There are many ways to measure business success. Some CIOs judge how an enterprise meets its goals by tracking metrics such as dollars per transaction and transactions per customer, or by employing methodologies such as Balanced Scorecard and Six Sigma to gauge the overall health of the business. In Australia’s booming resources sector, however, many CIOs like to measure business success in cubic tonnes. Millions of cubic tonnes.
“I have the great fortune to hold my role through a period of unprecedented expansion of our industry,” says Rohan Davidson, CIO of Rio Tinto Iron Ore. Davidson’s observation is somewhat of an understatement. Rio Tinto’s planned expansion of its Pilbara iron ore network of mines, railways and ports in Western Australia will see the company, which posted a profit of $US14.32 billion in 2010, lift production tonnages by 50 per cent to 333 million tonnes by early 2015.
“The resources industry has held an enviable position in this economic cycle with demand for product remaining strong throughout,” Davidson says. “While many other industries have had a primary focus on cost reduction, we have expanded and our stakeholders have moved from viewing IT as an overhead cost to recognising technology solutions as a key enabler of business value.”
Vito Forte, CIO of Fortescue Metals Group, the world’s fourth-largest iron ore miner, tells a similar story of fast-paced expansion. “We’ve been growing very rapidly,” Forte says. “At Fortescue, it took us three years to get to an average production rate of 45 million tonnes. By comparison, it took BHP around 30 years to reach that amount.”
Forte claims more than 90 per cent of the work that Fortescue’s IT department does is directly related to business expansion activity. “Everything we do is focused on value,” he says, “We have short deadlines and we’re trying to achieve heavy key business outcomes, so we align with those outcomes.
“Technology plays an important part in terms of creating the leverage we need to deliver those rates of production,” Forte says. “We constantly ask ourselves: How can we do it better? How can we do it faster? How can we do it differently, so we’re not relying on the traditional methods which involve placing more people and more resources in remote regions?”
Read the full interview with Fortescue's Vito Forte.
Rio Tinto’s Davidson agrees. “Because of the remote nature of our business, CIOs in resources must cover an enormous breadth of business process — for me, this includes mine, port, rail, utilities, accommodation and corporate systems,” he says.
“There aren’t too many dull days and there’s usually something in dire need of attention.”
Welcome to Boomtown
Australia’s resources industry is booming. Mining investment and associated infrastructure continues to dominate nationwide building projects, as profits surge from strong commodity prices and make new projects attractive to investors. The size of Australia’s resources sector is staggering. The oil and gas production industry generated revenue of about $32 billion in 2010-11, compared with $29.4 billion five years earlier — an average annual growth rate of 1.4 per cent. Mining contributes about 5.6 per cent of Australia’s gross domestic product, while mineral exports constitute about 35 per cent of Australia’s exports. Australia is also the world’s largest exporter of coal (comprising 35 per cent of international trade), as well as iron ore, lead, diamonds, rutile, zinc and zirconium; it is the second largest exporter of gold and uranium, and the third largest of aluminium.
Estimates of the scope of Australia’s current resource boom vary. In October, Australian Federal Treasurer, Wayne Swan, stated $82 billion was invested in mining in 2011 with about $430 billion more committed or in the pipeline. The investment is largely in the form of large capital projects each worth hundreds of millions, sometimes billions, of dollars.
Another October 2011 assessment of nationwide building projects from Deloitte Access Investment Monitor listed a record 935 investment projects planned or underway, each worth $20 million or more, and with a total value that exceeds $894 billion. Spearheading this investment charge is what Access calls ‘‘an unprecedented number of mega projects’’ — 14 worth more than $10 billion and five of those worth more than $30 billion. Mining accounts for about one-third of the $406.8 billion of projects underway and almost all of the $487.3 billion in projects planned.
Western Australia and Queensland account for half of these investments, led by the $29 billion Chevron Wheatstone LNG project off the Pilbara coast and the $20 billion Australia Pacific coal seam gas to LNG project linking Roma and Gladstone.
“What’s fascinating about Australia is the major capital project joint venture boom and its implications for IT,” says David Haake, the oil and gas industry solutions executive for IBM Global Business Services in Australia.
IBM brought Haake to Australia a couple years ago to head up the establishment of the company’s Natural Resources Solution Centre (NRSC) in Perth, which was created to help local mining, LNG and petroleum companies accelerate the development and adoption of innovative technologies and business strategies.
The NRSC is the sixth IBM Centre of Excellence globally focused on solutions for LNG and upstream petroleum operations and the first IBM Centre of Excellence focused on creating solutions for the mining industry. Through his work at NRSC and elsewhere around the world for IBM’s oil and gas division, Haake has met with scores of senior IT executives from resources companies and is well aware of the complex challenges they face.
“Most of these large capital projects are not just joint ventures, they’re also new ventures, in the sense that they are creating an entire business around a new oil or gas find,” Haake says.
“They’re not simply creating a new asset — digging yet another hole in the ground or another oil well — they’re deploying an entirely new enterprise.”
Companies operating in resources industries are undergoing a period of intense development, with billions of dollars committed to a range of mining, liquefied natural gas and coal seam gas projects. But as Haake points out, these projects face challenges in people, infrastructure and rapidly evolving business models.
If you’re a CIO with 10 IT projects that support one big capital project and you’re on time in nine out of 10 them, you’re still at risk
“Resources CIOs are not just buying one more room full of servers or some new cool tool, and they’re not doing just one IT project at a time,” Haake says.
“They are deploying new enterprises in a very pressurised environment — under cost pressures, time pressures, regulatory pressure and, very often, pressure from their joint venture partners.”
In a normal economic climate, the CIO role in a resources company is pretty similar to that of most CIOs. They spend their time meeting business requests from a highly distributed workforce, overseeing an IT budget that is usually a small line item and managing the interaction of the IT department with the rest of the company.
“In a major capital project environment, the stakes change,” Haake says. “If you’re spending $20 billion to create a new business, but you can’t start that business on day one because IT isn’t ready, then IT has just cost the company millions of dollars.” “Nobody wants to be the reason a capital project is late to start,” Haake says.
“In this kind of environment you might be forgiven for being over budget, but not for being late. If you’re a CIO with 10 IT projects that support one big capital project and you’re on time in nine out of 10 them, you’re still at risk. If you hold up the whole show, you’re going to be the villain.”
Next: Rio Tinto: Rapid expansion, Fortescue: Innovation culture