Hs Industrial Insights Manufacturing


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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.

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Hs Industrial Insights Manufacturing

  1. 1. Manufacturing
  3. 3. INTRODUCTORY MESSAGE The challenges of complexity, competition and costs As the global financial crisis, recent natural resourced. Only half of our respondents say HEIDRICK & STRUGGLES disasters and political uprisings have shown that they have the time to upgrade their GLOBAL MANUFACTURING us, our global supply chains and ability to skills as well as the people and the necessary SURVEY 2011 deliver are increasingly vulnerable to factors resources to execute their current jobs well. entirely outside our control. Add to that Many say their leadership actively works onIn May 2011, Heidrick & Struggles the possibly disruptive new technology such succession planning, yet only 39% say theirconducted a global survey amongst as 3D manufacturing printing, hard-hitting organization will be able to immediately295 manufacturing leaders, over half new competitors from emerging markets name a permanent successor if they left.of whom have spent at least five and falling customer loyalty, and it is easy Attrition and retention, talent acquisitionyears at their current companies. to wonder if manufacturing CEOs sleep and sourcing and a widening skill gap are well at night. top of mind when it comes to their human capital challenges. Complexity, competition and costs are the BY CURRENT LEVEL IN three C’s plaguing manufacturers these days In this compendium, we address many THE ORGANIZATION and many C-suite executives are facing market key areas of concern that manufacturingCEO/GM/BU Head 29% conditions without precedent. Few mentors leaders often lack the time or the capacity VP/SVP level 33% or board members would have the necessary to vocalize and analyze. It combines the Director level 30% experience to advise beleaguered CEOs. insights of senior business leaders and Others 8% Heidrick & Struggles consultants as well as Understandably, senior leaders are anxious snapshots from the Heidrick & Struggles about their organizations and work global manufacturing survey 2011. We trust exceedingly hard to maintain business it will prove to be both provocative and BY REGION advantage at great personal cost. All around prescription reading for senior executives Asia Pacific 23% the world, we are seeing 55-hour workweeks around the world. Southern Europe 4% as a norm, leaving little time for reflecting andCentral & Easthern 6% thinking forward. An alarming number of I wish you pleasant reading! Europe Westhern Europe 24% manufacturing leaders today spend less than Northern Europe 5% 5% of their time on creating risk mitigation Africa 1% strategies and execution/recovery plans for Middle East 1% external shocks. Is this enough, considering South America 9% that one out of four executives admit that North America 26% complexity will increase in their industry within just one year? Torbjorn Karlsson According to the Heidrick & Struggles Global Managing Partner, Industrial Practice – Manufacturing Survey 2011, many feel under- Asia Pacific HEIDRICK & STRUGGLES 01
  4. 4. THE ATLASES OF THEMANUFACTURINGWORLD 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. The primary question in many leaders’ minds manufacturing networks, where the lack of today is how do we stay on top of increasing senior level oversight in one area may unravel global complexity? Value chains are increasingly years of hard work. Some companies are even fragmented, product life cycles are getting resorting to filling senior positions with two shorter, competition is fierce and decisions must people with complementary skills, rather than be made at “breakneck” speed. just one person. Many manage teams at regional centres as far As the shoes of those who sit at the head table flung as Karawang, Huanggu, Durango or Passo of manufacturing giants grow bigger, finding Fundo1 and will privately confess that their the right persons to fill them is increasingly jobs are overwhelming. Not only must today’s challenging. How can manufacturers cope? leaders be technically competent, they also need to be adept at managing cross cultural teams, Three partners at Heidrick & Struggles share financial supervision, branding and marketing, their insights from working with manufacturing supply chain management, creative thinking companies over five continents. Torbjörn and even understanding how the convergence Karlsson heads the Asia Pacific Industrial Practice of industries may affect theirs. out of Singapore; Jens-Thomas Pietralla is managing partner of the EMEA Manufacturing It is increasingly impossible for leaders to Sector and Jonathan Graham leads the Industrial singlehandedly hold the strings to complex Practice for North America and Latin America.02 HEIDRICK & STRUGGLES
  5. 5. NO SHELTER FROM THE COMPETITION can no longer afford to be “over-managed and under-led”. Modern executives in thisKarlsson: Manufacturing has become intensely industry need to win customers, interact with global and intensely competitive. shareholders and motivate employees across Industry up-starts are today challenging some continents with the same ease they cope with of the world’s finest players on their own turf. technical business complexity. Indian companies, Mahindra & Mahindra’s Farm Equipment Sector, HMT Tractors and Indo Farm CONVERGING FORCES for example, are successfully exporting small- to Torbjörn Karlsson Manufacturers face competition from a is managing partner mid-sized tractors to the US, home to the world’s for the firm’s Industrial global players. And this is just one of hundreds of growing number of global players and even Practice in Asia Pacific, examples. Market players from emerging markets from unexpected sources. Take smart grids based in Singapore. are less unencumbered by legacy issues and heavy as an example. What used to be a unilateral He can be reached at play between energy and utility companies has tkarlsson@heidrick.com investment in aging equipment. Few have to or +65 6332 5001. worry about unions or state welfare schemes. become a wide-open playing field for companies like Google, SAP, Vodafone and Accenture as As such, they are relatively nimble on their they tap the wired and wireless possibilities from feet – and many are no longer just low-cost electric cables. To defend their futures, long unsophisticated producers. established incumbents suddenly have to learn the inner workings of potential partners and Traditional manufacturers have to urgently competing industries. re-engineer how they think about their processes, operations, products and leadership, combining As such, companies are opening up to