Organizations are striving to maintain operational excellence amid rapid digital transformation. Yet integrating advanced technologies while maintaining efficiency and employee engagement is a complex task.
In this episode of McKinsey Talks Operations, host Christian Johnson is joined by Juan Luis Kruger, CEO of Minsur, and Ferran Pujol, a partner at McKinsey, to discuss how digital tools and lean management principles can enhance operational performance and foster a culture of continuous improvement.
The following conversation has been edited for length and clarity.
Christian Johnson: Today I’m joined by Juan Luis Kruger, CEO of Minsur, a mining company in South America, and Ferran Pujol, a partner in McKinsey’s Santiago office, to profile Minsur, a company that has had real success with incorporating technology into traditional operational excellence practices.
Juan Luis Kruger: Minsur is a Peruvian mining company owned by the Breca Group, which is one of the largest economic conglomerates in Peru and South America. We have more than 45 years of experience in the industry, and we are a diversified portfolio of world-class assets, with operations in Peru and Brazil. We are the second-largest producer of refined tin in the world, the largest producer of tantalum in the world, and a significant producer of copper in Peru, as well as zinc, lead, silver, and gold. In 2013, I landed here in the company. At that time, we had to start phase one of our transformation. Right now, we’re in phase three. In phase one, we had to work very hard on optimizing the operations, investing heavily in extending the life of mines through exploration, and setting up the basic management systems in the company to position the company for phase two.
Phase one, which took us two to three years, was about resetting the basics of the company so that we could run this business very efficiently, extend the life of mines, increase our resources and reserves, and project our current operations.
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By the end of 2015 or 2016, we were a company that had been restructured with very strong management systems in place and a very strong focus on safety, cost reduction, and productivity. We had also started to work on phase two, which was about implementing our growth projects. By the end of 2018, we approved the construction of a new copper mine, a $1.8 billion capital investment project that has been very successful.
Christian Johnson: In making this decision for cultural change, what were some of the concerns that you had as a leader about the rapid growth?
Juan Luis Kruger: The biggest challenge that I had as a CEO was: How do we take this company to the next level and create a sense of urgency? The company had grown, and our operating margins were much higher. We had recently been admitted to the International Council on Mining and Metals, which was a testament to our sustainability standards. It was tough to go back to the team and say, “We need to prepare ourselves for the next phase,” because the basic question was, “Why?” So, we realized that we needed to create momentum for a new phase of transformation—a cultural transformation.
We were a typical mining company with an old mining culture—very top down and hierarchical. We decided that we wanted to flip around the empowerment in the company, empowering everybody from the bottom to the top to take the company to the next level of operational improvement. That’s where we started phase three, which is a significant cultural transformation program. I call it a program because it’s not a project—projects have a day where they start and a day where they finish. A program is something that is permanent in time, like this cultural transformation, which is focused on implementing lean management practices.
Ferran Pujol: As Juan Luis said, empowerment was really important in this organization that had grown a lot. That’s where lean management helped. It helped institutionalize a culture where this empowerment was possible and set up the meetings and processes that allowed for this empowerment. For example, having performance dialogues in operations at the shop floor level, where the operators could understand the previous process and the next process and share their ideas for improvement. Then the supervisor would listen to everybody before talking. These processes and establishing a culture where the leaders ask the right questions instead of always coming up with the solutions helped with this cultural change in the framework of rapid growth.
Christian Johnson: What caused you to focus on the potential of lean management, from your perspective as a leader, Juan Luis?
Juan Luis Kruger: I had to go through my own change management journey. My chief financial officer at that time had been involved in the implementation of lean management in another mining company in his previous life. We were discussing in the executive committee meeting how we could create new momentum and this sense of urgency, and how we could transform the culture of the company, because a company the size that we are now couldn’t be run from the top down—we needed to empower people.
So this guy comes to my office and says, “Listen, I know exactly what we need to do. We should implement lean management.” I was very skeptical, but he persevered. He pushed me to visit some operations where he had implemented this before. I met the CEO of these operations, and I found that this was worth giving a try, but I was still skeptical. It took us a year before we made a commitment. During that year, I didn’t want to impose this on my team. I wanted the whole team to come to the conclusion that this was the way to go.
I was still skeptical until I saw things start to change at our tin smelter in Peru, which was the first operation where we started this process. The results have been really incredible. But it took me a while to convince myself that this was going to work, that change could happen, and that lean management could be a huge enabler of change in the organization.
Christian Johnson: I’d love to understand what some of your concerns were because that’s something that a lot of executives like you will relate to.
Juan Luis Kruger: First, how do we deploy the need for change to the whole organization? Second, how do we effectively manage this change process? Third, how do we communicate in a way that people understand that what we’re really looking for here—the purpose of this—is to change the way we work and not to pursue immediate cost savings? Improvements in productivity and cost reductions will come, and they will be a result of changing the way we work, not the other way around.
A very important part of this was signaling from the top. Instead of myself and the executive committee deciding up front which operation to start with, we got together in the meeting room with all the general managers [GMs] of all of our operations, and we said, “This is what we want to do. You guys have to let us know who wants to be the first one.” It was very impressive—the GM of the tin smelter in Peru, who had just been appointed GM, raised their hand and said, “I want to do this because I truly believe this is what I need to take my operation to the next level.”
Christian Johnson: I’m hearing some examples of the lean principles that we speak about. Ferran, I’m wondering if you could expand on this a little bit more.
Ferran Pujol: The guiding principles of lean management are the basis for building a lasting culture and achieving organizational excellence. One of these main principles is to lead with humility. The way I’ve seen that at Minsur is that the leaders—instead of telling the team what the solution is—ask teams the right questions. Another principle is to seek perfection. The way I’ve seen this at Minsur is always striving for more growth and more productivity.
Another one is to embrace scientific thinking. I’ve seen that mainly with the use of technology—using artificial intelligence models to use more data to make decisions instead of gut feelings, and looking at more of the cause-and-effect relationships. Another principle is to focus on processes systemically. The way I’ve seen this at Minsur is not blaming people when there’s a problem, but rather finding the solution in the process and systematizing the solution of problems—focusing not on solving the specific problem but on generalizing this problem to other potential problems. And we expand the solution to other areas of the organization, like the culture and methodology.
Christian Johnson: Let’s go back to the story of the manager at the Pisco smelter. What were some of the changes he was able to make?
Juan Luis Kruger: The smelter was supposedly running at its full capacity for a few years, to the point where we increased our mine production through one of our growth projects, and the previous GM came to us and said, “You’re going to need to find an external smelter to treat that additional mine production.” That was a project killer, so I challenged him, and his response was, “No, there’s no way we can increase throughput here.” Then the new guy comes on board, and he takes on the challenge. What he did was amazing. Through the lean methodology, he empowered the operators of the smelter and refinery to the point where they were the ones to identify the main bottlenecks of this operation, and they quickly implemented some operational efficiency initiatives that allowed us, in a very short time frame, to increase production by 25 percent.
He moved from an autocratic culture and directive management approach to a very bottom-up approach—something that was unheard of in the industry and unheard of for these guys. As Ferran was saying, he started asking questions instead of giving orders. When people started to understand that this was a real cultural transformation, that it was about changing the way they work and taking into account what they believed needed to be changed in the processes, then everything started clicking. And we moved from resistance to a virtuous cycle—a cycle of continuous improvement and increased empowerment.
Christian Johnson: What long-term effects do you see now from that change?
Juan Luis Kruger: The most important thing is that we have an organization today that doesn’t fear new challenges. We have moved to a culture where we all aspire to do more. Once we achieve a goal, we immediately start looking for the next goal, because we all know that whatever we think we can achieve is achievable. Today, it’s an organization that has been really empowered. We have a group of people who feel very proud of what they have achieved. And it’s not the boss who told them what to do; it was they who ran this process of change, who knew the changes that needed to happen. In the past, they were not being heard or taken into account.
Ferran Pujol: One example of what I have observed—the unit manager of Pisco presented to the executive committee what he thinks should be the next target and what he needed from his bosses, the executive committee, and the support functions. In a hierarchical industry, that’s quite remarkable—basically saying from the bottom up, “I can produce this much, and this is what I need from you to help me achieve these objectives.”
With the current industry context, everything’s getting more complex, from social permitting to the processes themselves. Empowering people from a lean baseline was very important to have more capacity to solve problems. We saw that at all levels: operators, managers, and superintendents. More recently, along with technology, this empowerment has changed to involve more functions. You need to bring together the metallurgy, operations, and analytics teams to solve problems, which is much more difficult because you have more people thinking in different ways. Having the basis of lean helped a lot here. And changing the management systems, meetings, and organization to be able to get these people together to solve problems has helped tackle this complexity.
Christian Johnson: Juan Luis, I’d like to build on Ferran’s point on the people side of the transformation. How has that bottom-up work merged with technological innovation here? For the new technologies that you see coming in analytics and so forth, how are those coming together now in the organization?
