Mining Innovation State of Play Survey 2013

8/14/2019 Mining Innovation State of Play Survey 2013

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1Copyright Virtual Consulng Internaonal 2013. All Rights Reserved.

Mining Innovaon

State of Play 2013

Graeme Stanway, Partner

David Andrew, Senior Consultant


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There have been a large number of reports on innovaon across all geographies and

industries however the mining industry has been largely overlooked. There has been

limited focus on understanding the innovaon strategies that global mining companies are

deploying, and the performance that they are achieving as a result of these programs. VCIs

Mining Innovaon State of Play survey aims to contribute to bridging this gap, by canvasing

the views of senior decision makers across 20 of the largest global mining companies.

The survey reects the broadly held view that innovaon is a very important determinant of

future success, however, the level of acon taken on innovaon does not correlate with this

view of importance. The purpose of this report is to understand the constraints the industry

faces in using innovaon to underpin the achievement of their business strategy and based

on these insights, oer three key recommendaons to achieve greater impact from their

innovaon eorts.

About this report

from VCI

Business has only two funcons; markeng and innovaon Milan Kundera


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Innovaon is a widely, and oen loosely used term. It is unusual to see an execuve

presentaon discussing strategy or operaons without innovaon being referenced. So what

is innovaon?

When we asked respondents to dene innovaon three consistent themes emerged:

Doing new things (changing)

Ulising technology

Increasing business value

Ulising these themes the denion we have adopted is innovaon is an endeavour to meet

an exisng or emerging challenge in a new way that increases business value.

The industry appears to view innovaon as being biased towards changes in technology.

Whilst technology plays a central role in innovaon we believe it is important that innovaon

is viewed from a broader perspecve. At its highest level innovaon begins with the business

model and all of its commercial, organisaonal and technological components. Innovaon

helps businesses overcome the challenges that stand in the way of them achieving their

stretch aspiraon and strategy.

The ulmate measure of innovaon success is the creaon of business value and compeve

advantage. One of the survey respondents elegantly captured the essence of innovaon

success, nong that You know you have achieved innovaon success when people on the

periphery (of the innovaon eort) begin to claim involvement!

1. What is

innovaon?

Innovaon is an endeavour to meet an exising or emerging challenge

in a new way that increases business value


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These businesses however are oen caught in a boom-bust cyclical trap where either:

margins are very high and innovaon falls o the agenda; or the business is focussing on short

term survival and investment in innovaon gets shelved as part of cost cung exercises.

The percepon of the need for innovaon in mining should logically be shiing as gaining

exclusive access to long life, low cost assets with exisng development methodologies is

diminishing, whilst at the same me commodity prices are soening.

Our results indicate that when innovaon is seen as crical to success, the approach

to innovaon changes. These companies typically described their biggest challenges as

developing new ore bodies that are un-exploitable (unsafe or too expensive to mine) using

tradional methods and therefore have a disnct need for innovaon to grow. They were

inevitably more focussed, structured and took a longer term perspecve of innovaon.

Further to this, of the small sample of mining service companies surveyed, 75% of them

indicated that innovaon was crical to their success compared to only 19% of mining

companies. This is not surprising given innovaon in their oering is crical to survival, and is

akin to the exploraon imperave for an integrated mining business.

If current business condions connue, and relavely straight forward cost cung

opportunies are exhausted, we would expect to see innovaon increasingly seen as crical

for survival and growth, not just an important opon.

The mining industrys innovaon focus is heavily oriented towards process and operaonal

improvement. When asked where their innovaon eorts were focussed, the majority

of responses were aimed at processing, while the top three drivers for innovaon were

operaonal in nature:

increasing producvity

reducing operang costs

reducing capital expenditure

Although technical and operaonal improvement through innovaon is crical, innovaon

has a far broader potenal applicaon in helping businesses achieve their strategy. Business

and operang model, organisaon, markeng and sustainability are also key areas that the

innovaon process can help create new ways of realising value [Figure 3 overleaf]

Despite the industry typically adopng growth at all costs strategies over most of the pastdecade, the innovaon focus within the industry has remained directed towards short term

operaonal objecves.

