Executive Summary
The aim of this report was to evaluate the external environment of Rio Tinto in UK and also determine the implications that technology had on the operations and decision making process of the company. The report noted that the political, the economic and legal environment had negative implications on the operations of the company. On the contrary, the economic, the technology and social issues favoured the mining sector operations. In regard to the technological issues that were likely to impact the operations of Rio Tinto Company, the study noted that factors such as automation and robotics as one of the factors affecting the industry. Rio Tinto Company responded to this technology by automating most of its systems which has changed its recruitment policies so that most of the new hires are highly skilled employees as opposed to low skilled workers. The other response was through use VR and 3D to film and explore the mining sites to which has changed the financial policy into cost cutting strategy to minimise costs. The block-chain technology has influenced the company responses by changing the supply chain and procurement policy by increasing transparency which eliminates unethical suppliers from its supply chain. The company used technology to speed up the decision making process through fast collection of data and through elimination of large number of human consultants required to evaluate data. However, the adoption of the technologies was ineffective especially in regard to the high initial cost of acquiring the technology and lack of specialised skills to fully optimise the technologies. Also the responses to decision making process were ineffective due to susceptibility of digital data thus negatively impacting decision making process in the event of cyber attack. This report recommended for in-house development of technologies to minimise high acquisition costs and training of employees. The susceptibility to cyber attacks can be minimised by investing in cyber security systems.
1.0 Introduction
Rio Tinto Company is a mining company situated in London in the United Kingdom. Rio Tinto Group was established in 1873 as a mining company. The chief executive of Rio Tinto is Jean-Sebastian Jaqueues. The chairperson of the board of directors is Simon Thompson. The company specialises in the extraction and refining of minerals such as iron, bauxite, copper, diamond, gold, coal, uranium and salt and aluminium (Rio Tinto Group, 2018). The company has worldwide operations and is listed in three stock exchange exchanges which are New York Stock Exchange, London Stock Exchange and Australian Stock exchange. The company has employed an approximate of 50,000 employees. The company had revenues of $40 billion in 2017 making the second largest mining company in the United Kingdom (Rio Tinto Group, 2018). This report analyses the impact of external business environmental factors on the organisation and evaluates the organisation’s position and responses. The report has four parts. The first part introduces the report, the second part explores the external environment in which the organisation exists and how issues within the environment affect the company operations, The third parts shows the technologies adopted by the operations of the company and the implications that they have on the companies’ operations and decision making. The final part of this report highlights the summary of the issues explored in the report.
2.0 The external environment analysis
The report applies PESTLE framework to examine who various aspect of the externals environment impacts the operations of Rio Tinto in the United Kingdom. PESTLE involves six main issues which were political, legal, technological, social, economic and environmental factors that affect the operations of the company (World Bank, 2014).
2.1 Political environment
One of the key political issues with effect on the operations of the company is Brexit or the exit of UK from EU. This means that the company operations in the European Union would be limited. According to Hall (2018) EU has been one of the key markets of the Rio Tinto products which imply that exit from EU would subject UK mining exports to additional taxes and regulations. This would reduce demand for UK mineral and raw materials due to additional taxation costs. This would also minimise the profits and revenues earned by Rio Tinto from the EU market. However, Solomons (2017) argues that since only half of Rio Tinto operations and products go to EU market, as most of the iron and other commodities mostly go to China market. The effect of Brexit would be neutral and cannot have any significant effect on the mining operations of Rio Tinto in UK.
2.2 Economical environment
UK has experienced slight economic growth in 2016 where the GDP moved from $2.877 trillion and the $2.925 which represents 1.8% growth in the overall GDP as per figure below. The per capita income of the country also improved by from $43800 to $44300 which represented a 1.14% growth in the per capital growth (CIA, 2018).
The industrial production grew by 3.4% which represented increased demand in machinery and other commodities related to the mining. This implied that UK economy supported mining activities as a way of enhancing industrial production (O’leary, 2018). The growth in GDP and in the per capital income meant that consumer confidence was high. It also meant that there were increased production activities which resulted in high demand for processed minerals and metal produced by the Rio Tinto (Yahoo Finance, 2018). Also, the growth in production meant demand for machineries and other equipments which need metal and other products that require metal in the industrial production.
