This article first appeared on Mining Magazine and has been reproduced with permission from the author.
We had a warm day this past weekend and my quick-thinking daughter roped me into ‘sponsoring’ her lemonade stand. I bought and squeezed lemons. She sold lemonade and kept the money. Good deal, for her at least.
Her quick thinking and outsourcing got me thinking; what could mining learn from this?
Our work at Stratalis Consulting focuses on what it takes for organizations to be successful in an uncertain world. We know that the winners possess three capabilities: foresight (a focus on future trends, behaviors and uncertainties); focus (a clear organizational vision that considers the showstoppers to getting there); and flexibility (being prepared to pivot when change happens via investment in new business, operating and organizational models).
For example, Netflix is good at flexibility. Netflix began by competing for home entertainment against Blockbuster Video by sending DVDs through the mail. Then came video streaming, and Netflix pivoted to digital to compete in omni-channel entertainment. It then saw that content creation was key and pivoted again to compete with content creators. That’s flexibility.
Many mining companies have tried to develop foresight and focus. Flexibility and pivoting, though, remain an elusive goal. It’s hard to be flexible with high capital expenditures, long development times, rigid operating platforms and high labour costs. Ideally, miners would match CAPEX and production with demand. They’d borrow money, build mines, buy machines and produce when the market needed minerals, and shut down operations, shifting capital when demand dried up. This would improve return on capital and every other metric that CFO-types love.
Of course, a mine isn’t a lemonade stand. But what if it could be? Consider this: Uber, the largest taxi company, owns no cars. Facebook, the most popular media owner, creates no content. Airbnb, the largest accommodation provider, owns no real estate.
Could the world’s largest mining company own, or at least operate, no mines?
To flexibly match demand, mining companies need to free themselves from the constraints that keep them from starting up and shutting down operations at will. Examples of these are the capital utilization inherent in owning and operating mines and equipment, the constraints inherent in a captive labor force and the high cost of technology R&D.
Realities, like the flexibility lost from not owning railway/port concessions, will make some areas less flexible than others. However, there are capital-intensive businesses that operate in this manner. Oil and gas has farmed out parts of its value chain for years, as have beverage companies and airlines. Mining could do it, too.
Imagine a mining company that focused more on understanding ore bodies: discovering, valuing and trading them, in understanding supply and demand, and less on production.
Someone else might operate the mine and manage the labor, perhaps in conjunction with suppliers who lease equipment as part of a collaborative arrangement.
This could free up mining companies to be more flexible and pivot with the market. The level of collaboration and managerial innovation required, inside and outside the organization, would be unprecedented, but the benefits, enormous.
Even so, this model might be antiquated soon, as leasing of robotic, automated, modular technology might allow mines to operate at will.
Or squeeze lemons.