more more right-brain creative thought processes with creative leadership profiles. Who says utility their logical engineering left-brain mindsets. companies can’t hire from the telecom sector or that tractor companies can’t hire from software Jens-Thomas Pietralla developers? is managing partnerKNOW YOUR CUSTOMER of the EMEA Manufacturing Sector Consumer-marketing skills and the ability MEET THE NEW GUY and is based at to clearly articulate one’s core competencies Heidrick & Struggles’ Having said that though, bringing in new Munich office. He can are prerequisites for survival in today’s world. be reached at Bottle manufacturers like Kortec beat the leaders has its challenges. Statistics show that jpietralla@heidrick.com market because they choose to understand the four in 10 newly appointed executives are or +49 89 998110. end-consumers, rather than just their direct no longer in their positions after 18 months. buyers. As such, bottles by Kortec offer better This occurs at a very high cost and collateral UV protection and better oxygen-loss barriers, damage to their employers, and is often more a so the drinks they hold have longer shelf lives. question of cultural issues rather than leadership Companies like Apple or GKN have stuck with capability. Manufacturing companies do need their core competencies, choosing to either fresh blood but they must be open to integrating focus on product design and outsource their new leaders and their ideas with professional manufacturing or use their manufacturing onboarding programs. prowess to move from constructing farm equipment to helicopters. Such companies Companies are also mandating global searches benchmark their performance and processes for their next CEO, COO or CFO and calling Jonathan Graham against the best-in-class, not just their direct on their executive search consultants to advise leads the Industrial competitors. on the leadership profiles they need. Companies Practice for North now welcome having a “sparring partner” to America and Latin America, based in the The demand for greater nimbleness, creative work out where their businesses or industries are firm’s Cleveland Office. thinking, market intelligence and stronger heading, the challenges ahead, how they need to He can be reached at sales propositions impacts the type of leaders respond and the type of people they need. jgraham@heidrick.com or +1 216 2417410. we need at the corner office. Yet it is hard for manufacturers to shift from moving like super Graham: The global financial crisis was one of the tankers to charging ahead like super yachts. catalysts that pushed manufacturers into being open to more diverse leadership pools. It madePietralla: Success and failure today are not far apart. people think smarter and more strategically Progressive companies know that great strategies about how to run their businesses and to focus can fail because the people who execute them on what makes them truly different from their handle them poorly, so they place as high, if not competitors. It also made them realize that they higher, priority on investing in their people as need leaders who can lead them through any they do on their processes. Industrial companies economic cycle. HEIDRICK & STRUGGLES 03
  6. 6. What appeals mostis the opportunity todrive renewal andtransformation, and toleave their stamp ona companyA NEW BREED TO LEAD THE WAY TOP 5 BIGGEST CHALLENGE FOR MANUFACTURERS It has been encouraging to see the newer breed (2012-2015) BY % of manufacturing executives in the US being more progressive and stronger cross-functionally. Human Capital Issues There is also greater diversity with more female 27 candidates. But candidates from mature markets Growth Related are up against new competition. Final line-ups 10 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 9 Globalization and lived in China” or “ran overseas operations” in their resumes. Without these, even the most 6 experienced candidates fall off the list. Demand Related 48 Today’s top leadership candidates themselves are very different. Global executives are highly Financial Issues sought after and sophisticated. Such candidates ask about the company’s balance sheet, strategy, vision, financial situation and its board – not HOW LIKELY IS COMPLEXITY TO INCREASE IN just about the number of plants, manufacturing MANUFACTURING IN YOUR INDUSTRY IN ONE YEAR? processes and reporting structures. Companies must be prepared to engage these Very Likely 30% global candidates in more strategic conversations and offer a greater hand in their futures or Fairly 44% risk losing their interest. What appeals most is the opportunity to drive renewal and Not very Likely 23% transformation, and to leave their stamp on a company. Size doesn’t matter as much; they can Not at all Likely 3% be attracted to leadership positions in companies 20 times smaller than their current organizations if they believe they can drive strategic changes Source: Heidrick & Struggles Global Manufacturing Survey 2011 (N: 295) for the long term. Equity and interesting long term incentive plans also appeal. “Given the geographical scope I look after, my biggest challenge is undoubtedly to adapt the manufacturing footprint so it contributes to the 1 Locations of Daihatsu’s second plant in Indonesia clients’ strategy. New competitive factories must be created in countries such (Karawang), Cessna’s Skycatcher factory in China (Huanggu), Skyline Solar’s concentrated photovoltaic plant as Russia, where the clients aim to grow whereas operations in Western in Mexico (Durango) and Manitowoc’s new factory in Europe must be restructured so as to match the market prospects and Brazil (Passo Fundo). keep improving productivity.” Participant in Heidrick & Struggles Global Manufacturing Survey 2011 04 HEIDRICK & STRUGGLES
