Mining’s innovation deficit: transforming to a new performance model
By Peter Bryant and Satish Rao
There’s an old saying that goes, “the only thing that is constant is change.” While this adage holds true for many instances in business, the mining industry is an outlier.
It is no secret that the mining industry needs to ramp up productivity. Companies are struggling to be sufficiently profitable and to satisfy investors with the returns on capital, despite prices being three to five times higher than the lows of 2000. While pricing and increased extraction of deeper or lower grade ore are contributing factors, a significant threat to mining’s growth is the lack of innovation: the lack of application of technologies proven in other industries and the slow speed from idea to adoption and scale.
So how do chief executives overcome mining’s innovation deficit?
Research from the Brookings Institute shows that advanced industries (those that adopt and deploy new technologies at a high pace) are, on average, more than twice as productive as non-advanced industries. The good news is that the mindset in the industry is starting to change, with a handful of mining companies looking to adapt and adopt technological advances from other industries.
For instance, Anglo American has developed open forums in the areas of sustainability (water and energy), mining, and processing. These open forums have bold goals such as the elimination of water in mining. The open forum on Water brought together representatives from 75 different market sectors, 30 companies, 16 countries and 6 continents. More than 1,150 hours of discussion resulted in the generation of over 1,000 ideas. Potential solutions ranged from eliminating tailings by rejecting waste earlier in the process to direct metal extraction through in-situ mining, as well as high volume, low-cost water treatment to return the water for safe human use.
BHP is also spearheading an innovation effort by bringing together a dedicated innovation team, with a goal to be the first to embrace new technologies and lead the mining industry globally.
Conversely, traditional implementation approaches used by industrial sector companies are beset with challenges, including long and inflexible development cycles, high capital requirements, and budget and schedule overruns. The solution lies in adopting lean and design thinking approaches, with the following key principles:
– Create a portfolio of opportunities that vary by time horizon, risk, and value, and have strategic alignment
– Create small teams that learn fast and cheap, with a lean startup culture that is entrepreneurial and risk-taking
– Create a learning environment by identifying key uncertainties and create learning plans to address them first, and utilize a minimum viable philosophy across all aspects of implementation
– Utilize milestone based funding and balance a need for flexibility and rigor, with budget flexibility and appropriate governance model
Some industrial companies have started to adopt some of the principles. GE’s FastWorks program is based on aspects of Lean Startup, and the results have been impressive. GE claims that, in its industrial business, it has reduced time of NPI (new production introduction) by two thirds, and reduced time to customer validation by 80 percent. The benefits are not just cost savings, but freeing up NPI funds to invest in new projects, and enabling GE to drive a higher number of innovations in a much shorter time frame at a much lower cost.
The industry is at a pivotal moment, and the future winners will be those who can successfully create an environment for sustained innovation, break their dependency on record prices to provide acceptable returns to their investors, and do it in a way that benefits all the industry’s stakeholders – mining operators, employees, suppliers, vendors and the communities that serve and are served by mining.
This kind of turnaround requires chief executives to be courageous and visionary front-runners in order to set the strategic intent—a mindset shift to one of transformation, authentic partnership and collaboration. The call to action is clear but will leaders fully embrace it? The question is still on the table.
Peter Bryant is an advisory board member for the World Economic Forum's Mining 2050 initiative and a managing partner at Clareo, a growth strategy and innovation consulting firm. Satish Rao is a partner at Clareo.