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MPI Analysis

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How miners can get real value from centers of excellence

2017 | Marta Mussacaleca | Joël Thibert

Many mining companies have set up centralized groups with the aim of ensuring compliance to global standards, promoting operational excellence, and sharing core expertise. But such centers of excellence (COEs) often prove ineffective. They tend to shrink and expand with commodity cycles, lack a clear business purpose, and typically suffer from poor integration into operations. They typically set guidelines that few people use and raise alarms no one listens to. As a result, these groups stand more than 60% chance of being dissolved during downturns, as their value is often called into question.

Such failures can be costly in terms of overheads, as these groups range in size and can reach up to 20 FTE per billion dollars revenue – 100 FTE for a 5B company, or USD 15-20 million a year, without much to show for it. More importantly, their failure is a costly missed opportunity from a shareholders’ perspective. Indeed, one of the key roles of COEs is to ensure that all assets identify – and work towards – their full potential.

By identifying ways to extract more value from existing assets, spotting profitable acquisition opportunities, ensuring compliance to global standards, and deploying operating best practices, COEs can deliver tangible impact and accelerate profitable growth – but to be effective, they need to be fit for purpose.

Getting the right org design…

When it comes to org design, there is no one-size-fits-all solution. Different org models emerge as a response to different strategic objectives and accountabilities for the COE. In determining the right org design model, there are two critical factors:

1.Clarity of purpose It is imperative that leadership determines a clear strategic goal, objectives, and clientele for the COE within the organization. A COE could focus on identifying opportunities to create more value, adding flexibility to key functions (e.g., reliability, sourcing), or serving as a transformational steward (e.g., to introduce automation and digitization). Whatever the COE’s strategic goal, it must have ownership of shareholders’ interests.

In terms of clientele, COEs can serve corporate management, helping monetize initiatives and acting as independent internal advisors. They could also serve operating units, helping improve the technical performance of assets and supporting the implementation of companywide initiatives. The key is COEs having clear accountability to their organizations.

Integration into the organization Proper integration is crucial to making a COE effective in the long term. Leaders should pursue the following three objectives:

Balance between push and pull. While the COE must be responsive to units seeking its expertise, it needs to remain independent of those units’ agendas. One mining company, for example, set up an asset management COE staffed with highly regarded internal experts. They were “pushed” to act as independent advisors to business units on improving performance. Business units, meanwhile, were required to “pull” in the COE’s expertise to identify improvement opportunities. This structure worked so well that the COE survived three waves of G&A reductions.

Frequent communication of strategic goals. The COE should regularly convey its mission and how it serves the organization – marketing its value-add internally and building demand for its expertise. At one client, the launch of a sourcing COE was accompanied by an educational campaign across all business units. The CEO’s support and promotion of the value the COE could deliver resulted in operations managers widely seeking out its services.

Formal and informal feedback. Management, with input from operations, should formally and regularly review the COE’s performance to ensure it stays focused on the organization’s needs. Experts must also stay connected to the operations informally, in order to identify opportunities to create value. For example, the water management COE at one mining company created a “water community” to enable employees at operating sites to communicate with the COE’s experts outside of formal audits and project reviews.

… to deliver maximum value

When implemented effectively, COEs help organizations embrace transformation and capture maximum value from their assets. At one mid-sized mining company, the full potential assessment spearheaded by the technical COE led to a ~USD 300 million increase in the net present value of its assets: a near 100% increase.

At a different company, the inability of the COE to establish and enforce clear environmental standards eventually led to an incident in a unit where no formal risk assessment had been completed. This, in turn, resulted in the near-complete shutdown of the operation for several weeks and cost the company tens of millions of dollars in fines and production losses.

In sum, COEs have the potential to be much more than an assembly of boxes and lines on an org chart. With thoughtful design and management, COEs can be true enablers of competitiveness for mining companies.

This article was written by Marta Mussacaleca, an Engagement Manager in the Toronto office, and Joël Thibert, an Associate Partner in the Montreal office.

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