  7. 7. LESSONS FROM HISTORY FOR MANUFACTURING LEADERSFew manufacturing leaders today have the resources or time to planfor the contingencies that come with their increasingly complex andvolatile businesses.The probability of cost increases, industry experience in running and owning P&Ls,consolidation, emerging competitors, divisions or regions. They understand alldisruptive new technologies, unforeseen about achieving operational excellence.emergencies, political and industrial action In fact, more than a third of Fortune 1,000keeps growing each year. One only has to CEOs have backgrounds in operations. Mostopen the newspapers to read about disrupted developed their opex capabilities in industrialsupply chains due to natural disasters, companies where they were rigorouslyscandals with supplier factories and even trained in core principles such as Six Sigma,government pressures on CEOs – as was Kaizen, Total Quality Management andthe alleged reason behind the resignation of Lean Manufacturing in organizations such asRoger Agnelli of Vale. In light of so many Honeywell, Siemens, GE and Toyota.variables, can there be any proven algorithmfor successful leadership? Planning for the But when the pieces on a manufacturer’sfuture is more and more like “trying to drive chessboard change all the time, certaindown a country road at night with no lights attributes serve executives better than others.while looking out the back window” as The end game is not the challenge of adescribed by Peter Drucker. disaster or scandal in itself, but how leaders respond that decides the final checkmate.Many manufacturing leaders today havebuilt their careers in operations, gotten their To illustrate, we borrow examples acrossfingernails dirty on the plant floor, overseen various industries to make a case for theoperations and been immersed in the inner leadership attributes and actions that areworkings of an organization. They have capable of turning companies around inleadership savvy and the business acumen the face of unforeseeable circumstances orneeded to run a large company, based on failures in contingency planning. HEIDRICK & STRUGGLES 05
  8. 8. RISK MANAGERS in the ‘management or decision framework.’ Some companies base their decisions Most executives do not view themselves as risk more heavily on economic factors than on managers of the enterprise, but primarily as operational or mechanical factors. Some custodians of a P&L or as chief spokesperson argue that BP may have opted for a ‘run to of an enterprise. They tend to leave the failure’ plan on their equipment, or at best details of risk management to their operating conducting inspections at 48 months to see if leadership, their CFOs, or even committees they can get as much out of the equipment as of their boards. That will need to change. possible (e.g. the technique they used to test Company executives must be as watchful as their Alaska pipelines). While BP has been ever for what Nicolas Nassim Taleb referred a strong commercial performer, generating to in his 2010 book, as ‘black swan’ events, massive returns from their trading business, the most unusual and highly unpredictable some observers give them lower marks for events that can be catastrophic and can considering all the factors that make up forThe point is not change history. long-term sustainable success.about fault finding, At the top of the CEO’s agenda (which may include strategic growth, global expansion, Putting it into action: General Electric, well-known for sharing best practices acrossbut taking a and capital raising) must be a big circle around managing risk. Just ask Lehman Brothers, its many units, also have a policy of discussing failures across new projects and initiatives.positive attitude whose risk committee met only twice in the two years preceding the company’s crash, The point is not about fault finding, but taking a positive attitude towards learning abouttowards learning which precipitated the devastating credit crisis. CEOs and other senior executives all the factors that lead to successes and disappointments. If done well, such initiativesabout all the should manage risk before a crisis by laying out all of the contingencies and detailed plans can help provide more integrated views and help leaders with decision-making in the future.factors that lead – preparing for the worst and hoping for the best.to successes and Rigorous risk management and meticulous MANIACAL SAFETY MINDSET Practically every business that operatesdisappointments attention to details combine to become a core attribute of the next generation executive. heavy equipment around high pressure environments promotes a ‘safety first’ culture. Such executives should be identifying areas of The reality, of course, is that many of those vulnerability in order to turn what could be a ‘safety first’ companies operate instead with black swan disaster into a white swan triumph. the philosophy that ‘we’re not ultimately in Putting it into action: One of the changes business to be safe, but to provide products then-CEO of Xerox, Anne Mulcahy, did as part and services and enhance value.’ But by of her actions to restore the company after the devoting maniacal attention to safety, SEC filed civil fraud charges against it in 2002, high-risk businesses can be both safe and was to bring on external parties to audit the profitable, and outperform their peers. company to ensure that there were sufficient Executives of such enterprises must have checks and balances. Xerox has not looked a proven, not probable, track record of back since. building safety cultures and they must impose a no-tolerance policy for managers INTEGRATED DECISION-MAKING and employees who cut corners. Companies should read between the lines of any resume Companies need to ensure they know the of external or internal talent and probe business they are in and that their leadership for specific examples of a safety mentality. talent has all the attributes critical to operating During previous safety incidents, what were their business. Instead of letting economic the key lessons the candidate learned? factors dominate decision-making, companies To what extent has the candidate become a should use an integrated framework that champion or evangelist for safety within the balances economics and operational excellence organization? Of course, the more details and specificity the better. Everyone will have his or her own opinion about what went wrong with the BP Macondo Putting it into action: In 1989, Lexus Well disaster, but general, there is a strong initiated a voluntary recall of the LS 400s it sense that the root cause of the accident lay had sold, based upon two customer complaints 06 HEIDRICK & STRUGGLES
  9. 9. Authenticover defective wiring and an overheated brakelight. In a sweeping 20-day operation, Lexus sent out and create the software user developer network that helped to create both new communicationtechnicians to pick up, repair, and return carsto customers free of charge, and also flew in products as well as new kinds of business relationships. is not aboutpersonnel and rented garage space for ownersin remote locations. This response was lauded charisma or AUTHENTIC COMMUNICATORSin media publications and helped establish themarque’s early reputation for customer service. Authentic communication is not about flowery rhetoric charisma or flowery rhetoric but about transparency and truth-telling. It certainly but aboutACCOUNTABLE AND SELF-EFFACINGPeter F. Drucker, the father of modern helps no one to point fingers, deflect blame, and speculate on the extent of the damage. transparencymanagement, said that accepting responsibilityis one of the primary requirements of any Some of the worse responses includes the one that BP’s CEO initially provided at the and truth-tellingleader. The best ‘see leadership as responsibility time of the Macondo Well disaster: ‘I amrather than as rank or privilege,’ Drucker not stonewalling. I was simply not involvedwrote. ‘Effective leaders are rarely permissive. in the decision-making process.’ In additionBut when things go wrong – and they always to getting out front and being truthful,do – they do not blame others.’ executives need to acknowledge what they do not know. Learning that lesson and beingThe most effective executive understands authentic is as important as truth-telling.that he or she – and no else – is ultimatelyaccountable for the actions of the enterprise.To assess whether prospective internal orexternal executives have such attributes,companies should explore some simplequestions of character and leadership: Arethey more ambitious for the enterprise andtheir employees than for themselves? Whatevidence is there that they de-stratified therank or privilege of leadership and positionedthemselves as servants? Who have theymentored? These are essential questions indetermining whether an executive has thesuper-attributes of accountability and, yes,a little humility.Putting it into action: Co-founder of Germansoftware giant SAP, Hasso Plattner, did notwaver from taking action, after he came to adecision that the firm was too hierarchical andtoo adverse to change. In 2002, SAP bought arival company by Israeli entrepreneur Shai Agassi.Plattner tasked Agassi with launching a venturecalled NetWeaver, an integrated technologyplatform. Shai Agassi used that mandate to go HEIDRICK & STRUGGLES 07
  10. 10. Before executives step in front of a bank communities) is the essential ingredient of of microphones and are forced to address any continuous improvement process. And it the public, they should be honed and is also important not only to develop talent authentic communicators who can connect internally, but also to acquire external talent with people. They should have already who can model the desired behavior and demonstrated authentic communication promote real cultural transformation. inside the company by being cheerleaders for a culture of integrity, transparency, safety Executives should be probed about their and collaboration. In addition, the best track record of building people-oriented communicators are always the best listeners. continuous improvement cultures. What processes have been put in place for peopleLike integrity, They keep their doors open, walk the halls, and make no distinction between employees to speak freely? Have they created functional cultures where the elephants in the room canthe attribute or managers. be discussed openly? Companies should be less enamored ofof authenticity sophistication or even impressive results. Putting it into action: Toyota is well known for quality and innovation. Despite its recent They should root out phoniness and be morehas become a impressed with those who are able to own up failures, its culture continues to remain strong and focused on continued improvement. After to their failings in leadership and discuss how‘must have’ in they have grown since. Like integrity, the 20 years of research on Toyota, Mike Rother describes in his book, Toyota Kata, a learning attribute of authenticity has become a ‘mustany executive have’ in any executive profile. organization that focuses on developing and utilizing human capabilities – not just atprofile Putting it into action: Anne Mulcahy, ex-CEO of Xerox, has been lauded for senior level, but all the way to team leaders and team members. The author states that bringing the company back from the brink Toyota manages people in a way that makes after its 2000 fraud scandal. In spite of initial a company more adaptive, innovative and resistance, Mulcahy managed to successfully constantly improving. change the tone at the top at Xerox, which contributed to her ability to rebuild Xerox. She responded to feedback from both employees EMOTIONAL INTELLIGENCE and customers to make positive changes, she walked the talk and was able to prove Companies are often enamored with to employees the need for change within the executives who have excellent pedigrees, company. She even made a personal effort to academic credentials, or high intellectual open up the lines of communication within the competence. Malcolm Gladwell’s exposure company by traveling to speak with people of the ‘talent myth’ at Enron in his landmark who would provide her with constructive piece in the New Yorker in 2002 drove home criticism to bring the company back to success. the realization that companies had perhaps placed too much emphasis on class smarts and less on street smarts, too much interest CONTINUOUS ‘PEOPLE’ in IQ and less on EQ (emotional quotient). IMPROVEMENT Clearly, companies will need to spend more Most executives like to think of themselves as time assessing the emotional intelligence having a continuous improvement mindset, of external or internal leaders to see if they but few actually do. The CEO or executive have personally experienced adversity, have agenda is so cluttered with execution, served others more than themselves, and have strategic planning, and meeting quarterly developed selfless character as a result. results that little time is actually devoted to upgrading systems, processes, procedures, One of the common traits revealed in the and even less to upgrading leadership. Level 5 leaders that Jim Collins discovered in his research for his epic book Good to Great But the mindset of continuous improvement was that all of those CEOs had experienced cannot succeed without a respect for people, some kind of hardship in life. This attribute or those precisely responsible for building (the crucible of life, if you will) produced the such cultures. For example, the companies rare combination of intense competitiveness who have embraced Lean or Six Sigma and selfless humility – perhaps the secret (such as UTC) recognize that high respect of genuine leadership. Indeed, the human for people (employees, customers, suppliers, compassion and empathy that comes from08 HEIDRICK & STRUGGLES
