Innovation Challenges in Mining/METS Sector
Australian Bureau of Statistics data shows that mining firms rely less on suppliers as a source of new ideas for innovation than firms in construction, utilities and manufacturing. A number of surveys have indicated that the capital intensive nature of mining and associated organisational inertia of the sector can be a barrier to the uptake of technology and knowledge intensive products and services from the METS supply chain.
Our research shows there is a strong drive within the mining industry to adopt arms-length relationships with the supply chain, through changes in procurement processes and approaches to value chain management that prioritise cost and risk reduction over other considerations including innovation. METS firms have difficulty communicating the value of their product/service offerings and innovations in an arms-length standardised procurement process.
Towards an alternative model: prioritising relationships and strategic business capabilities
Mining firms can achieve greater innovation along the supply chain through the adoption of new forms of supplier relationship management based on joint growth and value creation. Evidence from other industries suggests that mining firms should form strategic partnerships with METS firms that are essential to their competitive advantage. These partnerships should develop into tightly integrated relational linkages with a focus on frequent feedback which can lead to continuous improvement and assistance with problem solving. Explicit agreements around cost targets and risk management can be integrated into the innovation process rather than based on competitive cost-based bidding. The effective management of relations can itself become a source of innovation for mining and METS firms.
There is also a role for government and industry associations in providing business advice to METS firms to improve their understanding and capacity to manage the procurement demands of their customers. This could include the establishment of industry networks or forums which facilitate communication of the capability needs of mining firms and which inform government policy on the technology and skill development needs of local METS firms. Strategic coupling is the process by which the capabilities of local METS firms are mobilised by ‘coordinating institutions’ (such as government or industry associations) to complement the strategic needs of mining corporations situated within global production networks.
METS firms should also focus on developing strategic business capabilities which enable them to better identify and communicate their value proposition. The key in building successful value propositions is in developing a deep understanding of customer needs in terms of jobs to be done, and how the solution proposed by a METS firm will increase gains (e.g. efficiency) or reduce pains (e.g. less waste and environmental impact) when doing those jobs. Given the increasingly arms-length nature of supply chain relations, it becomes more important than ever for METS firms to use strategic coupling and partnering in developing such a deep understanding. This will assist METS firms to develop innovative value propositions into scalable business models.
Professor Rachel Parker and Dr Henri Burgers, QUT Business School