heidrick & struggles industrial insights manufacturing 2011

Manufacturing

CONTENTS / 01 INTRODUCTORY MESSAGE / 02-04 THE ATLASES OF THE MANUFACTURING WORLD / 05-09 LESSONS FROM HISTORY FOR NEW MANUFACTURING LEADERS / 10-13 CONFESSIONS OF A CEO / 14-16 SECRET WEAPON: CCO / 17-19 THE AGE OF THE STRATEGIC CSO / 20-22 THE MODERN PROJECT DIRECTOR / 23-26 CHALLENGING TIMES FOR CAPITAL EQUIPMENT COMPANIES / 27-31 THE WORLD’S NEXT GENERATION AUTO GIANTS / 32-34 EXPATRIATES AS INDIA’S INDUSTRIAL TURNKEY SOLUTION

INTRODUCTORYMESSAGE

As the global financial crisis, recent natural disasters and political uprisings have shown us, our global supply chains and ability to deliver are increasingly vulnerable to factors entirely outside our control. Add to that the possibly disruptive new technology such as 3D manufacturing printing, hard-hitting new competitors from emerging markets and falling customer loyalty, and it is easy to wonder if manufacturing CEOs sleep well at night.

Complexity, competition and costs are the three C’s plaguing manufacturers these days and many C-suite executives are facing market conditions without precedent. Few mentors or board members would have the necessary experience to advise beleaguered CEOs.

Understandably, senior leaders are anxious about their organizations and work exceedingly hard to maintain business advantage at great personal cost. All around the world, we are seeing 55-hour workweeks as a norm, leaving little time for reflecting and thinking forward. An alarming number of manufacturing leaders today spend less than 5% of their time on creating risk mitigation strategies and execution/recovery plans for external shocks. Is this enough, considering that one out of four executives admit that complexity will increase in their industry within just one year?

According to the Heidrick & Struggles Global Manufacturing Survey 2011, many feel under-

resourced. Only half of our respondents say that they have the time to upgrade their skills as well as the people and the necessary resources to execute their current jobs well. Many say their leadership actively works on succession planning, yet only 39% say their organization will be able to immediately name a permanent successor if they left. Attrition and retention, talent acquisition and sourcing and a widening skill gap are top of mind when it comes to their human capital challenges.

In this compendium, we address many key areas of concern that manufacturing leaders often lack the time or the capacity to vocalize and analyze. It combines the insights of senior business leaders and Heidrick & Struggles consultants as well as snapshots from the Heidrick & Struggles global manufacturing survey 2011. We trust it will prove to be both provocative and prescription reading for senior executives around the world.

I wish you pleasant reading!

Torbjorn KarlssonManaging Partner, Industrial Practice – Asia Pacific

In May 2011, Heidrick & Struggles conducted a global survey amongst 295 manufacturing leaders, over half of whom have spent at least five years at their current companies.

Asia Pacific

Southern Europe

Central & Easthern Europe

Westhern Europe

Northern Europe

Africa

Middle East

South America

North America

23%

4%

6%

24%

5%

1%

1%

9%

26%

BY REGION

HEIDRICK & STRUGGLES GLOBAL MANUFACTURING SURVEY 2011

HEIDRICK & STRUGGLES 01

The challenges of complexity, competition and costs

CEO/GM/BU Head

VP/SVP level

Director level

Others

29%

33%

30%

8%

BY CURRENT LEVEL IN THE ORGANIZATION

http://www.heidrick.com/Consultants/Pages/15557.aspx

THE ATLASES OF THE MANUFACTURING WORLD

02 HEIDRICK & STRUGGLES

The primary question in many leaders’ minds today is how do we stay on top of increasing global complexity? Value chains are increasingly fragmented, product life cycles are getting shorter, competition is fierce and decisions must be made at “breakneck” speed.

Many manage teams at regional centres as far flung as Karawang, Huanggu, Durango or Passo Fundo1 and will privately confess that their jobs are overwhelming. Not only must today’s leaders be technically competent, they also need to be adept at managing cross cultural teams, financial supervision, branding and marketing, supply chain management, creative thinking and even understanding how the convergence of industries may affect theirs.

It is increasingly impossible for leaders to singlehandedly hold the strings to complex

manufacturing networks, where the lack of senior level oversight in one area may unravel years of hard work. Some companies are even resorting to filling senior positions with two people with complementary skills, rather than just one person.

As the shoes of those who sit at the head table of manufacturing giants grow bigger, finding the right persons to fill them is increasingly challenging. How can manufacturers cope?

Three partners at Heidrick & Struggles share their insights from working with manufacturing companies over five continents. Torbjörn Karlsson heads the Asia Pacific Industrial Practice out of Singapore; Jens-Thomas Pietralla is managing partner of the EMEA Manufacturing Sector and Jonathan Graham leads the Industrial Practice for North America and Latin America.

Manufacturing leaders today can be forgiven for feeling like the Greek mythological figure, Atlas, who had to bear the heavens upon his shoulders. As mere mortals, senior executives at automobile, aerospace, construction, electronics, engineering, industrial, plastic and textile companies are carrying the immense weights of complex global business portfolios.





can no longer afford to be “over-managed and under-led”. Modern executives in this industry need to win customers, interact with shareholders and motivate employees across continents with the same ease they cope with technical business complexity.

CONVERGING FORCES

Manufacturers face competition from a growing number of global players and even from unexpected sources. Take smart grids as an example. What used to be a unilateral play between energy and utility companies has become a wide-open playing field for companies like Google, SAP, Vodafone and Accenture as they tap the wired and wireless possibilities from electric cables. To defend their futures, long established incumbents suddenly have to learn the inner workings of potential partners and competing industries.

As such, companies are opening up to more creative leadership profiles. Who says utility companies can’t hire from the telecom sector or that tractor companies can’t hire from software developers?

MEET THE NEW GUY

Having said that though, bringing in new leaders has its challenges. Statistics show that four in 10 newly appointed executives are no longer in their positions after 18 months. This occurs at a very high cost and collateral damage to their employers, and is often more a question of cultural issues rather than leadership capability. Manufacturing companies do need fresh blood but they must be open to integrating new leaders and their ideas with professional onboarding programs.

Companies are also mandating global searches for their next CEO, COO or CFO and calling on their executive search consultants to advise on the leadership profiles they need. Companies now welcome having a “sparring partner” to work out where their businesses or industries are heading, the challenges ahead, how they need to respond and the type of people they need.

Graham: The global financial crisis was one of the catalysts that pushed manufacturers into being open to more diverse leadership pools. It made people think smarter and more strategically about how to run their businesses and to focus on what makes them truly different from their competitors. It also made them realize that they need leaders who can lead them through any economic cycle.

Jonathan Graham leads the Industrial Practice for North America and Latin America, based in the firm’s Cleveland Office. He can be reached at [email protected] or +1 216 2417410.

Torbjörn Karlsson is managing partner for the firm’s Industrial Practice in Asia Pacific, based in Singapore. He can be reached at [email protected] or +65 6332 5001.

Jens-Thomas Pietralla is managing partner of the EMEA Manufacturing Sector and is based at Heidrick & Struggles’ Munich office. He can be reached at [email protected] or +49 89 998110.


NO SHELTER FROM THE COMPETITION

Karlsson: Manufacturing has become intensely global and intensely competitive.

Industry up-starts are today challenging some of the world’s finest players on their own turf. Indian companies, Mahindra & Mahindra’s Farm Equipment Sector, HMT Tractors and Indo Farm for example, are successfully exporting small- to mid-sized tractors to the US, home to the world’s global players. And this is just one of hundreds of examples. Market players from emerging markets are less unencumbered by legacy issues and heavy investment in aging equipment. Few have to worry about unions or state welfare schemes.

As such, they are relatively nimble on their feet – and many are no longer just low-cost unsophisticated producers.

Traditional manufacturers have to urgently re-engineer how they think about their processes, operations, products and leadership, combining more right-brain creative thought processes with their logical engineering left-brain mindsets.

KNOW YOUR CUSTOMER

Consumer-marketing skills and the ability to clearly articulate one’s core competencies are prerequisites for survival in today’s world. Bottle manufacturers like Kortec beat the market because they choose to understand the end-consumers, rather than just their direct buyers. As such, bottles by Kortec offer better UV protection and better oxygen-loss barriers, so the drinks they hold have longer shelf lives. Companies like Apple or GKN have stuck with their core competencies, choosing to either focus on product design and outsource their manufacturing or use their manufacturing prowess to move from constructing farm equipment to helicopters. Such companies benchmark their performance and processes against the best-in-class, not just their direct competitors.

The demand for greater nimbleness, creative thinking, market intelligence and stronger sales propositions impacts the type of leaders we need at the corner office. Yet it is hard for manufacturers to shift from moving like super tankers to charging ahead like super yachts.

Pietralla: Success and failure today are not far apart. Progressive companies know that great strategies can fail because the people who execute them handle them poorly, so they place as high, if not higher, priority on investing in their people as they do on their processes. Industrial companies


mailto:[email protected]





A NEW BREED TO LEAD THE WAY

It has been encouraging to see the newer breed of manufacturing executives in the US being more progressive and stronger cross-functionally.

There is also greater diversity with more female candidates. But candidates from mature markets are up against new competition. Final line-ups today feature candidates not just from the US but also Belgium, Germany and Australia, and a global outlook is one of the top selection criteria. Demand is highest for candidates with “worked and lived in China” or “ran overseas operations” in their resumes. Without these, even the most experienced candidates fall off the list.

Today’s top leadership candidates themselves are very different. Global executives are highly sought after and sophisticated. Such candidates ask about the company’s balance sheet, strategy, vision, financial situation and its board – not just about the number of plants, manufacturing processes and reporting structures.

Companies must be prepared to engage these global candidates in more strategic conversations and offer a greater hand in their futures or risk losing their interest. What appeals most is the opportunity to drive renewal and transformation, and to leave their stamp on a company. Size doesn’t matter as much; they can be attracted to leadership positions in companies 20 times smaller than their current organizations if they believe they can drive strategic changes for the long term. Equity and interesting long term incentive plans also appeal.

1 Locations of Daihatsu’s second plant in Indonesia (Karawang), Cessna’s Skycatcher factory in China (Huanggu), Skyline Solar’s concentrated photovoltaic plant in Mexico (Durango) and Manitowoc’s new factory in Brazil (Passo Fundo).

TOP 5 BIGGEST CHALLENGE FOR MANUFACTURERS (2012-2015) BY %

HOW LIKELY IS COMPLEXITY TO INCREASE IN MANUFACTURING IN YOUR INDUSTRY IN ONE YEAR?

Source: Heidrick & Struggles Global Manufacturing Survey 2011 (N: 295)

“Given the geographical scope I look after, my biggest challenge is undoubtedly to adapt the manufacturing footprint so it contributes to the clients’ strategy. New competitive factories must be created in countries such as Russia, where the clients aim to grow whereas operations in Western Europe must be restructured so as to match the market prospects and keep improving productivity.”

