8 minute read 15 Oct 2018
Hiker top mountain

Four steps for transforming mining and metals companies

By

Paul Mitchell

EY Global Mining & Metals Advisory Leader

Experienced mining and metals leader. Contributing insightful points of view to the market around productivity and digital.

8 minute read 15 Oct 2018
Related topics Mining and metals Digital

Mining and metals companies can take the “digital wave” approach to transformation to help improve their digital effectiveness.

There is a growing disconnect between the potential and reality of digital transformation in the mining and metals sector. As a result, the top risk that the sector faces today is digital effectiveness. Given that digital has become a key enabler of margin improvement and enhancer of competitiveness in the sector, it is critical that organizations develop a clear approach to bridge this disconnect.

Digital solutions are being adopted, but usually as point solutions in the value chain rather than as a holistic approach, as discussed here. Point solutions will not get us to the next level of productivity improvement or enhance end-to-end decision-making.

The collective impact of these challenges can result in a tentative approach to strategy — reflected by small, disconnected initiatives — rather than a strong commitment to a multi-year transformation approach.

Digital wave approach to transformation

To transition their business from its current state to an improved future state, mining and metals companies need a pragmatic and effective approach that creates a clear pathway for transformation. This approach is specifically described as “The digital wave transformation approach.”

The digital wave transformation approach is like a series of waves moving through the organization, steadily introducing more digital hotspots and interconnections, all within a coherent overarching strategy. It meets the need of having an active, progressive and compelling digital strategy, while also recognizing the issues associated with business risk and maintaining a coherent program of work.

This wave approach to digital transformation contains four main components – Digital Pre-start, Wave 1, Wave 2 and Wave 3.  

  • Digital pre-start: Establish your vision 

Digital pre-start component covers work such as establishing a clear vision, creating a linkage between productivity and your digital agenda, and understanding your current digital maturity. It is critical at pre-start to set up stretch measurable goals (KPIs) so that the vision is grounded in tangible targets and the program’s effectiveness can be measured throughout each wave.

The pathway through the waves cannot be viewed as static, sequential or “set and forget.” The end-state vision is constantly changing and businesses will need to adapt and change course as required.

  • Wave 1: Find ways to optimize and automate

Wave 1 activities will add business value through local optimization or automation. Generally these initiatives will not require a change in your existing operating model and won’t in themselves be transformational. They will start the process of transformation without having to manage a web of complex organizational interactions or by introducing unacceptable levels of business risk.

  • Wave 2: Integrate your new initiatives

Wave 2 activities involve significant changes to your operating model or potentially disruptive process changes across organizational boundaries. For example, businesses moving to a fully predictive maintenance domain or real-time mine planning linked to equipment health and commodity pricing. We currently see relatively few examples of Wave 2 activities in the mining and metals sector.

  • Wave 3: Prepare for the future

Wave 3 involves “disruptive” factors that may create significant changes in how the sector operates and require a step change in business strategy to maintain competitiveness. There is an advent of new and disruptive technologies in the sector. New players could be more willing and abler than the existing players to invest capital in these currently untested technologies, which would enable innovative business models to drive a new wave of productivity uplift across the value chain.

Digital Mine

The process of launching waves is not necessarily sequential. For example, high-value areas with a close link to productivity may move from Wave 1 to Wave 2 before initial work has commenced in areas with less-compelling business cases.

Digital pathway: Five questions to get you started

1.    How can I start embracing digital while maintaining agility and not over-investing?

The recommended approach is no different to traditional project management. Make sure that the strategy is sound and supported by a clear vision. Think of appropriate phasing and milestones. Establish that the investments are backed by clear business cases tied in with value drivers. Consider the cultural implications of change and engage the right stakeholders in your business.

2.    What are the first steps I should take?

We believe that there are a range of common activities as part of a “digital pre-start” process. These activities are focused on understanding your business levers and organizational digital maturity. Doing this work effectively will identify the right work so that your digital transformation is linked directly to business value rather that being a “toy box” initiative. Having silos pursue pet projects must be avoided; getting the balance right between entrepreneurialism and project governance will be crucial.

For example, an organization with a heavy focus on asset uptime may start with introducing predictive analytics for critical assets. Others may require the introduction of decision support systems to help with supply chain variability. Market-driven businesses may benefit most from looking at analytics to support trading decisions. When choosing these first steps, think about local optimization, but with a view on how these solutions will connect in the future.

 3.    How can I start digital transformation without losing focus on productivity and margin or cost?

We take the view that digital initiatives should only be commenced where there is a demonstrable link to productivity and cost benefits. Sometimes this will require a long-term view; but organizations should avoid doing digital without this link to exploiting clear business opportunities.

4.    What type of organizational structure do we need to manage digital?

Different options range from having a devolved accountability within operating units, a dedicated digital division, short-term project teams with senior sponsorship, through to a central PMO structure. Combinations of these options may exist in certain businesses.

The right answer for your business will depend on factors such as the organization’s digital maturity, the type and number of digital initiatives being considered, and the relative importance of digital to business value. The scale, diversity and geographic spread of a business will also influence the decision. Finally, it is important to get the balance right between obtaining strong operational input and appropriate IST design when thinking through structure options.

Your organization needs to keep their eye on balancing efficient production with the need to innovate. In some instances, that may mean it is appropriate for digital innovations to take place within, next to, or outside of operating business units. In all cases, a clear position must be taken which creates accountability, governance and drive within your business.

5.    What will the impact be on my workforce?

In some areas — for example, haul truck operation or financial reporting financial reporting — we believe that the introduction of greater levels of automation will lead to inevitable job losses for particular occupations. This is in line with broader societal trends moving from manual tasks through to a more information-focused global labor force. There is the opportunity for businesses to upskill or reskill employees to establish the right balance between not completely losing existing in-field knowledge while leveraging the benefits of automation and real time data usage. Organizations can shift the focus of work toward improved decision-making and efficiency of execution.

For organizations in countries operating in more constrained industrial relations environment, it will be important to engage with regulatory authorities to respond to the changing nature of work. The impact on the workforce will affect the local community so it’s important for organizations to work with these communities to manage this shift.

Summary

To ensure digital effectiveness, leaders in the mining and metals sector need to start thinking of digital transformation as a fully integrated business culture shift. Download the full report (pdf).

About this article

By

Paul Mitchell

EY Global Mining & Metals Advisory Leader

Experienced mining and metals leader. Contributing insightful points of view to the market around productivity and digital.

Related topics Mining and metals Digital