Companies must overhaul business models to get productivity back on track
(Vancouver, July 24, 2014) Miners will need to drastically transform their business models if they want to reverse the decade-long decline in productivity, according to a new EY report.
Productivity in mining: A case for broad transformation describes the drop-off in productivity, on both a volume and cost basis, as a result of companies choosing to pursue production growth and headline revenue during the commodity price boom.
“Companies caught in the race to capitalize on high commodity prices are now facing a number of business model challenges,” says Bruce Sprague, EY’s Canadian mining and metals leader. “Operation expansion and inefficient use of labour and equipment are all compromising productivity.”
Many companies adapted processes, performance measures and corporate culture solely toward growth during the supercycle and are now paying the price.
“There’s no easy solution to solving these challenges,” says Sprague. “Cost-cutting exercises and minimal process and technology improvements aren’t enough.”
A narrow focus on continuous improvement will not solve the problem and could even be counterproductive by simply moving the problem along the supply chain, the report emphasizes.
“Creating sustainable change requires broad business model transformation,” says Sprague. “That means looking closely at mine plans, reassessing mining methods, making changes to equipment and considering opportunities for automation.”
An end-to-end business transformation solution includes the following five steps:
1. A clear strategy based on a broad set of value drivers
2. An operating model that is aligned with the strategy
3. Integration and alignment across the value chain through process integration
4. Standardization of work procedures
5. Aligned planning, budgeting and performance measurement
“Understanding all systems and processes is essential to ensure companies make informed decisions. Only then can miners create lasting change,” says Sprague.