Mining companies across the world face challenging market conditions including price volatility, rising costs, and a lack of financing.
According to the Australian Government’s recent Resources and Energy Quarterly, a combination of weak growth in consumption and strong supply growth placed considerable downward pressure on commodity prices in the first eight months of 2015.
The downturn in commodity prices has pushed many companies to implement cost cutting programs to remain profitable.
Now more than ever, there is pressure for mining companies to increase value by leveraging new technologies such as the cloud, automation, analytics, artificial intelligence and mobility.
These technologies have created an entirely new ‘As-a-Service’ business model, where the whole is more powerful than the sum of its parts.
This is the ‘Power of AND,’ integrating software, infrastructure AND business processes on demand, providing companies with plug-in, modular, scalable AND consumption-based services.
Adoption of this model is allowing mining companies to receive plug-in, modular, scalable and consumption-based services, which in turn enable more agile, robust and cost-effective business services.
Though the As-a-Service model provides a number of opportunities for larger businesses, it’s largely under-utilised, according to a recent study from Accenture and HfS Research.
Results from a survey of more than 700 enterprise service buyers, advisors and service provider executives revealed that all Asia Pacific enterprises surveyed saw the As-a-Service economy as significant for their organisation, with 23 per cent saying it is critical.
Despite this, only 8 per cent believe their core enterprise processes are currently delivered As-a-Service, and almost half (46 per cent) do not expect their core operations to be delivered via the As-a-Service model for at least another five years.
The research suggests that small and medium sized enterprises are more likely to adopt this model, meaning larger companies may be at risk if they do not look to move away from older models to keep up with evolving business practices.
Rio Tinto is one example of a large mining company adopting an As-a-Service business model solution.
Moving to a new information systems and technology delivery model, Rio Tinto is merging core enterprise information systems and technology to a cloud-based, As-a-Service solution.
The program will include the modernisation of the company’s existing enterprise resource planning and information management platforms, and consolidate and host these applications on the cloud.
Due to the increased business agility – in addition to the cost flexibility and lower infrastructure prices that are inherent in cloud services – Rio Tinto expects to find substantial cost savings with the adoption of the new model.
Costs are also flexible due to the pay-for-use pricing, and services are scalable based on business demand.
Rio Tinto’s move to the modern business model demonstrates the ways in which mining companies drive innovation and value from an As-a-Service model.
Modular designs allow mining enterprises to mobilise and demobilise their services rapidly as necessary, to choose the service levels and create variable cost models inside their own business. By using this approach, mining enterprises can ‘plug in’ to access services quickly in a matter of weeks or even days.
The model is also scalable, so companies can ramp up and down their activities to match actual business volume needs.
Overall cost reduction is another major benefit – for a significantly lower total cost of ownership, buyers can access up to date software platforms, rather than implementing them from scratch. In addition, with this model companies only need to pay for what they actually use, rather than having to commit to functionality and capabilities they may not ever need.
The model operates on a basis whereby both buyer and provider make the commitment to achieve specific business outcomes.
The vendor agnostic nature of the As-a-Service model is another useful feature for many companies.
They benefit from the knowledge and experience of a number of IT providers, and assemble a combination of solutions that work to achieve the desired business and performance outcomes.
The competition ensures providers are committed to innovations in business processes, which protects the buyer from potential problems stemming from upgrades and change.
Procurement is a business process that can benefit immensely from an As-a-Service delivery model. A recent Australian report from Mining IQ identified procurement as a critical area for mining companies to optimise costs in order to survive in the volatile market.
The respondents in the survey ranked the automation and standardisation of procurement processes to improve efficiency as the number one priority for mining procurement activities in 2015. Despite this, only 38.5 per cent of respondents were found to have automated functions in their supplier and purchasing processes, while 34 per cent of respondents indicated automation of procurement processes was not even on their radar for the near future.
The banking and finance industry is an example of a sector achieving greater efficiency and value in procurement through the As-a-Service model.
For example, Deutsche Bank is undergoing a procurement transformation, automating its source-to-pay process, including invoice processing and contract compliance management and migrating the bank’s current on-premise procurement IT platform to an on-demand, cloud based solution.
This update has helped Deutsche Bank demonstrate a 15 per cent savings in both procurement operations and operational IT costs.
As a result, the bank has seen improved cost control, faster procurement processing and a streamlined transaction process. Mining companies could achieve similar value in their procurement process by applying the As-a-Service approach.
Adopting the As-a-Service model is not always an easy task for large companies.
Learning how to buy services piece by piece, creating awareness in the organisation about changes to the overall strategy and addressing talent gaps in areas like analytics and automation are challenges faced by many organisations.
Whilst the As-a-Service model will require strong leadership it is what is needed to drive future cost savings, increase productivity and achieve world class operations. The challenge for miners is when, not if.
*Nigel Court is Accenture’s Asia Pacific Mining Lead.