  11. 11. Indeed, the humantriumphing over adversity may be the most compassion and empathydefining attribute of the next generationexecutive. that comes fromPutting it into action: Shortly after triumphing over adversityMichael Iem joined Tandem Computers asa junior staff analyst, he became aware of may be the most definingthe market trend away from mainframecomputers to networks that linked workstations attribute of the nextand personal computers. Iem realized thatunless Tandem responded to the trend, its generation executiveproducts would become obsolete (Initiativeand Innovation). He had to convinceTandem’s managers that their old emphasison mainframes was no longer appropriate(Influence) and then develop a system usingnew technology (Leadership, Change Catalyst).He spent four years showing off his new systemto customers and company sales personnelbefore the new network applications were HOW MUCH TIME DO YOU SPEND ON REFLECTINGfully accepted (Self-confidence, Self-Control, AND THINKING FORWARD, PER WEEK?Achievement Drive). Don’t spend any time 1%With the exception of Tandem, which hassince been bought over by Hewlett-Packard,all the companies in our stories are still going Over 10 hours 11%on strong today. Much of the credit goes tostrong leadership – and the attributes that 6 – 10 hours 24%served their leaders well when faced withchallenges that no textbook can prepare you 3 – 5 hours 35%for. So even though few manufacturing leaderstoday have the resources or time to plan for all 1 – 2 hours 25%contingencies, they can take heart that thereare leaders before them who have shown that Up to an hour 4%it is possible to “checkmate” when faced withseemingly impossible challenges. WHAT IS YOUR AVERAGE WORK WEEK TODAY?SOURCES OF STORIESGE, SAP: Businessweek Over 60 hours 18%“How Failure Breeds Success”Lexus:Wikipedia 56 – 60 hours 24%Xerox: i-Sight“Xerox’s Accounting Scandal Recovery Tactics” 51 – 55 hours 25%Tandem: Fortune Magazine“How to get Ahead in America” 46 – 50 hours 22% 41 – 45 hours 7% 1% 36 – 40 hours Varies widely/Not sure 2% Source: Heidrick & Struggles Global Manufacturing Survey 2011 (N: 295) HEIDRICK & STRUGGLES 09
  12. 12. CONFESSIONSOF A CEO PERSONAL JOURNAL Name : Jonathan Peters Occupation : CEO, hydraulics manufacturer Experience : 25 years spanning engineering/commercial/procurement and general management functions, in three countries Location : Minnesota, USA Business : 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.10 HEIDRICK & STRUGGLES
  13. 13. THE WRITING’S ON THE WALL now a prerequisite, requiring more savvy end-to-end supply chain optimization andThe journal entry may be fictitious but any operational excellence across everything,global manufacturing leader will confess to from product and service development to delivery. Supply chainsimilar struggles and fears. Any experiencedCEO like “John Peters” with over 25 years of All around the world, there is ever more managementexperience would have witnessed the AsianCrisis starting in ‘97, the dot.com burst, the pressure on margins on the one hand, but escalating costs and salaries on the is no longeraftermath of 9/11 and the Global FinancialMeltdown, and would admit that these other. Over and above sourcing for avenues of low cost production, supply just apast few years must be some of the mostchallenging of his or her career. chain leadership has become vital to overall research and development as well stand-aloneMarket transparency and greater pricesensitivity have led to lower customer loyalty, as new product creation. Products can be designed modularly for instance, so functionat the same time that supply chain volatilities as to spread risk across the entire supplyand uncertainties have increased irrevocably. chain by sharing material developmentThe twin effects apply great pressures on cash and lead times with suppliers, thereby alsoflows, operational sustainability and profit increasing flexibility and reduce inventory.margins as well as the need for managerial This means that the entire global supplynimbleness. chain, including that of key partners, requires deft risk and opportunityManufacturers have to depend on global management – but the leadershipcustomers and new emerging markets expertise to do so is in very limited supply.for their growth and futures. But the Unfortunately, just as fixed capital such asincreased prevalence of product and service office buildings and factories are not builtcommoditization through global competition in a day, neither is human capital.means that true differentiation in both theconsumer and business-to-business segments Employee turnover is growing especiallyis key to survival. Regionally customized in emerging markets, as companies resortsupply chains and product offerings are to poaching experienced executives as an HEIDRICK & STRUGGLES 11
  14. 14. immediate respite to a shortage of grey hairs 1 INTEGRATED DECISION-MAKING and brain matter. CAPABILITIES Yet companies in some besieged sectors According to the Global Supply Chain or markets may find that even throwing Trends 2010-2012 survey, a substantial large chunks of money at great leadership number of survey participants said candidates won’t guarantee they will sign that problems with their supply chain their offer letters, when a competing offer organization prevented their companies from a high-growth emerging market is from capturing the benefits of the economic seen to promise greater career development recovery. Approximately 30% mentioned opportunities as well as autonomy and the lack of integration between supply chain management responsibilities. functions like product development and manufacturing. Many procurement and None of this is news to manufacturers. Many manufacturing vice presidents were said to of us are aware of such possible challenges be still making optimization decisions on a but lack the forecasting prowess, flexibility solo basis. and organization dexterity to anticipate them quickly enough. In fact, 74 percent of For better end-to-end optimization, CEOs the nearly 350 manufacturing and service need to consider placing all the different companies rated “demand volatility and/ aspects of supply chain management under or poor forecast accuracy” as one of the top one person’s remit. Manufacturers must challenges to supply chain flexibility in the integrate and empower their supply chain Global Supply Chain Trends 2010-2012 organizations in order to ensure that the survey by PRTM Management Consultants. right and most optimal decisions are made across the supply chain. A NEW LENS FOR CEOS 2 FORECASTING CAPABILITIES All this means that CEOs today need a sharper focus on some critical competencies With increased supply chain complexity and skills within their global supply chains. and volatility, manufacturers often find It is helpful for CEOs to start with a Human themselves juggling even more sudden Capital Audit, as part of standard business jolts in demand and supply than before. risk assessment and management. This Companies need supply chain leaders who entails focusing on four simple questions: 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 1 What are the Business Priorities & the Business Context? in demand. Experienced leaders will able to bring on What leadership is required? the right tools and work towards enhancing 2 internal processes to gauge market demand What are the key gaps? in real time, rather than relying on historical 3 data to project future demand. How do we close the gap and keep it closed? 3 CROSS-CULTURAL 4 COMMUNICATION CAPABILITIES With supply chains crossing different Like our fictional “Jonathan Peters” character, geographies, the ability to develop a CEOs are best advised to ask themselves if consistent “global language” that binds their supply chain teams and structures are different teams of diverse backgrounds adequately geared up. They need to urgently and cultures to the same set of corporate assess the strength and capabilities of their values, while taking into account differences leadership pipeline before they rue the day in communications styles, mindsets and that “yet again, the future of their employees business cultures is paramount. looks like it is at stake”. 4 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 divulge12 HEIDRICK & STRUGGLES
