Business model innovation is a great concept and something all mining professionals should be aware of.
Basically it means doing things differently as a business in contrast to other companies that operate in the same sector. Remarkably it took management academics a long time to understand and describe this phenomenon.
The explosion in management literature on the subject area accompanied the 1990s technology boom as traditional ways of doing business were challenged by the new force of e-commerce.
Business model innovation is one name for it that does the rounds of academe and ivory towers, business concept innovation is another. To this scribe at least, the two labels are synonymous.
Outside the minerals sector there are many famous examples of business model innovation – as distinct, that is, from purely technical innovation.
As a mining business our whole industry is founded upon the latter – innovating technically to achieve good production economics. We should not forget the former, however – considering wholesale changes to the way we do business.
Michael Dell springs to mind as a poster child of business model innovation who, rather than place computers in a shop window, chose to build them to client order.
That was great business innovation indeed – even if very simple to understand after the fact – and came with the added benefits of lower inventory cost, a very limited requirement for computer stores and that the customer could better choose products that were customised to their requirements.
Some such business innovations work, as was the case with Dell computers. Others don’t, of course.
So if Strictly Boardroom set up a pizza-making business promising to be far slower than all competitors in making home deliveries it is unlikely that such a business would succeed – albeit that the concept of “slow pizzas” is indeed novel and innovative in the sector.
Slow pizzas would certainly qualify as innovative – but not as business savvy.
While on the subject of pizzas, an insightful story from a management consultant friend is worth recounting here.
Commissioned to suggest ways to improve the economics of a pizza company some years ago, my colleague recommended, among other things, that cheaper but more voluminous product could be used as toppings for late evening special orders.
The change made money, driving up order numbers after 10pm and also saved on costs due to lower quality toppings.
It turned out from market research that late night pizza customers prefer volume to quality (all right, they were often drunk).
Serving up pizzas that met that need required simple but effective innovation in the fast food pizza world.
Back to mining though: are there examples of business model innovators in our midst? Of course there are.
Mining royalties companies are business model innovators and for the most part have been very successful ones too. They do no actual mining but have typically outperformed traditional mining companies in shareholder returns.
Mining investment companies also aim to innovate in their mode of business but have not generally been as successful as a group as their royalty-focused peers.
Mineral explorers always lay claim to using the latest technical innovation but few think about differentiating the way they position themselves to investors.
Business model innovation opportunities do exist in mineral exploration too.
As an example, at the bottom of the exploration cycle in the early 2000s there was talk of setting up special purpose commodity-focused drilling-funds to be available as an investment entity.
The aim was to beat the odds of exploration risk by earning project equity from specifically commissioned drill programs.
Equity markets recovered too quickly for such novel concepts to come to market, with traditional explorers once again able to source capital.
Drilling funds were quietly forgotten as a concept.
Whether any such entity would have been the equivalent of slow home pizza delivery or as successful as late night “‘with the lot” pizza toppings is hard to say.
Perhaps one day we will find out.
Companies could do worse than put their thinking caps on as regards business model innovation in the minerals world.
There is no doubt a highly successful new business model is staring us all in the face. The problem, of course, is that we can’t see it.
Allan Trench is a professor at Curtin Graduate School of Business and Research professor (value and risk) at the Centre for Exploration Targeting, a non-executive director of several resource sector companies and the Perth representative for CRU Consulting, a division of independent metals and mining advisory CRU Group (firstname.lastname@example.org).