Four key factors for improving innovation performance in the mining industry
Mining has been fundamental to Australia’s economic growth and prosperity for over 150 years. However, the industry is currently facing a number of significant short- and long-term challenges that it will need to address, from declining commodity prices to greater social expectations and deeper, more complex mineral deposits.
At the same time, the world is changing more rapidly than ever before, driven in part by global socioeconomic trends, changing attitudes to environmental sustainability and widespread advances in science and technology. Given the pace of change, the mining sector could be fundamentally reshaped over the next several decades.
At an operational level, the confluence of rapidly evolving digital technologies such as sensors, data analytics, automation, augmented reality, additive manufacturing and cloud computing is likely to completely transform operations and massively increase production efficiency across the entire value chain. Technology and innovation will also play an important role in unlocking new resources through completely new methods of extraction, such as in situ leeching, that could reshape the value chain.
Emerging technologies also have the potential to drive greater demand for some commodities while disrupting the usage of others. For example, the direct injection carbon engine, a high-efficiency, low-emissions technology for converting coal to energy could create a new market for black and brown coal. On the other hand, materials such as graphene could create substitutes in downstream applications and reduce demand for base metals such as copper. Looking further into the future, advances in metal recycling could one day enable new business models and change industry fundamentals by replacing assets with access.
These technologies will create enormous challenges but also enormous opportunities, not just for the mining sector but also for equipment, technology and services companies to develop new solutions. For mining to continue to be a strong driver of economic growth in Australia, it will need to adjust to these changing conditions and capitalise on these opportunities.
While there are many levers that can be considered to address these opportunities, it is our belief that innovation is the most important one in the long run. We call this the ‘innovation imperative’. Companies will benefit from expanding their understanding of the innovation process – a process that is by its nature extremely complex, poorly understood and difficult to master.
A history of innovation
Over the past century, innovation has driven significant value creation for the mining sector. It has contributed to the discovery of new orebodies and unlocked previously unprofitable ones. One of Australia’s pre-eminent historians of the mining sector, Geoffrey Blainey, noted in A Shorter History of Australia:
‘The massive deposits of minerals [in Australia] were of no use until new technology liberated them. In the last century and a half, Australians have depended as much on the rise of new technology as on their own soil, grasslands, minerals and other resources’ (Blainey, 2009).
Innovation has also led to massive increases in output and productivity, shifting the sector from being heavily labour-intensive to being increasingly mechanised and automated at a scale that would have been unimaginable in the past. For example, longwall coal mining, developed through a series of innovations in the 20th century, improved recovery rates and labour productivity by around 20 per cent while also dramatically improving worker safety.
But looking globally, innovation performance in the mining industry has been mixed. There have been relatively few radical technological changes for much of the last century, with the industry instead relying on incremental improvements. Furthermore, the track record for innovation projects at a corporate level has generally been poor. Industry surveys report high levels of technical underperformance from major innovation projects, reflected in shortfalls against production projections, time delays and cost over-runs. A renewed focus on technological innovation is much needed.
Successfully navigating the road ahead will require overcoming a number of barriers that are holding the resources sector back from recognising the full value of innovation. Australia’s innovation dilemma will also need to be tackled, which involves the systemic challenge of translating innovation inputs into profitable outcomes for industry.
Improving innovation performance
In a recent report published by CSIRO, Unlocking Australia’s Resource Potential, we conducted interviews with 26 senior executives and board members from Australian resources companies in an effort to better understand the barriers to innovation in mining and how to overcome them. We also conducted a case study analysis of previous innovation successes to identify common success factors.
Based on our analysis, we identified four key factors to help companies improve their innovation performance in mining:
- explicitly align innovation programs with corporate strategy
- take a portfolio approach to innovation investments
- pay more attention to recruiting the right people and building an innovative culture
- develop ‘fit-for-purpose’ collaboration models for working with industry and research partners.
Align innovation strategy with business strategy
The most successful innovators almost always have a well-defined innovation strategy that is directly linked to their business strategy and that clearly outlines the role that innovation plays in creating competitive advantage. These innovation strategies are formed on a ‘market pull’ basis, where the company’s strategy and business challenges guide innovation priorities, rather than on a ‘technology push’ basis, where excitement about new and emerging technology drives innovation.
This innovation strategy should be top-down and led by the executive team with the endorsement of the board. One of the key purposes of an innovation strategy is to guide innovation investment decisions at all levels of the organisation. At a corporate level, it should inform decisions about where the company will be an innovation leader, where it will be a ‘fast follower’ and, importantly, where it will deprioritise investment. Within individual business units and projects, the strategy should guide decisions about where to maintain capability in-house and where to partner or outsource.
