AFTER months of bad news on mining industry productivity, the latest figures released by the Australian Bureau of Statistics showed a marked rebound. It was part of a national recovery in productivity performance and as one might expect, Federal Treasurer Peter Costello was very pleased. By Michael Hugging, Principal, Partners in Performance

Mining sector productivity increased 1.4% in the December quarter – a stark contrast to the 1.2% drop in the September quarter. In the short term – and with an election around the corner – that looks like good news for all concerned.

The problem for the treasurer – and for the mining industry – is that productivity figures are notoriously unreliable. Productivity figures actually mask real productivity outcomes because they are heavily influenced by changes in price.

The latest figures for the mining industry are a case in point – artificially inflated by high commodity prices with increased volume playing only a small part in the reported increase in productivity.

This should not overly concern the treasurer – no election was ever decided on productivity figures. But for the mining sector, it may well become a very serious matter.

The message here is clear. Miners should not allow the recent figures to lull them into a false sense of security. When as ABARE predicts in about two years global commodity prices begin to fall, only those companies whose operations are capable of continually improving their actual productivity will continue to deliver the returns to which their shareholders have become accustomed.

This is a significant medium-term risk for the mining sector. And it needs some immediate action if that risk is to be effectively managed. It's time to make improvements while the sun shines.

In a tight labour market where skill shortages, high turnover and recruitment bottlenecks afflict almost every part of the industry, managing this risk requires increased investment in both skills development and the recruitment function.

When you think of training, you generally picture new employees with little industry experience (of which there are many in the mining sector at present) learning new skills. But when you look at what's happening in the mining industry labour market, the picture is more complex.

Along with shortages of appropriately skilled labour comes increased staff turnover as companies compete to poach the best and brightest. And with that comes much more rapid promotion of line personnel into management positions to fill the vacuum left by supervisors and managers who've opted for greener pastures.

Coaching managers how to manage becomes a critical part of any campaign to increase site productivity – just as important as bringing on and upskilling new employees.

But so is combating high turnover. There's little value in accepting and reacting to high turnover when there are practical things you can do to reduce it. The question is, where to start?

Ironically, one of the most effective ways to reduce turnover is to implement more rigorous performance management. It's morale boosting and empowering for staff. At one site recently, a new performance management system was introduced for half the staff, amongst which turnover fell by 75%. The remainder of the site, where the new system was only introduced as a "light touch", experienced a 30% fall in turnover.

Better performance management thereby delivers a double-barrelled benefit. It improves the productivity of your existing workforce and eliminates significant productivity lags associated with staff turnover.

The other important element is recruitment. Whilst many managers can identify the problem, most organisations still don't manage their recruitment function as an important part of their operational environment. Recruitment can itself be a production bottleneck as operations await adequate skilled personnel to meet increasing demand.

Generating "recruitment velocity" – the ability to deliver the right number of people with the right skills to the right place at the right time – is a discipline in itself. A business needs to know how many people with what skills will be needed when, and start recruiting with adequate time to meet those needs.

The recruitment function needs to understand where to find the skills required and what factors will attract and retain those people to the organisation. And financial considerations are only one part of the equation.

On one site recently, management could not understand why despite painfully high wage costs, turnover remained at unacceptably high levels and the recruitment pipeline trickled rather than flowed. It turned out that workers were opting for other sites with better social and community infrastructure such as schools, sporting facilities, and environmental conditions.

Dealing with such a wide range of issues transforms recruitment into an integrated, highly strategic part of an organisation's business. And it should be managed accordingly.

The challenge of building ongoing productivity improvement into the mining industry is unavoidable. Crunch time is not too far over the horizon. Smart operators will start working now, while productivity figures still look good on paper, to ensure that profitability is underpinned by real productivity.

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