Strategic Choices in Building the Smart, Connected Mine

Editor’s note: In their November 2014 HBR article “How Smart, Connected Products Are Transforming Competition,” Michael Porter and Jim Heppelmann examine the vastly expanded capabilities of smart, connected products, the way these products are reshaping competition and expanding industry boundaries, and the 10 new strategic choices facing companies in this new competitive landscape. Among the companies driving this transformation is Joy Global, a leading producer of mining equipment, whose smart, connected machines and systems are dramatically improving mine performance and safety. This case, prepared with the cooperation of Joy Global by Michael Porter and PTC’s Eric Snow and Kathleen Mitford, describes the capabilities of Joy Global’s products and shows how the company has addressed each of the strategic choices firms must make to compete in a smart, connected world. Founded in 1884, Joy Global is a leading producer of mining systems, equipment, parts, and services for underground and surface mining of coal, copper, iron ore, oil sands, gold, and other mineral resources. Joy Global’s machines—longwall systems, continuous miners, haulage systems, conveyors, shovels, loaders and drills—cut, crush, and convey minerals from the mine. The company has differentiated its offering on the basis of high quality, long-lasting products and extensive services to keep machines running efficiently. The cost of producing energy and extracting minerals continues to rise as high-grade ores become increasingly scarce and the primary sources of new reserves shift to ever riskier and more remote regions. At the same time, commodity prices have been declining, squeezing profit margins and resulting in a sharp cyclical downturn in mining equipment sales. Mine operators have pushed utilization rates for mining equipment to new highs, averaging 85% for key machinery. However, overall productivity of the mining operation often still lags well behind its potential. Smart, Connected Products at Joy Since the late 1990s, Joy Global has focused on building progressively smarter and more connected products designed to help optimize the performance of an entire mining operation (measured in cost-per-ton of ore produced per day). Joy released its first “smart” machine in 1998, a self-propelled continuous miner. Its capabilities included the ability to control the machine from a safe location. For example, replacing the traditional manual hydraulic lever control with software and hardware enabled users to change performance settings and operate the product from a distance. In addition, sensors monitored the performance and operation of the machine and displayed the information on a local display panel. A digital user interface allowed both the operator and service technicians to quickly diagnose issues and failures. Connectivity was added to Joy’s products in phases, starting in 1998 with the ability of a service technician to plug into machines and download sensor and fault data. By 2001, Joy had added the ability to connect equipment throughout the mine to computers located on the surface, using armored data cables (wireless connectivity is unreliable in a mining setting). Remote connectivity enabled new service efficiencies through continuous monitoring of machine performance and faults. For example, technicians needed to be dispatched underground only to address specific issues. Over time, Joy added more embedded sensors and expanded monitoring capabilities, onboard data storage, and diagnostics. In 2008, Joy established a proprietary wireless system to connect information from each mine’s control center across multiple mines in South Africa. The South African Smart Service Center was the first of six Smart Service Centers in different regions that gather and analyze an increasing array of information from across Joy’s product system. Today, the company differentiates itself through what it calls “Smart Services”: the optimization of mine performance by prioritizing maintenance, increasing utilization, and reducing downtime for the equipment most critical to a mine’s operation. Joy’s flagship automated Longwall System illustrates how Joy products are now connected in integrated product systems. The longwall system links the shearer, powered roof support system, armored face conveyor, belt conveyor, power supply, and pump stations. As the system moves forward in the mine it extracts, on average, 2,200 tons of material per hour, filling a 100-ton railcar in less than three minutes. The automated Longwall System utilizes 7,000 sensors to constantly monitor and control system performance. It transmits data between individual pieces of equipment as well as up to the surface. Joy’s data analytics capabilities drive value by turning volumes of sensor data into actionable information to make real-time decisions on machine operation and system optimization. For example, reducing downtime of the longwall system by even one hour can save mine operators hundreds of thousands of dollars. Smart, connected products are the backbone of Joy Global’s Smart Services offering, which the company considers one of its primary competitive differentiators. These advanced services include remote product monitoring, remote service diagnosis, remote asset management, and advanced operator training to optimize performance of all the equipment deployed in a mine. Joy has embraced all four levels of smart, connected product capabilities: Monitoring. Joy equipment has a range of sensors and measurement systems to monitor operations and performance, including inertial navigations systems, camera systems, conveyor chain tensioning systems, water supply sensors, and others. Remote monitoring allows both the customer and Joy to gather data—such as the location and operating status of all equipment in a fleet of machines—across a mine’s operations. Performance alerts, classified into warnings or fault events, can be sent directly to the machine operator, the mine control center, and to Joy’s Smart Services team. The information also supports consulting services for improved mine performance. Control. Operating parameters such as speed, cutting height, and face alignment of the machines can be controlled remotely. Equipment can be customized for each mine’s unique conditions, using a graphical user interface to configure the cutting profile and adjust it in real time. Control capabilities reduce the number of proximate operators needed and minimize safety risks. Machine operators can monitor and control the equipment via a wired or wireless remote, or use camera feeds to control the equipment from elsewhere in the mine. The next step in development will be to locate the operator in a service center on the surface, where other tools and services can contribute to diagnosing and optimizing equipment performance. Optimization. Joy’s Smart Services prognostics tool analyzes product data to predict