To start 2015 many would have hoped for a turnaround in commodity prices, unfortunately it has continued much the way 2014 finished.
As the Australian Bureau of Resources and Energy Economics mentioned late last year in their biannual review of mining investment, “The environment of lower prices has encouraged resources companies to focus on improving productivity and reducing costs of production rather than investing in additional capacity.”
This has lead to an industry wide shift away from expansion and investment towards production efficiencies and cost-cutting. Poorly run assets are no longer sustainable, and their managers are starting to panic.
The best managers in the industry have always been focused on lowering the cost of production, regardless of the industry life-cycle. They run lean organisations with a culture of continuous improvement creating an organisational agility leaving them better placed than their competitors to take advantage of new opportunities.
How the Machine Became Lean
The term “lean” is often used by executives to describe their organisation. In most instances it describes the organisation they aspire to, not the one they run. The term “lean” is commonly misunderstood to mean running the business and operational processes with as few people and the minimum amount of equipment as possible. A lean organisation is much more than that.
Lean organisations have a highly structured and disciplined culture that eliminates waste across the organisation. It improves operating systems to reduce costs and adds considerable value to assets, resources and labour. Unlike mere cost cutting, Lean aims to not just reduce expenses, but to have a strong and positive impact on quality, speed to market and profitability.
The Lean approach was developed in Japan and was first witnessed by the west in the 1950s through the highly publicised production systems of Toyota. Building on the Japanese tradition of “Kaizen” or “Improvement”, Toyota established a revolutionary way of operating that allowed them to compete in the highly protected (and patriotic) American car market.
Despite the financial rewards at stake, it wasn’t until the 1990s that firms in the U.S. were truly considered Lean. Appropriating the Lean methodology had taken close to 40 years. The reason for this is simple: Lean is a culture, not an operations manual.
Getting to Lean
For most organisations implementing a lean culture requires a change programme. Understanding where resistance to change comes from is a key determinant in the success of change programmes. Across all levels of an organisation change needs to be understood if it is to be successful. Forcing change on people is perhaps the best way to build resistance to change.
One way of developing an acceptance of change is to demonstrate that the current methods no longer work; to demonstrate that they are failing. There is significant evidence about the value of failure when it is correctly managed; something this blog has spoken about previously.
Evidently, it is not the failure itself, but the ensuing learning that really matters. The organisational learning from failure seems straight forward, but it is far from it, especially in large organisations. Learning from failure is most pronounced when failure is experienced, not explained.
Experiential business simulations are the perfect instrument to create this sort of “positive failure”. They create an internal realisation of the need for change, inducing participants to voluntarily discard their existing practices, significantly lowering the resistance to change. It is only when the old practices are discarded that a kaizen culture can emerge.
Getting to Lean (Version 2.0)
Well designed experiential learning environments now allow the learning process to be expedited. This is achieved by accelerating operating time frames, so that one hour might represent one year in the businesses life, for example.
This accelerated time frame is then used to induce repeated iterations of failure so that not only are old practices discarded, new practices are developed, tested and discarded until successful practices become an entrenched culture.
Mining organisations outlay enormous capital to achieve efficiencies through the latest equipment that is developed on the back of new technologies. They way the approach external services should be no different. Any organisation, in any market, will become redundant if they fail to embrace best practices.