The majority of respondents focused their eorts over the 0-3 year me horizon [Figure

4 overleaf]. In fact, mining companies allocated on average about 73% of their innovaon

budget targeng incremental operaonal improvements. While there are certainly large

benets to be realised by opmising within this me frame, the lack of spread across the

longer me frames was surprising given the length of life of the average asset [many ~ 20

years or more].

2. Where we

innovate

Mining companies mostly focus on short-term, incremental innovaon


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The observed approach is

consistent with the widely

adopted fast follower model

for integrang new concepts

and technologies into mining

businesses. This model is largely

driven by the lack of compeve

need to be rst, coupled withthe assumed risk associated with

developing and implemenng

new approaches.

Given the relavely narrow innovaon focus, and incremental me frame, the obvious

queson emerges as to where longer term, step change innovaon will come from within

the mining industry. One major source will likely be via the network of suppliers and service

companies that support miners. Large service companies can have R&D budgets up to 10

mes those of mining companies (% of revenue basis). Added to this is the reality that

services companies compete for survival based on the quality and value of their oerings,which is ulmately driven by their ability to innovate.

This drives two major quesons for mining companies:

Where should they take the lead in longer term innovaon?

How can they shape the contribuon of suppliers to achieve their objecves?

The queson for mining companies therefore sll remains as to where they themselves

should take the lead in longer term innovaon, and how they can shape the contribuon

of suppliers to achieve their objecves. In part this queson has underpinned the recently

observed trend away from a simply transaconal relaonship between mining company and

supplier and towards increasing alignment and the formaon of development partnerships.

We expect this to connue into the future, albeit with some temporal pressure as industry

margins are reduced.

Figure 4: Time frame for the primary innovaon focus

Figure 3: Focus area of Innovaon eorts


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A surprising outcome of the survey was the relavely low current and future focus on

innovaon in health and safety, social and economic development and sustainability. We

expected higher results, given the highly public statements made by mining execuves and

the importance of addressing challenges in these areas to long term value creaon.

Despite being essenal to accessing and developing new ore bodies, improving social and

economic development and reducing environmental impact rated in only the third and fourth

quarle of responses.

Prospecve new ore body

opportunies are increasingly located

in emerging economies, where

the associated social, polical and

economic development complexity

is signicant. Furthermore, the

situaon is highly dynamic with

local communies and governments

becoming more sophiscated and

expectant in terms of the posive

social and economic dividends that

mining developments should bring,

and also in the absolute level of

rent that the community should extract.

Figure 5: Strategic imperives for ulising Innovaon

19% of mining companies saw innovaon as crical to their success

however 75% of mining services businesses saw it as crical when

we asked the same queson.

As global compeon increases, and services business connue to

innovate and become more advanced (parcularly technologically),

their oerings to the mining industry will become greater in breadth,

more embedded and higher in value. What could also occur is an

accompanying increase in both value created and captured by

services companies, as well as an increased dependence by mining

companies on the technological capability of service companies.

This trend is well advanced in other industries and fast forwarding

to the end game in mining, one could see mining companies

primarily focussed on accessing and securing access to mineral

resources, deployment of capital and protectors of industry brand.

Why is this important? Simply put, mining companies can either

benet or lose from this trend depending on how they react and

shape the business network to their advantage.

Service companies and the changing face of mining...

The focus on health and safety, social and economic development and

sustainability is surprisingly low

Social and economic development and sustainability


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Given the increasing strategic need to nd new models for developing communies and

economies, why then does innovaon in this area not rank more highly in arculated

priories? When this queson was specically asked in follow up interviews, two potenal

reasons emerged. Firstly, because of the experience prole of people in the industry,

innovaon is seen as an operaonal and technical issue and is mostly not equated with

the challenges of community and economic development. Secondly there is an underlying

view that the community and government appete for support is ulmately insaable, so

businesses tend to restrain their interacons, rather than pro-acvely contribute to innovaon

in this arena.

Either of these explanaons suggests a change in approach is required. Given that sustainable

access to new ore-bodies is a core value driver for any mining company, ulising innovaon

to design new methods to secure these ore bodies that meet the needs of the communies,

governments and other stakeholders should be a high priority.

Safety was the sixth ranked response in terms of innovaon focus, which is seemingly at odds

with the primary importance of this topic to mining companies.

