The Threat of Globalization

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The Impact on Aerospace Leadership - A Perspective Based on a global Heidrick & Struggles and Team SAI joint Survey

Presentation To: AVIATION Week\'s Eighth MRO Asia Event
By: Torbjorn Karlsson
October 15, 2008

Published in: Business, News & Politics
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The Threat of Globalization

  1. 1. The Threat of Globalization The Impact on Aerospace Leadership - A Perspective Based on a global Heidrick & Struggles and Team SAI joint Survey Presentation To: AVIATION Week's Eighth MRO Asia Event By: Torbjorn Karlsson October 15, 2008 0
  2. 2. Setting the Scene – Continued MRO Growth ► $45.1B industry will grow to $68.6B over 10-year forecast period ► Global growth is expected to maintain a 4.3% CAGR through 2018, with very strong growth expected in Asia Pacific, China, and India ― North America, Western Europe, and Asia Pacific will remain largest markets ► Worldwide economic downturn will limit growth in short term (1 to 2 years) as airlines reduce capacity, but long-term demand remains positive ► North America and Europe will likely be impacted most by downturn; emerging markets in Asia expected to rebound quickly ► MROs that focus on aircraft market for accelerated retirement will feel the most pain ► Trend of increased globalisation and consolidation will continue ► As market expands, increased demands will be placed on the MRO capacity, exacerbating human resource contraints Source: TeamSAI 8100051 1
  3. 3. Key Points – Market & Talent ► There is a strong belief in continued globalization and consolidation. ► This globalization and consolidation will be impacted negatively by a shortage in human resources. ► That shortage is considered the single most important issue facing the respondents’ companies and the industry at large. ► Within the context of the human resource concern, recruiting is thought to be the top HR matter, particularly among developing regions. ► As evidence of this challenge, MROs are struggling to maintain headcounts, but seem fairly pleased with the approaches they have at their disposal to fill open positions. Nevertheless, this is an area of concern, particularly in the search for operational level employees. 8100051 2
  4. 4. Key Points – Market & Talent Globalisation India Middle Less 3% East globalized 3% North Remain the 2% China same 8% America - US 10% 36% Asia- North Pacific America - 33% More Canada Eastern Western 3% globalized Europe Europe 88% 2% 12% 8100051 3
  5. 5. Key Points – Impact ► Looking forward, the search to fill such positions will increasingly lead companies to other regions of the world especially for developing regions. It appears that upper level employees will continue to be imported from overseas, but this will not necessarily correct their shortage for operational level employees which are less likely to be sourced to foreigners. ► Executives do seem to be involved in addressing this issue, but there is also a concerning level of distrust with the existing management. ► Given the potential impact to reduce MRO capacity and raise wages, the issue is not expected to be solved easily. ► Results suggest that shortages of operational level staff (mechanics and technicians) may well drive the greatest challenges the MRO industry faces in this area. 8100051 4
  6. 6. Key Points – Impact My company has the right management in place today to cope with the expected growth and changes. moderately to Business disagree agree strongly disagree Airline (maintenance department) 45% 38% 17% Airline-owned or -affiliated MRO 26% 43% 30% Independent MRO 38% 29% 33% OEM / OEM maintenance division 33% 33% 33% Other 36% 31% 33% Grand Total 37% 34% 29% 8100051 5
  7. 7. Key Points – Impact Impact of human resources shortage on capacity in the next three years Impact High/ Salary effecting growth Significant Impact Increase >15% North America 83% 36% 30% Latin America and the Caribbean 76% 17% 13% Western Europe 88% 29% 29% Eastern Europe 85% 21% 34% Asia-Pacific 84% 34% 47% China 73% 31% 56% India 71% 31% 54% Middle East 85% 26% 39% Africa 71% 15% 21% 8100051 6
  8. 8. How to identify and address Leadership Risk and Performance 2. What leadership does 3. What must happen to 1. What leadership does the the company have in close any gap and keep it company need to succeed? place now? closed? Shareholders demand ever increasing new performance through new strategies at new time horizons with new relationship expectations. Can the team adapt? A refocus to understanding and meeting needs of customers will demand new skills, capabilities and behaviors. Can this be achieved? With new success comes new opportunities for ongoing growth, diversity and development. Is such potential, capacity and capability evident in the team today? Change brings instability and fragility in the senior talents of the company. How stable and secure are they and are there robust succession plans in place to meet any executive ‘churn’ emerging? 8100051 7
  9. 9. How to identify and address Leadership Risk and Performance 2. What leadership does 3. What must happen to 1. What leadership does the the company have in close any gap and keep it company need to succeed? place now? closed? As individuals, how are key executives going to respond to the change? How would they benchmark against other key executives in such roles? Do they have robust successors and are they succession material themselves? How do they feel about these changes? As a team, how do they work together? How will they work under changes and new pressures? How does the behavior of this group impact the wider organization? How does this leadership capacity, behavior and potential benchmark against other institutions and against the intended direction for the company now? What are the objective strengths, weaknesses, opportunities and threats apparent in this team of leaders? 8100051 8