2.3 Social environment
The social factors mostly include factors such as the national culture and social issues such as level of education. In regard to national culture, UK is very competitive and has high scores on Hoftsede (2016) individuality index. This has had positive implication on the manufacturing and mining industry because it has weakened the social systems such as workers union and lowered the bargaining power of workers. This has helped the mining companies to have reduced labour costs due to diminished bargaining power of mining employees. The other social issue is related to the education levels whereby UK has highly skilled employees due to high level of literacy. As per CIA (2018) UK has school life expectancy of 18 years which implies that most people have tertiary education qualifications and above. This has helped in providing the mining companies with the requisite labour to mine and process the raw materials in into finished goods and machineries that can be sold at higher market value (Rio Tinto Group, 2018). Based in this, one can argue that social factors in the United Kingdom have served to promote Rio Tinto mining operations.
2.4 Environmental issues
Statista (2014) noted that environmental conservation is of essence to UK citizens, hence there are strict environmental regulations that hinder the mining sector especially in regard to air and water pollution. The government requires the companies to adhere to strict conservations regulation such as water recycling, use of protective gear in the workplace to protect the workers. Other requirements are payment for carbon taxes based in the metrics tonnes released into the atmosphere through the company operations (Carr, 2018). Consumers and pressure group also played significant roles through activism and preference for eco friendly products where 27% were concerned citizens who would pay more for eco friendly products (Statista, 2014). This increases the costs of operations in UK due to the environment related costs such as carbon taxes. Others are expenses spent in the engaging on conservation activities such as water recycling and rehabilitation of exhausted mines in order to woo eco friendly customers and companies in UK.
2.5 Legal environment
There are factors within the legal environment that influence mining and sectors and they are regulations concerning compensation of work related injuries. As one of the sectors with high work related injuries and fatalities, the regulations demand for more stringent measures on the workers and occupation health and safety (HSE, 2018). Meeting these requirements is very expensive and requires investment in safety gears, safety uniform and equipments in addition, to very high compensation that is offered to employees who are injured in the workplace. This increases the cost of doing business in UK especially when the injuries and fatalities are taken in to consideration. Other regulations concerns the rehabilitation of mining sites to protect the society and environment those regulation all require huge capital investments which increases the operational cost of mining and mining operations within the UK market (Rio Tinto Group, 2018).
2.6 Technological environment
Within the UK market, one of the most dominant technological issue is that UK has an internet penetration of 94% as of 2017 (figure 4). Also the smart phone penetration is also gone to level of 100% (ONS, 2018b). This implies that there is increasing demand for technological gadgets and equipments all which require components made from mental such as iron, aluminium and silver thus increasing the demand for the products made by Rio Tinto. In UK the manufacturing sector had total turnover of £365 billion making it one of the largest industries in UK (ONS, 2017). This implied that mining sector experienced high demand for metallic and non metallic components and minerals either which are used by manufacturing industry as raw materials or equipments which increased the demand for the Rio Tinto products in the United Kingdom.
The other technological issues include development and growth of artificial intelligence and robotics. This is affecting the mining sector by eliminating manual labour from the physical miners to the robots. This reduces labour costs significantly and increases efficiency. The use of robots also improves the health and safety of mining workers especially those involved in risky activities such as tunnel drilling and supervising site blasts (Mullighan, 2018).
The artificial intelligence through data mining and analytics is also transforming the mining sectors by providing immense mining data that helps mining engineers and operators to optimise their operations (Calam, 2018). The use of big data that is extracted digitally from metallurgical and geological sources has significantly reduced the costs of mineral exploration thus increasing profitability of mining exploration (Deloitte, 2018).
Lempriere (2018) noted that the introduction of autonomous trucks and train is likely to also impacting the mining industry. The autonomous vehicles are more productive as they are not exposed to fatigue and can make more trips than humans. In addition, they can be optimised to use routes that could not be previously used by human drivers.
