenfield a plant or warehouse. Part of being resilient is also the ability to look for opportunities that can easily be converted to new uses, lowering not only costs but start-up times. It is estimated that 35% of the cost of a new factory is in its foundations, walls and roofs.

Can’t find a spot just the right size? Smart entrepreneurs have for years taken large facilities, carved them into multiple units and leased them out to smaller users (just like the Mississippi example above). That approach embodies not only resiliency, but also promotes sustainability because of avoiding demolition and disposal of old facilities and the ability to recycle existing structure, machinery and labor skills. This creates positive PR and contributes to socially responsible enterprises.

Utilizing these formerly idled assets will allow your company to spread the risks, distribute your workforce and bring you closer to your markets. Investing now will avoid scrambling to react to crises in the future.

PUBLIC-PRIVATE PARTNERSHIPS

This pandemic also surfaced another opportunity. Corporations and public entities should unite to provide agile manufacturing and logistics solutions. In addition to the MEC’s outlined above, streamlining entitlement processes and incentivizing corporations to invest in the communities they operate in as partners will allow for new economic opportunities in formally disadvantaged areas of the country. Think, “coal country.” Think, communities affected by the Base Realignment and Closure (BRAC) program. Think, communities affected by the offshoring of the 80’s and 90’s. There exists in these locales infrastructure and facilities that can be repurposed and recycled to provide the resiliency needed to deal with a post Covid-19 economy.

Working together, the public sector and private enterprise can invest in retraining unemployed skilled and non-skilled labor in these communities as hometown operations left. There are untapped workforce opportunities looking for the right company to take advantage of their inherent skills.

Another avenue to explore are governmental entitlements and incentives. There are over 3,000 counties in the USA all with their own version of an economic development agency all pitching the same story. “we have great schools, parks, golf courses and a great way of living.” That is not what private industry will most likely respond to. If the story is expanded to include, ready-made technological infrastructure coupled with an educated skilled workforce, isn’t that a more powerful lure than another round of golf?

Streamlining the entitlement and permitting processes coupled with the above positives should spur economic development by removing the barriers to entry. In the 1990’s, my team was involved in the development of 1,000,000 square foot warehouse in western Missouri for a large manufacturer already there. The community and state economic development agencies eager to retain and expand the workforce made infrastructure improvement dollars available within 6-weeks and also approved plan and development approvals all within a 5-week period. That is how it is done. Talk about capitalizing on Integrated Assets!

INFRASTRUCTURE CONNECTS IT ALL TOGETHER

The United States also needs to provide US Industry the upgraded infrastructure it desperately needs to satisfy its consumers. See how quickly consumers adapted to online shopping from clothes to groceries. Infrastructure is critical to resiliency planning for Integrated Assets. Not only is there a need for access to roads, but also access to a hardened electric grid, secure internet, rail networks, ports, etc. This needs to be a top priority and not a partisan issue, if the United States truly wants to reshore and restore its industries and protect itself from the next crisis. This pandemic has highlighted our vulnerabilities.

HIDDEN ASSETS

The final assets to be integrated into your holistic toolbox are the actual processes and the skills of your workforce that make your products. Understanding the marketability of those items gives a clearer picture of true enterprise value and resilience. Of course, the prime example of this is how companies pivoted from manufacturing one product to supplying masks, respirators and hand sanitizer within weeks, just to name a few examples. In the long-term, understanding the value of these assets also adds to your company’s ability to sell those assets if need be.

Cheryl Sandberg of Facebook says resiliency is, “a muscle that must be constantly exercised to build it up.” Like a muscle for a corporation to become resilient it must constantly undertake scenario planning. Iterate solutions to challenges to refine how a company’s assets can be resilient.

THE LAST WORD ON “THE NEW NORMAL”

Let us not get caught up in the popular jargon circulating, forget knee-jerk responses to the “New Normal,” and let’s focus on the actions that will contribute to a reenergized and resilient economy, and equally as important, more focused and profitable companies. As a corporate leader, an integrated view of your assets will give you a high-level view of your entire company and lead to better and faster decisions that will keep you close to your assets, your customers and provide you with the tools to maximize the value of your enterprise. Integrated Assets will stop companies from trying the same old thing to get different results.

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About the author: Edmond “Ed” Prins, AIA, Founder and Principal of Global Integrated Assets is an architect and urban planner by education and a life-long corporate asset integrator who has provided financially-driven Integrated Asset solutions to over 40 of the Fortune 1000 C-Suites. Throughout his career, he has created bottom line returns of over $1.6 billion through the creation and implementation of these Integrated Asset solutions, which have produced enhanced transactions, operational improvements, sustainability, and resiliency results. 

Copyright 2020 Edmond L. Prins AIA