STRATEGIC HUMAN DEVELOPMENT APPROACH

An Alternative Solution to Attract and Retaining Best Professionals
Herman Seran

A. Introduction
One of the most crucial problems for Australian mining industry is professional labor shortage. Large numbers of projects were delayed due to the difficulties in skill forces employment. Despite resource booming, there has been limited youngsters choose to study in mining related courses. Accordingly, firms are competing among each other in attracting and retaining the best human resources assets.
Company X is a fast growing middle tier diversified resources firm that experience the same problem. The company is in strong demand for mining professionals to conduct its mining and exploration activities across Australia and Indonesia. While the company struggling to win additional professionals, turnover in site level continues to increase. For example, during the last two months at least three key professionals resigned from their current positions.
It has been widely accepted that employ turnover will cost the company in various forms. The company will incur cost of replacement and suffer from the overall decrease performance due to disturbance in the system. Therefore, human resource is a strategic issue that requires strategic approaches that can guarantee the sustainability of the organizational growth. Accordingly, this paper aims to discuss the possible options in dealing with the labor shortage issue in the mining industry. Subsequently, the best alternative is proposed based on the uniqueness of the company.
The discussion, therefore, is firstly dedicated to exploring the company’s position within the mining industry. Secondly, identifying strategic issue in conjunction with high turnover and attracting potential candidates. The next section is dedicated to discuss the possible alternative solutions. The recommendation of the best strategic approach becomes the final part of the paper.

B. Company X within Australian Mining Industry
Company Background
Company X is a fast growing diversified resources company. Starting with its niche as base metal (copper) mining operator, the company has diversified its activities covering bulk industry (thermal coal), gold-silver mining, and currently looking forward to produce other commodity such as antimony, tungsten and solar salt commodities. Geographically, the company is working throughout Australia and Indonesia. The stage of the operation ranges from green-field exploration to mining operation.
When it comes to Company X’ position within Australian mining community, the company falls into ASX listed ‘small to middle tier’ category. Nevertheless, this Perth based company has experienced an impressive growth during the last five years due to its acquisition strategy targeting the well advanced projects that lack of funding or entering care and maintenance stage (Company X, 2005). This strategy was started with selling its Y Copper Mine in 2003. This option equipped the company with enough cash to pursue its take over strategy and commission the well advanced projects.
As the result, the company is predicted to be fifth Australian listed copper producer in 2006 if its 47,000 tonnes copper annual production achieved combining copper cathode from W Copper and concentrate from T Copper (Company X, 2006). Company X has also increased its coal production in Indonesia to three million tonnes per year as well as improving its coal reserves up to 24 million tonnes. M Gold mining in Indonesia is also ramping up the production targeting 80,000 ounces equivalent gold. Other projects on the next raw includes H Antimony-gold and Z solar salt projects (Company X, 2006b).
Financially, the company also experiences an encouraging performance. The company has booked almost A$35M in 2005 as opposed to just over A$14M in 2004. Share price has jumped from about $.5 in 2002 to around $4 in July 2006 (http://www.asx.com.au/ , 2006). The market capitalization by 2005 was about A$450M and total shareholders’ equity was A$ 204M during the same period (Company X, 2006).

Highly Competitive Mining Environment
In conjunction with the Company X’ strategy of being a diversified resources company, the company has exposed itself into a highly competitive environment. The sectors that the company involves by nature are those that having very high competition in mining industry. These highly competitive sectors are copper and base metal, gold and silver, and coal. Copper, gold, and coal have a low barrier to entry and are the most homogenous market structure (Crowson, 2006). Accordingly, a medium size company diversifying its portfolio into these sectors will be prone to struggle in escalated competitive environment than those that concentrating on certain industry. Nevertheless, this may be useful from the point of view of hedging strategy against risks.
Porter’s five forces framework is adopted to assess briefly the nature and the degree of the competition within the industry of these minerals. This analysis deliberately excludes the role of other stakeholders such governments, communities, interest groups as their impacts are generally indifference towards firms across the board. Accordingly, the discussion elucidates barrier to entry, bargaining power of suppliers and buyers, threat from substitutes, and rivalry within the industry.

Threat from new entrance
Coal, copper, and gold are the commodities that highly exposed to threat from new players. The argument in favor of this is that coal, copper, and gold sectors require relatively low capital investment and generally having small economies of scale. As a matter of fact, the current players are less concentrated hence the market structures are very homogenous. For instance, the top ten producers are accounted for just 47% market share for gold and 49% for copper metal as opposed to 98% in platinum and 68% in nickel (Crowson, 2006). In addition, Company X is just one of 142 coal companies operating in Indonesia during 2004 with 23 of them were producing (PricewaterhouseCoopers, 2005).

