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Goldcorp, Wikinomics and Changing the World

January 19, 2007
By Michael Nystrom

Earlier this week I posted a rather pessimistic piece called "Dark Ages America," the Introduction to Morris Berman's book by the same title. Berman sees the country on a one-way ride down a slippery slope and has little hope that anything can arrest the slide. His book is excellent, well written and in my opinion very important. However, I don't believe things are completely hopeless.

Since it's Friday afternoon, here is a more optimistic piece about the power of mass human collaboration to solve problems. It is interesting not only because it is about Goldcorp, but also because it is about a leader willing to take a big risk and put faith in the collective intelligence of the crowd. This is excerpted from another book called Wikinomics

// Begin excerpt:
It was late in the afternoon, on a typically harsh Canadian winter day, as Rob McEwen, the CEO of Goldcorp Inc., stood at the head of the boardroom table confronting a room full of senior geologists. The news he was about to deliver was not good. In fact it was disastrous, and McEwen was having a hard time shielding his frustration.

The small Toronto-based gold-mining firm was struggling, besieged by strikes, lingering debts, and an exceedingly high cost of production, which had caused them to cease mining operations. Conditions in the marketplace were hardly favorable. The gold market was contracting, and most analysts assumed that the company's fifty-year-old mine in Red Lake, Ontario, was dying. Without evidence of substantial new gold deposits, the mine seemed destined for closure, and Goldcorp was likely to go down with it. Tensions were running at fever pitch. McEwen had no real experience in the extractive industries, let alone in gold mining. Nevertheless, as an adventurous young mutual fund manager he had gotten involved in a takeover battle and emerged as Goldcorp, Inc.'s majority owner. Few people in the room had much confidence that McEwen was the right person to rescue the company. But McEwen just shrugged off his critics.

He turned to his geologists and said, "We're going to find more gold on this property, and we won't leave this room tonight until we have a plan to find it." At the conclusion of the meeting he handed his geologists $10 million for further exploration and sent them packing for Northern Ontario. Most of his staff thought he was crazy but they carried out his instructions, drilling in the deepest and most remote parts of the mine. Amazingly, 2 few weeks later they arrived back at Goldcorp headquarters beaming with pride and bearing a remarkable discovery: Test drilling suggested rich deposits of new gold, as much as thirty times the amount Goldcorp was currently mining!

The discovery was surprising, and could hardly have been better timed. But after years of further exploration, and to McEwen's deep frustration, the company's geologists struggled to provide an accurate estimate of the gold's value and exact location. He desperately needed to inject the urgency of the market into the glacial processes of an old-economy industry.

In 1999, with the future still uncertain, McEwen took some time out for personal development. He wound up at an MIT conference for young presidents when coincidentally the subject of Linux came up. Perched in the lecture hall, McEwen listened intently to the remarkable story of how Linus Torvalds http://www.wired.com/wired/archive/11.11/linus.html and a loose volunteer brigade of software developers had assembled the world-class computer operating system over the Internet. The lecturer explained how Torvalds revealed his code to the world, allowing thousands of anonymous programmers to vet it and make contributions of their own.

McEwen had an epiphany and sat back in his chair to contemplate. If Goldcorp employees couldn't find the Red Lake gold, maybe someone else could. And maybe the key to finding those people was to open up the exploration process in the same way Torvalds "open sourced" Linux.

McEwen raced back to Toronto to present the idea to his head geologist. "I'd like to take all of our geology, all the data we have that goes back to 1948, and put it into a file and share it with the world," he said. "Then we'll ask the world to tell us where we're going to find the next six million ounces of gold." McEwen saw this as an opportunity to harness some of the best minds in the industry. Perhaps understandably, the in-house geologists were just a little skeptical.

Mining is an intensely secretive industry, and apart from the minerals themselves, geological data is the most precious and carefully guarded resource. It's like the Cadbury secret-it's just not something companies go around sharing. Goldcorp employees wondered whether the global community of geologists would respond to Goldcorp's call in the same way that software developers rallied around Linus Torvalds. Moreover, they worried about how the contest would reflect on them and their inability to find the illusive gold deposits.

McEwen acknowledges in retrospect that the strategy was controversial and risky. "We were attacking a fundamental assumption; you simply don't give away proprietary data," he said. "It's so fundamental," he adds, "that no one had ever questioned it." Once again, McEwen was determined to soldier on.

In March 2000, the "Goldcorp Challenge" was launched with a total of $575,000 in prize money available to participants with the best methods and estimates. Every scrap of information (some four hundred megabytes worth) about the 55,000-acre property was revealed on Goldcorp's Web site. News of the contest spread quickly around the Internet, as more than one thousand virtual prospectors from fifty countries got busy crunching the data.

