State of Play

Dissecting the findings of the latest report on strategy and innovation in mining



The State of Play platform was created in 2012 by global management consulting company VCI in partnership with the University of Western Australia, and is now the largest mining survey in the world. The initiative aims to support industry discussion of innovation and performance at a strategic level through publicising the findings of its comprehensive biannual surveys on innovation and strategy within mining companies worldwide. The latest report was published in July 2019 and RGN’s editor Jacob Ambrose Willson caught up with VCI’s CEO and State of Play co-founder Graeme Stanway to breakdown its findings and shed a brighter light on the impediments and factors driving success in innovation across the mining sector supply chain.  


Jacob Ambrose Willson: Hi Graeme. To start off can you talk about the formation of the State of Play platform in 2012, in collaboration with VCI and the University of Western Australia. Was there a gap in research on innovation in mining that you intended to fill with the State of Play initiative? 


Graeme Stanway: There was limited information in public literature on strategy and innovation in capital intensive industries with long time perspectives like miningMost information is focused on fast moving consumer goods, and IT related industriesMining, and to some extent oil and gas, is very different. The capital involved is very large, the life of the projects are decades long, and the projects are closely linked to the communities they reside in. This set of dynamics is very different. 


The survey dataset that underpins the report is the largest of its kind in the global mining industry, surveying more than 800 mining professionals across 399 companies. More than one third of the participants are Australian-based executives and the VCI analysis includes companies like Rio Tinto, BHP, FMG and South32. 


JAW: Define what ‘innovation’ means for mining companies and explain how State of Play has created a formula to identify relationships between returns and how mining companies innovate. 


GS: Innovation, the way we describe it, is doing things differently to change the value delivered from the same amount of effort. Because it means doing things differently, there is inevitably some implementation risk that needs to be managed. 


What we have done is to take all of the companies with a significant suite of responses to the survey, analyse their risk-adjusted Total Shareholder Return (TSR) in comparison to peers in the mining industry, and uncover statistical relationships between TSR performance and approaches to innovation according to the survey responses of leaders from those organisations. 


JAW: What are some of the most prevalent themes that come up when mining companies speak about innovation? 


GS: Social expectations of mining companies are increasing and coupled with increased transparency regarding the supply chains of mining companies, those social expectations are having an impact on companies’ operations and investment plans (e.g. Glencore). 


Automation is the main focus for discussion when discussing mining innovation, however artificial intelligence could also present significant opportunities for supply chain optimisation and getting further value from autonomous equipment. 


We are also anticipating significant changes coming in the energy requirements for mining operations whether it comes from renewables or sources like hydrogen. 


JAW: The fourth biannual State of Play report on strategy and innovation was published in July 2019. What were the main aims of the study from the outset? 


GS: Once again, we wanted to fill the gap in research on innovation in mining. We wanted to take a strategic level approach to innovation, enabling us to uncover the impediments and success factors driving innovation across the industry supply chain. More broadly, we hope our reports have the potential to position the industry for a strategic shift. 


JAW: The study is based on survey responses from 800 mining professionals across 399 companies around the world. How important is it to take a data-driven approach to analysing the relationship between innovation and returns? 


GS: Since our inception in 2012, we have collected over 200,000 data points. This year we were able to make the connect with shareholder returns and financial performance. This gave us an entirely different lens to approach the data with, and demonstrates a tangible link between innovation and holistic company performance. Ultimately the data driven approach was critical. Innovation and Strategy are subject to plenty of unfounded mythologies – we wanted to test these. 


JAW: The report found that junior employees at mining firms deliver higher shareholder returns through executing innovation than executive figures. What are the key reasons behind this? 


GS: If you look at junior staff, and by that I don’t necessarily mean just young staff, they are always the people who are closest to the issues so they know them the bestIt is a bit of a numbers game as well. There are a lot more of these (junior) people in an organisation so the probability of them coming up with a very good breakthrough idea is higher. 


As people work through the organisation and become senior leaders they become much more focused on governance and control. We have had some great discussions with CEOs where they recount their most influential experiences with innovation being when they were close to the operations and given plenty of autonomy. 


JAW: How much weight should mining companies place on implementing long-term innovation given the report found that short to mid-term timeframes delivered poorer returns? 


GS: Our findings suggested that a primary focus on one-to-three year or three-to-five-year timeframes failed to drive urgent or hard-edged improvement at an operational level and also stymied major strategic change.  


Instead, it was the bifurcated approach which focuses on immediate survival and improvement in the short term as well as long-term repositioning and transformation over the five-to-10-year time horizon that delivered greater financial outcomes. 


Ultimately the mid-term planning can perpetuate the J curve.  That is, there is not sufficient urgency to move immediately on innovation, but the really disruptive shifts that happen are not addressed. 


JAW: Maintaining a good company culture correlates with better innovation and higher returns, according to the report. What are the notable hallmarks of a mining firm with a strong culture and how do these traits enable innovation to take hold? 


GS: Culture is by nature intangible, and it can often be hard to choose specific traits and implement them in company cultures. However, there are a few general elements of company cultures that tend to enable innovation. 


The first is highly aligned incentive schemes that encourage innovation, generally by incentivising output or performance. This provides a direct driver for staff to address the way they work and operate to improve their performance, which is often how innovation is most successful, bottom-up. 


The second is providing staff with the required autonomy to address challenges in an innovative manner. This should be done while maintaining a strong focus on health and safety governance, however through a combination of incentives and autonomy to act, staff often provide all the resources and capabilities to innovate far more effectively than just through leadership telling their people to innovate. 


JAW: Over one third of the participants in the study were Australian-based executives. How did Australian mining companies compare with other firms from around the world with regards to innovation and shareholder returns? 


GS: Australians tended to have a much more short-term focus on innovation compared to international peers, which tends to be less successful than long-term, strategic approaches to innovation. Australians also tended to customise their approach to innovation more than other miners, which tends to lead to the best innovation outcomes. 


JAW: After publishing its latest biennial report into mining innovation, how will State of Play build on the findings of this research in order to provide even stronger future guidance for mining companies wishing to implement better innovative practices? 


GS: We will continue to publish our biennial results going forwardIn the interim we are currently writing reports on specific areas of focus within the mining industry. The next ‘drill-down’ report on cyber security in the mining industry will be released over the next six months or so, as well as a drill-down on venture capital in the mining industry. These reports build on the findings from our biennial report and develop how mining companies should approach particular issues of strategic interest in mining. 


We are also looking to extend our research into the oil and gas sector, and further develop understanding of complex strategic questions in the global natural resources industry.