Fundamentally, the traditional mining model of maximizing volumes at the expense of productivity during the good times countered with short-term, deep cost cutting during the bad times remains the norm. But the gradual process and technology improvements that happen during those cycles aren’t enough to remain competitive. The industry is facing real challenges attracting capital as value creation is eroded by declining productivity, increasing regulations, social license, and safety challenges. Companies must work together to spark true large-scale disruptive innovation to realize sustainable growth.
Investment in innovation lacking
In a recent EY survey of innovation in Canada, 87 per cent of mining respondents noted that innovation was important to the growth agenda in the next 2-4 years. Despite this, 34 per cent of mining organizations have no innovation strategy; 56 per cent don’t have a senior leader accountable for innovation; and 66 per cent have no defined, or partially defined, but not implemented innovation process.
Investment in mining innovation remains low compared to other industries. The 2015 EU Industrial R&D Investment Scoreboard showed the top 10 Miners invested 1/8th in R&D compared to the top 10 Oil and Gas companies. While mining’s R&D as a percentage of net sales was marginally more than oil and gas companies, at the end of the day, real investment brings innovation results, and mining has to catch up. This is reflected in EY’s survey, where 89 per cent of mining respondents report spending less than 5 per cent of their operating budget on innovation, while 69 per cent said they don’t have a separate innovation budget.
Taking the lead from other industries
Another area where there seems to be a discrepancy is social license to operate. It’s listed in the top three mining risks, and in the past two years significant environmental events have occurred, yet companies admit the environmental piece is not a major reason for innovation. Mining needs to take the lead of the oil and gas industry and look at environmental innovation as an opportunity and a long term way to reduce costs.
Without a strategy and capability of innovation at the individual company level, it is unlikely industry collaboration will succeed. Companies need to develop a strategic focus around innovation, and the industry needs to collaborate to address global mining challenges.
Innovation does not simply happen. Like any asset or infrastructure, it requires the necessary funding to allow it to happen – and a thoughtful and systematic effort to execute and measure.
Where to start
There are three key steps to activating innovation: Develop a 90-day plan: Getting started may appear to be the hardest step. But it’s not. A manageable innovation strategy starts with a basic 90-day plan. Assign an innovation leader. Outline some goals linked to overall company strategy.
Establish a framework for open innovation: In this era of open innovation, companies recognize that the best ideas do not always originate inside the organization. The industry must consider pooling talent and spreading both the investment requirements and associated risk across many players.
Develop collaboration channels: Collaboration can be as simple as reaching out to competitors, academia and government and starting a dialogue about how to sustain and grow this industry – for the long term.
The time to act is now— real, sustainable and meaningful change will be driven by large-scale disruptive innovation. The companies that bring about this change will be best positioned to be the leading mining companies of tomorrow.
Scott Murray is Manager, Performance Improvement Strategy with EY’s Mining & Metals practice in Vancouver.