Follow up interviews suggested that this apparent disconnect is potenally due to two

factors. Firstly, there is an intuive belief that operaonal innovaons such as automaon

and remote operaons, will also inherently achieve the aims of improved safety. Secondly,and more signicantly, safety challenges are seen as more of a behavioural and relaonship

management issue than something that can be addressed through an innovaon challenge or

innovave re-design of assets.

While behaviour is unarguably crically important in safety performance, innovaon and

design will become increasingly important. Figure 6 [see overleaf] underlines this point that

improvement in safety is beginning to plateau in many companies and that innovaon and

design will become relavely more important to change this.

Innovaon and the focus on Safety

VCIs Innovaon Process

The innovaon process is a

replicable tool that can be used to

develop an opmum soluon for

complex problems. The process

is driven by gaining a deep and

abstracted understanding of the

challenge that is being solved

and, starng with what can be

approach, overcoming constraints

through ideaon and prototyping.

This diers from regular problem

solving processes that starts with

the constraints and then developing

a soluon that ts within them.


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While the raonale for focusing on process and ore body is readily apparent, the queson

remains as to what will catalyse the shi from the current paradigm of innovaon being an

operaonal challenge, to one which is more inclusive of strategy and business model design as

suggested in Figure 7.

One potenal catalyst may be shareholder demands: Value strategies have typically

been driven by M&A and green-eld development projects with the benets

being locked in by operaonal improvements. Given the recent high-prole failure

rate of megaprojects and M&A transacons, as well as decreases in industry

producvity, we are seeing pressure from investors demanding a more prudent

approach to capital deployment.

Possibly the most potent catalyst will be the natural cycle of industry compeon.

That is, as strategies become indisnguishable, the inevitable consequence is

decreasing margins, with the only remedy ulmately being business model andstrategic innovaon. It may well be that the originators of new business

models will come from outside the tradional mining companies.

The potenal for this catalyc change is not theorecal, as at least one respondent highlighted

that the industry mostly sees innovaon as operaonal and technical, but the real value is in

the business model this is where we are innovang.

By the very nature of the challenges historically faced and the types of people aracted to

these challenges, the mining industry has very sound foundaons on which to build a highly

successful and innovave industry. However this great foundaon has not yet reached its full

potenal, the reasons for which respondents mostly aribute to leadership and structures

associated with innovaon.

Todays miners are a highly resourceful, collegiate and creave group the ideal ingredients

for a successful and lasng culture of innovaon. Given mining execuves universally rated

innovaon as being key to achieving stated business objecves, it is clear the industry is

strongly posioned to aim for step change performance.

Figure 7: Where Innovaon Will Create The Greatest Value (Current And 10+ Years)

3. How weInnovate

The mining workforce has the right culture, capability and intent to harness

innovaon


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When asked to describe how they rate their company in the foundaonal elements for

innovaon success, mining execuves idened two crical areas where mining is strong:

We use diverse mul-disciplinary teams

We have a culture of quesoning assumpons

These provide a strong foundaon upon which to build an innovave company and culture.

Signicantly, execuves also said that, despite ghtening margins, funding for innovaonwill largely be kept intact given its role in addressing important challenges parcularly

producvity. This further underpins intent, providing recognion of the importance of

innovaon in meeng business objecves.

The survey results showed that when mining companies are faced with a large and dicult

technical or operaonal problem their rst insncts are to commission an internal study, rathe

than adopt innovaon approaches.

This response is possibly driven by an underlying view that innovaon methods are risky and

impraccal, or because of a natural compeve tendency to keep issues in-house.

In reality, success in solving these dicult problems requires a contrary approach. Firstly,

when faced with a dicult technical issue, it is generally a truism that there are always more

potenal soluons and capable people outside the business than within it.

Secondly, in mining as in most other industries, the breadth of the compeve landscape

is oen overstated. Mining companies mostly compete for access to ore-bodies, so the

compeve raonal for turning inwards to solve many process and operaonally related

problems is limited. Finally, well architected innovaon processes need not involve

unacceptable risk if the process and pilots are structured eecvely.

The mining industry underulises the range of innovaon methods

Figure 8: Common methods ulised for solving complex challenging problems

We look mostly at R&D and o the shelf we should be much

more deliberate across the value chain by applying the most

appropriate innovaon methodology


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One manifestaon of the reluctance to embrace innovaon processes is that problems are

only temporarily migated and fundamental issues become embedded. The mining industry

is at risk of, as one interviewee said connually building the newest old mine which given

the life of assets, is sub-opmal long term.