The other way in which technology is changing the mining industry is through introduction of virtual reality. Tauber, Bender and Steinberg (2018) noted that virtual reality helps miners to explore and extract the mineral ores without being physically present. This minimises the harm that can be caused by mining activities to the miners and to the company.
The other aspect of technology that is significantly changing the mining industry is the block chain technology. The technology is particularly useful in the digitalisation of the mining supply chain. The digitalisation of mining supply chain helps in ensuring that sources of minerals can be traced to eliminate war based minerals (Anglo American, 2017).
3.0 Task 2 Technological change
The section that follows discusses the implications that the technological changes have on the company. The section points out how the company has responded towards various technological changes that should be of interest to the company. It includes a discussion on the strategies that the company has put in place to enhance its technological responses. It includes an evaluation of the effectiveness of the responses made by the company and the effectiveness of company’s decision making process. It also includes a highlight of the ineffectiveness of the responses. The section also discusses how the decision making process can be enhanced.
3.1 The responses of Rio Tinto to technological change and the effectiveness
Some of the technological responses adopted by Rio Tinto Group is automation and robotics. Rio Tinto is doing this through the adoption of Automated Drilling system that enables one operator to manage multiple drilling rigs from a remote location (Rio Tinto, 2016). The automation has significantly changed the company HR policy especially in regard to recruitment. The company nowadays prefers hiring highly skilled employees who can operate the automated equipments as opposed to low skilled workers (Mullighan, 2018). This is because the new technology demands recruitment of employees who are capable of using drones in the mining industry especially in Rio Tinto Kennecott’s mine to assess terrains, film and monitor onsite blasts as well as to inspect the mining equipments and to determine their safety and efficiency (Tauber, Bender and Steinberg, 2018). The automation has led to change in hiring and policy of the company with focus on recruitment of highly skilled engineers as opposed to low grade manual miners.
The other response from Rio Tinto group is by changing its transportation policy so that it transportation of mining cargo will be less dependent on human drivers. This has been done by acquisition of 130 driverless trucks that haul its ores from the mines to the processing facilities and to ports for shipments. The company has also developed AutoHaul technology enables the company to transport large volumes of shipment for a distance of more than 100 kilometres in manner that is cost efficient. This has affected the transport policy of the company where the company has changed its policy of hiring human drivers to theta of acquiring driverless truck and trains Gleeson (2018). This change in transportation policy is expected to reduced expenses previously incurred by the company in transport such as costs for drivers and fuel as the autonomous are more efficient and rely on electrical energy which is much cheaper than the other manual type of vehicles (Rio Tinto, 2016). The change in transport policy is expected to bring effectiveness in minimising accidents and occupational hazards that are associated with the mining sector especially exposure to accidents (Rio Tinto Group, 2018).
The other change and organisational response has impacted finance policy of the company by enabling the company to adopt cost cutting strategies. The development of big data analytics has influenced change in financial policy of the company as the financial directors rely on big data analytics and use of 3D technology and virtual reality to determine funds to be allocated to various mining operations (Rio Tinto, 2017). The technologies enable the company to financially assess potential mining sites and determine volumes of ores within a mine. This helps the company to determine the mining ores and mining sites that funds should be allocated to for mining based on the financial viability and volumes of ores available in a mining site. The technology enhances cost cutting by helping Rio Tinto to manage site explosion in an effective manner that minimises number of explosives used during excavation of mineral ores which also reduces cost incurred by the company (Lempriere, 2018). The technologies also enable the company to cut on costs by reducing number of human resources required in mining site and in mining operation as only a handful of people are required in automated mining sites.
The other way in which advances in technology have impacted the Rio Tonto policies is by changing its supply chain policy by increasing transparency in supply chain operations. Through the adoption of the block chain technology the company has changed its supply chain and procurement policy (Gleeson, 2018). The company has adopted the block-chain technology alongside other companies such as Cargill in order to increase transparency in mining sector. The technology is particularly useful in the digitalisation of the mining supply chain and in making transactions fast (Rio Tinto Group, 2016). This has eliminated unethical mineral sources which include minerals from war torn regions and minerals from unethical suppliers.
