Australia’s low productivity needs more than simple initiatives

The ongoing downtrend of productivity in the mining sector has come under the microscope with a study released last week by EY and the University of Queensland’s (UQ) Sustainable Minerals Institute.

The report Productivity in Mining: Now comes the hard part draws on interviews with more than 60 senior mining executives from around the world, looking at the challenges for productivity and ways to overcome those challenges.

It was claimed that productivity has been on a steady decline for at least 10 years, with Australia rating as one of the worst performers with capital productivity dropping 45 per cent since 2000.

Executives interviewed agreed that productivity was the biggest challenge to the mining sector, with productivity dropping as the size of operations increased, especially during the supercycle of the commodities price boom.

The fast growth of mining operations resulted in what EY and UQ have referred to as the Integration Gap, which describes the inadequate functional collaboration, or siloing within complex operational structures.

With so many companies focussed on cost cutting in recent years, the report indicates that although such measures provided short-term results, the executives surveyed acknowledged that more complex solutions were required to properly address issues of flagging productivity.

EY global mines and metals leader Mike Elliott said the results of the survey indicate productivity issues that are already recognised by mining companies.

“Because it was based on survey information from the sector, it’s also recognised within the companies,” he said.

“But whether it’s getting all the attention it deserves is probably some of the frustration we’re picking up along the way, particularly when it comes down to issues of what needs to be done to manage greater complexity, when these were often being overlooked for short term cost reductions.”

“Companies are now reaching the point, especially the early adopters of cost reduction measures, when they realise that you can’t keep doing that, and they need to do something else.

“While they’ve gone through a period of a plethora of initiatives, now they need to look at this in a more orchestrated, end-to-end basis, and engage in different thinking about where productivity has been suffering.”

“Productivity needs to drive cost reduction; it shouldn’t be cost reduction driving productivity.

Elliot said that part of the problem with redressing productivity issues was that the level of confidence survey respondents had about bridging the gap between their desired state of productivity and the way they are performing today was quite low.

“Everybody can probably act quite nobly and say that they are doing something to address productivity, but the size of the gap is so large that many of those initiatives hardly make a dent in it.

“There needs to be something much more fundamental to make the sort of productivity increases that are expected to cover that gap.”

The study suggested that in order to sustain an ‘end-to-end’ transformation, ordinary systems of measurement and reward needed to be aligned to practical productivity measures rather than simply the pursuit of headline outcomes.

“I think that headline outcomes are becoming much too short term in focus,” Elliott said.

“Whether a cost reduction target or a working capital outcome, these are things that can be measured in a 12 month period, and in many ways they are indiscriminate, and they are allowed to be indiscriminate as the market to date has been indiscriminate about where those cost savings have come from.

“Whereas if you identify what needs to be done, if you look at your process from an end-to-end perspective, and you understand where those targets need to be…  those may be multi-period in what they need to do, they may need to be more sophisticated in moving towards those targets, and encourage and reward staff and management performance for going down that path.

“They can be more sophisticated targets than necessarily just dollars saved at the end of a particular period.”

Elliott said that conventional approaches to implementing single point initiatives often achieved small increases in productivity, however the complexity of systems sometimes meant that combinations of initiatives could interfere with each other and even reduce productivity.

 

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