What goes up…

It’s been a good year to be in mining thanks to higher prices and favourable political winds, says George Hemingway
What goes up… What goes up… What goes up… What goes up… What goes up…

Buying PillPack would have cost Walmart about US$700 million; not buying it wiped US$3 billion off of the stock in a single day

Mining companies are refreshing their strategies and revitalising their innovation programmes. Unfortunately, all good things must come to an end. As is usually the case, hopeful denial rules the day and I'll be the first to admit, I hope I'm wrong. There are reasons though to think that I'm not.

As I forecasted, populist leaders with a taste for centralised power have led to semi-isolationism, the decay of traditional alliances and potential new trade blocs. Tariffs and the restrictions on the flow of trade could stifle not just supply chains, but the economies upon which miners have relied for growth. Add to that high debt levels, real income declines, rising petroleum prices and a flattening yield curve and signs point to a slowdown.

The proximity of the last downcycle will limit cost-cutting, so the strongest defence is operating and business model transformation enabled by digital and technology innovation. Not everyone is as prepared as they should be, especially the biggest miners.

Speeches and press releases aside, transformation programmes are not on track and the pressure is on digital and innovation teams. After two boom years of trying, groups are being reorganised and staff moved closer to operations. Digital and innovation officers are being asked to defend conceptual roadmaps and craft business cases to ‘enable' the current operations while ‘transforming' for future. New to their roles, many haven't figured out where they fit in the organisation or how to affect change within operations they don't control and oftentimes, didn't come from. Executives want results that are, as yet, hard to demonstrate.

The problem lies in siloed, risk-averse cultures made worse perhaps, by too much money. Companies are taking years to design fully comprehensive, triple-vetted, multi-consultant, ‘risk-free' roadmaps instead of embedding their digital and innovation teams into the operations and ‘trying things'. Moreover, there appears to be an inverse relationship between talking and doing. Smaller mining companies are implementing technology faster and better. Since they can't afford to do everything, hire multiple consultants or build massive plans upfront and wait for the end, they are working hand-in-hand with their operations to try many smaller, well targeted initiatives. Without the budgets for massive digital transformation programmes they trial (and fail, perhaps) and learn. They act differently because they have to.

This isn't unique to mining. Look at GE, which never got the culture part of digital right. It separated digital from the core of the operations. It demanded that digital efforts ‘make money' and at the same time support the traditional businesses. It tried to do too much all at once, building long-term roadmaps without trialling, learning and launching. Critically, it focused on ‘enabling' the existing businesses - not ‘transforming' them.

This last part is key. Everyone ‘knows' that mining can't continue the way it has traditionally, so why are so many focused on trying to create a digitally enable version of a traditional mine? Data is neat, but a ‘digital' miner that loses money is still just a money-losing miner. A willingness to take risks and look at things free from past constraints is needed.

Amazon just beat Wal-Mart to buy PillPack, an online pharmacy. The purchase will allow it to (possibly) ‘digitally transform' the industry. Buying PillPack would have cost Walmart about US$700 million. Not buying it wiped US$3 billion off of the stock in a single day. Why did Amazon win? Walmart dragged its feet over potential long-term regulatory concerns and was more culturally focused on digital enabling its retail stores than gambling on the transformation of the industry.

The big mining companies need to get out of their own way and examine if their cultures, silos and metrics are hindering transformation. They need to give digital teams runway, but also partner them up with operations to facilitate trial and implementation. Most importantly, they need make decisions with an eye towards transformation, not just enablement. Those that do, will set the path for the rest.

George Hemingway is a partner and head of the innovation practice for Stratalis, a growth strategy and innovation consultancy focused on helping leading organisations to think through the future and outperform in uncertain markets. Contact him at george.hemingway@stratalisgroup.com or Twitter: @GeorgeStratalis

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