Recently, in response to the increasing complexity and magnitude of challenges, we have

seen a shi towards more open innovaon approaches that bring the outside in through

cross pollinaon with other industries, consora and partnerships. This follows the well-developed path taken by other industries such as pharmaceucals and fast moving consumer

goods, which provides a useful roadmap for innovaon methods and processes. We expect

this to become more common as the industry sees the results of some of the early adopters

of these approaches.

Perhaps the most telling insight into the state of innovaon in mining was the outcome that

less than half of the respondents felt innovaon programs in their businesses were meeng

expectaons. That is, it can be said that a majority of execuves were dissased with their

innovaon programme results.

Some of this performance can be explained by the fact that structures and processes

guiding innovaon are not, in general, suciently developed in mining. For example, only

1 in 5 companies have a company-wide innovaon program in place, and even if they do,

approximately 80% have not developed clear structures for capturing, developing and

implemenng iniaves.

Industry execuves also idened fundamental issues impeding innovaon performance

[Figure 9], with key priories including the need for: a more direct link with strategy; greater

leadership alignment and advocacy; greater clarity in the guiding future mine vision and

its tangible implicaons; and arculaon of the innovaon need through idencaon of a

compelling burning plaorm.

Drawing from our experience in guiding step change strategy and innovaon processes,

combined with the insights drawn from this survey, we have idened three foundaon

principles for mining companies seeking greater impact from their innovaon.

4. Three

recommendaons

for innovaon

successFigure 9: Improvements to increase success of innovaon programs


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They are:

1. Align top leadership on the need

for change, with the CEO

assuming the role as

visible champion

2. Link innovaon directly to

business strategy, and connect

with a guiding future

mine vision

3. Ulise a range of innovaon

delivery models and bring the

outside in

By denion, real innovaon requires substanal change, and a fundamental starng point

for any successful change process is aligned leadership. Respondents idened this factor as

a high priority, along with visible CEO leadership. The point is underlined by the data in Figure

11 which demonstrates that when the CEO takes a visible leadership posion, innovaon

programs meet expectaons more than 70% of the me. When others assumed the primary

leadership role, success rates dropped to well below 50%.

There are three overarching reasons why execuve leadership alignment is crical. Firstly, it

creates the top cover necessary for innovaon work to proceed, which by its nature is counte

cultural and potenally threatening to the status quo. Secondly, innovaon work must be

closely aligned with strategy, and this can only occur through the work of the top leadership

team. Finally, CEO led programs are more likely to survive business cycles.

While the push of the CEO will drive alignment of the execuve team, it is crucial that the

execuve team eecvely cascades the vision and process further into the organizaon.

Without this deeper engagement, many innovaon processes have failed in the early stages

of implementaon.

Figure 10: Recommendaons for innovaon performance

1. Align top leadership, with the CEO as visible champion

Figure 11: Driver of Innovaon vs. Performance of Innovaon


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2. Link innovaon directly to business strategy, and connect with future mine

vision

Linking innovaon to strategy was the most important factor idened by respondents when

asked how they could improve their innovaon programs. One of the most eecve methods

of achieving this is to develop a future mine vision that will deliver the business aspiraon

and enable its strategic objecves, and then ulise this structure to manage the innovaon

program.

The value of a unifying vision has been demonstrated through the leading innovaon

programs at major mining houses such as Rio Tinto with its highly successful Mine Of The

Future program and at AngloGold Ashan with their Technology Innovaon Consorum.

Each of these visions provide technology, systems, people and change roadmaps that

transcend short term, cyclical imperaves.

When structured in this manner, the vision creates 3 disnct ers [similar to that used in the

automove industry] allowing the business to separate the disnct layers and work style

of the conceptual future mine from the next generaon agship greeneld mine, and from

improvements in the current operaons.

Figure 12: Tiered future mine structure


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The key element is to have insights and implementable innovaons cascading down into the

lower ers. Simutaneously key learnings and challenges from below are reected in the uppe

ersas innovaon challenges.

Once a future mine vision is in place, this can readily be translated into a staged and phased

roadmap of innovaon projects across the business. This roadmap is crical for successful

management and implementaon of innovaon programs as it provides a master plan or

systemic view of projects crical to delivering on the strategy. It also allows beer nancial

management of innovaon as spending is deliberate and targeted.

