Riding the wave to digital transformation
Is riding the digital wave the key to a competitive advantage? It may not be the only factor but it’s certainly a large enabler of margin improvement and competitiveness today. The opportunity for mining and metals companies is significant – but many executives acknowledge digital effectiveness as the top risk facing the sector today.
The reason stems, in large part, from the history of productivity challenges that began in 2000. Companies chose to pursue growth and headline revenue at any cost during the boom in commodity prices. An integration gap emerged – between the mine and production plant, maintenance and supply chain – causing productivity losses estimated at 20%.
Miners have turned their attention back to productivity in recent years – and begun embracing digital. Of course, digital solutions go back further back than that in the sector – from simulation modelling to remote mine monitoring – but they’ve typically been one-off initiatives versus part of a holistic approach. And, as a result, haven’t done much to enhance margins.
The emphasis now needs to be on a clearly defined digital strategy that contributes to a business transformation. Industry players who are committed to a multi-year “digital wave” approach will regain ground lost over the super-cycle and avoid falling into the trap of a digital disconnect.
There are four distinct components to this model:
Digital pre-start
This is where the digital vision starts to take shape. This involves understanding where your organization sits on the digital maturity continuum, and establishing a clear link between productivity and your digital agenda. A minimum investment in infrastructure, communications and data is required before you can move on to the next stage.
Wave 1
Wave 1 activities begin the process of transformation. At this stage, organizations should look to add business value through local optimization or automation, which doesn’t necessarily require changes to the existing operating model. With that said, work should be linked to overall productivity and the performance improvement agenda. Examples of Wave 1 activities may include: developing a predictive analytics strategy to better understand potential component failures, tuning up existing fleet management systems and fully digitizing maintenance tactics.
Wave 2
This stage involves significant changes to a company’s operating model or process change across organizational boundaries.
These activities span the whole value chain to better manage margin through interactions with customers and suppliers. For instance, automating supply chain operation, and real-time mine planning with a focus on pricing and equipment health.
Using predictive analytics to better gauge changes in customer demand is another way to leverage technology at this stage in the process.
Wave 3
This is when disruption gives rise to significant level of change in how the sector operates – and requires a step change in business strategy to be fit for the new future. Consider how emerging technologies have driven convergence and enabled the entrance of new competitors in areas like retail, hospitality and transportation. In mining and metals, we could see this level of change emerge from service companies becoming more dominant in the value chain and or the introduction of artificial intelligence to make autonomous decisions. These changes aren’t always easy to see coming and so require companies to evolve in ways they can’t predict now.
Risk and return
The movement between each of these waves is not static, and mining and metals players will need to be nimble and adapt accordingly to remain competitive. It’s not necessarily a sequential process, either. Organizations should examine where they are in terms of digital maturity and adjust their strategy.
At its core, the strategy needs to be guided by a clear, longterm vision and should incorporate key phases and milestones.
Market leadership takes time to win, but is lost quickly.
Adopting a progressive wave approach can help companies balance risk and return, capitalize on innovation potential and help move towards true digital transformation.
IAIN THOMPSON is the EY Canada Mining & Metals Advisory Leader. He is based in Vancouver. For more information, visit www.ey.com/digitalmine.
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