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Create a Gold Mine of Improved Business Models

May 11, 2008
Many people are unconvinced that business model innovation can revolutionize any business. Perhaps if we consider an example from a tradition-bound business, you'll be persuaded that the barriers have all fallen for creating more powerful business models.

Let's consider the impact of business model innovation on the geological thinking behind underground gold mining, an industry that has had one of the most stable business models in the world. Based on archeological records, it is estimated that that business has been around for thousands of years.

Until the industrial revolution, when power and explosives could be applied in the mines and stratigraphic maps were created, the business model and methods used were essentially unchanged. You put more effort into wherever you found some gold.

You drilled lots of holes to see what you could find, and made three dimensional maps to suggest where the gold might be found by extending the strata you knew to be gold bearing. Then you drilled some more.

Until recently, the only innovation since then was the development of futures markets for gold, so that miners could sell their future production and inventories when they wanted to reduce uncertainty or risk.

In March 2000, the gold-finding part of the business model was laid to rest for all time by Goldcorp Inc. The company issued a challenge to all of the world's geologists to find more gold in its Red Lake Mine. That mine was already tapping into one of the world's richest, highest-grade gold deposits.

Everything the company knew about the mine was shared with the geologists through the Internet. Substantial cash prizes were offered for the best ideas. This occurred at a time when gold prices were at a near-term low in constant dollar terms.

As a result of having little else to do in the depressed market, many of the world's best geologists participated. Over 1400 prospectors registered for the challenge. A year later, the company announced that the winning submissions had located 6 million additional ounces of gold.

With further testing, that number may grow. The ultimate revenue from mining that gold will exceed one billion dollars and profits will probably be hundreds of millions of dollars. The cost of the prizes was only $575,000. The prices cost less than the unproductive exploratory drilling that would otherwise have occurred.

To fully appreciate the power of this experience, you should know that this is also a very long operating mine. Most would assume that there was little more gold to be found in it that has not already been identified.

To build on that success, the company launched its Global Search Challenge in March 2001. That contest looks for important mineral deposits worldwide over the following two years, and offers two million dollars in prizes.

This amounts to a second model change in only one year. This time, Goldcorp not only leveraged its own information, it also leveraged that of everyone else as well as their ability to interpret that information. Goldcorp will be able to access every geologist who learned something that a mining company is not yet exploiting.

And it can then simply go with the best ideas. The mining industry can expect that the business model for finding minerals will continue to rapidly change.

When other industries hear about Goldcorp's success, we can expect to hear about similar challenges being offered for new information and knowledge to solve problems and find better opportunities. In time, this new model will undoubtedly set off yet another new model.

Companies will acquire businesses and properties that have had little information and knowledge applied to them, following a similar contest to identify which ones are the best to buy. Then there will be a worldwide contest to decide which options for improving the businesses and properties are the best ones.
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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