Participant in Heidrick & Struggles Global Manufacturing Survey 2011

Growth Related

Human Capital Issues27

Demand Related

Globalization

Financial Issues

48

9

10

6


What appeals most is the opportunity to drive renewal and transformation, and to leave their stamp on a company

Very Likely

Fairly

Not very Likely

Not at all Likely

30%

44%

23%

3%

LESSONS FROM HISTORY FOR

MANUFACTURING LEADERS


Few manufacturing leaders today have the resources or time to plan for the contingencies that come with their increasingly complex and volatile businesses.

The probability of cost increases, industry consolidation, emerging competitors, disruptive new technologies, unforeseen emergencies, political and industrial action keeps growing each year. One only has to open the newspapers to read about disrupted supply chains due to natural disasters, scandals with supplier factories and even government pressures on CEOs – as was the alleged reason behind the resignation of Roger Agnelli of Vale. In light of so many variables, can there be any proven algorithm for successful leadership? Planning for the future is more and more like “trying to drive down a country road at night with no lights while looking out the back window” as described by Peter Drucker.

Many manufacturing leaders today have built their careers in operations, gotten their fingernails dirty on the plant floor, overseen operations and been immersed in the inner workings of an organization. They have leadership savvy and the business acumen needed to run a large company, based on

experience in running and owning P&Ls, divisions or regions. They understand all about achieving operational excellence. In fact, more than a third of Fortune 1,000 CEOs have backgrounds in operations. Most developed their opex capabilities in industrial companies where they were rigorously trained in core principles such as Six Sigma, Kaizen, Total Quality Management and Lean Manufacturing in organizations such as Honeywell, Siemens, GE and Toyota.

But when the pieces on a manufacturer’s chessboard change all the time, certain attributes serve executives better than others. The end game is not the challenge of a disaster or scandal in itself, but how leaders respond that decides the final checkmate.

To illustrate, we borrow examples across various industries to make a case for the leadership attributes and actions that are capable of turning companies around in the face of unforeseeable circumstances or failures in contingency planning.


RISK MANAGERS

Most executives do not view themselves as risk managers of the enterprise, but primarily as custodians of a P&L or as chief spokesperson of an enterprise. They tend to leave the details of risk management to their operating leadership, their CFOs, or even committees of their boards. That will need to change. Company executives must be as watchful as ever for what Nicolas Nassim Taleb referred to in his 2010 book, as ‘black swan’ events, the most unusual and highly unpredictable events that can be catastrophic and can change history.

At the top of the CEO’s agenda (which may include strategic growth, global expansion, and capital raising) must be a big circle around managing risk. Just ask Lehman Brothers, whose risk committee met only twice in the two years preceding the company’s crash, which precipitated the devastating credit crisis. CEOs and other senior executives should manage risk before a crisis by laying out all of the contingencies and detailed plans – preparing for the worst and hoping for the best.

Rigorous risk management and meticulous attention to details combine to become a core attribute of the next generation executive. Such executives should be identifying areas of vulnerability in order to turn what could be a black swan disaster into a white swan triumph.

Putting it into action: One of the changes then-CEO of Xerox, Anne Mulcahy, did as part of her actions to restore the company after the SEC filed civil fraud charges against it in 2002, was to bring on external parties to audit the company to ensure that there were sufficient checks and balances. Xerox has not looked back since.

INTEGRATED DECISION-MAKING

Companies need to ensure they know the business they are in and that their leadership talent has all the attributes critical to operating their business. Instead of letting economic factors dominate decision-making, companies should use an integrated framework that balances economics and operational excellence

Everyone will have his or her own opinion about what went wrong with the BP Macondo Well disaster, but general, there is a strong sense that the root cause of the accident lay

in the ‘management or decision framework.’ Some companies base their decisions more heavily on economic factors than on operational or mechanical factors. Some argue that BP may have opted for a ‘run to failure’ plan on their equipment, or at best conducting inspections at 48 months to see if they can get as much out of the equipment as possible (e.g. the technique they used to test their Alaska pipelines). While BP has been a strong commercial performer, generating massive returns from their trading business, some observers give them lower marks for considering all the factors that make up for long-term sustainable success.

Putting it into action: General Electric, well-known for sharing best practices across its many units, also have a policy of discussing failures across new projects and initiatives. The point is not about fault finding, but taking a positive attitude towards learning about all the factors that lead to successes and disappointments. If done well, such initiatives can help provide more integrated views and help leaders with decision-making in the future.

MANIACAL SAFETY MINDSET

Practically every business that operates heavy equipment around high pressure environments promotes a ‘safety first’ culture. The reality, of course, is that many of those ‘safety first’ companies operate instead with the philosophy that ‘we’re not ultimately in business to be safe, but to provide products and services and enhance value.’ But by devoting maniacal attention to safety, high-risk businesses can be both safe and profitable, and outperform their peers.

Executives of such enterprises must have a proven, not probable, track record of building safety cultures and they must impose a no-tolerance policy for managers and employees who cut corners. Companies should read between the lines of any resume of external or internal talent and probe for specific examples of a safety mentality. During previous safety incidents, what were the key lessons the candidate learned? To what extent has the candidate become a champion or evangelist for safety within the organization? Of course, the more details and specificity the better.

Putting it into action: In 1989, Lexus initiated a voluntary recall of the LS 400s it had sold, based upon two customer complaints

The point is not about fault finding, but taking a positive attitude towards learning about all the factors that lead to successes and disappointments


Authentic communication is not about charisma or flowery rhetoric but about transparency and truth-telling

over defective wiring and an overheated brake light. In a sweeping 20-day operation, Lexus sent technicians to pick up, repair, and return cars to customers free of charge, and also flew in personnel and rented garage space for owners in remote locations. This response was lauded in media publications and helped establish the marque’s early reputation for customer service.

ACCOUNTABLE AND SELF-EFFACING

Peter F. Drucker, the father of modern management, said that accepting responsibility is one of the primary requirements of any leader. The best ‘see leadership as responsibility rather than as rank or privilege,’ Drucker wrote. ‘Effective leaders are rarely permissive. But when things go wrong – and they always do – they do not blame others.’

The most effective executive understands that he or she – and no else – is ultimately accountable for the actions of the enterprise. To assess whether prospective internal or external executives have such attributes, companies should explore some simple questions of character and leadership: Are they more ambitious for the enterprise and their employees than for themselves? What evidence is there that they de-stratified the rank or privilege of leadership and positioned themselves as servants? Who have they mentored? These are essential questions in determining whether an executive has the super-attributes of accountability and, yes, a little humility.

Putting it into action: Co-founder of German software giant SAP, Hasso Plattner, did not waver from taking action, after he came to a decision that the firm was too hierarchical and too adverse to change. In 2002, SAP bought a rival company by Israeli entrepreneur Shai Agassi. Plattner tasked Agassi with launching a venture called NetWeaver, an integrated technology platform. Shai Agassi used that mandate to go

out and create the software user developer network that helped to create both new products as well as new kinds of business relationships.

AUTHENTIC COMMUNICATORS

Authentic communication is not about charisma or flowery rhetoric but about transparency and truth-telling. It certainly helps no one to point fingers, deflect blame, and speculate on the extent of the damage. Some of the worse responses includes the one that BP’s CEO initially provided at the time of the Macondo Well disaster: ‘I am not stonewalling. I was simply not involved in the decision-making process.’ In addition to getting out front and being truthful, executives need to acknowledge what they do not know. Learning that lesson and being authentic is as important as truth-telling.


communities) is the essential ingredient of any continuous improvement process. And it is also important not only to develop talent internally, but also to acquire external talent who can model the desired behavior and promote real cultural transformation.

Executives should be probed about their track record of building people-oriented continuous improvement cultures. What processes have been put in place for people to speak freely? Have they created functional cultures where the elephants in the room can be discussed openly?

Putting it into action: Toyota is well known for quality and innovation. Despite its recent failures, its culture continues to remain strong and focused on continued improvement. After 20 years of research on Toyota, Mike Rother describes in his book, Toyota Kata, a learning organization that focuses on developing and utilizing human capabilities – not just at senior level, but all the way to team leaders and team members. The author states that Toyota manages people in a way that makes a company more adaptive, innovative and constantly improving.

EMOTIONAL INTELLIGENCE

Companies are often enamored with executives who have excellent pedigrees, academic credentials, or high intellectual competence. Malcolm Gladwell’s exposure of the ‘talent myth’ at Enron in his landmark piece in the New Yorker in 2002 drove home the realization that companies had perhaps placed too much emphasis on class smarts and less on street smarts, too much interest in IQ and less on EQ (emotional quotient). Clearly, companies will need to spend more time assessing the emotional intelligence of external or internal leaders to see if they have personally experienced adversity, have served others more than themselves, and have developed selfless character as a result.

One of the common traits revealed in the Level 5 leaders that Jim Collins discovered in his research for his epic book Good to Great was that all of those CEOs had experienced some kind of hardship in life. This attribute (the crucible of life, if you will) produced the rare combination of intense competitiveness and selfless humility – perhaps the secret of genuine leadership. Indeed, the human compassion and empathy that comes from

Like integrity, the attribute of authenticity has become a ‘must have’ in any executive profile

Before executives step in front of a bank of microphones and are forced to address the public, they should be honed and authentic communicators who can connect with people. They should have already demonstrated authentic communication inside the company by being cheerleaders for a culture of integrity, transparency, safety and collaboration. In addition, the best communicators are always the best listeners. They keep their doors open, walk the halls, and make no distinction between employees or managers.

Companies should be less enamored of sophistication or even impressive results. They should root out phoniness and be more impressed with those who are able to own up to their failings in leadership and discuss how they have grown since. Like integrity, the attribute of authenticity has become a ‘must have’ in any executive profile.

Putting it into action: Anne Mulcahy, ex-CEO of Xerox, has been lauded for bringing the company back from the brink after its 2000 fraud scandal. In spite of initial resistance, Mulcahy managed to successfully change the tone at the top at Xerox, which contributed to her ability to rebuild Xerox. She responded to feedback from both employees and customers to make positive changes, she walked the talk and was able to prove to employees the need for change within the company. She even made a personal effort to open up the lines of communication within the company by traveling to speak with people who would provide her with constructive criticism to bring the company back to success.

CONTINUOUS ‘PEOPLE’ IMPROVEMENT

Most executives like to think of themselves as having a continuous improvement mindset, but few actually do. The CEO or executive agenda is so cluttered with execution, strategic planning, and meeting quarterly results that little time is actually devoted to upgrading systems, processes, procedures, and even less to upgrading leadership.

But the mindset of continuous improvement cannot succeed without a respect for people, or those precisely responsible for building such cultures. For example, the companies who have embraced Lean or Six Sigma (such as UTC) recognize that high respect for people (employees, customers, suppliers,


triumphing over adversity may be the most defining attribute of the next generation executive.

