Resources CIOs in Australia
- 24 January, 2012 08:55
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
Rio Tinto: Rapid expansion
As any CIO can tell you, managing costs in a high performance distributed environment is already a tough job. What makes the current major capital project environment in the resources sector so challenging is the introduction of fast cycle times for multiple, large projects.
“In the normal state of play, resources CIOs are focused on costs and very shrewd about the use of technology for cost reduction, but then the boom came along and added the new elements of speed and completeness,” Haake says.
Rio Tinto’s Davidson knows only too well the type of pressures resource industry CIOs face. Davidson is in charge of the IT strategy of the resource giant’s iron ore division, the world’s second-largest iron producer, and has operational accountability for 13,000 users in the company’s Western Australia business alone. “In my role as CIO, I seek to keep the core aspects of operational IT on a solid foundation, support the business strategy, and find the balance between centralised operations and local control,” Davidson says.
Read the full interview with Rio Tinto's Rohan Davidson.
According to Davidson, Rio Tinto’s planned expansion activities will result in many new mines, which will be supported by consolidating operational control and extending automation initiatives. “Our growth is heavily dependent on a deployment of a standardised communications infrastructure, and a consolidation and upgrade of a legacy technical application layer that manages our tonnes, time and quality information,” Davidson says.
“We have about 150 IT projects underway and where our growth projects do have a dependency on these projects, strong governance and support is provided to these initiatives,” Davidson says.
“One of the more complex aspects of my role is to keep pet projects off the slate to provide oxygen for those that are business critical.”
Davidson stays on top of the multitude of projects with the help of a team of staff dedicated to ensuring projects deliver to their mandate and that dependencies are understood.
“Supporting our business strategy requires my team to identify the key dependencies between our growth projects and our IT systems and strategies, to ensure these dependencies are fully understood and communicated — and to ensure our expansion is not constrained by our ability to deliver technology outcomes,” he says.
Faced with such rapid expansion, Davidson says staying ahead of construction is a critical challenge that must be met. “Project teams have a habit of delivering their own solutions where none already exist, so we seek to engage early and comprehensively with any initiative that features technology,” he says.
Another challenge: Establishing effective communications, often in remote locales. In 2009, Rio Tinto established an Operations Centre in Perth, consolidating control of its mine, port, rail and utilities infrastructure into a single room, which Davidson describes as “the first of its kind in the mining industry”.
“With the commission of our Operations Centre, communications infrastructure became a piece of critical infrastructure in a way that had not been in the past,” Davidson says.
“Commission of our Operations Centre required a significant uplift in the resiliency and redundancy of our communications network, which was a complex endeavour given the remoteness of the Pilbara operations. Now we have the Operations Centre in a steady state, the next level of maturity for our business will be to leverage the benefit of having so many operational roles in one location to make better decisions on sequencing, de-bottlenecking and incident response.”
Fortescue: Innovation culture
There are a myriad of strategies for effective IT operations within the resources sector. Some companies opt to handle all their IT in house, some use large partners and outsource it all while others, like Rio Tinto, operate a hybrid infrastructure. But no matter the approach, all resources companies believe they are following the strategy that best ensures the on schedule, to specification, performance of IT as a fundamental enabler of the whole project — not just a standalone IT project. For many companies, this pressure to deliver projects on time and to spec creates an atmosphere of intense innovation. When every lost day costs millions in dollar value and lost opportunities, devising new approaches becomes of paramount importance.
“In a growth scenario, IT finally loses its shackles and is allowed to propose really dramatic things,” says IBM’s Haake. “From an historical point of view, doing these massive projects in a new way really breaks a lot of glass.”
Fortescue’s Forte says it was precisely the company’s culture of innovation that attracted him to the role of CIO in the first place. According to the CIO, Fortescue’s culture prizes innovation above all and encourages smart and talented people to question traditional methods and propose new ways of doing things — even if they don’t always work.
“For us, nothing is off the table,” Forte says. “We don’t go into anything with a view that we’re going to do it in a traditional style.”
Forte’s signature reads simply: “Culture eats strategy for breakfast”
“We often underestimate the value that good, experienced technology people bring in terms of asking odd questions,” he says.
“There are things that people take for granted, and sometimes you have to stand back and ask: Why have we always done it that way? Is there an operational reason that we need to see 50 things on a screen? Can we use exception reporting and threshold management and those sorts of things, which have been standard practice in IT for many years?”
At the bottom of his emails, Forte’s signature reads simply: “Culture eats strategy for breakfast”. It’s no mere whimsy — the slogan underpins Forte’s every move as CIO. “It is absolutely true,” he says. “Irrespective of how big and how fancy your strategies are, the ability to execute and the ability of your people to achieve outcomes is the most important thing.”
As an example, Forte recounts his dealings with vendor representatives, who often come into his office expecting to encounter a conservative mindset. “I tell them upfront: Do not think you have to come in here and think conservative, risk averse and all the rest of it,” he says.
“I say: We do not have an environment here where people aren’t prepared to change. People here are clamouring for change and improvement — do not let yourself become the barrier.”
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