  15. 15. their financial status and having to managetheir own risks much more tightly under The best ideas can originate fromsuch scrutiny. any point over the global network 5 RELATIONSHIP BUILDING CAPABILITIES and should be incorporated acrossThe need for close and long-term the entire organization, not justcollaboration with and between customers,suppliers and partners is increasingly used within each regionessential to survival. More than ever, supplychain leaders will need to listen intentlyto their different customer markets andcollaborate with suppliers, in order todevelop the higher number of products orvariants needed to meet buyer expectations THE MANUFACTURING SEGMENT IN MY ORGANIZATIONand make up for shrinking revenues. SPENDS ENOUGH TIME ON CREATING A RISKAnother growing set of relationships to MITIGATION STRATEGY AND EXECUTION / RECOVERYmanage is that of outsourcing partners, PLAN FOR EXTERNAL SHOCKS (SUCH AS QUEENSLANDas manufacturers increasingly outsource FLOODING, JAPAN EARTHQUAKE)?everything from product development,strategic and operational sourcing, to supply Strongly Agree 8%chain planning and shared services. The bestideas can originate from any point over the Agree 23%global network and should be incorporatedacross the entire organization, not justused within each region. This calls for keen Neither Agree nor Disagree 17%relationship building skills to develop newpartnering concepts so as to manage product Disagree 42%development, manufacturing, transportationand inventories dexterously. Strongly Disagree 9%From demand planning and forecasting, Don’t Know 1%product development, supply chainplanning, strategic sourcing, manufacturing,final assembly, warehousing andtransportation and after sales returns and WHAT PROPORTION OF YOUR TIME DO YOU SPENDrepair, are your talent management and ON CREATING A RISK MITIGATION STRATEGY ANDretention strategies capable fully geared up EXECUTION / RECOVERY PLAN FOR EXTERNAL SHOCKS?with the competencies listed above? In whicharea is there a shortage of skills or experience? More than 20% 7%What will you have to do about it today? 16 – 20% 3%With early preparation, we trust you willonly be writing positive entries in yourpersonal journal or financial reports a few 11 – 15% 16%years down the road. 6 – 10% 28%Casey Kelly is the regional managing partner of 0 – 5% 44%the Supply Chain and Transportation & Logisticspractices in Asia Pacific. He can be reached at None 2%ckelly@heidrick.com or +65 6332 5001. Source: Heidrick & Struggles Global Manufacturing Survey 2011 (N: 295) “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.” Participant in Heidrick & Struggles Global Manufacturing Survey 2011 HEIDRICK & STRUGGLES 13
  16. 16. SECRETWEAPON:CCOCEOs 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 wayto 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 witha structured, informed approach to innovation, continues in the development of value-creatingofferings, and ultimately ensures value delivery through superior commercialization skills. CLEARING THE ROAD BLOCKS organizational inertia, functional silos or lack of executive attention. In our conversations with senior executives, they often tell us that the toughest challenge in As a result, we’ve seen a dramatic increase in building a sustainable growth platform lies in organizations identifying the need for a single making sure that all the working parts in often executive leader, at the right hand of the CEO, complex systems work together harmoniously whose sole job is to drive growth and to ensure and synergistically. integrated commercial success – the chief commercial officer (CCO). Few organizations inherently have the incentives, processes, or, most importantly, “CCOs are basically tasked with driving the the leadership to enable them to harness the growth agendas of their organizations in an full power of their internal assets and drive unified manner, whether through sales, product sustained commercial success. As result, too development, R&D, marketing or supply many great ideas fail to translate into top and chain management. They are asked to answer margin line success; instead, they succumb to questions like “How can we achieve 40 percent 14 & STRUGGLES
  17. 17. growth over next three years?”, “How should efforts. Here, the goal of the CCO is to assesswe be leveraging our commercial operations the potential in-market response and quantifyacross the world?”, “What should our reach into the ROI of new concepts, and to lead a fullydifferent customer industry verticals look like?”, integrated product development, marketing andor “How do we unify independent P&Ls?”. sales effort to efficiently achieve the commercial potential.The requests to place CCOs started as a streamback in 2008, and have since become a flood 3 MARKET UNDERSTANDING AND– particularly within the manufacturing sector. INSIGHT OF A TOP MARKETERPrivate equity firms are currently sourcing forCCOs more frequently than public traded Moreover, in an environment in which marketers are deriving great benefit from the use of such As the role ofcompanies, but this will change as the role gainsmore prominence,” said John Abele, leader ofHeidrick & Struggles’ global Marketing, tools as ROI/milestone-based product development, profit-pool analysis, sophisticated the CCO centersSales & Strategy Officers practice. segmentation, and market, pricing and profitability analytics, it is critical that the efforts on developingCOMPONENTS OF A SECRET WEAPON of both sales and marketing be strategically linked. and drivingAs the role of the CCO centers on developingand driving an integrated commercialization It is therefore not surprising that in many cases, the new CCO has a strong marketing an integrated foundation. Top marketers have long understoodvision and engine for the enterprise, it requiresa unique blend of skills and perspectives. the critical importance of marketing, branding commercialization and customer