Here's what miners are getting wrong when it comes to digital transformation
While the global mining industry is quickly becoming more digitally mature, that transformation continues to focus on productivity and profitability, rather than on much needed innovation, a new study shows.
According to Ernst & Young's Digital Mining report, current digital solutions are merely functional or siloed and only address parts of the value chain.
Miners should adopt a progressive, multiyear strategy that also accounts for business risk and the primary drivers of value.Focusing on productivity and profitability alone is not enough to generate competitive advantage, say the experts, noting that what companies need to do is adopt a more cohesive, end-to-end approach to integrate digital initiatives.
"Mining and metals continues to lag other sectors in the realm of digital effectiveness," says Paul Mitchell, EY Global Mining & Metals Advisory Leader. "The value from digital will only be realized when companies change how they work, rather than succumbing to the lure of individual technology programs and pursuing local optimization, which is not necessarily transformational.
EY believes the best way for miners to transition their business into the digital age is to introduce a series of transformational waves, namely:
Digital pre-start: building out connectivity to prepare for digital transformation, which typically involves investment in infrastructure, communications and data.Wave 1: activities that focus on the productivity or performance improvement agenda, and are typically operated within a single function. At this stage, digital can enable a mining operation to manage inherent variability and move toward manufacturing levels of productivity.Wave 2: these activities are broader and span the whole value chain and include initiatives to better manage margin through interactions with customers and suppliers.Wave 3: this stage refers to the rise of disruptive factors that may create significant changes in how the sector operates and may require a step change in business strategyThe report also highlights that, as the level of automation increases through Waves 1-3, mining companies will need to adopt new ways of working, which will likely lead to a shift in workforce demographics and the skillsets required across the sector.
EY's wave approach to digital transformation. (From report: "Is riding the digital wave key to wiping out your competition?" - EY, May 2018.)
The experts warn miners that market leadership can be lost quickly if dominant players respond slowly or ineffectively to industry disruption and external changes. However, they add, the pathway through the waves of digital transformation should not be viewed as inflexibly sequential or static.
"We see the end-state vision for the mining sector as constantly changing and businesses will need to be ready to adapt and change course as required," Mitchell says.
And while EY doesn't believe the sector will see radical disruption, it notes that the opportunity for new entrants to alter the market structure by digitally surpassing existing leaders, poses a real threat.