Productivity in mining: now comes the hard part
A global survey
Productivity in the mining sector has been on a steady decline over the past decade as miners focused on output at any cost in an unprecedentedly high commodity price environment.
Our preliminary research, outlined in Productivity in mining, a case for broad transformation, found the decline had been more significant than that for other sectors. So we tailored our subsequent research to better understand why the decline was so significant and how different organizations have addressed this issue.
This survey, conducted in association with the Sustainable Minerals Institute at the University of Queensland and Imperial College London, included more than 60 interviews with senior mining executives from around the world to understand:
- The key productivity challenges the sector is facing
- The key initiatives being developed to overcome these challenges
- Better practices to manage these initiatives in the post supercycle environment
Over the broad spectrum of different mining operations (geographic location, commodity focus and age), it is difficult to define the exact size of the productivity problem. Economists refer to productivity as “multifactor” in that a range of factors are measured, including labor, capital and material (resource).
These factors are often reported individually, e.g., labor productivity has declined 35% since 2007 in the South African gold sector, and capital productivity in Australia has declined 45% since 2000. Each of these factors has declined across most of the mining sector, significantly more than for other sectors, resulting in a significant decline in total productivity.
Mining labor productivity (2004=100)
Source: Country statistical data, EY
The executives we interviewed told us that productivity is the number one challenge in the mining sector and is firmly on the CEO’s agenda. The expected declines in labor, capital and material (resource) productivity all occurred, but an additional factor of economies of scale was thought to play a big role in the decline.
Many have found that productivity decreased as operations got larger, and that it was difficult to manage the complexity of these larger operations, particularly given the additional challenge of high turnover and lack of staff experienced in focusing on driving efficiency. The growth in mining operations has resulted in complex structures and inadequate functional collaboration.
"We always want to get bigger and grow to the point where we've got maximum economies of scale. I think it's fair to say that a number of operations have gone over the point of economies of scale to what I call 'diseconomies of scale.'"
The integration gap – the reality of the productivity issue
Many “productivity” initiatives to date have focused on cost cutting, which have led to some modest, short-term results, but our survey participants acknowledged that what needs to be done now is more complex.
Our view is that mining companies should move beyond point solutions, and adopt an end-to-end solution to transform the business. There is a need to ensure that each part of the business is optimized, not on its own but as part of a business system.
A number of the executives interviewed highlighted “the integration gap” and their desire to close it. Addressing integration is a key challenge for improving productivity, and requires an approach that breaks down the silos and adopts an end-to-end perspective.
"How wonderful would it be if the drilling operator knew that by drilling the right hole size and the blaster knew that by blasting it right so it’s not oversized, that there will be no downstream impacts. That by not doing it right it can impact the shovel operator and the truck driver. The challenge is trying to get them to understand how they all fit in."
We believe this is achievable by changing the culture to empower the workforce and finding new solutions to existing problems, and using data and technology to support this.
- Using technology and data to enhance integration - Technology can break down silos and enable new working practices to evolve. Only with good data can companies understand what good performance looks like, and companies that successfully use data outperform their peers by 20%.
"It's about the systems and processes, it’s taking a holistic view of the different parts and how they fit together."
- Sustaining end-to-end transformation through culture - The critical role people will play in transformation was highlighted around three key themes:
- Engagement – empowerment, flexibility and self-direction
- Measurement and reward – aligned to productivity measures not headline outcomes
- Ongoing talent management – requiring systems thinkers to manage complexity
"Engagement is really powerful. Telling people what's really important is empowering."
The role of innovation
In recent years, the passion for innovation in the mining sector has not been lost. New innovation can be a productivity game-changer, especially with ore grades declining around the world, and we are beginning to see some innovations underway.
|Controlling rise in costs at greater depth and declining grades|| |
|Reducing complexity and improving decision-making|| |
|Creating consistent outcomes from manual and automated processes|| |
|Improving supply chain and logistics|| |
The way forward
Productivity is a CEO issue and therefore needs the CEO to lead and drive end-to-end transformation to solve the issue. As a first step towards transformation, we recommend a refresh or review of operational strategy to help to change the focus of the business and start to change culture.