Putting it into action: Shortly after Michael Iem joined Tandem Computers as a junior staff analyst, he became aware of the market trend away from mainframe computers to networks that linked workstations and personal computers. Iem realized that unless Tandem responded to the trend, its products would become obsolete (Initiative and Innovation). He had to convince Tandem’s managers that their old emphasis on mainframes was no longer appropriate (Influence) and then develop a system using new technology (Leadership, Change Catalyst). He spent four years showing off his new system to customers and company sales personnel before the new network applications were fully accepted (Self-confidence, Self-Control, Achievement Drive).

With the exception of Tandem, which has since been bought over by Hewlett-Packard, all the companies in our stories are still going on strong today. Much of the credit goes to strong leadership – and the attributes that served their leaders well when faced with challenges that no textbook can prepare you for. So even though few manufacturing leaders today have the resources or time to plan for all contingencies, they can take heart that there are leaders before them who have shown that it is possible to “checkmate” when faced with seemingly impossible challenges.

SOURCES OF STORIES

GE, SAP: Businessweek “How Failure Breeds Success”

Lexus: Wikipedia

Xerox: i-Sight “Xerox’s Accounting Scandal Recovery Tactics”

Tandem: Fortune Magazine “How to get Ahead in America”

HOW MUCH TIME DO YOU SPEND ON REFLECTING AND THINKING FORWARD, PER WEEK?


WHAT IS YOUR AVERAGE WORK WEEK TODAY?

Don’t spend any time

Over 10 hours

6 – 10 hours

3 – 5 hours

1 – 2 hours

Up to an hour

1%

11%

24%

4%

35%

25%

Over 60 hours

56 – 60 hours

51 – 55 hours

46 – 50 hours

41 – 45 hours

36 – 40 hours

Varies widely/Not sure

18%

24%

25%

1%

22%

7%

2%

Indeed, the human compassion and empathy that comes from triumphing over adversity may be the most defining attribute of the next generation executive

http://www.businessweek.com/magazine/content/06_28/b3992001.htm

http://www.businessweek.com/magazine/content/06_28/b3992001.htm

http://en.wikipedia.org/wiki/Lexus

http://i-sight.com/compliance/xeroxs-accounting-scandal-recovery-tactics/

http://i-sight.com/compliance/xeroxs-accounting-scandal-recovery-tactics/

http://money.cnn.com/magazines/fortune/fortune_archive/1994/05/16/79297/index.htm

http://money.cnn.com/magazines/fortune/fortune_archive/1994/05/16/79297/index.htm


CONFESSIONS OF A CEO

PERSONAL JOURNAL

Name : Jonathan PetersOccupation : CEO, hydraulics manufacturerExperience : 25 years spanning engineering/commercial/procurement and general management functions, in three countriesLocation : Minnesota, USABusiness : US$ 2.4 billion dollar business, 4 facilities in the US, plus Germany, Poland, Indonesia and China

21st December 2012

It’s a few days to Christmas but I am no mood to celebrate. We have a board meeting next Friday to discuss some critical issues for the business. Our feisty private equity investors are asking us to represent our 3 year plan – again! This just means more 18-hour days and previous little time for the family.

Yet again, the future of our 4,200 employees looks like it is at stake even though we managed to weather the global financial crisis quite well. Yes, we foresaw all our latest challenges but did not expect them to materialize until 2014. Things are just happening too quickly these days!

The past two years have certainly been challenging and tough. First it was the 2010 earthquake and tsunami in Japan that cut off shipment of key components. Fortunately, our main customers did not execute their right to heavy penalties and surcharges. Then our commercial director for Asia Pacific got poached to join a competitor, and we therefore lost our key link to the Chinese government. What’s more, China’s latest Five-Year Plan has meant that local manufacturers are being favoured over JVs like ours. We had to quickly buy into a local partner and set up a new entity in China. To make things worse, Titamech has just acquired a key distributor and a longtime supplier of ours in the US. Plus, we lost two of our most senior and loyal engineering leaders as they retired, and have not managed to find any replacements - internally or externally. And salaries have escalated by some 30% in certain parts of Asia. It’s no wonder our investors are worried.

In a few days, I will have to answer some key strategic questions.

1. The costs for manufacturing back home are now comparable with that of our offshore centers. What will this mean for the longevity of our investments in Asia?

2. We have already achieved lean manufacturing in all of our plants. What will be next to take costs out and increase productivity? What will this entail?

3. Do rising logistics costs, complexities and the recent acquisitions by Titamech mean we now need to set up more regionally focused manufacturing hubs versus our global flexible system?

4. What on earth are we going to do with our talent pipeline, when we are losing our brightest stars in a not so sexy business?

I miss the good old days when things were less frantic and more stable… It is coming to a point that it is hard to predict what is likely to happen in the next 2 years and planning has already been increased to a quarterly review basis.


Supply chain management is no longer just a stand-alone function

THE WRITING’S ON THE WALL

The journal entry may be fictitious but any global manufacturing leader will confess to similar struggles and fears. Any experienced CEO like “John Peters” with over 25 years of experience would have witnessed the Asian Crisis starting in ‘97, the dot.com burst, the aftermath of 9/11 and the Global Financial Meltdown, and would admit that these past few years must be some of the most challenging of his or her career.

Market transparency and greater price sensitivity have led to lower customer loyalty, at the same time that supply chain volatilities and uncertainties have increased irrevocably. The twin effects apply great pressures on cash flows, operational sustainability and profit margins as well as the need for managerial nimbleness.

Manufacturers have to depend on global customers and new emerging markets for their growth and futures. But the increased prevalence of product and service commoditization through global competition means that true differentiation in both the consumer and business-to-business segments is key to survival. Regionally customized supply chains and product offerings are

now a prerequisite, requiring more savvy end-to-end supply chain optimization and operational excellence across everything, from product and service development to delivery.

All around the world, there is ever more pressure on margins on the one hand, but escalating costs and salaries on the other. Over and above sourcing for avenues of low cost production, supply chain leadership has become vital to overall research and development as well as new product creation. Products can be designed modularly for instance, so as to spread risk across the entire supply chain by sharing material development and lead times with suppliers, thereby also increasing flexibility and reduce inventory.

This means that the entire global supply chain, including that of key partners, requires deft risk and opportunity management – but the leadership expertise to do so is in very limited supply. Unfortunately, just as fixed capital such as office buildings and factories are not built in a day, neither is human capital.

Employee turnover is growing especially in emerging markets, as companies resort to poaching experienced executives as an


immediate respite to a shortage of grey hairs and brain matter.

Yet companies in some besieged sectors or markets may find that even throwing large chunks of money at great leadership candidates won’t guarantee they will sign their offer letters, when a competing offer from a high-growth emerging market is seen to promise greater career development opportunities as well as autonomy and management responsibilities.

None of this is news to manufacturers. Many of us are aware of such possible challenges but lack the forecasting prowess, flexibility and organization dexterity to anticipate them quickly enough. In fact, 74 percent of the nearly 350 manufacturing and service companies rated “demand volatility and/or poor forecast accuracy” as one of the top challenges to supply chain flexibility in the Global Supply Chain Trends 2010-2012 survey by PRTM Management Consultants.

A NEW LENS FOR CEOS

All this means that CEOs today need a sharper focus on some critical competencies and skills within their global supply chains. It is helpful for CEOs to start with a Human Capital Audit, as part of standard business risk assessment and management. This entails focusing on four simple questions:

Like our fictional “Jonathan Peters” character, CEOs are best advised to ask themselves if their supply chain teams and structures are adequately geared up. They need to urgently assess the strength and capabilities of their leadership pipeline before they rue the day that “yet again, the future of their employees looks like it is at stake”.

INTEGRATED DECISION-MAKING CAPABILITIES

According to the Global Supply Chain Trends 2010-2012 survey, a substantial number of survey participants said that problems with their supply chain organization prevented their companies from capturing the benefits of the economic recovery. Approximately 30% mentioned the lack of integration between supply chain functions like product development and manufacturing. Many procurement and manufacturing vice presidents were said to be still making optimization decisions on a solo basis.

For better end-to-end optimization, CEOs need to consider placing all the different aspects of supply chain management under one person’s remit. Manufacturers must integrate and empower their supply chain organizations in order to ensure that the right and most optimal decisions are made across the supply chain.

FORECASTING CAPABILITIES

With increased supply chain complexity and volatility, manufacturers often find themselves juggling even more sudden jolts in demand and supply than before. Companies need supply chain leaders who are able to work directly and collaborate with key customers and first and second tier suppliers so as to better anticipate future needs and reduce unanticipated changes in demand.

Experienced leaders will able to bring on the right tools and work towards enhancing internal processes to gauge market demand in real time, rather than relying on historical data to project future demand.

CROSS-CULTURAL COMMUNICATION CAPABILITIES

With supply chains crossing different geographies, the ability to develop a consistent “global language” that binds different teams of diverse backgrounds and cultures to the same set of corporate values, while taking into account differences in communications styles, mindsets and business cultures is paramount.

RISK MANAGEMENT CAPABILITIES

Many manufacturing customers have amplified their efforts in asset management and have been shifting supply chain risks upstream to their suppliers. Manufacturers now find themselves having to divulge

What are the Business Priorities & the Business Context?

What leadership is required?

What are the key gaps?

How do we close the gap and keep it closed?

4

3

2

1

3

1

4

2

http://www.prtm.com/strategicviewpointarticle.aspx?id=3959&langtype=1033

http://www.prtm.com/strategicviewpointarticle.aspx?id=3959&langtype=1033


THE MANUFACTURING SEGMENT IN MY ORGANIZATION SPENDS ENOUGH TIME ON CREATING A RISK MITIGATION STRATEGY AND EXECUTION / RECOVERY PLAN FOR EXTERNAL SHOCKS (SUCH AS QUEENSLAND FLOODING, JAPAN EARTHQUAKE)?

WHAT PROPORTION OF YOUR TIME DO YOU SPEND ON CREATING A RISK MITIGATION STRATEGY AND EXECUTION / RECOVERY PLAN FOR EXTERNAL SHOCKS?


“Our most important strategic issue is to how to support Asia Pacific healthcare business growth in terms of supply chain management including demand forecasting to factory to ship to this region. The other is to how to develop more efficient processes including on-time delivery to customer and have appropriate inventory.”


Strongly Agree

Agree

Neither Agree nor Disagree

Disagree

Strongly Disagree

Don’t Know

8%

23%

17%

1%

42%

9%

More than 20%

16 – 20%

11 – 15%

6 – 10%

0 – 5%

None

7%

3%

16%

2%

28%

44%

their financial status and having to manage their own risks much more tightly under such scrutiny.

RELATIONSHIP BUILDING CAPABILITIES

The need for close and long-term collaboration with and between customers, suppliers and partners is increasingly essential to survival. More than ever, supply chain leaders will need to listen intently to their different customer markets and collaborate with suppliers, in order to develop the higher number of products or variants needed to meet buyer expectations and make up for shrinking revenues. Another growing set of relationships to manage is that of outsourcing partners, as manufacturers increasingly outsource everything from product development, strategic and operational sourcing, to supply chain planning and shared services. The best ideas can originate from any point over the global network and should be incorporated across the entire organization, not just used within each region. This calls for keen relationship building skills to develop new partnering concepts so as to manage product development, manufacturing, transportation and inventories dexterously.

