Mining value in a high performance industry?

Shared Services allows mining companies to deliver efficient support to their operations in a cost effective manner based on harnessing economies of scale and scope.

The mining environment differentiates itself from other industries in that it functions in a strictly controlled legislative environment with challenges around its social license to operate as well as human capital constraints, stagnating productivity and increasing operating costs.

Over the past decade the South African industry has seen a marked increase in mergers and acquisitions. This is partly due to South Africa's emergence from international isolation post-apartheid, but also as result of the Mineral and Petroleum Development Act that seeks to compensate for the risks associated with fluctuating commodity prices. In addition, the year-on-year operating costs have increased. From labour to utility and fuel; all costs have been well above the inflation rate.

All these factors are forcing South African mining houses to review their operating models.

The question is how mining companies in South Africa can put in place models that allow them to maximise the advantages that come with harnessing economies of scale and scope across their business thereby assuring their Operations can focus on the core business of mining.

A Shared Services model could be one solution for these challenges.

The definition of a Shared Services model

Shared Services is the consolidation of the non-core activities and tasks of all business divisions into one central support unit. Operations becomes an internal client and buys Shared Services and products at a market related price.

In our view the Shared Services model can be the answer to finding a balance between the economies of scale of centralised organisations and the flexibility of small organisations.

However, as the model requires a change to the traditional top-down corporate structure and functions, the success of a Shared Services model is dependent on a mindset shift that embraces a customer-orientated culture and a bottom-up approach.

The Shared Services model is characterised by a performance-driven culture with skilled and scarce resources leveraged across the company and Business paying for the services they use.

The Shared Services model is a highly functional blend incorporating the advantages of a centralised and decentralised model while, at the same time, shedding the disadvantages outlined thus far.

Shared Services advantages

  • Harness economies of scale and scope.
  • Common systems ensure standardisation.
  • Pooled resources ensure greater synergies.
  • Customer-focused services create a responsiveness to client needs.
  • Business Units maintain control of decision-making.
  • Enhanced performance management.
  • Greater focus on strategic decision-making.
  • Shared Intellectual Property with regard to Research and Development facilities as well as Best Practice implementation.
  • Shorter development cycles.

The FeverTreeConsulting approach

A one-size-fits-all-model does not exist for Shared Services. FeverTreeConsulting follows a phased approach in developing an appropriate model that is matched to business requirements and takes into account the strategy as well as the the life cycle of the company and the maturity of its Operations.

The five steps leading to the implementation of a Shared Service model are:

  • Diagnostic phase
  • Services categorisation
  • Process optimisation
  • Organisational design
  • Performance measurement and wiring of the organisation

The critical success factors of a Shared Services model implementation

The importance of the implementation process of a Shared Services model is often underestimated. Easy-to-understand Service Level Agreements (SLA’s) and Key Performance Indicators (KPI’s) must be created and executed.

Without defining key performance parameters, companies run the risk of creating a dysfunctional Shared Services model.

Performance measurement is key. Contracts should be kept simple, easy to measure and visible to all.

Managing expectations is the key to success when starting the process of defining SLA's as Business has to understand how long it will take for the Shared Services Centre to reach its optimal performance level. Realistic service levels, with regard to quality and efficiency, must be negotiated from the outset. Hereafter it is a Business imperative for the service levels be evaluated on a frequent basis.

An often overlooked element in this regard is the positive physiological effect that having a contract has on the acceptance and adoption of the Shared Service approach. When the client has a contract to "fall back" on, it helps to accelarate buy-in.

Measurability of costs is as important. If you don't know where you came from, how do you tell how far you've come?

Is Shared Services for you?

There are a number of key questions that can assist in assessing whether a Shared Services model is an advisable route for an organisation. If the answer to any of the below-mentioned is "yes", establishing a Shared Services unit is a viable option to investigate for your company:

  • I don't know who is doing what in my organisation?
  • I don't know what types of services the Group actually provides?
  • I have never being asked what services my operation would you like to receive.
  • I'm complete different reports that actually contain the same information.
  • We are internally focussed as opposed to customer focussed.
  • We are not happy with the quality of service delivered to us.
  • We perceive the Corporate Centre as a "police" function.
  • We compete internally as we don't have sight of what's going on from a business level perspective.

Overall, Shared Services could be the answer for an organisation wanting to focus on its core business in a cost effective and efficient manner, while at the same time enabling it to fully leverage economies of scale and scope, and become more strategic in the way it adapts to a dynamic and continuously changing environment.

However, the success of implementation and achieving the benefits is dependent on the quality of the change management and implementation process and success can only be guaranteed by applying best-in-class design methods and selecting the appropriate implementation plan that fits an organisation's needs.