How Innovation Is Changing Natural Resource Companies

Anton Kroger

In my previous two blogs “Natural Resources Companies Ignore Data At Their Peril” and “How Changing Consumer Buying Patterns Are Going To Impact Natural Resource Businesses,” I identified the five impacts of modern technology trends on individuals:

  1. How we socialize and what we want to be associated with
  2. How we learn and explore
  3. What we buy and how we buy
  4. How we do things
  5. Who and what we trust

I made the point that natural resources companies are challenged at comprehending the second, third, and fourth order effects of how technology trends might impact their industry. In this blog, I will explore how the way we do things will impact the natural resources industry.

Maintenance will become augmented by robotics and then disposable

When did you last try servicing a washing machine, a TV, or a microwave at home? It’s fascinating that in our personal lives, it seems that it is usually cheaper to replace our appliances than to try to service them.

By contrast, natural resources companies spend huge amounts of money on maintenance. There are no two processing plants that are the same and, for the most part, equipment is custom-built to deal with the industry’s scale and remote operations. The impact is the high cost of maintaining and operating this equipment, requiring large workforces to exist in conditions that no human really wants. Many companies are focusing on automation of this equipment to remove humans from these environments, improve safety, and decrease costs. While this is good, it has not delivered a true step change yet, as the equipment hasn’t fundamentally changed. It’s still big, heavy, and bespoke.

The real question is, does it need to be?

Take, for example, the large, yellow truck, an icon of the industry. The reason we had big trucks in the first place was that, with older technologies, bigger was more efficient, with the added benefit that bigger trucks meant we needed fewer people on mine sites to drive them. As these trucks become autonomous and technology (like electric drive) improves their efficiency, the question is, can they become smaller?

What would happen if we used standard, commercial, autonomous trucks, a 10th of the size?

All of a sudden, we would be in the world of trucks produced at mass scale for the transportation industry, plummeting prices of purchasing, maintaining, and servicing them. In addition, smaller commercial trucks are faster. A limitation of large trucks is that their speed is limited by their large tires that overheat. A larger fleet of smaller commercial trucks could become more economical and faster than large trucks built specifically for the industry.

We could have the same situation with things like crushers and conveyors, which are big because they are filled by big trucks. What would happen if we made them smaller and had more running in parallel? This would spread the failure risk and likely reduce the impact of downtime and increase overall availability. The same thing applies to conveyors. Other industries, like manufacturing and baggage handling, have millions of more miles of conveyor systems, so by making mining conveyors similar to those industries, we can take advantage of mass manufacturing and equipment is more likely to become highly commoditized.

In the future, mining equipment will likely be smaller, mass-produced, and recyclable. Equipment won’t be bought with the expectation that it must survive for the life of the mine. It will be replaced frequently, allowing mining companies to keep up with rapid advancements in technology.

Back-office automation will leave more time for value-adding activities

History has proven that, as technology evolves, so do humans. During the first industrial revolution, workers were concerned that machines would replace farm laborers. They did, yet society prospered. The second industrial revolution’s factory lines proved craftsmen’s fears true about being replaced, but these factories also created more jobs. The third industrial revolution saw electronics enter the manufacturing world, and again workers despaired. But we adapted and society thrived.

Here we are at the fourth industrial revolution where the cyber and physical worlds meet. Artificial intelligence, machine learning, and robotic process automation have become a reality, and again we worry that technology will replace our jobs. The reality is that it probably will.

There are a lot of studies trying to predict which jobs are likely to stay and which jobs likely to go. I think it will be very difficult to predict. Will artificial intelligence, natural language processing, chatbots, and virtual reality allow robots to adopt human-like qualities, making it difficult to differentiate us from robots in the future?

When I talk to resources companies about the business benefits of back-office automation, the conversation often leans towards efficiency, which by implication means we will need fewer people to benefit. What companies often miss, though, is that the real benefit of efficiency is not created by reducing heads but rather by increasing effectiveness. I estimate that the benefits of efficiency are about 1/10th of the benefits created by higher effectiveness.

Efficiency, in isolation, normally only focuses on bottom-line improvement, while effectiveness creates new ways to improve the top line while also reducing the bottom line. Imagine if resource companies could free up minds normally trapped by mindless, repetitive tasks and focus them on “opportunity and effectiveness thinking”?

As an industry, we have hopelessly underinvested in R&D. Not because we don’t have some of the smartest minds, rather because we have been focused on improving efficiency and reducing the cost line. Opportunity thinking is the driving force behind innovation, and this is what differentiates us from machines.

Machines learn by following trends and thinking logically. Humans learn by doing and thinking differently.

We should not forget that, in order for artificial intelligence to exist, it required human intelligence to create it. It’s this type of thinking that develops disruptive new ideas that can radically change a company. In the face of the changing power mix, as well as the challenges coming from things like recycling and the changing commodity mix, natural resources companies need to use the efficiencies they are gaining from technology to free up the minds of their employees to focus on effectiveness or opportunity thinking. If they don’t do this they are leaving the door wide open to disruption. In the words of Jeff Bezos, CEO of Amazon, “Your margin is my opportunity.”

At SAP, we are actively developing new technologies, such as SAP Leonardo, that help natural resource companies manage their supply chain, trade commodities, and deliver smart manufacturing.

Anton Kroger

About Anton Kroger

Anton Kroger is an Energy and Natural Resources industry solution specialist for SAP based in Australia. Anton has worked in the resources sector for 16 years and has field operations and management experience, both locally in Australia and internationally. He now works with Energy and Natural resources companies across Australia and New Zealand to help them run better, more innovatively and imagine new ways of doing business. He is an advocate for clean energy and resources and believes that innovation is critical to the future of this industry. Anton believes that despite the disruption taking place in the industry today there is still a lot of opportunity for existing companies in the future.