From demand planning and forecasting, product development, supply chain planning, strategic sourcing, manufacturing, final assembly, warehousing and transportation and after sales returns and repair, are your talent management and retention strategies capable fully geared up with the competencies listed above? In which area is there a shortage of skills or experience? What will you have to do about it today?

With early preparation, we trust you will only be writing positive entries in your personal journal or financial reports a few years down the road.

Casey Kelly is the regional managing partner of the Supply Chain and Transportation & Logistics practices in Asia Pacific. He can be reached at [email protected] or +65 6332 5001.

5

The best ideas can originate from any point over the global network and should be incorporated across the entire organization, not just used within each region



14 & STRUGGLES

SECRET WEAPON: CCO

CLEARING THE ROAD BLOCKS

In our conversations with senior executives, they often tell us that the toughest challenge in building a sustainable growth platform lies in making sure that all the working parts in often complex systems work together harmoniously and synergistically.

Few organizations inherently have the incentives, processes, or, most importantly, the leadership to enable them to harness the full power of their internal assets and drive sustained commercial success. As result, too many great ideas fail to translate into top and margin line success; instead, they succumb to

organizational inertia, functional silos or lack of executive attention.

As a result, we’ve seen a dramatic increase in organizations identifying the need for a single executive leader, at the right hand of the CEO, whose sole job is to drive growth and to ensure integrated commercial success – the chief commercial officer (CCO).

“CCOs are basically tasked with driving the growth agendas of their organizations in an unified manner, whether through sales, product development, R&D, marketing or supply chain management. They are asked to answer questions like “How can we achieve 40 percent

CEOs in the business of manufacturing have turned their focus to growth through differentiation, and have come to acknowledge that in the long run, they won’t be able to cut their way to growth. Truly sustainable top and bottom-line growth can only come through integrated, customer-centric and market-facing business strategy and execution. The integration begins with a structured, informed approach to innovation, continues in the development of value-creating offerings, and ultimately ensures value delivery through superior commercialization skills.

As the role of the CCO centers on developing and driving an integrated commercialization vision and engine for the enterprise, it requires a unique blend of skills and perspectives


growth over next three years?”, “How should we be leveraging our commercial operations across the world?”, “What should our reach into different customer industry verticals look like?”, or “How do we unify independent P&Ls?”.

The requests to place CCOs started as a stream back in 2008, and have since become a flood – particularly within the manufacturing sector. Private equity firms are currently sourcing for CCOs more frequently than public traded companies, but this will change as the role gains more prominence,” said John Abele, leader of Heidrick & Struggles’ global Marketing, Sales & Strategy Officers practice.

COMPONENTS OF A SECRET WEAPON

As the role of the CCO centers on developing and driving an integrated commercialization vision and engine for the enterprise, it requires a unique blend of skills and perspectives.

BUSINESS STRATEGY AND ACUMEN OF A SENIOR LINE EXECUTIVE WITH P&L EXPERIENCE

In effect, the CCO is a highly experienced executive who understands the workings of every potential lever of growth open to the company and who has the integrative ability to drive the portfolio of functional capabilities to produce maximum results. As such, a CCO must be an exceptionally strong leader who is equally adept at setting corporate strategy and ensuring the implementation success of the initiatives, processes, incentives and resources required to deliver the desired in-market results.

The typical CCO must be capable and highly motivated to harness the inherent assets of the organization and lead an integrated effort to capitalize on them to achieve commercial success. They often hail from backgrounds in marketing and/or sales management and have risen to roles that incorporate P&L ownership of a business or division.

Above all, they have had significant experience interfacing with customers either in sales roles or as influential participants in the customer relationship management and/or selling process.

While the core skills remain the same, the balance of skills tends to vary a bit depending on the company and industry.

TECHNICAL EXPERTISE OF A PRODUCT DEVELOPMENT AND INNOVATION LEADER

We see many CCO positions arising in companies whose life-blood is innovation. These companies have typically have strong R&D efforts and robust new-product pipelines, but the challenge has often been how to successfully commercialize those

efforts. Here, the goal of the CCO is to assess the potential in-market response and quantify the ROI of new concepts, and to lead a fully integrated product development, marketing and sales effort to efficiently achieve the commercial potential.

MARKET UNDERSTANDING AND INSIGHT OF A TOP MARKETER

Moreover, in an environment in which marketers are deriving great benefit from the use of such tools as ROI/milestone-based product development, profit-pool analysis, sophisticated segmentation, and market, pricing and profitability analytics, it is critical that the efforts of both sales and marketing be strategically linked.

It is therefore not surprising that in many cases, the new CCO has a strong marketing foundation. Top marketers have long understood the critical importance of marketing, branding and customer issues. Several consumer-oriented companies have made recent efforts to centralize commercial authority in one person to enhance their ability to develop a powerful go-to-market strategy for their global brands and businesses.

Given the ever-growing complexity of the ever-more intertwined tasks of sales and marketing, B2B companies are also finding that a CCO who can effectively oversee the entire process has become essential.

CUSTOMER RELATIONSHIP FOCUS AND DEAL SAVVY OF A SALES LEADER

Because of the continued proliferation of both online and offline sales channels and the need to manage the customer relationship at multiple touch points, sales is no longer the direct relationship game it once was. Rather, sales leaders have become more analytical and consultative, focusing less on ‘selling’ and more on generating top-level value creation and ‘win-win’ deals while coordinating the customer contact portfolio.

“In the industrial business-to-business (B2B) environment, the foundation for most sales transactions has traditionally been rooted in engineering, technology, relationships, or a function of all three. But we must move beyond just focusing on that, now that we are operating in a more competitive and faster moving environment.

Sales in B2B technology industries for instance, used to be all about relationships; hard selling was looked down upon. But the reality is that we need to copy the B2C approach to driving sales by measuring our sales people on hard metrics such as the number of customer visits and calls, number of leads and proposals and win/loss ratios.

As a service business we also need to re-look at our customer touch points. What is the

1

2

3

4


customer experience – from the appearance of our service engineers to the reports and recommendations we deliver? McDonalds is an example from the B2C service space that we all know. It’s not just the food you buy, but also the entire experience – from the cleanliness of the restaurant to the customer-server interaction. Also, with the consumerization of technology, our customers are experiencing more and more clever solutions in their private lives. They are expecting more from us too!

All this is not rocket science – it’s just not a traditional way of looking at driving B2B sales and customer loyalty. But change is upon us,” said Mikael Norin, President of Marine Services at Roll-Royce.

BEST-IN-CLASS SECRET WEAPONS

The best-in-breed CCOs are quickly becoming a ‘secret weapon,’ creating significant competitive advantage, because of their purview and control of the entire commercial process. Those we admire most are skilled at deepening their organization’s capacity to discover untapped market opportunities and can ensure that a sustainable value proposition is developed for both their established brands and new products.

Great CCOs also have a strong understanding of how the business works operationally and can negotiate skillfully with their manufacturing and supply chain teams, to achieve a balance between overall profitability and increased complexity. In short, commercial executives must be familiar with operational excellence as well as sales and marketing. In developing go-to-market strategies, they know which marketing levers must be pulled and are adept at leveraging customer relationship managers to create a powerful strategic and executional alignment of sales and marketing. They are able to help craft and drive the commercial agenda not just for the next quarter or the next year,

but for the next three to five years, and more.“Best-in-class CCOs extend their ears and eyes beyond the confines of set categories, processes or practices. They tend to be curious and inquisitive by nature, and are prepared to explore different solutions in different environments. They are also tough negotiators and drivers of change. A background in law also comes in handy when drafting commercial agreements in Asia Pacific with all its different legal frameworks,” said Sean Robinson, Director, Teknicast.

FINAL CHECKS

The visibility of CCOs in manufacturing companies will only increase, as the value of the role becomes more apparent. Their success however will be cut short if two important factors are not taken into consideration.

Firstly, CCOs must negotiate the politics of maneuvering changes across the entire commercial spectrum, maintaining an appropriate balance while integrating changes into a smoothly functioning whole. Doing so requires a unique individual who can wear many hats confidently, who looks at the commercialization process holistically, who has experience with and thrives on the responsibility of a GM role, and who has the capacity for long-term strategic planning.

Secondly, they need the full support of their CEOs or boards. “CEOs need gut checks and ask themselves if they will be willing to stand behind their CCOs, when tough actions are being recommended that business unit directors may not be excited about. Many manufacturers will benefit from CCOs who can gear things up a bit so as to ensure long-term growth – or even survival. This role can be of critical importance and significant prominence. Successful CCOs, such as Marius Kloppers at BHP Billiton, become successors to their CEOs,” advised Abele.

TOP FIVE OPPORTUNITIES (2012-2015)


“Our biggest opportunities lie in the growth of the developing countries as well as predicted rebound growth in the developed countries. The increase in urbanization and infrastructure needs around the globe are another opportunity.”

Participant in Heidrick & Struggles global manufacturing survey 2011

Growth Related

Finance Related

Innovation

Demand Related

Human Capital Related

28%

19%

14%

92%

14%

This role can be of critical importance and significance prominence


The magnitude-9 earthquake in Japan on March 11, 2011 brought on an enormous tsunami that destroyed all that stood in its way, even properties and equipment located miles inland and considered ‘safe’. And as news of the environmental, health and safety (EHS) dangers emerged from the subsequent damage to the Fukushima Dai-ichi nuclear plant, it’s hard not to be thankful that more and more businesses and facility owners are increasingly recognising the strategic role of EHS leaders – now often known as Chief Sustainability Officers (CSO).

THE AGE OF THE STRATEGIC

CSOCompanies are under pressure to reduce their use of potentially harmful substances materials

This global development is relatively new and has recently caught up in pace, particularly with stricter emphasis on EHS in mature markets, such as the European Union’s REACH chemical policy as well as the Environmental Protection Agency (EPA) or the Occupational Safety and Health Administration (OSHA) in the US. Companies are under pressure to reduce their use of potentially harmful substances materials and be more responsible for the harm that such substances cause, if they want to export to these markets. Many business customers now also require suppliers to participate in sustainable sourcing and be ISO 14001 certified.

HIT THE GROUND RUNNING

Companies that want to comply with such demands face unique challenges when their factories or suppliers are based in the Asia Pacific region. Many manufacturers here operate in developing markets where infrastructures, regulations and industry standards to foster EHS practices have yet to catch up with the speed that sophisticated multi-billion dollar plants have sprouted up from their soil. Research from the 2010 Asian Sustainability RatingTM paper, for example, found the reporting on corporate environmental initiatives by Asia’s largest listed companies to be rather lacking, and to be particularly poor in resource-rich areas of Asia, such as China, India, Indonesia and Malaysia.

