Submission 6 Don Scott-Kemmis, Pacific Innovation Major Project Development Assessment Processes Commissioned study

Evidence of ‘Cluster’ development

It is widely recognised that the development of firms and sectors often involves the parallel development of supporting sectors, organisations and policies – ie a cluster of interacting organisations. The development of a cluster involves four processes, which reinforce each other: the entry or formation of more, and a more diverse range of, actors (suppliers, customers, intermediaries, sectoral organisations, research and education organisations etc.); increasing interaction (user-producer, competition, collaboration) among these actors; increasing specialisation and capability upgrading within the actors (and through complementarity and cooperation at the level of groups of actors), and; the development of institutions, policies and shared priorities.

Earlier sections have discussed the formation and growth of METS firms and other cluster actors, which some see as important for the development of mining in Australia¹⁴². In the Hunter region of NSW the closure of the BHP steel mill left many engineers and managers without employment. Many responded by forming new firms and by forming Hunter-net an industry-driven networking and support initiative – a case of necessity based entrepreneurship mobilising and reasonably deep skill base. ¹⁴³

The discussion above suggests that interaction with customers around problem solving is one of the key drivers of capability development in the METS sector. Rio Tinto appears to be increasing the level of their investment in mining-related innovation in Australia, developing a highly ambitious set of innovation goals, and strengthening links with research organisations and METS firms. There is little evidence that other large Australian-based mining firms have a similar level of engagement with research organisations and particularly with METS firms. However, as supply interactions are increasingly global, pursuing those opportunities provides a mechanism for Australian METS firms to build scale while remaining reasonably specialised. The evidence discussed above suggests that many METS firms are investing heavily in internal knowledge development. Linkages and collaboration among METS firms appears to be quite limited in depth¹⁴⁴. Almost all of the other drivers of capability development identified in Figure 5.7 are constrained in one way or another, although acquisition activity is increasing.

The development of sectoral organisations is an expression of shared interests in an emerging sector, and is often essential to lobby for those interests where existing policy is not supportive. The 2004 ABARE-BRS survey (Tedesco, et al., 2004) sought information on the forms of collaboration used by METS firms and this showed that forms of exchange and cooperation facilitated by industry associations were highly valued for their role in market promotion, professional development and information exchange. Thorburn (2005) found that few of the six specialist service suppliers to the mining industry which she studied had links to an industry association for the purpose of innovation. The exception was a firm in the Hunter region of NSW that was actively involved in the regional industry group. However, the firms did see that industry associations did play a major role in ‘broader knowledge acquisition’.

6. Identifying Capability Gaps and Capability Building Opportunities

Backward Links, Problem Solving and Innovation

The experience of such countries as the United States, Sweden and Finland has demonstrated the role that backward linkages from resources can play in capability, firm and industry development. These, and other similar experiences, emphasise the importance of focusing on the opportunities to build capabilities, technologies and firms through resource sector demand, rather than focus on local content objectives as a form of import substitution.

These international experiences point to three key criteria that signal areas of potential opportunity:

1. 
   New and challenging resource sector problems for which there are not ‘off the shelf’ solutions can be particularly important opportunities. The response to such challenging demand may lead to capabilities or ‘solutions’ with the potential to underpin significant innovation and firm development.
   
2. 
   Such challenging demand is particularly significant when it is the early stages of an area of challenge which is likely to become more widespread, for example, mine safety, environmental management, more energy or water efficient mining and processing.
   
3. 
   Similarly new solutions are more likely to be significant when they initiate the application of new generic technologies of wide potential to the resource sector, for example IT, communications and sensor technologies. New solutions based on new technologies have often been the basis for ‘disruption’ through which new entrants pioneering these new approaches displace long established firms. In addition these new capabilities are more likely to be the basis for ‘spillovers’ to related sectors leading to horizontal knowledge transfer and contributions to firm growth and value creation far beyond the resources sector.
   

The key requirement in pursuing a strategy based on such dynamic opportunities is to identify them. To that end it is essential to develop project maps from which to identify those inputs dominated by established suppliers and those that are more contestable. Appendix 3 provides a number of examples of these basic maps, using alternative approaches to classifying and segmenting the equipment, materials and services inputs. Both a high level of disaggregation and a grouping of project elements into systems (for example ventilation, materials handling) can assist the following stages.

Development Roadmaps

The next step is to add a ‘front end’ and an extended ‘backend’ to these simple project breakdowns. The ‘front end’ identifies the key performance requirements for a project, for example in terms of cost minimisation, safety, environmental impact, reliability. Clearly many individual project elements contribute to these dimensions of performance. Such performance requirements change over time leading to demands on improvement by suppliers and over time to significant innovation. Hence, a key issue is identifying those drivers of performance improvement, the key trajectories of such improvement and, to the extent possible, the elements of the supply side likely to be most under pressure due to these changing demands.

Adding the extended ‘backend’ involves identifying the technologies and the capabilities that underpin the major equipment and services inputs to resources projects. For example, it is clear that sensor technology, signal processing, software engineering, mechatronics and remote control, and the capabilities these require are playing an increasing role in innovation in the mining industry. The further extension of the capabilities stage of the backend’ involves linking capabilities to knowledge resources and research capabilities – in firms and research organisations within Australia or overseas.

This is a framework for a set of linkages from performance requirements in the mining sector to the knowledge underpinning solutions, and to the research capacity that is required to address unmet needs for new knowledge and the enabling capabilities likely to be critical in the future. When the time dimension is added to make these relationships dynamic this forms a technology roadmap.

Figure 6.1: Using Technology Road-mapping to Identify Opportunities and Develop Strategies.

Source: Derived from Phaal, R. (2007) Technology Roadmapping: Principles, Process and Examples. UNIDO.

Such a roadmap it the key tool for demand oriented innovation and supplier development strategies¹⁴⁵. Any such roadmap must be continually updated in the light of new needs and insights, and new resources. It is important to make the point that one of the key uses of technology roadmapping is to facilitate dialogue, information sharing and joint assessment among stakeholders with interests in the different vertical stages set out in the roadmap, from mining companies to research providers and policy makers. While to tool aids planning, at the organisation and ‘cluster’ level, it is more a tool for learning. Clearly, in a complex, interactive and evolving set of drivers and relationships, planning is inherently limited and is used to guide the focus of learning as much as resource allocation¹⁴⁶.

Priority Setting

A range of other more straightforward issues, concerning the scale and duration of demand, and barriers to entry, need to be considered in identifying opportunities and priorities for supply development. In addition, some capabilities are likely to have particularly high potential for spillovers to other industries, and in general those are likely to be leading applications of new generic technologies. Some of the more important assessment criteria are brought together into a simple assessment matrix in Table 6. 1.

Table 6.1: Matrix for assessing the sustainability and spillover potential of segments

Service or Equipment Input	Potential demand: Proportion of Investment or production -related expenditure	Pattern of demand: Single procurement to continuous demand.	Potential for market entry based on cost or service	Potential for innovation leading to international competitiveness	Potential relevance for value creation outside mining.
	Investment costs
Services and goods mainly for investment projects
Knowledge- intensive services (KIMS) Consultants
Feasibility, design and engineering and project management services
Specialized Services Contractors
Capital Goods & Equipment Suppliers
Consumable Inputs Suppliers
Services and goods mainly for Ongoing operation	Operational costs
Specialist services to support mining operations (blasting, optimisation, M&R, testing)
Specialized Services Contractors
Capital Goods & Equipment Suppliers
Consumable Inputs Suppliers

Source: Author

7.