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Mining for leadership with lean management

By Xavier Costantini, Christian Johnson, Ferran Pujol, and Guillem Sivecas

Three executives at one of the world’s most unusual mining operations describe how even in a highly unpredictable context, lean management improves not just productivity, but also how people lead.

The brine ponds that Chilean mining company Sociedad Quimica y Minera (SQM) operates in the remote Atacama Desert cover more than 50 square kilometers (19.3 square miles). Together, these ponds constitute some of the world’s largest sites for extracting essential minerals, such as potassium for fertilizers and lithium for batteries. Combined with the more conventional mining of iodine and nitrate ores, they underpin a business with sales of more than $1.7 billion in 2015.

When the early 21st century’s commodity boom ended abruptly, SQM was unexpectedly left vulnerable. More recently, however, the company has found a new source of growth: its own people. Juan Carlos Barrera (SQM’s vice president for potassium and lithium operations), José Miguel Berguño (vice president for people and performance), and Carlos Diaz (vice president for nitrates and iodine) spoke with Christian Johnson and Ferran Pujol at McKinsey’s office in Santiago.

McKinsey: Thinking back to 2013, what pressures led SQM to consider transforming itself?

Juan Carlos Barrera: The previous year, 2012, was really good for us in terms of results. Production, profitability, sales—almost every metric seemed to be increasing. But we saw that costs were increasing, as well. That made us concerned about what might happen should prices fall.

Carlos Diaz: That was when we started thinking about cost reductions, because it was clear that would be essential to our business over the long term. In early 2013, we launched a program that became SQM-100, a major cost-reduction effort.

José Miguel Berguño: The savings from SQM-100 were substantial—close to 10 percent of our cost base. But then we realized that our organization wasn’t necessarily prepared to take full advantage of our new competitive position.

McKinsey: That’s a very different goal.

Carlos Diaz: Yes, one that needed a different organizational structure. That wasn’t a surprise—I’d say that over the past two decades, we’ve reorganized about every five to seven years. Plus, every three or four years, we do another cost-reduction project.

Juan Carlos Barrera: But then the costs would creep back up. So the new question became “why don’t we do something different, so we don’t keep having to do these restructurings and cost campaigns?”

José Miguel Berguño: That was our hope. Our immediate aspiration, though, was only to sustain what we had achieved. But we made a visit to a company in the US that has a long history of lean management in manufacturing. That really changed our view.

McKinsey: What was it about their operation that captured your attention?

Juan Carlos Barrera: Two things stood out, because they seemed to be contradictory. On the one hand, employees really identified with the company, in their hearts as much as in their minds. Yet on the other hand, the company was much less dependent on individual people than we were. In our organization, we knew there were a lot of places where, if the “wrong” person went on vacation, we would see performance fall.

José Miguel Berguño: Certain people were almost like artists for us—their expertise was unique.

Juan Carlos Barrera: Relying on “artists” made us vulnerable. After this big cost-reduction process, we wondered how we could ever improve productivity again if we were so dependent on specific individuals. But in the company we visited, people could substitute for one another much more easily.

McKinsey: Yet at the same time, people seemed even more committed to the company. How do you reconcile these two ideas?

Juan Carlos Barrera: Initially, we thought that maybe our people don’t have the right qualifications to do the sorts of things that people at the other company were doing. I remember watching their line workers and thinking, “I would hire them as supervisors.”

Carlos Diaz: That was eye opening. Over time, I came to realize that the main challenge in a transformation is how to transform leaders. You may think that the problem is your workers. But in reality, it’s probably you who have the problem. At the start I thought, “I’m a vice president. I’ve been doing the right things for 20 years, so why do I have to change?”

McKinsey: What persuades someone who’s been successful for 20 years to change?

Carlos Diaz: We did have a few advantages. One was that we have a history of adapting quickly. Another is that we like challenges. For example, the geological conditions of northern Chile are so different from those anywhere else that we can’t look to others’ processes for lessons. We’re constantly having to come up with our own new techniques.

Juan Carlos Barrera: Plus, our operations are very different from what you’d see at a typical manufacturer that does lean management. We aren’t molding a certain grade of steel or aluminum into standard auto components. Our raw materials can change dramatically from one day to the next.

José Miguel Berguño: We could see what lean management could do, but because we were so different, it was a risk. The challenge was to adapt the ideas—the manufacturing mind-sets—to us. That’s what engaged our people, starting from our CEO on down.

McKinsey: So the challenge of adapting lean management engaged your leaders. What was in it for everyone else?

Juan Carlos Barrera: Our commitment was to improve our people’s work lives. The fact that we were so dependent on specific individuals to do specific things made work more difficult than it had to be.

McKinsey: The company had just been through a major cost-cutting effort in SQM-100. Did people buy into the objective of a better working life?

José Miguel Berguño: At first, some people thought this was just going to be “SQM-200”—more cost cutting. We gave it a different name, “M1,” to underscore that it would be different, and spent a lot of time communicating with everyone that this was about changing our culture. And we chose one of Carlos’s plants to act as a pilot.

Carlos Diaz: It was an old plant with very stable processes, so that it would be easy to see lean management’s effects. Also, two branches of the nitrates business had recently been combined, so we realized that the integration would be a good opportunity to introduce new ideas. And we had a couple of very strong leaders on site.