Moreover, none of the respondents from Asia in the Heidrick & Struggles Global Manufacturing Survey 2011 chose Natural Disasters, Safety or Environmental issues as a major theme for them for 2012-2015.

www.asiansr.com/Sustainability_in_Asia___ESG_Reporting_Uncovered.pdf

www.asiansr.com/Sustainability_in_Asia___ESG_Reporting_Uncovered.pdf


TABLE: 2010 ASIAN SUSTAINABILITY RATINGTM (ENVIRONMENT) Rank Country Total listed companies analyzed

1st South Korea 57 2nd India 56 3rd Taiwan 50 4th Singapore 28 5th Malaysia 20 6th Philippines 20 7th Thailand 20 8th Indonesia 20 9th Hong Kong 63 10th China 208

Source: 2010 Asian Sustainability RatingTM

Their primary focus is on the theme of capturing growth.

And there is another reason why attention to environmental, health and safety in the Asia Pacific is critical. Businesses in this region are 25 times more likely to be hit by natural disasters than those in Europe or North America, according to the 2010 Asia-Pacific Disaster Report by the United Nations.

Consequently, CSOs with Asia Pacific responsibilities have their roles cut out for them.

CHANGE FOR GOOD

There is hope that things in the region will change for the better, with the rise of more governmental and non-governmental efforts. The Shanghai Stock Exchange launched its ‘Shanghai Environmental Disclosure Guidelines’ in 2009, and the Singapore Exchange initiated a Policy Statement on Sustainability Reporting in 2010.

Asian manufacturers also know all about the unwelcome impact of international 24-hour wired media and advocacy groups on manufacturing mal-practices and mishaps, even in far flung corners of Asia Pacific. At threat are the company’s reputation and stock price, not to mention the possibility of class-action lawsuits and cancelled orders from long-term customers.

On a more positive note, achieving best-in-class EHS risk management means that companies can gain competitive advantages such as lower costs and the ability to enter new markets quickly without compliance problems. “For Santos it’s about operational excellence,” says Andrew Antony, head of Environment, Health, Safety and Sustainability at Santos, a major Australian oil and gas company with interests in Asia Pacific, the US, and the Middle East. “No incidents, no downtime, good productivity, good morale, and meeting regulator and community expectations.”

“Well planned, communicated, and executed initiatives can make all the difference in reducing risks and incidents,” says the VP of EHS of a large industrial company. “This could lead to lower insurance payments, less operational costs, lower workers’ compensation costs, avoidance of

http://www.unescap.org/unis/press/2010/oct/g53.asp

http://www.unescap.org/unis/press/2010/oct/g53.asp

http://www.world-exchanges.org/sustainability/m-6-7-1.php

http://www.world-exchanges.org/sustainability/m-6-7-1.php

http://www.world-exchanges.org/news-views/news/sgx-introduces-sustainability-reporting-guide-support-listed-companies

http://www.world-exchanges.org/news-views/news/sgx-introduces-sustainability-reporting-guide-support-listed-companies

He or she must understand human nature and behaviour, and be a master facilitator


non-compliance and associated fines, and more. That is how you make the biggest impact on any company – reducing costs.”

Jim Schultz, the former Senior Vice President Employee and Customer Engagement at Waste Management observes, “In my experience, a solid EHS programme has to be genuine, and it has to be driven by a visionary leader who serves as the central ‘change agent’ and catalyst to drive employee engagement. This individual must be a visionary, a great communicator, and demonstrate enthusiasm. He or she must understand human nature and behaviour, and be a master facilitator. Optics are critical, and so the EHS leader must report directly to the top officer of the company.”

THE NEW BREED OF CSO FOR ASIA PACIFIC

Not surprisingly, there has been a substantial rise in demand for a new breed of EHS leaders around the world and particularly for the Asia Pacific region. No longer merely an audit and compliance manager, this new breed of corporate leader works directly with other top corporate leaders, frames EHS issues in strategic terms, and operates in the far broader context of environmental and social sustainability.

Based on our experience in advising manufacturing clients around the world, we note that the new world of EHS calls for a wide range of interdisciplinary and cross-functional competencies, including:

• A solid grounding in a wide range of environmental, health and safety requirements, processes, procedures, technologies, and, depending upon the scope of the operation, familiarity with these issues at the local, state, federal, regional, and international levels.

• A knowledge of financial operations that extends beyond budgeting to include project financing, corporate finance, an understanding of how finance intersects with EHS and sustainability, and the ability to make a business case for a new direction.

• Knowledge of the company’s processes, products, technologies and business processes coupled with the ability to manage environmental and safety systems within the company and the ability

PERCENTAGE THAT SELECTED EHS ISSUES AS MAJOR THEME (2012-2015)

Source: Heidrick & Struggles Global Manufacturing Survey 2011 (N: 295, Asia Pacific: 63)

“More stringent environmental regulations have led us to design new products which will introduce new principles of manufacturing in our operations.”


“Being a public listed company, the key effectiveness of the board is managing market expectations on results so as to deliver on short term and longer term strategic investments for a sustainable business.”


Natural Disasters

Safety Issues

Environmental

Asia Pacific Total

0% 1.8%

0% 1.8%

0% 0.8%

to assess and audit those systems with vendors, suppliers, and distributors.

• Familiarity with technological and process advances and an understanding of the trends in EHS and the influences on the company and the industry segment.

• Ability to communicate with community leaders and activists and to communicate with the media in a crisis.

• Ability to develop and manage a marketing campaign related to the EHS and sustainability aspects of the company’s performance, products, or liability.

• Ability to hire, lead, develop, and inspire a diverse staff and to develop trusting relationships with a variety of company constituents before an issue becomes a problem.

“This role requires change agents,” says Andrew Antony. “You need the management skills required for any senior role, but applied to EHS it means the ability to establish and then implement a strategy, to introduce systems that effectively monitor and report, and the ability to manage, influence and lead people across the organization.”

Organizations across the Asia Pacific will definitely benefit from such leadership, as environment, health and safety standards grow to be on par with global levels.


Beyond cost estimation and scheduling to contractor management and project monitoring, the new generation of Project Directors is expected to master the world of stakeholder management, corporate communications, governance and leadership. Management skills and accountability are growing in importance. And the scarcity of Project Directors willing and able to take on these new demands is compounding the human resources challenge for many industries. Consider for instance, that the oil and gas industry will lose 5,000 experienced geoscientists and petroleum engineers by

2014, according to the 2010 Oil & Gas HR Benchmark study by Schlumberger Business Consulting.

The risk managed by a single Project Director can represent a significant amount of a company’s entire portfolio risk and can therefore have a huge impact on the organization’s financial health as well as its corporate image. The savvier corporations have recognized this and acknowledge the need for professionals with strong leadership skills as well as technical know-how.

Moving into new product areas? Just invested in multi-year construction projects across multiple countries? Implementing a new supply chain management system that will monitor all internal as well as external nodes of the network? Projects have become so complex that no one person can master all the technical challenges.

THE MODERN PROJECT DIRECTOR

The need for professionals with strong leadership skills as well as technical know-how

The need to develop leadership and behavioural competencies has led forward-thinking companies to invest in leadership development training too


DEVELOPING FUTURE PROJECT DIRECTORS

The methods adopted by the most forward-thinking organizations to nurture and develop Project Directors are evolving to meet the increasing demands of the role. These companies are using three main strategies, which, when combined, can significantly impact individual development.

ON-THE-JOB TRAINING

Successful companies have developed initiatives to encourage efficient on-the-job training opportunities, including internal reorganization, streamlining reporting processes and methods for early detection of potential talent.

Internal Organization

Organizational models have evolved to help support projects and develop talent. Large projects are being divided into packages and smaller semi-autonomous tasks, for example, which not only increase individuals’ responsibilities but also help manage the risk associated with the project. Being given the opportunity to lead these tasks develops talent, and represents an opportunity for future Project Directors to experience the company’s standard processes and protocol. Project control or executive assistant positions are also a way to increase exposure to political, project and control complexity. Moving between functions and projects allows junior staff to cross-fertilize experience and expertise while mitigating company risk.

Reporting Line

Large projects may have multiple partners, which can create complex relationships between project teams (which can be composed of different companies’ staff ) and parent companies. Streamlining reporting routes shortens the decision-making process while ensuring efficiency. Given that Project Directors bear a significant part of the company’s financial risk, many organizations have adapted their reporting line to aid communication with top management.

Early Detection Of Potential

A major tool in improving staffing decisions is a ‘people review’, in which a leadership team reviews a group of people and collectively builds a consensus on each individual. This enables the organization to identify potential next steps for career development while ensuring any potential risks are acknowledged. These collective decisions emphasize the fact that no manager owns his or her resource pool. Not only does

1

early detection of talent shape careers, it also helps to ensure that staffing decisions take into account individual development needs as well as project requirements.

INTERNAL MENTORING OR EXTERNAL COACHING

Successful companies are using mentoring to enhance and to improve the transfer of knowledge and experience between seasoned Project Directors and more junior project managers. The mentor relationship reinforces the feeling of community within the ‘project population’ and is a way to impart non-written information or unofficial protocol. Mentoring can be complemented with external coaching to accelerate career trajectory.

FORMAL ACADEMIC TRAINING

In order to ensure Project Directors are effective and best practice is shared, some companies are sending their high performers to top academies to provide them with training in finance, HR, legal, PR and negotiation skills. This training is often completed by in-house workshops. This is an effective way for companies to create a community of seasoned managers. It also supports the sharing and use of company standards, tools and processes, ensuring structured project delivery, and making talent more portable within the organization.

The need to develop leadership and behavioural competencies has led forward-thinking companies to invest in leadership development training too. In order to measure the impact of this training, companies have developed competency models tailored to their population of Project Directors. These frameworks are similar in terms of emphasis and scoring to those used by executive search firms when assessing executive level candidates.

Training can be used at different stages of the Project Director’s career. In the early stages, the emphasis will be on technical skills such as finance, HR and law. Later, the focus is on leadership.

The impact of such strategies is two-fold. Individuals are developed faster and more effectively, while staffing risks are mitigated by balancing inexperience with control and by supporting people with processes and expertise. The head of a project academy for an international oil company said, “We have been pleasantly surprised by the power of combining development training and community building. Project Directors regularly go to the academy to learn, close a

2

3

Successful project management is not just about delivering projects on time and within budget


“The biggest challenge in the next three years is developing technical talent who are motivated and qualified to move major projects through milestones and deliver with a high level of quality.”

Participant in Heidrick & Struggles global manufacturing survey 2011

specific competence gap or to teach. This reciprocity has proven highly motivational for all involved.”

IS YOUR COMPANY GROWING THE NEW BREED OF PROJECT DIRECTORS?

Manufacturers need to consider three critical questions in order to optimize project management and to control related risks:

• What project governance is in place?• How do we nurture talent within the project management function?• How do we promote the leadership competencies that are necessary for successful Project Directors?

All this requires support from senior management as well as a robust training and development programme. Those responsible for nurturing the talent pipeline – which should include the Executive Committee as well as HR – need to have a clear understanding of the necessary skills and competencies in this ever-changing profession. They need to know that there is now a need for an emphasis on ‘soft’ metrics as well as technical expertise. Successful

project management is not just about delivering projects on time and within budget. It must also involve a focus on the team, effective people management, a persuasive leadership style and true client and partner satisfaction.

