Financial Mail: 4 May 2007
From humble beginnings, Harmony Gold has grown into the world's fifth-largest gold mining company. As
ambitious as ever, it now plans to increase gold production by 50% within three years and generate at
least 20% of its revenue from activities outside the gold mining business by 2010.
Far from being defeated when his audacious bid for Gold Fields was scuppered by the high court last May,
Harmony Gold CE Bernard Swanepoel has continued to search for growth in his unconventional fashion.
He has teamed up with the partnership between FutureWorld and Deloitte Consulting, dubbed
"FutureWorld... Powered by Deloitte" (see story "Not just a virtual reality") and set a target of
increasing Harmony's market capitalisation by more than US$2bn within the next few years.
"Just because we are a gold mine doesn't mean the only thing we can focus on is gold," says Swanepoel.
Initially Harmony will go for the most accessible value, such as its property portfolio, which includes
more than 52 000 ha of land and infrastructure ranging from shafts and offices to accommodation, which can
be sold or leased.
It is putting the finishing touches to a permanent management team that will handle its property
developments. Swanepoel expects the initiative, profitable from the outset, to unlock
"a billion or two".
It will also pay more attention to the by-products of its business, like uranium, sulphuric acid and
platinum group metals, such as osmium. "Only when we looked into it did we learn that osmeridium, a
natural alloy of osmium and iridium, is extremely heat-resistant and can be applied to turbine blades
on jet engines," he says.
"I'm not saying that Harmony will be in the jet engine business. But by looking at things through a
different lens we realised the stuff blowing around our mine dumps had a value that we could unlock."
The different lens, he suggests, was provided by FutureWorld. Swanepoel says this group has changed
executives' thinking about what is possible and what the team can achieve.
"Harmony has a very entrepreneurial history," says FutureWorld International CEO Wolfgang Grulke. "But
it had become a typical corporate saddled with the responsibility of managing 47 000 people. Its ideas
were incremental and it was not thinking big anymore."
Grulke dismisses the attempt to take over Gold Fields. "Mergers and acquisitions don't add new value
because the industry does not grow - what we are doing now is exploring ways to create new value."
Swanepoel, who says he is having so much fun it should be illegal, thrives on change. He joined
Harmony 12 years ago when the Free State mine - at the time SA's lowest-quality ore body - faced
closure, and 17 000 people were to be made redundant. He was up to the challenge. "I had an urge
to do things differently in mining. I had a mandate from the board to save the company, and the
space from [then Randgold chairman] Peter Flack to do it my way."
This he did, unashamedly changing the way people defined the ore body and implementing new approaches
to mining it.
Most of his innovations were people-related; one of the changes was to reduce the hierarchy from 16
levels to five. "I am living proof that if you empower ordinary people, and trust them, you can get
extraordinary things out of them."
But Harmony's spectacular recovery ground to a halt in 2001, when the rising rand forced the company
into a painful restructuring which ended with its failed bid for Gold Fields.
The relationship between Harmony and FutureWorld began in the dying days of the Gold Fields adventure
when Mahommed Madi, then head of strategy, frustrated at Harmony's lack of lateral thinking, invited
FutureWorld to run a workshop to help the executives think differently about business, innovation
and growth possibilities.
"We confronted this question first: if the future is important, how much time are we willing to commit
to thinking about it?" says Swanepoel.
Typically, executives spend less than 2% of their time thinking about the future. "We committed 10% of
our time to understanding what the forces were that would shape our business in the future," he says.
That doesn't mean sitting on a rock and pondering.
Once a month the executive team attends a briefing on a particular topic, such as China, nanotechnology,
climate change or the rise of environmentalism. Experts, preferably with competing views, are invited
to give presentations, but as if it were already 2015. "The moment you treat something as inevitable,
you think about it quite differently. For instance, what does the focus on the environment mean for a
gold mining company whose slimes dams blow dust over the community of Randfontein? And how do we address
this now so that in 2015 we make money?
"Nobody can predict the future, but it's a thought-provoking discussion which makes you build the capacity
and ability to adjust to change. You may just be the one to anticipate the change accurately."
The briefing sessions end with an analysis of threats and opportunities that these looming issues
present. "FutureWorld has thawed our minds to what is possible and creates fertile ground for someone
to do something about it."
What FutureWorld had not done previously, though, was put ideas into action. This is where
"FutureWorld... Powered by Deloitte" enters the picture. "FutureWorld delivers the strategic thinking
and strategic action process, enabling our clients to learn from the future in setting their strategy,"
says Deloitte Consulting global business development leader Thomas Jankovich. "After this point,
FutureWorld... Powered by Deloitte' focuses on the strategy execution, and enables the growth imperatives
of our clients."
Deloitte's programme, which includes dedicated human resources, systematically assesses growth
opportunities. "Clients often don't have the kind of people who can start a new business," says Grulke.
"With corporate success they have often lost the capacity to start up businesses. You need
different management skills for this, risk-seeking, dynamic, creative and innovative."
The starting points in the exercise to find and exploit hidden value in Harmony were the places where
the executive team perceived no value. Aside from property and gold by-products, other opportunities
include water, which is both a cost and a liability in the mining operations. "By harvesting' water
and treating it, we can either use it to reduce our own water purchases or sell it to other users,
or both," says Swanepoel. And training. As a significant employer, Harmony is already an accredited
training service provider. Health too, may be an opportunity. "We are already one of the larger
health-care providers - why not do it on a bigger scale?"
Swanepoel concedes there are limits. "To go into rocket fuel for the launch of Discovery is far-fetched,
but for a company like ours there is not a lot of the SA business space that we cannot legitimately be
involved in." Aside from the industries mentioned, Harmony is in financial services - it runs one of
the largest payrolls in the country; it generates power; it has one of the country's biggest
installed computer networks; and until Telkom forced it to stop, it ran one of the most efficient
radio wave communication systems between shafts.
But, says Swanepoel, "everything is hampered by restrictive legislation and protective monopoly. We
protect the Mittals, Eskoms, Telkoms."
Though it seems as if Harmony is randomly plucking ideas from the sky, every possible business is
evaluated thoroughly.
"We will gather market intelligence and assess competitor behaviour, trends and value chains to develop
a robust business case."
For now, Swanepoel envisages investing around R15m-R20m/year on start-up initiatives. "All of these new
business' decisions will compete with other funding priorities and be a separate investment decision."
Swanepoel is confident about the future of gold as a store of value, but he believes access to reserves
makes the future of the metal as a commodity uncertain. Hence this focus on the future.
"We don't know what Harmony's next silver bullet is. But we are putting in place a process that will
identify businesses that might become a silver bullet."
Out of this same process of introspection Harmony has established the Harmony Improvement Platform. "It is
aimed at tapping into the experience our workforce has accumulated over many years to innovate, reduce
costs and improve performance.
"A Harmony Innovation Zone has been put in place to ensure that these ideas are captured and brought to
the surface'."
The company has already realised about R70m in cost savings through this process.
Swanepoel doesn't believe the company has all the answers yet, but: "We don't believe our competitors are
thinking about the future to the same extent as we are."
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