[P561]Pot O Gold Machines

The gold mining industry slashed its cost of finding gold by holding global contests where geologists proposed ideas for where to explore following Goldcorp's success with such a contest. Inspired by that example, Procter & Gamble began using a similar online approach to locating new product opportunities and technical development solutions.

Smaller organizations often don't have the luxury to sponsor contests to find growth routes of the sort that giants like Procter & Gamble and Goldcorp sponsor. Both of those organizations had large existing budgets that were going to be spent for something.

The cost of the contest could simply be a substitute for part of those committed budgets. Any economic benefits that flowed from the contests could then be used to further other obstacle-avoiding investments.

A small organization might find its very existence is threatened if it spends hundreds of thousands of dollars to obtain and organize better information before even launching a contest. Clearly, a different strategy is needed for such resource-constrained organizations.

Interestingly, strategies that help the resource-constrained organizations will often serve the larger companies better as well. Let's explore some possible approaches using the big company experiences as a context to explain each point.

Scale Down the Search for Answers

Perhaps the most obvious alternative to a global contest to find growth paths is to scale down the search for answers. However, it's almost always a bad idea when scaling down the search means involving fewer people.

When scaling down the search means looking at just the most productive elements, the results may actually leave you better off than if you looked more broadly. With more focus on the key elements, you may find better solutions. For example, sponsoring a prior contest to design the global contest is an example of scaling down the search.

Much of the benefit from the challenge occurred because Goldcorp put all of its geological information into an electronic three-dimensional database. That new resource created much of the potential to locate new reserves regardless of the search process employed. In fact, this new data resource was so powerful that many of Goldcorp's geologists were able to spot some of the best potential reserves before the contest was launched.

A resource-constrained organization could have used that insight to focus first on developing data for those areas near where the richest deposits had been found in the past. Continuations of high-grade veins in the more developed parts of the mine would be more quickly and less expensively spotted with this approach.

Here is a four-step approach to scaling down the size of the search while increasing the size of the potential benefits:

1. Identify what is the most valuable question to answer. For Goldcorp, the answer might have been locating the most immediate profits from gold mining while spending the least for investment per dollar of profit.

Starting from that perspective, Goldcorp might have found that the company would have been better served to develop contests to find underdeveloped properties to buy before launching a challenge to optimize the value of any one property. Such an approach could have added billions to Goldcorp's value by making more low-cost acquisitions available.

2. Define what is the least amount of information that will answer the most valuable question. Expert help can assist here, but you may not need to run a contest to get that help. You may only need to talk to a few people.

For instance, to locate undervalued mining properties you probably only need four pieces of information: the operating costs per ton of adjoining mines (you will be mining the same geological formations in most cases); the operating costs per ton of the mine under consideration; how well the mine has been explored and developed compared to adjoining mines; and how well organized the geological data are for the mine under consideration. Attractive properties to purchase can be found among those mines with high operating costs that are located next to low-cost ones, which have done less relative exploration and development, and where the geological data are more poorly organized.

3. Find the least costly and most rapid ways of gaining the minimum information. Again, you may not need a contest to locate the answers; other sources may serve better. For instance, many public companies and private firms that hope to go public reveal information about each of their mines. You could begin by examining those sources to see how much you can learn for only the cost of your time.

4. Test your thinking. Try out the approach you've identified a little by seeing what you turn up, how long it takes you, and what the costs are. Stop your approach if it seems to be slower, less effective, or more costly than a contest.