Operating Models - Why have one?
In the first of a series of blogs on Operating Models, we begin with the question: “Why have one?”.
An operating model is essentially a blueprint that details how a company organizes its resources, processes, and technology to maximise economic value, safely. In mining, an operating model can span the entire value chain from corporate strategy to mine planning, scheduling, extraction, processing, sales, and fulfilment.
The rigorous development and disciplined execution of a robust operating model is a proven approach to achieving superior, often first quartile, performance results. Think of it as the flywheel that helps you drive continued improvements in safety, cost management, and efficiency against a backdrop of changing regulations and market conditions.
As a mining or metals executive, there are four primary benefits you will enjoy as an outcome of creating and executing a rigorously designed and well-defined operating model:
Clarity of Vision
Your operating model serves as an important basis for leadership team communication, both internally and externally. By describing the entirety of your organisation and operation, by defining each piece of your model and why it is important, and by explaining how each piece and concept will work together to yield the intended performance results, you will gain staff and stakeholder understanding, alignment and support. By doing so, you will help your staff break down silos and work together more efficiently and effectively to build a common future.
Repeatable Performance
Repeatable performance is more likely when an organisation clearly understands what is expected of it and constructive feedback is consistently provided to address staff and operational performance that fail to meet defined expectations. Your model will define performance expectations. The expectations within your model will include guidance for process execution, operational decision-making, staff behaviours, safety standards, performance targets, and more. A well-defined operating model creates an opportunity for regular and constructive management observation, assessment, and feedback to your staff.
Additionally, the model serves as a vehicle for organisational knowledge retention. The whole of your operating model will provide a ready reference for new staff and enable repeatable performance when thoughtful changes to personnel assignments occur. These factors combine to prevent organisational performance drift and to help deliver sustainable operational performance results over time.
Enabler for the pursuit of Performance Excellence
Your model will serve as a basis for systematic performance improvement. Accurate observation and performance measurement of a rigorously executed operating model will yield data, information, and insights that can guide thoughtful revisions to your operating model. When properly analysed and carefully planned, changes to process, management routines, quality standards, etc. can yield improved results.
Additionally, when your analysis is benchmarked against industry performance, the resultant improvement actions can yield operational performance excellence. The best operating models support a passionate leadership team’s desire for performance excellence.
Transportability
Your operating model can be used to implement change in additional mining operations. Even the most experienced mining organisations struggle to build operating capability for newly constructed mining operations. When properly communicated and explained, the deployment of a strong operating model can help grow organisational understanding and alignment needed to effectively create change at a new site. In addition to implementation at new mining operations, the model can be a force for change during the process of mine acquisition and or the performance turnaround of existing mines.
For companies with multiple mining operations, a common operating model can be deployed as a basis for standardisation. Standardisation is the consistent and rigorous application of all aspects of your operating model (e.g., policy, process, programs, technology, procedures, operating standards, behavioural expectations, etc.) by all corporate and operational personnel across multiple mining operations. When properly embraced by an organisation and rigorously pursued, the principle of standardisation creates operational leverage that can yield superior performance results. Standardisation can be a serious competitive advantage for mining companies operating multiple assets.
Finally, the transportability of a rigorously designed and well-defined operating model can be a selling feature when attempting to promote the merger or acquisition of your mining company.
What is the risk of not having a well-executed, formal operating model?
The reality is every organisation has an operating model – how it behaves, how it makes decisions, how it executes core processes, and so on. Seldom is it fully described and documented in a quality manner. For such organisations, the operating model can be said to be informal.
The truth is a mining operation’s performance never stands still. Operational and organisational entropy, in its various forms, is always conspiring against you. Plant components wear, organisational knowledge decays, the lessons of history are forgotten, and levels of passion for performance subside. Without compensatory actions, mine, plant, and organisational performance will decline. Entropy is constantly eroding your margins to success and, ultimately, to safe operation.
Organizations with informal operating models are vulnerable. In such organisations, the consistency of employee activity and operational performance primarily depends on two things: 1) the effectiveness of the current leadership team, and 2) the extent of organisational knowledge and skill retention, i.e., organisational memory. For example, in the absence of a strong operating model, a change in General Manager – new personality, new leadership behaviour, and new direction - can more readily result in organisational dysfunction. Likewise, an employee demographic shift introduced by a tight labour market can create a loss of knowledge and skills that results in declining mine performance. In mines with informal operating models, sustainable performance can be left to chance; they are more vulnerable to the forces of cyclical performance.
An operating model helps defend the entropic forces that can erode operational and organisational margins. Rigorous daily execution coupled with constant organisational oversight, assessment, and reinforcement of defined operating standards and performance expectations will provide a comprehensive and systematic defence against such forces. The higher and more complete your level of compensatory activity is, the more effective and sustainable your operation will be. A detailed and documented operating model whose components are integrated and complimentary and whose day-to-day execution is constantly reinforced will sustain and grow operational performance and prohibit performance decline.
In our next blog on Operating Models, we ask the question: “What exactly is an Operating Model?”.