The eecveness of a structured innovaon program was reected in our survey, as thosecompanies that had top down directed innovaon programs were considered far more

successful than those that innovated on an ad hoc basis [Figure 14]. Without an overarching

vision and structure to guide innovaon eorts, it is praccally inevitable that the exisng

system will reject change eorts.

Figure 13: Staged and phased roadmap

Figure 14: Innovaon program structure vs. Program performance


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When faced with complex challenges, companies can benet greatly by looking more broadly

than the models historically favoured within the industry. In parcular, adopng the base

response of looking outside rst, rather than as a nal resort is important.

Figure 15 shows a representaon of dierent innovaon models that can be ulised. Models

vary by the complexity of the challenge and the level of involvement of external pares.

Some challenges are simple in nature and can be addressed through ulising an innovaon

process internally or with a single development partner. Other challenges however are too

complex to solve individually and require bringing together the collecve experience, ideas

and perspecves of dierent pares to enable a soluon.

The more pares involved in the soluon the greater the management eort required and

so there are mes where consora and open approaches may not be required. With this in

mind, the key is to understand deeply the nature and complexity of the challenge and match

the opmum innovaon model that provides the greatest chance of success. It is always

necessary to bear in mind when choosing the appropriate innovaon approach that framing

the problem at the appropriate level is somemes the most challenging of all tasks this is

why connecvity with strategy, and aligned leadership are such crical acvies.

Figure 15: Range of innovaon models

3. Ulise a range of innovaondelivery models and bring the outside in


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When viewed from the perspecve of technology change cycle mes, and capital intensity,

innovaon in mining is very dierent to other, faster moving, less capital intensive,

innovaon benchmark industries such as informaon technology and pharmaceucals.

Ulmately though, the fundamental premise of innovaon (and the challenges underlying

success criteria) remains similar across industries, and that is to ulise processes that help

solve challenges in new and dierent ways.

While this survey shows that the mining industry has signicant room for improvement inits approach to innovaon from the perspecve of both its breadth of applicaon, and its

eecveness, it is in a very fortunate posion from two perspecves. Firstly, there is an

underlying culture of team work and a tendency to challenge the status quo and secondly,

mining execuves are very aware of the key change levers that are required for innovaon

success.

Interesng quesons remain as to what will catalyse the compelling need for innovaon,

which companies will embrace it proacvely to drive compeve advantage as we enter

a new phase in the industry cycle, and for which companies will innovaon remain an

important but discreonary investment.

We look forward to revising these quesons next year as we seek to create an on-going

analysis of innovaon within this industry.

For a full breakdown of the results of this study or to understand more about how your

company calibrates with the industry, please contact us.

Conclusion

Global Contacts

New York

Gideon Malherbe, Partner

[email protected]

Je Loehr, Managing Director

[email protected]

George Hemingway,

Innovaon Pracce Leader

[email protected]

Munich

Roby Stancel, Managing Director

[email protected]

Johannesburg

Dave Rieger, Managing Director

[email protected]

Perth

Graeme Stanway, Partner

[email protected]

Lionel Louw, Partner

[email protected]

David Andrew, Senior Consultant

[email protected]

Melbourne

Herman Kleynhans, Managing Director

[email protected]


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Methodology

VCI surveyed more than 60 mining execuves from 25 companies, represenng approximately AU$452 billion in revenue for the year

2012.

We focused on ve categories: Dening Innovaon, InnovaonToday, How We Innovate, Where We Innovate and Innovaon

Tomorrow. The purpose of these categories was to not only help us provide a snapshot of the key innovaon challenges today but

also provide a longitudinal perspecve on how innovaon is changing in the long run.

To enable meaningful comparisons across the industry and avoid bias, we applied a weighted average to companies with mulpleresponses to reect the view of a single company and then applied a variety of stascal methods for analysis. Follow-up interviews

with a selected sample of execuves covering strategy, technology and operaonal disciplines provided addionalinput to our

analysis.

We also surveyed a subset of mining suppliers and leading industry bodies to gain an external perspecve. These results were not

included in the stascs (unless specically stated).

Company names and responses have been kept condenal.

Mining Innovation State of Play Survey 2013

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