Open Innovation and the World’s Second Largest Gold Company

Clean 15 Series

By Dwayne Matthews

Earlier this year the Toronto Board of Trade had its 124th annual dinner. The event attracted the who’s who of the Toronto Business community. This year the keynote speaker was Rob McEwen, the former CEO of Goldcorp. One of the things that struck me about his speech was how he leveraged open innovation to start a march that would lead Goldcorp to become the world’s second largest gold company.

In 1989, McEwen gained control of an old underperforming gold mine in Ontario. McEwen believed that his newly acquired mine shared the same potential as some of the neighbouring mines and that his real issue was finding the right location to unveil what he thought was massive score of high grade ore.
In 1999, after attending a seminar at MIT and learning about Linux’s open source revolution, he recognized that he could leverage the Internet to gather up the collective minds of the world’s top geologists. Against the collective wisdom of Goldcorp’s internal experts he launched the “Goldcorp Challenge” in March 2000.

If you know anything about the mining industry you will know that it is very secretive and private. In his industry, reaching outside to leverage external experts was thought to create high levels of risk; however, McEwen seemed to have had a glimpse of the future. The disruptive influence of the Internet was just starting to be uncovered and the social media giants like Facebook and LinkedIn were not yet household names or even fully formed thoughts in the minds of their founders; however, McEwen recognized that connecting to external innovators and experts would drive his cost down, while significantly increasing his chances of success.

The Goldcorp Challenge attracted approximately 1,500 scientists, engineers and geologists from more than 50 countries that all competed for the purse of about $600,000. What was more amazing than the number of people that entered the challenge was the high level of creative and “out of the box” ideas. McEwen started to understand a very valuable concept. According to one of the fathers of Open Innovation Eric Von Hippel.

“In context where computational costs are low and widely available and where distributed communication is inexpensive, open or peer innovation communities can displace organization based communities.”

Now I don’t think that external communities replace organization communities, however, I do believe that they significantly augment the internal R&D abilities of an organization and create true disruptive potential if the organizations they serve previously did not have the means to house their own internal experts.

The cost of communication, when lowered, releases the movement of knowledge and allows more people access to that knowledge, which in turn increases the probability for value creation especially if the challenges can be articulated in a modular manner.

McEwen went on to say that the challenge itself was a smashing success. In just one year the mine was producing about 504,000 ounces at $59 an ounce and at the time gold traded at $307 an ounce. Goldcorp spent $1 million to find $3 billion worth of gold. The speed and expansive nature of the project was an important piece and helped to catapult Goldcorp to become one of the world’s leading gold mining companies.

Some of the key points according to McEwen were to first question the fundamental unquestioned assumptions of his industry. His second point was to find outside perspective, as he believed that getting ideas from people that were not raised in his industry was highly important.

As the world becomes more connected, it will be key for companies to break down their challenges into discreet and modular components. Modular problem solving allows great participation in solving challenges and will protect the organization from myopic thinking. Thinking about strategic openness to connect with experts globally, and to partner with innovators to create growth opportunities will only continue to become more important as we move forward. Companies that are not able to see the forest from the trees will increase their risk of being blindsided by other players that have moved to leverage disruptive opportunities. Interestingly enough at the time of this article going to print, Rio Tinto announced that it will spend over $500 million on mine automation. Much of this technology will be generated by relationships with external partners. The future is here.

Dwayne Matthews is the Managing Director of Clean 15, Canada’s leader in open innovation.