One of the impacts of technology on the decision making process of Rio Tinto is that technology has enhanced the information gathering process of the company’s decision making. Previously, the information gathering process of the mining giant mostly involved manual based data gathering involving inspectors, supervisors and involved in assessing mining sites (World Bank, 2014). This meant that data gathering aspect of decision making process took a long duration often months or years. For instance, the exploration of new mining rigs took months to determine whether a site was viable for mining or not (Rio Tinto, 2017). However, the adoption of big data analytics has changes this. Through the thousands of sensors placed on equipments and through drones, the company can quickly collect immense geological data and use it in the decision making process. Deloitte (2018) agreed that the information gathering process of the mining company has been greatly improved by the advances in technology especially automation and application of sensors which collect extensive amounts of data.
The other way in which technology has impacted the decision making process of Rio Tinto is by enhancing information evaluation aspect of the decision making process. One of the difficulties of having large amounts of information is effective evaluation of the information (Rio Tinto, 2018). The information evaluation in the mining industry is an expensive process that involves hiring engineers and consultants to assess and determine what the information collected means for the company. As per Calam (2018) the data analytics has changed the information evaluation aspect of decision making process by eliminating the need for consultants as the data collected can be analysed using big data analytics to provide the required insights. This can be done in-house by the in house engineers without the need for external experts which has made the information gathering process to be less costly. Also the technology has shortened the time taken to analyse the information previously the company would have taken months to analyse data such as mineral ore samples and mines to determine the type of minerals in a location (Mullighan, 2018). With the application of 3D technology the company can easily identify the ores, determine the minerals in the ore, the distance that has to be drilled and the commercial viability of the mineral. The big data analytics technology has enhanced the efficiency, effectiveness and precision of the decision (Rio Tinto Group, 2016).
3.2 Ineffectiveness of Rio Tinto’s responses
One of the main ineffectiveness of the technological responses is that the technology does not significantly minimise the expenses of the company because the investments in technologies are usually very costly (Kazakidis, Mayer, and Scoble, 2009). Also the cost of maintaining the technologies such as drones and the automation is equivalently high which makes the decision to acquire such technologies to be ineffective especially because they do not result in any short term advantages(Rio Tinto Group, 2018). This is especially in consideration that the technologies are acquired from other companies which increase the cost of acquiring technologies.
The second ineffectiveness of the technology is that the technology affects the employee motivation negatively especially the low skilled employees who work in the mines (World Bank, 2014). Considering that full acquisition of the technology means the elimination of all manual workers and low skilled employees in the mine, the productivity of the existing manual worker is very low which demonstrates resistance to the acquisition of the technology (Rio Tinto Group, 2017).
The other ineffectiveness of the responses is the acquisition of technology is not commensurate with the skills of most workers. This is because the highly advanced technologies such analysing mining data require highly specialised employees who are very few (Rio Tinto, 2016). This implies that even if the company has acquired the technologies, they cannot be used optimally since the company does not have adequate number of employees in all relevant departments to operate. The company has to rely on outsourced labour which is very expensive.
In addition, the company will become over reliant on digitalised data for its decision making (Kazakidis, Mayer and Scoble, 2009). This makes the decision making process as well as the outcomes of the decisions subject to the digitalised data which can become corrupted as it is prone to cyber attacks. In the event of cyber attack, all the operations of the company would come to a halt as all decision making process would stop due to inadequate or faulty information (Rio Tinto Group, 2018). The other challenge with the digital based technology is that the information can be leaked to third parties and competitors thus denying the company competitive advantages in decision making such as discovering new mines before competitors (Clam, 2018).
Lastly, the big data analytics is very delicate and requires specialised analysis in order to decipher the insights from the data (Rio Tinto, 2016). In some instances, the analysts can decipher wrong insights making the company make wrong decision. In addition, the overreliance on machine based decision eliminates human insight into the information especially in regard to human related problems that affect the mining operations. Such human related problems include such as workers attitudes, sabotage and resistance to change which cannot be deciphered through sensors.
3.3 Recommendations on how to overcome the ineffectiveness of the responses
The ineffectiveness of high cost of acquisition of technologies can be eliminated or minimised by establishing a fully fledged research and development departments to develop in-house technologies instead of acquisition (Rio Tinto Group, 2018). This would ensure that the company develops technologies that can be put in optimum use. This would minimise the technology investments costs currently incurred by Rio Tinto.