A talented Project Director will display managerial flair by building internal and external relations, fostering open participation and non-hierarchical communication, proactively leading teamwork across a variety of situations and thinking ahead while also learning from past experiences.

Tomorrow’s success depends on growing this talent and on helping this new breed of Project Directors to deliver ever more complex, multi-billion dollar projects.


CHALLENGING TIMES FOR

CAPITAl EQUIPMENT COMPANIES

companies in all sorts of directions. From offshoring to nearshoring, from buying from suppliers to buying suppliers or from focusing on hardware to diversifying to services, company leaders are having to make new and confounding decisions on an unprecedented scale. Where will the tides take capital equipment manufacturers next?

In this editorial, we speak with leadership consultants from the global Heidrick & Struggles industrial practice, Jens-Thomas Pietralla in Munich, Germany; Jonathan Graham in Ohio, USA; Lawrence Allen in Beijing, China and Wayne Elmer in Melbourne, Australia.

These announcements are symbolic of the ocean of change facing capital equipment manufacturers. The first is the company’s acquisitions of complementary international businesses. The second consequence of the ocean of change is the company’s decision to move some of its production back to the US, after slashing about 20,000 U.S. jobs from its payroll between late 2008 to 2010. Analysts say that companies like Caterpillar are waking up to the disadvantages of offshore production. These include transport costs, unwieldy supply chains and issues with quality control, plus the threat of political unrest and of intellectual property theft.

The unrelenting waves of globalization, cost, complexity and competition are buffeting

At the 2011 ConExpo-Con/Agg, a tradeshow for the construction industry that takes place once every three years in the United States, Caterpillar announced expansion plans for its plants in China, Brazil and the U.S. – in additional to plans to build new plants in Texas, and North Carolina. This, the company said, would be key to the company’s success over the next few years, as it built enough manufacturing capacity to meet demand while still controlling costs. The plants would also help the company meet projected profits of nearly $6 per share on more than $50 billion in sales in 2011, and between $8 and $10 on revenue between $55 billion and $60 billion in 2012. Prior to the show, Caterpillar had also announced acquisitions of mining equipment maker, Bucyrus International, locomotive maker, Electro-Motive Diesel Inc. and German engine maker, Motoren-Werke Mannheim.








equipment companies have large stakes that are held in the hands of a founder or founding family. So senior executives operating here need to have the interpersonal skills to manage the business as entrepreneurs but also to respect the vision of the founders. Other times, the owners are private equity investors who often expect change to take place at a pace that is faster than a portfolio company may be prepared for. These circumstances call for strong interpersonal skills and stamina,” highlighted Jens-Thomas Pietralla, managing partner of the EMEA Manufacturing Sector at Heidrick & Struggles.

United States and Latin America

“U.S. companies are becoming more selective about candidates that they put on their leadership benches. They want to understand each candidate’s achievements – was it based on market trends or from valuable contributions from the candidate? What has the candidate’s career path and personal lessons been? What commercial experience does the candidate have? They are also starting to plan their succession pipelines much earlier, often looking at one to two levels down the entire company operations across the world, and thinking about what kinds of experience they need to get them where they have to go. Years ago, you didn’t see such thorough succession plans,” said Jonathan Graham, who leads Heidrick & Struggles’ Industrial Practice for North America and Latin America.

Australia

“We are likely to see our manufacturing base in Australia continue to shrink over the next three to five years. Companies that remain will need to ask themselves how they will retain their top executives, who will either be tempted to move to exciting high growth markets elsewhere in Asia Pacific or to be poached by companies in the booming mining sector here. There is demand for senior talent all across the board; from extractive industrial base metals or minerals to infrastructure, civil construction, project management as well as support services or maintenance, you name it! Talent management will be key to business continuation,” said Wayne Elmer, a principal based in Heidrick & Struggles Melbourne, Australia.

China

“China’s leadership talent market has evolved to a point where capital equipment companies are now able to effectively localize up to senior levels. Not only are PRC executives more familiar with the terrain, they are often more attuned to seeing 20 to 30 percent growth as a market necessity in order to stay ahead of the

MATURE BEHAVIOUR

Whether it is capital equipment companies from the U.S., Europe or Australia, the challenges mature-market operators face are similar. There’s competition from new sophisticated market entrants, increasing cost pressures, the need to drive lean manufacturing at home and develop lower-cost operations offshore. Many are pushed to compete further up the value chain and market themselves in terms of Total Cost of Ownership; bringing in software developers to create new service offerings or working with suppliers to custom-build next-generation systems that will enhance their competitive edge.

As a result, many leaders have had to move from the comfort of making decisions based on what’s happening in their “own backyard” to having to know what’s happening in all their neighbouring and global backyards. And this has required a new type of leadership insight and foresight.

Essentially, the qualities that companies are now adding to their recruitment or succession planning mandates include:

Have a global perspective, have worked and lived in several different regions, and is able to operate seamlessly across cultures on a day-to-day basis

Able to embrace diversity in thought and solution building, in order to foster creativity and innovation

Capable of introducing and establishing globally consistent competencies across all locations

Able to collaborate across the value chain and build win-win relationships with customers and suppliers from around the world

Be customer-centric and commercially savvy, knowing how to capitalize on new opportunities financially and operationally

Have experience in P&L management and responsibility

Have exposure to services marketing and management

Know how to retain good people in a highly competitive global marketplace

REGIONAL DIFFERENCES AND CHALLENGES

Across all markets, there is a general shortage of talent with all these qualities. There are however, subtle differences in focus from region to region.

Europe

“Such attributes are certainly in demand. In Europe, you will also find that many capital

Talent management will be key to business continuation

1

2

3

4

5

6

7

8


curve, as compared to foreign talent who may consider 10 to 15 percent growth as “aggressive”. The challenge in China is how to bring on the next generation of local leaders who have the necessary competencies and have them commit to the company long-term. Demand for such executives is high, resulting in high turnover and dramatic increases in compensation. This has led to early promotion among local candidates whose experience may not be tested enough and whose loyalty may not be guaranteed,” explained Lawrence Allen, a principal in Heidrick & Struggles Beijing who is an active member of the firm’s Industrial and Consumer practices.

TRENDS IN TALENT MANAGEMENT

No matter which market we look at, we expect to see more waves of change on the horizon, on the talent management front.

NON-TRADITIONAL BENCHMARKING

Companies will increasingly benchmark themselves with the best-in-class outside their industry sectors, even turning to consumer goods companies, to identify ways they can become more competitive. This will also mean that the qualities that they look for in their leaders will continue to evolve.

RECRUITMENT FROM THE “PERIPHERY”

Senior talent within sectors on the “periphery” with service elements, such as building services, HVAC (Heating, Ventilating, and Air Conditioning), security or technology management companies will progressively be imported more and more. Companies will also be forced to look at other sectors, such as FMCG (fast moving consumer goods) manufacturing, where leaders in lean manufacturing are being groomed, for potential pools of talent.

INTERNATIONALIZATION AT HQ

Senior leadership profiles at the headquarters of capital equipment companies will start to include more international executives from around the world, just as their businesses become truly global.

LOCALIZATION IN GROWTH MARKETS

Companies will start to groom and pick country leaders from local benches for key emerging markets.

GLOBAL ORGANIZATIONAL STRUCTURES

There will be a critical need to re-look at organizational structures as a result of the two points above, and to pull the various operations under one global cohesive identity and structure.

1

2

3

4

5


YOU HAVE THE PEOPLE AND OTHER NECESSARY RESOURCES TO EXECUTE YOUR CURRENT JOB WELL

IF YOU WERE TO LEAVE YOUR JOB / YOUR CURRENT ORGANIZATION TOMORROW, COULD YOUR ORGANIZATION IMMEDIATELY NAME A PERMANENT INTERNAL OR EXTERNAL SUCCESSOR?


“Without doubt, our greatest challenge is to continue to source for technical manufacturing talent. While companies such as my own continue to invest in modern apprenticeship programmes, I am stunned to find that with one minor exception that no university in Scotland for example offers a degree or qualification in manufacturing engineering or industrial engineering. Integrated Value Engineering (IVE) or Design for Manufacture and Assembly (DFMA) are two critical factors that keep UK manufacturing ahead of low cost competition (such as Asia Pacific) and we are giving it up.”


Strongly Agree

Agree


Disagree

Strongly Disagree

11%

41%

13%

31%

4%

Yes

No

Not Sure

39%

47%

14%

47%

Each company needs to find the right pace and depth of change for its culture in order for it to continue being the “glue” that holds a growing organization together

Lawrence Allen is a principal with the firm’s Industrial and Consumer practices. Based in Beijing, he can be reached at [email protected] or +86 10 6598 8288.

Wayne Elmer is a principal in the Industrial Practice of Heidrick & Struggles. Based Melbourne, he can be reached [email protected] or +61 3 9012 3000.

Jonathan Graham leads the Industrial Practice for North America and Latin America, based in the firm’s Cleveland Office. He can be reached at [email protected] or +1 216 2417410.

Jens-Thomas Pietralla is managing partner of the EMEA Manufacturing Sector and is based at Heidrick & Struggles’ Munich office. He can be reached at [email protected] or +49 89 998110.

Perhaps the biggest challenge and area of change is the transition from being a local or regional champion to an international one. Many globalising capital equipment companies today started with a strong home country manufacturing employment base with a long history, and therefore, a strong national identity. Success in building a new global corporate culture – one that embraces local national cultures and yet retains a strong set of internationally recognized values and qualities – will be the requisite to success in creating a global company and identity. This is an area in which most senior management struggle to find the right balance for.

“Some capital equipment companies strive to maintain a sense of their original national culture while conquering the world. Some aim at replacing their traditional culture for a completely new global one, while others aim to add global elements to their existing cultures. Most benchmark examples I have seen include a range of elements that help to build trust and overcome cultural difference and communication challenges. Each company needs to find the right pace and depth of change for its culture in order for it to continue being the “glue” that holds a growing organization together. Bringing people together in intense business and more social settings seems indispensable, but even small practical things, such as switching to English for internal documents or meetings and having identical business cards around the world, contribute to achieving this goal,” said Pietralla.

This is a period of tumultuous changes for capital equipment companies, and it’s best that they find the leadership who can captain the rough seas and get them onto safer shores. With these trends, recruiting of ‘future-proof ’ leaders for capital equipment companies around the world becomes more challenging every day. Premier global providers of executive search seem best positioned to help these companies master unchartered talent territory while staying true to the values that made them successful in the past.










THE WORLD’S NEXT GENERATION

AUTO GIANTS


In the two years since that fateful quarter, Chinas has emerged as the world’s largest automotive market, and India, now the second fastest growing automobile market in the world, has emerged as Asia’s fourth largest exporter of passenger cars. “Today, you have all the major car marques, from Rolls Royce and BMW to Fiat and Hyundai, rolling out cars from local production lines that cater to a variety of market segments. Not only that, local teams are collaborating with global styling and engineering teams on next generation models. Indian consumers too, have also become much more demanding, expecting the latest models to be launched in Mumbai or Delhi at the same time as they appear in Munich or Detroit. With its huge potential and consumer appeal, you also find that many young executives are very keen to join the booming automotive industry here,” said Arun Mahapatra, Managing Partner for Heidrick & Struggles India.

