Chaos at the edge of resources companies
- By: John P Sykes
Posted in: Blog, Management, Media, Mining, Publications, Strategy
Where does a mining company end and the rest of the world begin?
This is not a simple a question as it seems. Allan Trench and I tackled this question a couple of weeks ago in the Strictly Boardroom column on MiningNewsPremium.net. We could think of at least three plausible answers:
The resource-based view of the firm suggests companies should only do what they are good at and outsource the rest. Many ‘mining companies’ are not even that good at ‘mining’ nowadays and thus outsource this part of their operations to contractors.
A transaction cost view of the firm takes a rather archaic, thus nonetheless insightful, economic view of the firm, suggesting the companies should conduct any business within their company that would cost more to do outside of the firm on the free market. For example, sometimes it is cheaper to build your own power plant than to buy it in from the local grid. Mining companies are not generally power utilities, but sometimes it makes sense to be.
A more recent view of the boundary of the firm arises from sustainable development and social licence theory. Firms are under increasing pressure to ‘internalise’ the ‘negative externalities’ of their business, such as pollution and social disruption. Such negative externalities are no longer ‘free’ to companies with society having to pick up the tab, firms are now expected to mitigate these negative externalities – this dramatically expands the boundary of the firm – an implication the mining industry has probably not yet grasped.
Subscribers can read the article entitled “Chaos at the edge of resources companies” on MiningNewsPremium.net. Or contact me if you want a copy.
For keen followers of the Strictly Boardroom column, our book “Strictly (Mining) Boardroom Volume II: A Practitioners Guide for Next Generation Directors” was published last year and is available as a paperback or e-book from Major Street Publishing or Amazon. We’re pleased to say that the book received a very positive review in the AusIMM Bulletin.