issues. Several consumer-oriented 1 BUSINESS STRATEGY AND ACUMEN companies have made recent efforts to centralize vision and engine commercial authority in one person to enhance OF A SENIOR LINE EXECUTIVE WITH P&L EXPERIENCE their ability to develop a powerful go-to-market for the enterprise, strategy for their global brands and businesses.In effect, the CCO is a highly experienced Given the ever-growing complexity of the ever- it requiresexecutive who understands the workings ofevery potential lever of growth open to the more intertwined tasks of sales and marketing, B2B companies are also finding that a CCO a unique blendcompany and who has the integrative abilityto drive the portfolio of functional capabilities who can effectively oversee the entire process has become essential. of skills andto produce maximum results. As such, a CCOmust be an exceptionally strong leader who is 4 CUSTOMER RELATIONSHIP FOCUS perspectivesequally adept at setting corporate strategy and AND DEAL SAVVY OF A SALES LEADERensuring the implementation success of theinitiatives, processes, incentives and resources Because of the continued proliferation ofrequired to deliver the desired in-market results. both online and offline sales channels and the need to manage the customer relationship atThe typical CCO must be capable and highly multiple touch points, sales is no longer themotivated to harness the inherent assets of direct relationship game it once was. Rather,the organization and lead an integrated effort sales leaders have become more analytical andto capitalize on them to achieve commercial consultative, focusing less on ‘selling’ and moresuccess. They often hail from backgrounds in on generating top-level value creation andmarketing and/or sales management and have ‘win-win’ deals while coordinating the customerrisen to roles that incorporate P&L ownership contact portfolio.of a business or division. “In the industrial business-to-business (B2B)Above all, they have had significant experience environment, the foundation for most salesinterfacing with customers either in sales roles transactions has traditionally been rooted inor as influential participants in the customer engineering, technology, relationships, or arelationship management and/or selling process. function of all three. But we must move beyond just focusing on that, now that we areWhile the core skills remain the same, the operating in a more competitive and fasterbalance of skills tends to vary a bit depending moving environment.on the company and industry. Sales in B2B technology industries for instance, 2 TECHNICAL EXPERTISE OF A used to be all about relationships; hard selling PRODUCT DEVELOPMENT AND was looked down upon. But the reality is that INNOVATION LEADER we need to copy the B2C approach to driving sales by measuring our sales people on hardWe see many CCO positions arising in metrics such as the number of customer visitscompanies whose life-blood is innovation. and calls, number of leads and proposals andThese companies have typically have strong win/loss ratios.R&D efforts and robust new-productpipelines, but the challenge has often been As a service business we also need to re-lookhow to successfully commercialize those at our customer touch points. What is the HEIDRICK & STRUGGLES 15
  18. 18. customer experience – from the appearanceof our service engineers to the reports and but for the next three to five years, and more. “Best-in-class CCOs extend their ears and This role can be ofrecommendations we deliver? McDonalds eyes beyond the confines of set categories,is an example from the B2C service space processes or practices. They tend to be critical importancethat we all know. It’s not just the food you curious and inquisitive by nature, and arebuy, but also the entire experience – from prepared to explore different solutions and significancethe cleanliness of the restaurant to the in different environments. They are alsocustomer-server interaction. Also, with tough negotiators and drivers of change. A background in law also comes in handy prominencethe consumerization of technology, ourcustomers are experiencing more and more when drafting commercial agreementsclever solutions in their private lives. in Asia Pacific with all its different legal frameworks,” said Sean Robinson,They are expecting more from us too! Director, Teknicast.All this is not rocket science – it’s just nota traditional way of looking at driving B2B FINAL CHECKSsales and customer loyalty. But change isupon us,” said Mikael Norin, President of The visibility of CCOs in manufacturingMarine Services at Roll-Royce. companies will only increase, as the value of the role becomes more apparent. Their TOP FIVE success however will be cut short if two OPPORTUNITIESBEST-IN-CLASS SECRET WEAPONS important factors are not taken into (2012-2015) consideration.The best-in-breed CCOs are quickly Growthbecoming a ‘secret weapon,’ creating Firstly, CCOs must negotiate the politics 92% Relatedsignificant competitive advantage, because of maneuvering changes across the entireof their purview and control of the entire commercial spectrum, maintaining an Finance 28%commercial process. Those we admire most appropriate balance while integrating Relatedare skilled at deepening their organization’s changes into a smoothly functioning whole.capacity to discover untapped market Innovation 19% Doing so requires a unique individual whoopportunities and can ensure that a sustainable can wear many hats confidently, who looksvalue proposition is developed for both their at the commercialization process holistically, Demand 14%established brands and new products. who has experience with and thrives on the Related responsibility of a GM role, and who has the Human CapitalGreat CCOs also have a strong understanding 14% capacity for long-term strategic planning. Relatedof how the business works operationallyand can negotiate skillfully with their Secondly, they need the full support of Source: Heidrick & Struggles Globalmanufacturing and supply chain teams, their CEOs or boards. “CEOs need gut Manufacturing Survey 2011 (N: 295)to achieve a balance between overall checks and ask themselves if they will beprofitability and increased complexity. In willing to stand behind their CCOs, whenshort, commercial executives must be familiar tough actions are being recommended that “Our biggest opportunities lie in thewith operational excellence as well as sales business unit directors may not be excited growth of the developing countries asand marketing. In developing go-to-market about. Many manufacturers will benefit from well as predicted rebound growth instrategies, they know which marketing levers CCOs who can gear things up a bit so as to the developed countries. The increasemust be pulled and are adept at leveraging ensure long-term growth – or even survival. in urbanization and infrastructurecustomer relationship managers to create a This role can be of critical importance and needs around the globe are anotherpowerful strategic and executional alignment significant prominence. Successful CCOs, opportunity.”of sales and marketing. They are able to help such as Marius Kloppers at BHP Billiton, Participant in Heidrick & Strugglescraft and drive the commercial agenda not become successors to their CEOs,” global manufacturing survey 2011just for the next quarter or the next year, advised Abele. 16 HEIDRICK & STRUGGLES