Bargaining from suppliers and buyers
For those commodities that traded in spot market, there is no real threat from the buyers, because both producers and the buyers are price takers. The problem may be difference for those that involving negotiated price and hedged. Company X has entered into long term contracts with coal consumers in Asian market, likewise for most of the copper cathode from its Whim Creek Mine that produced up to 2006. This strategy, in fact, is a hindrance for the company in terms of gaining higher profit margin resulting from price booming.
Suppliers bargaining power is considered to be modest. Nevertheless, during the resources boom period, as well other resources companies, the company experiences considerable difficulties in finding drilling contractors and new employees. Consequently, the contract prices as well as costs for hiring short term professional continuously increase. For example, the company has been searching around for eight to ten fresh graduates since last year, yet just one was available and several projects were delayed because of rig availability.

Threat of substitutes
In medium term, there is no real threat from the substitutes for gold, copper, and coal. Demand for gold will continue to increase in line with strong economic growth especially in the biggest consumers like the United States, India and China. Gold’s historic role as value hedge against currency depreciation will be further cemented by decreasing investors’ confidence in holding the US dollar denominated assets. Accordingly, the company will increasingly benefit from expanding its gold and silver production. For example, given the current gold price at US$600 per ounces, the company will increase its pre tax and interest revenue from gold by more US$250 per ounces. This assumption is based on its Indonesian gold producer’s cash costs that recorded at US$338 per ounces (Company X, 2006b).
Copper demand, as well as other commodities, will be stronger depending on economic activities. Despite the tendency of declining copper intensity of use, the rapid economic growth in China is still the main trigger for higher copper price. In 2003 the intensity of use for copper in China was more than six times the world’s intensity of use where GDP growth was 9.1%. By no means to undermine substitutes and recycled supply, the global demand for copper will continue to grow due to China’s soaring demand.
When it comes to coal, threat from its substitutes is considerably important. However, since the company has entered into long term contract with its consumers, substituting coal with other energy sources not a threat. Despite the grievance regarding carbon emission produced from burning coal, changing from coal to other energy sources is not an easy option in medium term. Additionally, increasing the price of oil and gas will spur the demand for coal. Furthermore, liquid coal may be the next alternative to oil which may further shift the demand curve to the right.

Rivalry among the firms
Competition among the companies within copper, gold and copper industry is believed to be considerably high due to the market structure and low barrier to entry. The competition gets even stronger during this resources booming stage where companies competing among each other to gain the best assets and services. Company X experiences at least three aspects of rivalry among the firms within the industry, namely bidding for acquiring good grounds, attracting and retaining the best employees, and competing for contracting service companies.
Regardless of its success in acquiring and involving in joint venture projects in Australia, Company X also has also failed to acquire several prospective tenements in Indonesia during 2005. This is because of the increasing competition among the companies bidding for the good grounds. Company X failed due to the less attractive proposals offered to the previous holders.
The most crucial issue across the industry is skill workforce shortage. Company X has experienced a significant loss regarding labor shortage in terms of employ turnover and inability to attract prospective professionals. First instance is Whim Creek commissioning in 2004 was delayed several months due to failure in attracting skill workers (Company X, 2005). Further disturbance on the production again occurred throughout second semester 2005, where employee turnover forced company to employ crushing contractor to ensure the continuity of the operation (Company X, 2006). In 2006, while company desperately needs for additional professionals, several key positions were left vacant due to resignation as other companies offering better deals. Accordingly, company advertised job vacancies in West Australian with additional obvious comment saying that “very attractive remuneration and benefits will be negotiated to attract top caliber candidates” (Western Australia, July 8, 2006, p77).

C. Human resources issue is a critical problem
Being a medium size diversified resources company will be always prone to strong rivalry among the firms. The pressure gets even tougher for a fast expanding company like Company X. The success in managing the dynamic of the environment will channel further success to the company. No matter how excellent assets company owns, future success of the company fully depends on how strong the human resources the company has and the ability of the management concerting them moving towards the same direction.
Looking back to the failures that the company has suffered and current condition, it is obvious that human resources management sounds to be the main problem that may hamper the future growth of the company. The company operation at site level has been suffered from human resources management related problems. Since competitive environment is a matter of fact, it is clear to some extent that management fails to attract and retain the best human resources to ensure the continuity of the company growth. Therefore, sound strategic human resources management is critical concern to the company.