A good innovation strategy will take into account both current capabilities (what am I good at today?) and environment scanning (what will the market demand in the future?) to identify opportunities that the company is uniquely positioned to take advantage of. As part of environment scanning, scenario planning is a powerful tool that can be used to identify opportunities across a range of possible futures and build resilience into an innovation strategy. For example, in its recent Australia 2030 report, CSIRO identifies four future scenarios that can be used as a basis for environment scanning.
Manage innovation as a portfolio
Taking a portfolio approach to innovation allows a company to diversify its investments across a spectrum of innovation activities, ranging from short-term incremental improvements to longer-term breakthrough and disruptive innovations. This allows a company to explicitly align the portfolio risk-reward profile with its innovation strategy by assessing the risk and reward of individual projects and balancing the portfolio accordingly. For example, an innovation leader might set a portfolio target of 70 per cent incremental innovation and 30 per cent breakthrough innovation, whereas a fast follower might have a target of 90 per cent incremental innovation, with lower portfolio risk but also lower potential returns.
By thinking of innovation investments as a portfolio of projects, companies can build discipline and processes around managing the portfolio. This includes assessing projects for inclusion in the portfolio, routinely monitoring project performance and defunding or reducing funding for underperforming projects or when assumptions or project drivers change. Instilling governance into these processes at a corporate level will improve the consistency and alignment of innovation decision making within business units and individual projects.
Another important aspect of portfolio management is maintaining continuity of investments across the business cycle. Breakthrough innovations often require long-term investments. For these projects to succeed, companies need to maintain the discipline of evaluating them against project performance and long-term value rather than succumbing to the temptation to kill off long-term projects and refocus investment on cost cutting at low points in the business cycle.
Build a culture of innovation
Even the most well-thought-out innovation strategy can be undermined if the culture of a company does not embrace innovation. While science and technology are important, innovation can only be achieved by people who can turn ideas into reality and feel empowered to solve problems. For successful innovators, this culture is almost always set ‘from the top’ with support from the board and executive team.
This empowerment should be supported by a mature attitude to risk. The mining industry is known for a strong culture of risk avoidance that comes from the very real need to ensure safety and environmental sustainability. However, the attitude that all projects must be derisked and that failure should be avoided at all times can hinder the generation, development and execution of new ideas. It also fails to recognise the lessons that are generated from failure itself. Well-executed approaches to innovation can, in themselves, become a mechanism for reducing corporate risks.
Another key to building an innovative culture is to attract creative thinkers with a diverse set of views from within and outside the industry. It is important to get away from the fixed mindset that things should continue to be done the way that they have been done before. As one senior executive told us, ‘The industry is filled with people who are squares with rigid thinking patterns. There are not enough circles.’
Use ‘fit-for-purpose’ collaboration
The sheer complexity of the challenges in mining and the rapid rate of technological change often mean that it is unlikely that the technology, knowledge and expertise needed to meet those challenges will reside within any single organisation. As such, innovation success often hinges on collaboration across a strong and high-performing ecosystem of primary producers, original equipment manufacturers, solutions providers and research organisations, frequently with government support.
Successful collaborators took an approach that there is no ‘one-size-fits-all’ model for collaboration and that collaboration models need to be ‘fit-for-purpose’ to the time horizon and intellectual property (IP) approach of individual projects. For long-term projects where maintaining control of IP is important, companies should seek out partners that share their vision and look for opportunities to share risk and reward while building shared knowledge, rather than relying on a series of transactional collaborations. This type of project would be typical for an innovation leader attempting to convert a breakthrough technology into competitive advantage.
Some long-term, large-scale projects may be too expensive or too risky for any one company to attempt alone. In these cases, cross-industry collaboration to solve large precompetitive problems can provide shared benefit to the industry. This type of collaboration is typically suited to challenges in areas such as environmental sustainability, social licence to operate and improved worker safety.
Finally, companies should look for opportunities to collaborate to develop new ideas and concepts through exploratory development. This can provide a low-risk and low-cost option to continually test ideas in unproven areas and trial relationships with new innovation partners. Examples of exploratory development include hackathons, accelerator programs and corporate venturing.
Regardless of the collaboration model, information flows across multidisciplinary and multiparty projects are essential for long-term innovation success. Successful innovators create communication channels and mechanisms that help break down organisational silos and disconnects between research, operations and external partners.
Each of these four factors (strategy, portfolio, culture and collaboration) will be imperative to improving innovation performance in mining. This will be particularly important for Australia as it seeks to build on its mining legacy in a rapidly changing and increasingly competitive world. For mining to continue to be a strong driver of economic growth in Australia, companies will need to adjust to these changing conditions and capitalise on new opportunities. This will require bold innovation leadership and investment.
Blainey G, 2009. A Shorter History of Australia, 324 p (Random House Australia: Sydney).
Stay up-to-date with all the latest news and industry analysis by joining minerals professionals in the AusIMM LinkedIn community.