The other recommendation is for the company to invest heavily into the employee training and development in the readiness for full automation and application of the technologies in all its mining processes (Deloitte, 2018). As earlier identified, one of the major ineffectiveness of the new technologies was due to the lack of skilled labour. This gap can be eliminated through investment in employees training. This would ensure that all mining workers have acquired new skills such as operating the mining rigs virtually. It would enable existing workers to collect data using drones and using data analytics to help the company analyse and interpret the data collected from the mining sites appropriately (Rio Tinto, 2016). The training would also help the employees embrace the new technology which would also minimise instances change resistance that is fronted by workers that do not want technology based changes.
To overcome ineffectiveness on the decision making process, the company would need to overcome the ineffectiveness of relying on digital data by creating multiple databases as well as cloud based data storage facilities (Lempriere, 2018). This would ensure that data corruption or loss in one area does not affect the company’s operations. The company should also invest heavily in the cyber security to ensure that its data is protected from cyber attacks that can sabotage the company’s decision making process.
5.0 Conclusion
This report commenced by assessing the external environment of Rio Tinto. The report noted that the political factors, the economic and legal environment had negative implications on the operations of the company. The economic, the technology and social issues favoured the mining sector operations. The technological issues that were likely to impact the operations of the Rio Tinto and the report noted automation and robotics as some of the factors affecting the industry. Then there was the use of AI and data analytics to analyse the collected data and provide mining insights to the company. Other technologies affecting the industry were 3D, virtual reality and the block chain technology. Rio Tinto Company was found to have responded to this technology by automating most of its systems which has changed its recruitment policies so that most of the new hires are highly skilled employees as opposed to low skilled workers. The other response was through use VR and 3D to film and explore the mining sites to which has changed the financial policy into cost cutting strategy to minimise costs. The block-chain technology has influenced the company responses by changing the supply chain and procurement policy by increasing transparency which eliminates unethical suppliers from its supply chain. The company also used technology to speed up the decision making process through fast collection of data and through elimination of large number of human consultants required to evaluate data. However, the adoption of the technologies was ineffective especially in regard to the high initial cost of acquiring the technology and lack of specialised workers to fully optimise the technologies. The digitalised decision making process was also susceptible to cyber attacks. This report recommended for in-house development of technologies to minimise high acquisition costs, and training of employees. The susceptibility to cyber attacks can be minimised by investing in cyber security systems.
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Appendix one: Company profile
The company of interest in this report is Rio Tinto Company which is a mining company situated in London in the United Kingdom. Rio Tinto Group was established in 1873 as a mining company. The chief executive of Rio Tinto is Jean-Sebastian Jaqueues. The chairperson of the board of directors is Simon Thompson (Rio Tinto Group, 2018). The company specialises in the extraction and refining of minerals such as iron, bauxite, copper, diamond, gold, coal, uranium and salt and aluminium. The company has worldwide operations and is listed in three stock exchange exchanges which are New York Stock Exchange, London Stock Exchange and Australian Stock exchange. The company has employed an approximate of 50,000 employees. The company had revenues of $40 billion in 2017 making the second largest mining company in the United Kingdom. The company had operating income of $14.4 billion; the net income was $8.85 billion (Rio Tinto Group, 2018). The company has estimated assets of $95.5 billion making one of the largest mining companies in terms of assets. In 2017 the company provided divided of $2.9 per share providing the investors with very high returns on the investment compared to the previous years. The company has made significant progress of minimising its debt by reducing debts from $40 billion to $4 billion in a span of nine years (Forbes, 2018). The company has returned over $40 billion to shareholders in terms of dividends and share buyback programs for a period of five years. In regard to people related metric is the company has trained over 1500 young leaders within the last one year. The company has also established paid parental leave for all staff and it has also introduced a graduate training program. Some of other key achievement of the company is the reduction of green house gas emission from 74.4 metric tonnes to 73 metric tonnes (Rio Tinto Group, 2018).
