October 2014

Innovation

The business case for open innovation

By Carl Weatherell

In March 2000, Goldcorp published 45 years of proprietary data on its Red Lake mine in northwestern Ontario and its surroundings on the Internet. The company invited the world at large to use the data to submit prospecting methods and received 1,400 proposals. From these, Goldcorp selected a total of 25 semi-finalists and three finalists who identified 110 exploration targets. Half of those were previously unknown to the mine’s geologists and 80 per cent of them have since netted significant deposits. The end-result was the identification of eight million ounces of gold, and the company’s valuation moving from around $100 million to $9 billion. Goldcorp’s success is also one of the few case studies of open innovation by mining companies.

Many companies struggle with the notion of innovation (never mind open innovation) because they equate it with R&D. This could not be further from the truth. Innovation, in the context of the minerals industry, is about bringing ­something new to the business such as ideas, technology, processes or research that provides measurable, economic value. Without a direct and tangible link to the economic drivers of the business, activities labelled innovation are simply activities and not innovation.

Open innovation takes this a step further. It is about bringing new ideas, technologies, processes or research from both inside and outside a single company or the minerals sector. This could be from collaboration with other companies, suppliers, original equipment manufacturers (OEMs), colleges and universities to improve results. As the Goldcorp example shows, openness can provide solutions with less risk and a higher success rate and enrich the culture of innovation in the process.

Another benefit of open innovation is cost reduction. In 2010, AngloGold Ashanti created the Technology Innovation Consortium (TIC), an open innovation organization in South Africa that includes OEMs, suppliers and research institutions. With TIC, AngloGold hopes to develop a solution to the challenges of safe and sustainable mining at depth by repurposing currently available safe technologies for the mining industry to replace drill and blast techniques. Although it is still a work in progress, AngloGold has been able to reduce its all-in sustaining costs by 22 per cent using the outputs of the open innovation approach. They’ve achieved this by increasing the sources of ideas and sharing solutions to specific challenges while mitigating development costs.

Open innovation may be rare in mining but it is not a new concept, as many companies in other sectors of our economy practise this approach. BMW, Procter and Gamble, Tesla, PricewaterhouseCoopers, IBM and Google are a few examples of companies that, in recent decades, have employed this strategy and enjoyed healthy profits.

Of course there are many myths surrounding open innovation. The first is the perceived value of intellectual property (IP) developed in-house. With today’s rapid pace of change in the global economy, companies in all sectors are looking to quickly develop and execute projects. In the minerals industry, companies are focused on bringing new mining projects online faster with less capital expenditure. In this climate, companies would do well to forgo the time and expense of patenting their IP in exchange for rapid development. One mining company executive we spoke to recently explained their company had generated a large amount of IP but was increasingly convinced it would be more valuable to open up and let external parties access and build upon it rather than protect it.

Related to the IP challenge is the notion that companies can collaborate while competing at the same time. Open innovation employs collaboration and co-creation, sometimes with competitors of a core piece of technology, process or IP. In this case, the value of open innovation to these businesses comes from the profit gained individually or collectively through the co-created assets. For example, two companies co-develop patents for an inexpensive and effective baseline emission control technology that is beneficial to both companies in different markets. Neither of the partners, however, is a product company, so they both contribute IP to a start-up manufacturing company funded by outside investors to produce their technology. The company is jointly marketed by the partners and complements current service offerings to each of their customers.

Carl Weatherell
Carl Weatherell is the executive director and CEO
of the Canada Mining Innovation Council. Carl is a
change agent known for discovering new ways of
doing things and taking ideas to execution. He is a
natural connector, often bringing together disparate
and seemingly unrelated people, groups and
organizations to create new partnerships.

It is important for mining companies to address major technical challenges in order to increase shareholder value. What if you could find new deposits faster at a greatly reduced cost? What if you could reduce operational expenditures by five per cent annually through energy efficiency? Imagine that you could eliminate grab sampling of receiving waters or tailings altogether. These are some of the greatest technical challenges the industry faces, yet has not been able to solve. Only through an open innovation approach can we even think about addressing them, let alone achieving success.

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