GLOBAL AMBITIONS OF LOCAL PLAYERS

There is no doubt that Chinese and Indian auto manufacturers have ambitious plans for their home markets as well as global ones. In the last two years, Geely Holding Group announced plans to expand into Detroit and the acquisition of Volvo Car Corporation. In another move to enter the US market, Wang Fengying, CEO of Great Wall Motor, explained that “It is important for Chinese companies to go upscale, but more importantly, we must go global”, in response to why Great Wall Motor, China’s largest maker of SUVs and pickups, would want to venture into the highly competitive US market by 2015. And then of course, there are the regional and international maneuvers of Tata Motors from India.

But just as Tata’s 2008 purchase of Land Rover and Jaguar for 2.3 billion dollars was met with initial skepticism, industry analysts are unconvinced that Chinese and Indian car makers are capable of global marques at this point of time. One foreign carmaker in China noted that even exported joint venture cars that are made with foreign components will still be seen as (poorer quality) Chinese cars in overseas markets.

MIX OF EAST AND WEST

The day that American or European consumers will be ordering a Chery or a Tata from their nearest car dealer however, may arrive much sooner than expected – as does every new milestone accomplished by the sheer willpower, ambition and financial might of the companies found in these two emerging economic giants. While global brands may not consider their emerging market competitors to be serious global threats for the time being, Chinese and Indian automakers have been more than wiling, and able, to acquire talent through mergers and acquisitions or directly recruit the talent needed to achieve their international ambitions. And more often than not, global executive talent have been welcoming the challenge of driving companies on the growth highways found in emerging markets.

“Senior executives from overseas are now exceptionally keen to fill roles here, especially after the global financial crisis, as they see all the exciting prospects that China presents. What has also helped is that salary levels are now on par with global standards and the incentives are attractive. There is also greater autonomy, visibility and decision-making power in developing companies that you

The link between the fall of Lehman Brothers and the rise of Asia’s emerging automotive markets may not be immediately obvious, but the ensuing credit crisis meant that auto sales in the US plummeted in the first quarter of 2009, leading Chinese auto sales to shoot past US sales by some 450,000 units to close at 2.65million. And while the world’s attention was focused on the crisis in Detroit, auto manufacturers in Chennai, Haryana, Pune, Shenyang, Wuhu and Zhejiang were busy plotting to conquer the world.

There is no doubt that Chinese and Indian auto manufacturers have ambitious plans for their home markets as well as global ones



And as we all know, it is leadership passion that is needed to bring companies to greatness


don’t find in companies that are encumbered by ‘old-school’ processes and mindsets. It could be for such reasons that Ford recently lost some of its most promising talent to local companies after some internal restructuring,” said Julia Zhu, a principal with the Industrial and Supply Chain practices at Heidrick & Struggles in China.

Another shining example is Chery Quantum, the 50/50 joint venture between China’s largest independent car manufacturer, Chery Automobile, and investment company, Israel Corp.. Chery Quantum has ambitions to develop a new well-differentiated brand of premium, Western-standard vehicles for China’s domestic market as well as for export to Western countries. Its multicultural senior team has a high level of decision-making and management autonomy, which is separate from their parent companies. “Chery Quantum has built a team of first rate managerial talent from scratch, having wasted no time and expense in bringing on a number of high-level executives from General Motors, BMW and Volkswagen out of Europe and the US. For instance, Volker Steinwascher, the vice-chairman, was Executive Vice President of Volkswagen North America prior to joining the company. Hildebrand, the Head of Styling, was previously the Head Designer of MINI (BMW). The Head of Commercial is an Italian executive who joined from McKinsey (China) with outstanding networks in the global automotive space. Chinese companies know that they have to play “catch up” and are not afraid to invest in the executive talent they need to accelerate their rise up the global ranks,” said Emmanuel Hemmerle, a partner in Heidrick & Struggles’ Consumer and Industrial practices, based in Shanghai.

“To bring India’s auto industry expertise up to international standards, car makers here have been sending Indian engineers and designers to their headquarters for training or bringing on American or Indian returnees from slow growth markets to live and work in India. For example, there’s Tata Motors which hired Carl-Peter Forster from General Motors as their CEO in 2010, and Mahindra & Mahindra, which has many non-Indians in strategic senior roles,” added Mahapatra.

While there are the obvious cultural differences between foreign and local

EMERGING MARKET CASE STUDY (SOUTH KOREA): GM KOREA COMPANY

GM Korea Company (formerly General Motors Daewoo Auto and Technology or GM DAT) is the third largest South-Korean automobile manufacturer and a key member of the General Motors Company.

GM Korea’s roots go back to the former Daewoo Group, which went bankrupt in 1999. It has five manufacturing facilities in Korea as well as an assembly facility in Vietnam. In addition, GM Korea provides market and brand-specific vehicle kits for assembly at GM facilities in China, Thailand, India, Colombia and Venezuela. GM Korea now produces vehicles and kits for Chevrolet, Opel/Vauxhall, Holden and Suzuki that are offered in more than 150 markets on six continents. On January 20, 2011, General Motors announced that GM Daewoo would be renamed GM Korea Co. “to reflect its heightened status in global operations of GM,” effective March 2011. Most of the vehicles will be rechristened as Chevrolets, with plans for GM in South Korea to establish either Opel or Buick there.

Some of the key highlights of GM’s foray into South Korea include:

1 Acquired a large established base, the excellent Daewoo Technical Centre and trained staff along with well invested manufacturing facilities, at a highly attractive price2 Brought in top-class global leadership, Nick Reilly, who deserves much of the credit for how GM-DAT was molded3 Developed fast growing supply chain, using much of Hyundai’s supply chain4 Focused on brand building with the global deployment of Chevrolet, and even placing Chevrolet’s price points below Toyota’s and Hyundai’s price positioning5 Linked to global distribution network. Chev Cruze is a best seller in China and a good seller in USA, EU and Asia6 Multiplied volumes fourfold since the acquisition

Source: Wikipedia, Richard Spitzer, Heidrick & Struggles

executive talent, and all the challenges of bringing global standards to businesses in developing economies, international executives working in Indian and Chinese companies note the general sense of passion for progress and expansion. And as we all know, it is leadership passion that is needed to bring companies to greatness.

“Business leaders in China should be strategic and develop a mindset that promotes innovation at all levels. Then, they need to ensure that the relevant infrastructure, talent and marketing are high on their agendas. Also, they should be able to feel a sense of “urgency” and can drive necessary changes in an effective way,” said Freeman Shen, Senior Vice President of Volvo Car Corporation & Chairman of Volvo Cars China Operations. Volvo Car Corporation considers China to be its second home market and developed a Five-year Growth Plan in the beginning of 2011 to reflect local market demands. Volvo Car China is today a full-fledged







http://en.wikipedia.org/wiki/GM_Korea


To be successful leaders in China, executives must have a high tolerance for ambiguity and a heightened sense of pragmatism


organization that uses innovative ways to build their teams in response to the steep growth in business needs.

“To be successful leaders in China, executives must have a high tolerance for ambiguity and a heightened sense of pragmatism. Curiosity and a willingness to learn and re-learn the China market requires an eclectic, creative mindset – a level of flexibility that is not normally required by more mature markets. I would rate these qualities as important as inter-cultural sensitivity and language skills,” said Steve Mullinjer, managing partner for Heidrick & Struggles China.

GROWING UP FAST

By buying up global talent, Indian and Chinese automakers are pressing the fast forward button on both their people and technological development, as their own markets start to inch closer to maturity. In early 2011, Maruti Suzuki in India announced that for the very first time, repeat customers were added to their India sales numbers at a faster rather rate than

first-time buyers. This is significant, considering that Maruti Suzuki holds half the market share for cars in India.

Over in China, SGMW, the joint venture between General Motors, SAIC, and Wuling, maker of mini-commercial vehicles in China, produced its first joint own local brand car, the Baojun 630, which is aimed at first-time buyers in the country’s second and third tier markets. And as a sign that car manufacturers are at last beginning to bring in highly coveted design and R&D capabilities into China, BMW Group’s subsidiary DesignworksUSA, the inspirational think tank for the three BMW Group brands BMW, MINI and Rolls-Royce Motor Cars, confirmed plans to open a studio in Shanghai in the second half of 2011.

“If you are targeting mass market segments in emerging markets, you have to design products for the market, not morph existing products. Innovate like what Tata did with the Nano. It’s critical to recognize that even though price points might be lower in emerging markets relative to the



Mature market automakers should not underestimate these new industry competitors from Asia


western world, the average buying consumer is generally pretty savvy, educated and sophisticated, and your brand will get bench marked extensively. So the interplay between brand positioning and fundamental value is very important,” said Richard Spitzer, global managing partner for the Auto motive practice at Heidrick & Struggles.

“What’s more, volumes in emerging markets, excluding China, are still low, so a successful strategy would typically rely on a broad Asian view that also includes Brazil, South Africa and so on. As seen from the GM Korea case study, capital investments can be leveraged across multiple countries. The manufacturing strategy of course, has to first take into account trade regimes, with their local tariffs, trade balances etc.. Ultimately, taking a long-term view is critical. You can’t expect to turn profits on a dime – it will be very frustrating!” continued Spitzer.

FUTURE GAME CHANGE

Indian and Chinese auto markets are maturing quickly and local players are working towards overtaking the foreign players on their home turf. With the accelerated rate of change in emerging markets, it may not be another decade before a Geely, Chery or Tata car may be as coveted as a Honda, BMW or Mercedes-Benz – at least in developing markets, if not, the world.

“India’s auto industry is fast developing. The biggest determining factor for future success is how quickly one can localize the components; mainly engines, transmission systems, axles, body parts, electrical components, tyres and batteries, since all these are high cost components. Such efforts will keep costs under control and production flexible. Companies also need to improve the skills of manpower at OEM, vendors and dealers to manage the operations efficiently and to ensure continuous improvement and innovation in processes. All this could happen quite quickly, it is just a matter of when,” said Sandeep Singh, Deputy Managing Director-Marketing at Toyota Kirloskar Motor in India.

“Back in the seventies and eighties, Japanese and Korean automakers entered the largest and most important market at that time, the US. After a few false starts, they showed the ability to learn very quickly from their initial mistakes, quickly adapt to the local market expectations, and went from being viewed as producers of poor performing quality cars to being some of the most desirable brands in the market today. They

IS YOUR COMPANY IS WELL POSITIONED RELATIVE TO KEY COMPETITORS FOR 2011-2013?


didn’t expand beyond their core product and market segment competencies and learnt to excel in a short span of time that probably took some of the leading incumbent players by surprise. History could repeat itself all over again. Mature market automakers should not underestimate these new industry competitors from Asia,” said Spitzer.