D. Possible Alternatives towards a sustainable Human Resource Management
The company has implemented several approaches in order to address the skill worker shortage. Nevertheless, it is clear to some extent that such approaches seem to be rather ad hoc solutions than a strategic human resource management. The approaches that have been introduced so far are hiring contract operator for short term period, sending the employees from Indonesian sites to cover the jobs under business visa, and offering ‘attractive compensation and benefits to attract caliber candidates’.
Hiring contractor to convey the service due to employ turnover happened in 2005. This solution is of course not a strategic solution since the company has forced to react against the possibility of stopping the production. Accordingly this is an emergency solution that does not sustain in the long run. As a matter of fact, this type of solution just lasted for less than six months and the crusher operations handed back to the company employees. It has been widely recognized, hiring contractor for such kind of continuous position is more expensive compared to permanent hiring. Additionally, the company also has lost opportunity cost of hiring and replacement.
The next solution is getting the Indonesian professionals who are assigned to work for the company’s project in Indonesia to undertake the job on temporary basis. This solution seems to be a smart solution as the company optimizing its assets. Nevertheless, this strategy is subject to question for several reasons. To what extent this solution is ethically acceptable since their Indonesian employees are paid in local currency and local rate while they work in Australia? Another question is whether this approach legally acceptable as these employees assigned for the projects in other territory but conducting job in other territory? Therefore, ethical and legal aspect requires further clarification.
The third solution implies a real battle in winning the best candidates. The company has announced an open price war when it claims that it will prepare to provide attractive benefits to the caliber candidates. Without quantifying the degree to which the package is really attractive, this approach is unsustainable. Why this is unsustainable? Physical rewards are not a sustainable solution to retain and attracting the employees. The first reason for this is that other firms will do the same until market equilibrium achieved. As a matter of fact, there are a lot more big companies that can offer more than what are Company X preparing to pay. Another constraint is regarding Maslow’s hierarchy of needs suggesting that physical needs will no longer motivate people once people get through a certain level of satisfaction (ten Have et al, 2003).
To sum up, these approaches that have been implemented are not sustainable and containing no strategic values. Therefore, the company is required to embrace more strategic human development approaches that benefit the company in the long run. The detail discussion as describe in the next section.

E. Implementing Strategic Human Development
Analyzing Company X’ human resources practices and comments from the project level employees, revelation suggests that company does not consider recruitment process and the satisfaction of the current employees seriously. A part from the problem of competitive salary, there has been no clear carrier path that can be expected by the employees, especially for those at project level. Recruitment often undermines the importance of teamwork and deteriorates the workplace interactions. Furthermore, large numbers of idea from frontline managers are not seriously considered.
The following quotes may explain what is really happening. Prior to his resignation an employee told his workmates: “I have requested for the improvement of these conditions in order to ease the job but it has never been seriously considered. This new company offers me a better condition. I need more challenges.” He further pointed: “this new superintendent is one of the reasons why I resign.” Meanwhile, one of the senior management stated another day: “Employees should comply with company interests, because all employees are hired to pursue the company goals.”
A strategic human resource management requires long term and integrated approaches that incorporating the employees’ interests as well as that of the company. In spite of the competitive salary, carrier development path is required by the employees to manage their career. Furthermore, working itself is medium for self actualization and self fulfillment to the employees. Accordingly, a harmonious workplace and accommodative working condition are strongly recommended. This implies that the relationship between the company and employees are based on symbiosis mutualism principle.
Of course this approach will cost the company more in terms of recruitment costs. Nevertheless, getting the right persons at the beginning is far more efficient than implementing trial and error approach. It is believed to be sustainable to attract and retain the employees by offering clear expectations and rewards instead of leaving them moving with their own agenda disconcerted with the company’s ultimate goal to maximize shareholders’ return.

F. Conclusion
As a fast growing middle tier diversified resources company, Company X faces a considerable competition to win the best assets. This competition gets even stronger since the companies portfolio consisted of the most homogenous minerals namely copper, gold and coal.
One of the most crucial issues faced by the company is attracting and retaining the best employees since the company has experience significant loss from lacking professionals and high turnover. High turnover rate is resulted from the absence of strategic human resources management.
A fast growing company requires qualified human resources to guarantee the future success of the investment. Accordingly, implementing strategic human resources management that accommodates employee interests in pursuing the company goals is a sustainable option. This can attract and retain the best employees, hence sustaining and maximizing shareholders’ return.

Reference:
Crowson, P 2006, 'Mineral Markets, Prices and the Recent Performance of the Minerals and Energy Sector', in Australian Mineral Economics: Monograph 24, The Australasian Institute of Mining and Metallurgy, Carlton Victoria, pp. 59 - 74.

'Geology Opportunities' 2006, West Australian, July 8th, 2006.

Porter, ME 1980, 'General Analytical Techniques', in ME Porter (ed.), Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, New York, pp. 1 - 33.

PricewaterhouseCoopers 2005, Mining Indonesia 2004: Review of Trends in the Indonesian Mining Industry, KAP Haryanto Sahari & Rekan - PricewaterhouseCoopers, Jakarta.

Company X 2005, Annual Report 2004, Company X Pty. Ltd., Perth.

Company X 2006, Annual Report 2005, Company X Pty. Ltd., Perth.

Company X 2006b, Half Year Report, June 2006, Company X Pty. Ltd., Perth.

Ten Have S, ten Have, W, Stevens, F & van der Elst, M 2003, Key Management Models, Pearson Education Ltd., London.

http://www.asx.com.au/