Juan Luis Kruger: Embracing new technologies requires an ecosystem that is ready for that. In old-fashioned and hierarchical organizations, only a few people have a say on what’s happening and what has to be done. That’s very difficult, right? Or at least, it’s going to take more time, and it’s not going to be as efficient.
By implementing new technologies and data analytics and machine learning, we have been able to change the way people work, leveraging technology with a very steep adoption curve. Without lean management systems in place, without this ecosystem of empowerment, we would probably still be trying to convince people to use these new technologies. What we have done here is move decision making away from the operators in the concentrator. Decisions on what operational parameters need to be adjusted now come from a cell of people, a system, or a data analytics and machine learning platform that is validated by a cell of multifunctional experts. Then that decision goes directly to the plant. Now imagine you’re the operator of a concentrator, and you have been used to making decisions as to which parameter you need to adjust. Then suddenly, an algorithm tells you what you need to do. If we had not had this cultural transformation program in place, that would not have been possible.
Ferran Pujol: At Marcobre, Minsur employed its Lingo 4.0 [methodology] to incorporate technology in a way that was aligned with and reinforced the culture and adapted to the methodology and management systems around it. What do I mean by that? With lean, using more data from the sensors and artificial intelligence allowed the operators to make decisions that were more data driven—they became more systematic. With artificial intelligence, they connected the data from the mine and the data from the plant. So they had more global optima and more empowerment by having multidisciplinary teams working together to solve problems that are too complex to be solved just by operations or metallurgy or digital teams.
Christian Johnson: It sounds like in the old world, the operator is used to making decisions as needed, through observations and based on parameters, but a lot of it is based on instinct. It sounds like that was already shifting to an approach that is more data informed. Perhaps then it was less of a leap to say, “OK, now that data is going to come from a team of people, and there’s going to be validation.” Am I understanding that correctly?
Juan Luis Kruger: That’s correct. There was a design principle that Minsur followed. With artificial intelligence, you have the choice to have a black box model that operators would need to follow, or you could increase the knowledge of operators by giving them more visibility and understanding about their own process and the processes before and after.
Christian Johnson: I’d love to contrast that. What sorts of things do we see typically go wrong with the black box model approach?
Ferran Pujol: When technology is used as a means itself instead of as a tool that is integrated in the process and the management system. Then when there are changes in the context, be it the ore body or the equipment, the teams don’t use the model any longer. The second failure mode is that operators, metallurgists, specialists, and subject matter experts see the models as threats to their work and don’t really want to work with the models. A third one is that you lose the institutional knowledge in the organization and only a few experts in the organization can adapt the models when changes happen. In mining, changes happen all the time. The ore body changes or the process changes, and then it’s a problem to adapt to these new situations that happen on a weekly or monthly basis.
Christian Johnson: This is where we get to the core of what lean management does, and that is enabling the technology to work with human beings. How are you seeing some of this play out right now in the organization? What are some of the changes you’re excited about as these two things further build this positive cycle?
Ferran Pujol: Using technology this way augments the operators and supervisors instead of replacing them. Some of the ways we see that is when there are significant changes in the operation, changes in the power of some equipment, or changes in the ore body. These cross-functional teams with people from operations, analytics, metallurgy, and so on find new solutions. They adapt the models, seek to achieve more impact, and problem-solving is much faster.
Juan Luis Kruger: Building on top of that, the biggest challenge when we talk about people and technology going forward is, “How are we going to reskill people so that they are not afraid of embracing new technologies?” Human beings have very unexpected behavior when they feel threatened. What we need to do is reskill people so that they start looking and finding new opportunities rather than feeling threatened by the adoption of new technologies. And that is a very big challenge. I think that in five to ten years’ time, the profile of an operator is going to be completely different.
Christian Johnson: What are some pieces of advice that you would give, Juan Luis, having been through this, for companies that are considering this sort of change through lean management and next-generation operational excellence?
Juan Luis Kruger: First, this has to be led at the top level in the company. When I say “led,” I mean you really need to lead the process. As a leader, you have to walk the talk. If you are not committed, this is not going to work. Second, you need to get people convinced of the merits of this management system, this new culture, this new way of working. You’ve got to convince the whole team about that. If you impose this, it’s not going to happen.
Ferran Pujol: Taking the time to think about the choices you have in culture, methodology, and impact is important. One way to start the journey is by visiting companies like Minsur to get inspiration and understand what choices they made in culture, methodology, and impact, to see whether they apply to you or not.