potential failures in near real time on components such as motors, drives, clutches, and hydraulics controls. By proactively fixing equipment before it breaks and prioritizing which maintenance activities to conduct based on performance and expected failure, Smart Services reduces costs and minimizes downtime for customers. Joy also uses data drawn from machines operating across its global network to compare mine processes against benchmarks. This prognostic engine analyzes data to reveal process deficiencies and recommend corrective action through operator training, system operating parameter adjustments, and machine changes. Autonomy. Mining equipment can operate autonomously, either individually or as part of the product system. This significantly increases safety and greatly improves mine productivity. For example, longwall machines can autonomously initiate roof support corrections to avoid the formation of cavities in the roof and straighten the longwall face. This continuous adjustment reduces equipment failures due to misalignment, improves system performance, and reduces the risk of creating geological faults that can place an entire mine at risk. Autonomous operation across Joy’s product system—the shearers that cut the material, the breakers that crush it to size, and the conveyors that take it to the processing plant—creates major opportunities for efficiency and safety. Shifting the Business Model As Joy Global’s product capabilities have evolved, the company has shifted its business model. The first step was moving from selling products to selling products and services. Joy’s basic service offering, Life Cycle Management, consists of spare parts distribution, courses that train mine personnel on optimizing equipment operations and maintenance, on-site support by field service engineers, and the capability to repair and rebuild machines back to OEM specifications. Smart, connected products have allowed Joy to offer Smart Services, such as “lighting up the mine” (exposing the key bottlenecks affecting overall mine performance and productivity) and systematically reducing bottlenecks to increase material flow. Smart Services include predictive maintenance, remote monitoring, and benchmarking against Joy’s network of mines to understand best practices. In one example, a customer mine was running at less than 50% utilization at the processing plant (less than 50 hours of production a week). By eliminating waste and simplifying and automating the process, mine production increased by 65% and utilization increased by 20%, ultimately resulting in more than $100 million in additional revenue. Customers that want Smart Services must upgrade their equipment to smart, connected machines and agree to share machine data with Joy. The Smart Services offering has been a stepping stone to new business model offerings, such as performance-based service contracts that include guaranteed uptime. Here, Joy shares risks and rewards with customers through payments based on the performance of the equipment and the output of the mine. Joy’s Strategic Choices in Smart, Connected Products Companies must address a new set of strategic choices to compete in a smart, connected world (see the November 2014 article “How Smart, Connected Products Are Transforming Competition”). Here’s how Joy Global approached each of them: Which set of smart, connected product capabilities and features should the company pursue? Joy Global is pursuing extensive product capabilities at all four levels. Joy’s customers have the ability to monitor, control, and optimize performance and operations of their equipment and systems, and Joy is in the process of enabling a fully autonomous system. How much functionality should be embedded in the product and how much in the cloud? Joy chose to embed functionality in both the product and the product cloud. Certain safety features are embedded in the machine (for example, emergency shut downs), but others are managed in the cloud (cavity detection, for instance), enabling the equipment to be operated more safely in challenging underground conditions. Should the company pursue an open or closed system? Joy has pursued a proprietary, closed system, reflecting the need for deep design integration involving all the machines in the product system. Should the company develop the full set of smart, connected product capabilities and infrastructure internally or outsource to vendors and partners? Joy has chosen to outsource parts of the technology stack while building others where mining-specific circumstances are critical. What data must the company capture, secure, and analyze to maximize the value of its offering? Joy is capturing from all its products a wide array of data about their condition, performance, and service needs. This is necessary to optimize performance, support predictive maintenance, and enable autonomous operation. How does the company manage ownership and access rights to its product data? Joy gathers and securely manages the data it is collecting from machines in its Smart Services Centers. Its ability to amass this data is part of its value proposition and is accepted by customers. The product data is not shared with outside parties. Joy has nondisclosure agreements with its customers that allow them to access the machine data. Should the company fully or partially disintermediate distribution channels or service networks? Joy has always sold and provided direct service of its machines in house and is now able to optimize that service at a whole new level. The Joy Direct service model enables the company to be connected directly to the mine and directly to its centers of technology around the world without going through an intermediary or third-party dealer. Should the company change its business model? Joy has extended its business model to sell advanced services and cross-mine benchmarking. It is in the process of exploring more transformative business models based on performance guarantees and product-as-a-service. Should the company enter new businesses by monetizing its product data through selling it to outside parties? Joy has leveraged the product data it gathers to enable its Smart Services strategy internally, but it is not currently pursuing opportunities to sell data to other entities. Should the company expand its scope? Joy has evolved from building mining machines to mining systems. It expanded over time from equipment—such as conveyors—to systems optimization. Joy acquired the leading crushing and conveyor equipment company in 2008, expanding its product footprint. Joy has also entered other product areas and has partnered with Matrix Design Group to develop proximity detection systems important in safety. . . . As the mining industry recovers from the economic downturn, Joy’s strategic choices should position it well for continued leadership.

Strategic Choices in Building the Smart, Connected Mine

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