Since being elected a Fellow of the Australian Institute of Management earlier this month, I have been receiving an interesting flow of new information. Two items in today’s reading are the results of an AIM survey that indicates 51% of managers believe that ‘short termism’ is a major issue of concern, 63% thought companies had a relatively short life span and 15% of company board members and CEOs surveyed were not confident their organisation would be in existence in 5 years time (source: AIM Surveys).
Contrast these views with the approach taken by one of Australia’s largest and oldest companies, BHP Billiton. BHP is preparing to spend $15 billion in South Australia to add an open-cut phase to its existing Olympic Dam underground mine. This development will involve digging more than 1 million tonnes of dirt a day for six years, before getting a dollar back. Certainly the production capability at the completion of the development in 16 years time will be massive. The ultimate aim is to boost annual uranium production at the mine from 4,500 tonnes a year to 19,000, copper from 235,000 tonnes to 750,000 and gold from 100,000 ounces to 800,000. Silver, produced as a by-product, will rise from 800,000 ounces to 2.9 million a year. At current prices that works out to annual mineral production valued at $6.2 billion (source: Forbes Asia Magazine dated July 13, 2009).
This raises two interesting thoughts. Firstly BHP must have immense confidence in the ability of its project and program managers to consistently deliver over the next 16 years. There is no easy exit point in the project – the pit needs to be 300 meters deep before encountering any of the ore body (the first six years work) and then there is the need for a series of expansions over the following 10 years to reach maximum output.
The second is the relationship between BHP and its stakeholders. The level of trust needed to accept the investment of $15 billion over 6 years in anticipation of a payback in later years is enormous. The only way this level of trust can be developed is through a long term process of effective stakeholder management linked to a track record of successfully delivering value (ie, keeping your promises).
I would suggest there are some interesting lessons to be learned from juxtaposing these two items. What do you think?