  19. 19. THE AGE OF THE STRATEGIC CSOCompanies are underpressure to reduce theiruse of potentially harmfulsubstances materialsThe magnitude-9 earthquake in Japan on March 11, 2011 This global development is relatively new and has recently caught up in pace,brought on an enormous tsunami that destroyed all that stood particularly with stricter emphasis on EHSin its way, even properties and equipment located miles inland in mature markets, such as the Europeanand considered ‘safe’. And as news of the environmental, Union’s REACH chemical policy as well as the Environmental Protection Agencyhealth and safety (EHS) dangers emerged from the subsequent (EPA) or the Occupational Safety anddamage to the Fukushima Dai-ichi nuclear plant, it’s hard not to Health Administration (OSHA) in the US. Companies are under pressure to reducebe thankful that more and more businesses and facility owners their use of potentially harmful substancesare increasingly recognising the strategic role of EHS leaders – materials and be more responsible for thenow often known as Chief Sustainability Officers (CSO). 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. HEIDRICK & STRUGGLES 17
  20. 20. 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.TABLE: 2010 ASIAN SUSTAINABILITY RATINGTM (ENVIRONMENT) On a more positive note, achieving best- Rank Country Total listed companies analyzed in-class EHS risk management means that 1st South Korea 57 companies can gain competitive advantages 2nd India 56 such as lower costs and the ability to enter new markets quickly without compliance 3rd Taiwan 50 problems. “For Santos it’s about operational 4th Singapore 28 excellence,” says Andrew Antony, head 5th Malaysia 20 of Environment, Health, Safety and 6th Philippines 20 Sustainability at Santos, a major Australian 7th Thailand 20 oil and gas company with interests in Asia 8th Indonesia 20 Pacific, the US, and the Middle East. “No 9th Hong Kong 63 incidents, no downtime, good productivity, good morale, and meeting regulator and 10th China 208 community expectations.”Source: 2010 Asian Sustainability RatingTM “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 18 HEIDRICK & STRUGGLES
  21. 21. non-compliance and associated fines, and to assess and audit those systems withmore. That is how you make the biggest vendors, suppliers, and distributors.impact on any company – reducing costs.” • Familiarity with technological and processJim Schultz, the former Senior Vice President advances and an understanding of theEmployee and Customer Engagement trends in EHS and the influences on theat Waste Management observes, “In my company and the industry segment.experience, a solid EHS programme has • Ability to communicate with communityto be genuine, and it has to be driven leaders and activists and to communicate He or she mustby a visionary leader who serves as the with the media in a crisis.central ‘change agent’ and catalyst to drive • Ability to develop and manage a understandemployee engagement. This individual mustbe a visionary, a great communicator, and marketing campaign related to the EHS and sustainability aspects of the company’s human naturedemonstrate enthusiasm. He or she mustunderstand human nature and behaviour, performance, products, or liability. • Ability to hire, lead, develop, and inspire and behaviour,and be a master facilitator. Optics are critical,and so the EHS leader must report directly a diverse staff and to develop trusting relationships with a variety of company and be a masterto the top officer of the company.” constituents before an issue becomes a problem. facilitatorTHE NEW BREED OF CSO FORASIA PACIFIC “This role requires change agents,” says Andrew Antony. “You need the managementNot surprisingly, there has been a substantial skills required for any senior role, but appliedrise in demand for a new breed of EHS to EHS it means the ability to establish andleaders around the world and particularly then implement a strategy, to introducefor the Asia Pacific region. No longer merely systems that effectively monitor and report,an audit and compliance manager, this new and the ability to manage, influence and leadbreed of corporate leader works directly with people across the organization.”other top corporate leaders, frames EHSissues in strategic terms, and operates in the Organizations across the Asia Pacific willfar broader context of environmental and definitely benefit from such leadership,social sustainability. as environment, health and safety standards grow to be on par with global levels.Based on our experience in advisingmanufacturing clients around the world,we note that the new world of EHS callsfor a wide range of interdisciplinary and PERCENTAGE THAT SELECTED EHS ISSUES AScross-functional competencies, including: MAJOR THEME (2012- 2015)• A solid grounding in a wide range of Asia Pacific Total environmental, health and safety requirements, processes, procedures, Natural Disasters 0% 1.8% technologies, and, depending upon the scope of the operation, familiarity with Safety Issues 0% 1.8% these issues at the local, state, federal, Environmental 0% 0.8% regional, and international levels.• A knowledge of financial operations Source: Heidrick & Struggles Global Manufacturing Survey 2011 (N: 295, Asia Pacific: 63) that extends beyond budgeting to include project financing, corporate finance, an “More stringent environmental regulations have led us to design new products which understanding of how finance intersects will introduce new principles of manufacturing in our operations.” with EHS and sustainability, and the ability to make a business case Participant in Heidrick & Struggles Global Manufacturing Survey 2011 for a new direction.• Knowledge of the company’s processes, “Being a public listed company, the key effectiveness of the board is managing products, technologies and business market expectations on results so as to deliver on short term and longer term processes coupled with the ability to strategic investments for a sustainable business.” manage environmental and safety systems Participant in Heidrick & Struggles Global Manufacturing Survey 2011 within the company and the ability HEIDRICK & STRUGGLES 19