Kevin must learn BHP's tough new lesson

BHP’s leaner, meaner attitude to spending highlights the dramatic cultural change in Australian business that Kevin Rudd’s cabinet will have to adapt its policies to.

One of the first things the new Treasurer Chris Bowen did on gaining office was to meet with business groups. It’s a good start. 

Bowen will have been told about the by-products of the mining boom – the Gillard industrial relations disaster, militant unions, horrendous government regulation etc. Both Kevin Rudd and Bowen know the resources boom is over (The risk in Rudd’s second turn at the helm, June 27).

What Rudd and Bowen may not know is the extent of the dramatic cultural change taking place in vast areas of the Australian business community.

If Rudd and Bowen are smart they will encourage it because it’s the best hope the nation has to deal with the end of the resources boom. Tony Abbott and Joe Hockey certainly understand the change and it’s an important pillar of their planning.

The best way to illustrate the change of culture in the business community is to start with what is now our second-largest company – BHP. (It lost its top status to Commonwealth Bank partly because Commonwealth understood the new game faster than BHP).

Only six weeks ago Andrew Mackenzie took the reins as BHP chief executive. As I pointed out after the appointment was announced, BHP has never seen a chief executive like Mackenzie (Mackenzie's clean break is bigger than you think, February 25).

Traditionally BHP, and so many other Australian companies, was bit like Canberra is today – BHP kept spending to get bigger on the basis that, of course, the revenue would come in. It was all about spending to get bigger faster to benefit from the boom. Efficiency was not always high on the agenda.

Mackenzie is naturally completing the series of expansions that started before he came to office. But then the mining investment boom for BHP is over, and projects will need to be good to get up. And the same applies to every other miner. From now on it’s about cultural change and greater efficiency. The main emphasis will be about lifting output not by new mines but by doing things better and/or lifting profits by lowering costs.

Mackenzie believes that Australia can once again be a low-cost coal and iron ore producer. He has already taken $800 million out of costs and there is a lot more to come by working smarter.

Mackenzie sets about the task without great fanfare and that’s what thousands of other Australian companies are doing.

In manufacturing, General Motors is actually doing the same thing but is explaining bluntly to the workers that there can no longer be union control of management in agreements and there must be pay cuts. Workers get the chance to change rather than lose their jobs (Decision made: GM will shut without a labour deal, June 24). But over time, where Mackenzie can’t make a mine work so that it is profitable, the result will be the same as for General Motors – the mine will shut.

But the cultural change goes deeper than just efficiency. Australian companies are starting to look to be global leaders where that is possible. BHP aspires to be a global leader in shale fracking technology which it uses to extract oil and gas in the US. 

Meanwhile Mackenzie may be the first BHP chief executive in history to leave his successor less reserves than he was handed by his predecessor Marius Kloppers.

But BHP, if Mackenzie is successful, will be much more efficient and, depending on markets, much more profitable. Whether it be BHP or General Motors the culture change in Australian business is profound and Rudd and Bowen will not find it easy to adapt Canberra policies and attitudes that were set for a different era. Yet given the China resources boom is over, there is going to be less tax revenue from mining unless miners like BHP become more productive. That also means that the culture change we are seeing at BHP and in most areas of Australian business must also extend to Canberra politicians and public servants. 

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles