2016 In Review – Our Insights

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2016 is most certainly a year of note. Remember, we started the year with a mining index that was at a 12-year low. Since then, the FTSE all-share mining index has doubled in value and is among the best performing sectors in Europe. From the crises management and debt reduction pledges of all the large players, we now have Anglo American and Glencore’s stock prices up 310 per cent and 220 percent, respectively. The near drowning weight of debt at the beginning of the year gave way to companies not having to sell their assets. As a consultancy, we have helped clients navigate through disturbing market conditions and adjust their hopes for portfolio optimization and unrealistic cost reduction targets, to a more stable working environment through scenario planning. Organizations that leverage such exercises tend to be more dynamic and agile, and can pivot to maintain the wind behind their sails.
The year is certainly capped with Glencore’s brilliant US$10.83 billion Rosneft transaction indicating a turn in mood. Glencore will have a marketing arrangement to sell 220,000 barrels per day of Rosneft’s oil production for five years with further upside opportunities.Our experience with the oil and gas market reflected the same tough environment as we experienced in mining. To this point, more than 100 North American exploration and production (E&P) companies have filed for bankruptcy and as of October 2016, those bankruptcies involved almost $70 billion in cumulative debt. With OPEC now having clinched a supply arrangement, there is some hope of moderate prices next year.

While executives showed little appetite for speculation and slack, the landscape has returned to a more disciplined environment. Our work at VCI this year was focused on strategy, innovation and digitalization. Over the course of this year, we gained some new insights we would like to share with you:

  • Strategic planning devolved into survival planning with much talk, but little action about counter cyclical strategic maneuvers. We ask ourselves why the resources eco-system, including major shareholders and bankers, just cannot get themselves to take commodity cycles seriously and leverage it!
  • We define digitalization as the transformation of business practices to simpler, faster and smarter operations and concluded that nothing has a greater impact on asset performance than digitalization – it is that significant.
  • Understanding the convergence between IT and OT(IoT) is important. Digitalization is NOT a systems integration project – perhaps not even an IT project. Digitalization is a fundamental change in your operating model. If that’s not the objective, don’t do it. We have seen several potential clients diverting into what we perceive as a 3 year walk in the woods before they will resurface only to find out that they spent millions of dollars with little to show for it.
  • A digital transformation is essentially about an organization’s business processes, work practices, roles, and culture. And to that end, we at VCI will continue to develop approaches and best practices to successfully enable comprehensive transformations.

To all our clients with whom we’ve had the privilege of working with this year, and in the past, we thank you. We look forward to collaborating with you in 2017, to craft new and improved strategies, and accelerate and advance the digitalization of your operations for greater competitive advantage.

Gideon Malherbe, VCI Founding Partner