Within weeks, submissions from around the world came flooding in to Goldcorp headquarters. As expected, geologists got involved. But entries came from surprising sources, including graduate students, consultants, mathematicians, and military officers, all seeking a piece of the action. "We had applied math, advanced physics, intelligent systems, computer graphics, and organic solutions to inorganic problems. There were capabilities I had never seen before in the industry," says McEwen. "When I saw the computer graphics I almost fell out of my chair." The contestants had identified 110 targets on the Red Lake property, 50 percent of which had not been previously identified by the company. Over 80 percent of the new targets yielded substantial quantities of gold. In fact, since the challenge was initiated an astounding eight million ounces of gold have been found. McEwen estimates the collaborative process shaved two to three years off their exploration time.

Today Goldcorp is reaping the fruits of its open source approach to exploration. Not only did the contest yield copious quantities of gold, it catapulted his under-performing $ 100 million company into a $9 billion juggernaut while transforming a backward mining site in Northern Ontario into one of the most innovative and profitable properties in the industry. Needless to say McEwen is one happy camper. As are his shareholders. One hundred dollars invested in the company in 1993 is worth over $3,000 today.

Perhaps the most lasting legacy of the Goldcorp Challenge is the validation of an ingenious approach to exploration in what remains a conservative and highly secretive industry. Rob McEwen bucked an industry trend by sharing the company's proprietary data and simultaneously transformed 2 lumbering exploration process into a modem distributed gold discovery engine that harnessed some of the most talented minds in the field.

McEwen saw things differently. He realized that the uniquely qualified minds to make new discoveries were probably outside the boundaries of his organization, and by sharing some intellectual property he could harness the power of collective genius and capability. In doing so he stumbled successfully into the future of innovation, business, and how wealth and just about everything else will be created. Welcome to the new world of wikinomics where collaboration on a mass scale is set to change every institution in society.
//End excerpt

Reading the above story immediately reminded me of a passage from a book I read several years ago - Peter Drucker's Post Capitalist Society. Drucker was already emphasizing the historic times that we are living in, seventeen years ago:
Every few hundred years in Western Civilization, there occurs a sharp transformation . . . Within a few short decades, society rearranges itself - its worldview; its basic values; its social and political structure; its arts; its key institutions. Fifty years later, there is a new world, and the people born can't even imagine the world in which their grandparents live and into which their own parents were born.

We are currently living through just such a transformation.
The changes that we have seen since 1993 have, in retrospect, been breathtaking. That the old order must die as a new order is born leads to rightly pessimistic perspectives such as Berman's. Yes, the old order is dying. Boo hoo. Can we find hope in a new order that is emerging?

Wikinomics continues:
Due to deep changes in technology, demographics, business, the economy, and the world, we are entering a new age where people participate in the economy like never before. This new participation has reached a tipping point where new forms of mass collaboration are changing how goods and services are invented, produced, marketed, and distributed on a global basis. This change presents far-reaching opportunities for every company and for every person who gets connected.

In the past, collaboration was mostly small scale. It was something that took place among relatives, friends, and associates in households, communities, and workplaces. In relatively rare instances, collaboration approached mass scale, but this was mainly in short bursts of political action. Think of the Vietnam-era war protests or, more recently, about the raucous antiglobalization rallies in Seattle, Turin, and Washington. Never before, however, have individuals had the power or opportunity to link up in loose networks of peers to produce goods and services in a very tangible and ongoing way.

Most people were confined to relatively limited economic roles, whether as passive consumers of mass-produced products or employees trapped deep within organizational bureaucracies where the boss told them what to do. Even their elected representatives barely concealed their contempt for bottom-up participation in decision making. In all, too many people were bypassed in the circulation of knowledge, power, and capital, and thus participated at the economy's margins.

Today the tables are turning.
Wikinomics is directed mainly towards business readers, and as such there is a heavy emphasis on business jargon and ways for corporations to privatize the gains of open source collaboration. The reality is, of course, deeper than that. The same strategies that produced Linux, Wikipedia and a host of other free resources can be applied not only to business, but society and government as well.

As Drucker pointed out towards the end of his book Post Capitalist Society,
Nothing "post" is permanent or even long-lived. Ours is a transition period. What the future society will look like, let alone whether it will indeed be the "knowledge society" some of us dare hope for, depends on how the developed countries respond to the challenges of this transition period, the post capitalist period -- their intellectual leaders, their business leaders, their political leaders, but above all each of us in our own work and life. Yet surely, this is a time to make the future -- precisely because everything is in flux. This is a time for action. [emphasis mine]
Okay people, time to get moving! Your comments welcome

* * *

Also of interest:
Dark Ages America
And Weapons for All
Patriots in Defense of the "Enemy"
Ron Paul for President 2008
The Specter of Deflation - Part I

Turn off the TV and think!

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