Innovation critical for sustainable Australian mining sector

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Innovation critical for sustainable Australian mining sector

28 July 2016: The Australian mining sector is running out of ways to cut costs and improve efficiency, and must embrace innovation or else risk causing lasting damage to the industry, according to a new study by Deloitte.

“The mining sector has been through an intense period characterised by commodity price volatility, a slowdown in Chinese growth, difficulty in accessing capital, competition for capital from the renewables sector, and the need to address serious environmental concerns,” says Nicki Ivory, Deloitte National Mining Leader. “However to remain globally competitive, Australian miners must decide if they are willing to go beyond the basics and incorporate a structured approach to innovation across their operations.”

Innovation in Mining: Australia 2016 features the findings of a survey and series of interviews with mining majors, juniors and services companies around a number of areas, including assessing current innovation efforts, the role of innovation in mining and identifying where innovating in different areas can unearth greater business value.

David Cormack, Deloitte Consulting Mining Leader, says to move from core innovation or optimising existing products for existing customers and successfully develop more transformational innovation involving breakthroughs and inventions, mining companies will need to push beyond the current focus on product innovation and expand their view of where and how they can innovate.

“In order to drive higher levels of productivity and growth, mining companies must mobilise their innovation efforts beyond the technical research and development groups and into the wider organisation.”

The view towards innovation in the mining industry is overwhelmingly positive and companies are unanimous in their belief innovation is key to future success and growth. But, most still favour pursuing operational excellence, continuous improvement, and cost-reduction over investing in truly transformative innovation.

“However, mining is an inherently risky business,” Cormack continues. “Some companies are reluctant to take on additional risk associated with innovation, especially if it could impact cash flow or their licence to operate. A minor operational delay caused by piloting a new process or technology innovation could prove crippling, perpetuating the ‘it’s good to be second’ view when it comes to doing things differently.”

In addition, the mining sector’s brutal cost-cutting measures implemented during the downturn and fears of jeopardising the security of intellectual property remain a challenge. For many mining companies this has left collaboration, both internally and externally, sporadic at best.

Other key findings from the study include:

  • Participants were generally confident in their approach to innovation, demonstrating a good understanding of the strategic capabilities and assets that are key to ongoing advancement
  • Senior leaders appear to grasp the innovation imperative and are discussing it within their organisations. Most participants believe senior leaders are highly engaged in the innovation process at a personal level
  • However, too many senior leaders believe innovation is about reducing costs through operational excellence, thus giving most of their attention to near-term, product-focused, Core-level ambitions
  • Organisational structures are inadequate to support innovation, due to sluggish decision-making processes and poor collaboration among business units and functions
  • Most respondents perceive timely access to funding as a significant hurdle to innovation
  • The federal government has the potential to be a great ally and enabler of innovation, yet few Australian miners agree current programs are sufficient for promoting and incentivising the innovation process
  • Most Australian miners believe they have not yet maximised all potential government incentives around innovation and a majority feel the payouts are not being re-invested in the appropriate departments to continue to foster innovation.

Where to from here?

In spite of reaching a point where mining companies can no longer afford to go it alone, there are positive signs they do understand the need to take a structured approach to innovation and to work collaboratively with others in developing and deploying new ideas. Collaboration through open industry forums, hackathons and mining innovation hubs has recently proliferated.

“The global mining industry is on course to becoming more proficient at innovating, and the Australian sector is relatively mature,” says Ivory. “Australian miners appear to have learned not only from their own experiences, but also from those of other miners and other industries around the world.

Cormack concludes: “It can be tempting to think of innovation solely in terms of products and technologies. It’s now widely accepted exponential technologies – big data, the Internet of Things, 3D printing, wearables – will disrupt how most sectors operate. Nonetheless, dealing with this disruption, along with increasing environmental and community concerns, will require a broader, more structured approach to innovation whether they’re seeking to develop a new technology, process or business model, or to find new applications for existing ones.

“Although Australian miners are progressing in developing their innovation competency, there are many stones waiting to be turned. Mining leaders understand innovation is an imperative for driving productivity and growth; now it’s time to act. If they do so collaboratively and systematically, what they discover could be many times more valuable than they’ve ever envisioned. Then we can expect to see more companies building breakthrough innovations – those game changers that enable leading innovators to be top performers that generate superior returns for their shareholders.”

About the report

Innovation in Mining: Australia 2016 was developed by Deloitte in association with Diggers and Dealers and the Association of Mining and Exploration Companies (AMEC). It is the third study of a three-part global series including Canada and Africa. Thirty-one mining companies participated in the Australian study, representing majors, juniors and service providers. The research was conducted using questionnaires and face-to-face interviews.

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