International auto industry players may still be in the front seat for their own home markets, but they could be beaten off the path to true global domination, when Indian and Chinese automakers make use of their accumulated western-eastern, mature-and-emerging-market talent to produce breakthrough automobiles for tomorrow’s high-growth markets in Latin America, the Middle East, South East Asia and Africa.

Asia Pacific

14%

50%

22%

11%

3%

Western Europe

Strongly Agree

Agree


Disagree

Strongly Disagree

21%

54%

16%

6 %

3%

North America

Strongly Agree

Agree


Disagree

Strongly Disagree

54%

12%

20%

1%

Strongly Agree

Agree


Disagree

Strongly Disagree

13%



EXPATRIATES AS INDIA’S INDUSTRIAL TURNKEY SOLUTION

Over in Bangalore, Robert Mackie manages a dedicated offshore engineering centre for Jaguar Land Rover in Bangalore, an opportunity he jumped at when he first heard about it in 2008. At ABB India, we have other western executives; non-executive director, Peter Leupp and head of low voltage products, Tommy Andreasson.

Are expatriates the turnkey solution to India’s industrial talent shortage?

UNDER SUPPLY

Across many industries in India, there is a shortage of top talent with international experience. Recent estimates show that India needs over 1,000 CEOs across industries, many of them in new sectors such as special economic zones, aviation, airport management, media, communications, real estate and retail.

Our experience at Heidrick & Struggles suggests that the infrastructure sector in particular, is suffering a severe talent shortage. The Economic Times in India has reported that local companies such as Larsen & Toubro, Jaiprakash Associates, Hindustan Construction Company, GMR, GVK Group, Lanco, Essar Group and Gammon India are looking to hire across all levels. This means expatriates often step into the talent gap, especially in specialist fields such as mining, real estate, and oil & gas. Larsen & Toubro is said to be on the lookout for over 50 executives to fill roles at the vice president level over 2010 to 2011. The company’s projects include a thermal power project at Vadodara, a joint venture with Mitsubishi Heavy Industries for the manufacture of super critical boilers and turbines, and a

In 2007, Boeing appointed Ian Thomas as vice president international and president of Boeing India, responsible for the company’s enterprise-wide India team. Based in New Delhi, Thomas reports directly to the president of Boeing International and is charged with strengthening the company’s local presence and finding new ways to pursue growth and productivity initiatives.


project to build up capability for a shipbuilding and repair yard in Tamil Nadu.

Other than an overall shortage of talent, several other factors drive the demand for international executive talent.

More Indian industrial companies are entering overseas markets, and more international companies are targeting India as a strategic growth market. As a result, India’s corporate sector is increasingly looking for people with global exposure, who can handle complex businesses that blend both domestic and international operations. Indian companies such as Larsen and Toubro and Reliance Industries Limited bring on foreign professionals both for their local and international projects, as a means to tap the domain expertise, global exposure and process management skills of global executive talent.

Another trend fueling this demand for globally competent executives is the growing number of global acquisitions and partnerships. Companies such as Tata, Bharat Forge, Aditya Birla, Essar and many others are rapidly growing internationally through acquisition.

BUILDING THE MANAGEMENT ASSEMBLY LINE

Bringing on foreign talent is not without its challenges. Expatriate leadership need to be quickly brought up to speed in terms of cultural, workplace and market sensitivities. With many Indian industries still at a nascent stage, standard processes typically lack the

maturity and sophistication of developed markets.

Boeing’s Thomas says the company is keen to partner with Indian businesses in several functional areas. Among those who are being tapped by industrial companies in India to look into such opportunities are several non-resident Indians, commonly referred to as returnees.

Typically between 35 and 45 years of age, these returnees are armed with a more aggressive Western outlook, “can-do” attitude and exposure to working within foreign cultures. They are being given the opportunity to build a higher profile than they would if they were to remain overseas and view the India experience as a critical part of their resume. Many are brought on to lead in general management, business development, strategy and marketing roles, as they are seen to have a good mix of local cultural understanding and global management experience. Returnees can however, find themselves in situations where the majority on their local executive committees are at least 10 years their senior and steeped in a more top-down management culture. Having strong interpersonal skills is paramount.

“Systems are less developed in India, so local executives end up dealing with tactical issues more often than strategic ones. They also tend to step into senior roles and be given more autonomy later in life. In contrast, western companies give autonomy to executives at a younger age, so they are thrown onto steep

Expatriate leadership need to be quickly brought up to speed in terms of cultural, workplace and market sensitivities


“Our most important strategic issue is how to cope with the increasing demand, especially in the emerging markets. It’s valid in all aspects, like technical knowledge, resources, people, etc.”


“In my past, I was a part of two startup companies. The biggest issue was finding the right people to handle aggressive growth, training and development of key personnel and the overall desire for upward mobility.”


learning curves and are “stretched” through multiple assignments, ready to step into senior roles by their 40’s. Senior NRIs (non-resident Indians) are often younger than their local peers,“ explained Alok Bhatnagar, who has lived in six countries across three continents and has been involved in over 30 global mergers and acquisitions. He recently returned to India to take on the role of vice president, emerging market at Honeywell.

SOLUTION FOR THE FUTURE

Relying on foreign talent alone is not a viable long-term option. Looking ahead, India’s industrial companies will need to build local bench strength, through conscientious on-boarding, retention and succession planning strategies.

Talent acquisition and talent development are not new to India. Hindustan Lever Limited, Citibank and Oberoi, are all “universities” of talent. But India needs to focus more on leadership because it is time for India to grow exponentially and align globally at the same time.

The need for so many good people has led companies to provide learning and development opportunities for talented executives and to invest in a pipeline of future leaders. Companies are increasingly putting middle managers on fast growth tracks and sending them overseas for international experience. Wipro, for example, has a Strategic Leaders Program for top management. The aim is to help them cultivate a global mindset and learn international best practices in strategic planning. Infosys grooms future leaders at the Infosys Leadership Institute. The company has identified many potential leaders, and has a mentoring program involving the highest levels of management.

As companies grow and accumulate a strong and diverse pool of global talent, the role of top management teams will evolve in India, with equal emphasis on business growth and organization and talent development. A clear differentiator for companies will be a management team who can successfully do this with a global perspective.

Arun Mahapatra, Managing Partner for Heidrick & Struggles India. He can be reached at [email protected] or +91 80 4256 3000.

India needs to focus more on leadership because it is time for India to grow exponentially and align globally at the same time



HEIDRICK & STRUGGLESCONTRIBUTORS


John Abele manages the firm’s global Marketing, Sales & Strategy Officers Practice and is also member of the firm’s global Industrial Practice. He can be reached at [email protected] or +1 216 2417410.

Lawrence Allen is a principal with the firm’s Industrial and Consumer practices. Based in Beijing, he can be reached at [email protected] or +86 10 65988288.

Wayne Elmer is a principal in the Industrial Practice of Heidrick & Struggles. Based in Melbourne, he can be reached [email protected] or +61 3 90123000.

Jonathan Graham leads the Industrial Practice for North America and Latin America. Based in Cleveland, he can be reached at [email protected] or +1 216 2417410.

Emmanuel Hemmerle is a partner in Heidrick & Struggles’ Consumer and Industrial practices. Based in Shanghai, he can be reached at [email protected] or +86 21 61361988.

Torbjörn Karlsson is managing partner for the firm’s Industrial Practice in Asia Pacific. Based in Singapore, he can be reached at [email protected] or +65 63325001.














Casey Kelly is the regional managing partner of the Supply Chain and Transportation & Logistics practices in Asia Pacific. He can be reached at [email protected] or +65 63325001.

Arun Mahapatra is managing partner for Heidrick & Struggles India. He can be reached at [email protected] or +91 80 4256 3000.

Steve Mullinjer is managing partner for Heidrick & Struggles China. Based in Shanghai, he can be reached at [email protected] or +86 21 61361988.

Jens-Thomas Pietralla is managing partner of the EMEA Manufacturing Sector. Based in Munich, he can be reached at [email protected] or +49 89 998110.

Richard Spitzer is global managing partner for the Automotive practice at Heidrick & Struggles. Based in Houston, he can be reached at [email protected] or +1 713 2379000.

Julia Zhu is a principal with the Industrial and Supply Chain practices at Heidrick & Struggles in China. Based in Shanghai, she can be reached at [email protected] or +86 21 61361988.

Heidrick & Struggles consultants who contributed to this compendium













INDUSTRIAL PRACTICE

Our Industrial Practice team combines unparalleled search resources with a deeply consultative approach. Working closely with the client, we develop the ideal candidate profile against the organization’s unique competitive challenges, business objectives and leadership culture. By considering far more than candidate’s functional or industry backgrounds, we enlarge the talent pool to help find the talent most qualified to meet those business objectives and address the client’s real hiring needs. Perhaps most importantly, this approach helps avoid the disastrous mismatches between candidate’s capabilities and role requirements that have plagued many industrial companies during this time of dramatic change and increasing complexity.

Our dedicated group of over 125 consultants has deep experience in each industry sector. We serve every region around the globe, from the Americas to Europe, Middle East & Africa to Asia Pacific. The more than 1200 assignments we conduct for clients each year include executive search, leadership development and consulting projects. This work has earned us outstanding customer satisfactions ratings and created long-standing relationships marked by the trust we develop and the results we deliver in every engagement.

ABOUT HEIDRICK & STRUGGLES INTERNATIONAL, INC.

Heidrick & Struggles International, Inc., (Nasdaq: HSII) is the leadership advisory firm providing senior-level executive search and leadership consulting services, including succession planning, executive assessment, talent retention management, executive development, transition consulting for newly appointed executives, and M&A human capital integration consulting. For almost 60 years, we have focused on quality service and built strong leadership teams through our relationships with clients and individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers in North America, Latin America, Europe and Asia Pacific. For more information about Heidrick & Struggles, please visit www.heidrick.com

AUSTRALIA & NEW ZEALANDMelbourne Tel: +61 (3) 9012 3000Sydney Tel: +61 (2) 8205 2000Auckland Tel: +64 (9) 306 6630

INDIAMumbai Tel: +91 (22) 6666 3021New Delhi Tel: +91 (11) 2645 1010Bangalore Tel: +91 (80) 4022 4140

JAPANTokyo Tel: +81 (3) 4520 7800

KOREASeoul Tel: +82 (2) 3430 6000

Copyright 2011, Heidrick & Struggles. All rights reserved. No part of this work may be reproduced in any form without

written permission from the copyright holder.

SINGAPORE Tel: +65 6332 5001

TAIWANTaipei Tel: +886 (2) 2757 6123

THAILANDBangkok Tel: +66 (2) 126 8095

P.R. CHINABeijing Tel: +86 (10) 6598 8288Chongqing Tel: +86 (23) 6300 1588Guangzhou Tel: +86 (20) 3813 5588Hong Kong Tel: +852 2103 9300Shanghai Tel: +86 (21) 6136 1988

heidrick & struggles industrial insights manufacturing 2011

Documents

senior leaders

new manufacturing leaders

mentors leaders

manufacturing ceos sleep

heidrick struggles consultants

passoof manufacturing

d manufacturing printing

senior executives asia