why you need to act now
With healthier margins due to higher commodity prices, it’s easy for costs to get out of control during boom times. Boom times also remove the urgency and imperative to change, because they mask the issues of high costs and inefficiencies. A site’s success, despite the $#!t show, dwarfs the problem.
It’s not until things start to go south that mines start to feel any sense of urgency to change or bring costs back under control, but by this stage, the window of opportunity is closing rapidly. This is why frantic cost-cutting is often seen as the only solution; leaders are reacting to a problem they are currently facing, rather than being proactive about the problem they should know is coming.
The levers you really need: Why frantic cost-cutting does more harm than good (and isn't one of them)
As soon as commodity prices start to cool, leadership decides to go on a cost-cutting exercise; but, high costs are an outcome of poor management practices. Rarely, have I seen these exercises done strategically, systematically or address any of the root causes (like fixing the operational processes). Instead, the focus is only on symptoms, because there is a lack of a single, trustworthy source of truth, which is hiding the real underlying issues.
Low productivity is a large part of the high costs, resulting in an uncompetitive cost per unit ($/tonne, $/pound, $/ounce, etc) so the first (and easiest) cost reduction is always headcount. As the operational maturity has not been improved after the layoffs, there are now fewer people sharing the same workload, which only fuels employee stress and disengagement. To make matter worse, the ‘grey hair’ is increasingly making up the population walking out the door during these periods. Why would they continue working, stressed, in a $#!t show that shows no signs of improving, when they can take a redundancy payout and retire?
We all love the boom times when commodity prices are rising or at historical highs. The constraint in the business moves from cost focus to production maximisation at any cost (note: not optimisation). Sure, the cost of doing business increases, but “we can deal with that later… right?”
Your exposure is increasing!
You are probably reading this because you have an inkling that, while you’re still making bank, all is not as well as you are led to believe. Organically grown operating systems tend to become complex and cumbersome, and trying to get compliance from the workforce is a constant uphill battle. Workarounds and poor compliance are leaving you increasingly exposed to all sorts of risks: health and safety, operational, cultural, financial and community.
You may not know this, because it’s probably a hidden ticking time bomb, waiting to go off at the most inconvenient time, when it will be much harder to fix.
Only a mine site that’s in control is safe.
Competitors are taking notice
As shareholders start to notice worsening results due to flat or dropping commodity prices, so are your competitors. If this goes on for long enough, you can become the target of a hostile takeover. Is that something you want to happen on your watch?
The best time to start was yesterday, the next best time is today
The sooner you embark on improving your organisational maturity and resilience the less time there is for existing bad habits to become entrenched, and the more prepared you will be for the eventual, but inevitable, commodity price downturn.
- There will be challenging times
- The bigger the transformation effort, the more resistance to change you can expect, especially if not managed proactively
- There are proven methods to do this well, ignore them at your peril
As commodity prices drop, so will your bottom line. It’s easier to make changes now, while you’ve got the margins to play with, than waiting until you can least afford the time and cost.