McKinsey: How did people react?

Carlos Diaz: In the beginning, a lot of people said, “OK, we’ve done this lots of times before, under lots of different names. We put up a bunch of white boards, write our key performance indicators on them, and in four months the initiative fails. So in four months, this will fail too and we’ll go back to normal.” Sometimes, people took improvements—even major ones, like 10 or 20 percent production increases—as a criticism, as if they must have been doing something wrong before.

José Miguel Berguño: That made us work even harder on including everyone in the process, the workshops and problem-solving sessions, and the new tools for finding improvement potential. We wanted everyone to see and, more important, feel that the changes were really coming from them.

Juan Carlos Barrera: And the results were good. I kept hearing about them even though I’m in a completely different business line. In fact, over here in potassium and lithium, we were so persuaded, we decided to launch not with just one plant but two.

McKinsey: What was it like starting two more at the same time?

Juan Carlos Barrera: It was probably too soon to do two; we are naturally competitive within the company and that caused us to try to do too much. One of the plants was already running at very high production levels, so there wasn’t much opportunity to show improvement. We realized that our managers and supervisors were stretched too thin—this wasn’t improving their work life, and that was our goal.

José Miguel Berguño: We decided to pause. That was a difficult decision to make, but it let us adapt lean-management concepts some more to make sure they worked for our people. We started changing the order for introducing new skills, so that what people were learning fit more closely with the actual problems they were working on. We simplified the language, too. That way we could keep the general structure but answer more immediate needs, so that people could see how lean management could help them.

McKinsey: Given that your plants are in remote areas, how did you make sure the changes felt credible to people on the ground?

José Miguel Berguño: We know that in some transformations, companies create an almost duplicate structure of change agents. But we decided from the beginning that our change agents had to come from the line organization and that their role was to support the line leaders, not create a parallel leadership structure.

Carlos Diaz: And they needed to be on location. Our processes are technically complex, so it really wasn’t feasible to base the change agents in Santiago and have them visit northern Chile once a week to give a few recommendations. They needed to be on the ground, working with me, the supervisors, and our people on the site. And they needed to understand the processes really well, so that meant they had to be high performers.

McKinsey: Now you’re about three years in. How does it feel across the organization?

Juan Carlos Barrera: For me, the biggest result is that we’ve improved our performance—costs, production, safety—and we’re even more flexible now. Recently, we decided to target another plant for lean management. To jump-start the transformation, we transferred 15 people from one of the first plants that we transformed. That was almost one-quarter of the team, including the manager and the assistant manager. That first plant has actually kept improving, same as it was before anyone left, and the second plant is making a lot of progress.

José Miguel Berguño: This is completely new for us. We can now move people to help performance in one area without sacrificing performance in the areas they came from.

Carlos Diaz: To be honest, initially my goal was just to reduce costs some more. But during the process, I’ve become much more focused on people development. I can see what people can do and how that matters over the long term.

McKinsey: What are people doing differently now?

Carlos Diaz: We used to say “we work as a team,” but most of the time it wasn’t much of a team—the supervisor gave an order and the workers followed. Today, it’s more of a conversation; people are more open to hear each other. Anyone can give a presentation or express an informed opinion. And because of that, people work more as a team to try to solve problems.

Juan Carlos Barrera: Many more of our people now see themselves as problem solvers. Before, they would take problems to their supervisors or managers, but now, step by step, they are learning how to refine what we can do as a company.

José Miguel Berguño: Two years ago, I would say that it was the job of managers or leaders to achieve new goals by pulling their people along. Now, we have so many more people all trying to improve everything we do, throughout the company, that it’s the people who are pulling the managers along. The managers’ role is much more about facilitating the implementation of their people’s ideas.

McKinsey: And what are you doing differently now as leaders?

José Miguel Berguño: My style as a leader used to be to exercise as much control as I could about what happened in my area. I thought that was how I created value for the organization, so I made a lot of decisions, even small ones. I think I really was a bottleneck. Now I obtain better results if I try to develop people more and ask questions, so that they can make the decisions rather than me.

Juan Carlos Barrera: I used to focus on so many details. But we have to be humble and see that people can make good decisions and that our task is to help them. And it’s not just developing the people who immediately report to me; it’s looking at every level because people are the future of our company.

Carlos Diaz: It’s easier for me to talk with people. In the past, if I needed to talk with the frontline workers, I had to organize a special meeting. Now, because I’m visiting the performance-board discussions all the time, I can immediately understand what is happening in each plant and have conversations with people informally as needed. I’m also much more conscious of everyone’s time. I want to demonstrate to my people that what they’re doing is important to SQM, and that means minimizing any interruptions of their day.

McKinsey: What do you see as the next challenges for lean management at SQM?

Carlos Diaz: For me, the next task is innovation. That’s the deeper meaning of continuous improvement—finding the new ideas that help us with our unique processes.

Juan Carlos Barrera: All while keeping our flexibility and responsiveness.

José Miguel Berguño: And the new way of working. I see how people have more information, more space to discuss ideas—and that makes their daily work better. That’s why we’re doing this.

About the author(s)

Xavier Costantini is a senior partner in McKinsey’s Santiago office, where Ferran Pujol is a partner and Guillem Sivecas is an implementation leader; Christian Johnson is a senior editor in the Hong Kong office.
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