EY - Productivity in labor: it is only a ceasefire

Productivity in labor: it is only a ceasefire

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It is only a ceasefire — the war for talent in mining will continue

Productivity, on both a volume and cost basis, has been declining significantly in the mining industry since 2000. This has been a conscious choice by industry participants to pursue production growth and headline revenue during an unprecedented boom in commodity prices.

As a result of this choice, many miners adopted a “hire-at-any-cost” approach. The end of the boom has reversed this trend, with many feeling this has led to a victory in the war for talent. But is it as simple as a supply demand equation?

If the sector singularly focuses on responding to the impacts across the economic cycle and loses its focus on the war for, and supply of, talent, it will expose itself to the risks presented by more enduring trends.

In our Business risks ranking, the skills shortage risk has moved from number one business risk in mining and metals in 2008 to ninth place in 2014.

However, the risk is still substantial and now more complex, and we believe the loss of focus on talent poses two significant risks to the sector:

  1. Shortages of the wise, senior and experienced people critical to delivering the productivity and efficiency improvements that are essential in a downturn
  2. A significant skills shortage when the next economic upcycle inevitably begins

Retaining the wise, senior and experienced talent for the challenges of today

Retaining the right people will be a key competitive advantage. While emerging talent and new ways of thinking will continue to be critical to a sector which is adapting to the productivity imperative, this will not be a substitute for the deep experience of those that have traversed the sector over many years. It is these senior professionals who are best positioned to provide the skills, knowledge and “safe pair of hands” to lead the sector through this period of turbulence because they have:

  • The right skills required to realize productivity and efficiency gains, including project management, change management and process improvement
  • Deep knowledge of the mine and the sector, and are comfortable switching between strategic and operational thinking
  • Seen it all before, and have the experience of a leaner, more efficient operational model, culture and mind-set

While demand for this subset of the labor market is increasing, supply is decreasing, as many seasoned operators reach retirement age, take early retirement, or make a career change to another sector. Once lost to the sector, it is very hard to attract them back.

What can be done?

There are two responses available to a mining organization to ensure the organization has the talent needed to remain profitable, and both need to occur simultaneously:

1. Win the existing talent war for the wise, senior talent

To retain the right people, miners need to be able to clearly identify the wise, senior talent with the capability to navigate the down-cycle, and put in place clear strategies to ensure these people remain at the organization. Retention strategies might include offering:

  • Secure flexible working arrangements (e.g., part time, job sharing)
  • Productivity-based performance incentives
  • Leveraging technology to minimize the need for FIFO
  • Mentoring or coaching roles
  • Personalized support to transition to retirement
  • Tailored rewards programs to meet personal requirements
  • Rotation of people across mine sites within the organization’s portfolio

2. Develop, grow and align new talent

While developing and growing talent has a lag time, it will be important to develop and grow the capabilities and skills needed in project management, change management and process improvement over time, by having senior and experienced people mentor newer staff. This would address concerns found in the sector on the barriers to intergenerational transfer of corporate and specialist knowledge. Training and L&D can also play a part in developing these critical skills.

Investment in talent will be as critical to the success of miners as investment in exploration.

Ensuring future supply of talent for the opportunities of tomorrow

Four trends that are set to influence the future supply of talent are:

  1. The ageing workforce which poses a strong risk to mining leadership
  2. Globalization which adds real complexity to how companies monitor and manage their talent position
  3. Greater collaboration and fewer silos
  4. Disruptive technology which is changing the skills mix required

There are clear risks associated with inadequately responding to these trends, including:

  • Supply shortages of senior, experienced professional, technical and trades-based employees as a generation retires or leaves the sector
  • Delays in rebuilding sufficient talent supply for future demand growth subsequent to current downsizing trends and retrenchment activities
  • Exposure to poaching of key talent from global competitors
  • Mismatches between newly employed technologies and the changing skill profile required

What can be done?

How do companies strategically downsize while retaining talent? In a period of downsizing, companies need to pay particular attention to retention risk associated with key segments of their workforce, coupled with productivity gains to be made removing less efficient employee groups across an organization.

Organizations also need to understand the economic cycle, accurately forecast their labor needs at each stage, and devise clear strategies for cyclical scaling human resources up or down accordingly to preserve long-term value.

For more detail about how organizations can do this, download the full report.