  10. 10. How to identify and address Leadership Risk and Performance 2. What leadership does 3. What must happen to 1. What leadership does the the company have in close any gap and keep it company need to succeed? place now? closed? What individual development can be rapidly introduced to maximize the success and engagement of each executive? What group or team development must be achieved in order that we maximize the impact and effectiveness (both internally and externally) of this team? What can we learn about the relationship between the Board and executives in terms of where to focus support and manage risk? If we need to introduce new talent then what is needed, what is the definition of fit and how do we manage this? 8100051 9
  11. 11. What can a leader do Any change in strategic direction, culture and stakeholders demands significant reflection and preparation in a leaders behaviours, skills and intentions. We can provide the CEO and their teams with a highly tailored integrated program of support that will best focus their priorities and agendas in leading the organisation towards new performance and change. We can work with them to best ‘fine tune’ their leadership capability and behaviours to create success and provide a discrete channel of support in roles that are often fundamentally isolated. What leadership is How am I tracking What can I do to demanded of me? against this today? maximize my success? ► Dialogue to draw understanding of the challenges being faced ► Exploring the leadership behaviors, techniques and competencies that will best meet these challenges successfully ► Sharing and supporting the CEO or senior leaders to more forensically look at their own team and define unique leadership strategies for each member ► Supporting and sharing techniques for the CEO to question the organization to establish its leadership readiness and capacity ► Due diligence on the corporate strategy and vision against this preparedness 8100051 10
  12. 12. What can a leader do Any change in strategic direction, culture and stakeholders demands significant reflection and preparation in a leaders behaviours, skills and intentions. We can provide the CEO and their teams with a highly tailored integrated program of support that will best focus their priorities and agendas in leading the organisation towards new performance and change. We can work with them to best ‘fine tune’ their leadership capability and behaviours to create success and provide a discrete channel of support in roles that are often fundamentally isolated. What leadership is How am I tracking What can I do to demanded of me? against this today? maximize my success? ► Highly tailored and discrete personal self review for participants – a leadership ‘health check’ that will provide tangible and objective insights into how best to leverage their leadership style and skill into the needs of their team and their organization ► Normally includes 360 degree referencing, interviewing and profiling ► Detailed forensic reporting provided to participants and the organization on how to best support and deploy this leader 8100051 11
  13. 13. What can a leader do Any change in strategic direction, culture and stakeholders demands significant reflection and preparation in a leaders behaviours, skills and intentions. We can provide the CEO and their teams with a highly tailored integrated program of support that will best focus their priorities and agendas in leading the organisation towards new performance and change. We can work with them to best ‘fine tune’ their leadership capability and behaviours to create success and provide a discrete channel of support in roles that are often fundamentally isolated. What leadership is How am I tracking What can I do to demanded of me? against this today? maximize my success? ► High impact coaching against the development areas identified ► Sharing of techniques and tactics to optimize the leadership impact on the team and the organization ► Climate leadership models and techniques shared to reinforce the corporate culture being demanded. ► Heidrick & Struggles onboarding support – readings, case lessons and peer mentoring as required. ► Exploration of succession planning risks and demands 8100051 12
  14. 14. Conclusion Its an industry problem - we ► The AirAsia paradox: “Now everyone can fly” – Airlines are no no longer attract the best longer the only avenue to a global life and brightest: ► Engineering is not attractive, the “NASA years” are over ► Industry pay has only recently started to become attractive but still lags alternative professions like legal, medical and finance Long term leadership ► Aerospace needs to embrace globalization at all levels, not development is a senior just blue-collar change management ► It requires the full attention and explicit and continuous program and should be support of the CEO treated as such: ► HR Needs to be professionalized with strong focus on training and development, succession planning, retention and career development, complementation and benefits ► A need to move to competency based hiring: identify global best practices and bring in talent from other industries 8100051 13
  15. 15. Survey High Lights 14
  16. 16. Introduction ► With growth and cost demands on the rise and a generation of the workforce approaching retirement, locating and retaining the skilled talent necessary to effectively support the MRO business is an emerging issue. ► Given the concern that the need for qualified individuals at every level is outpacing the supply of talent, with the potential of constraining growth if countermeasures are not taken to correct the dilemma, this survey was developed to gather industry insights. ► In order to clearly identify human resource issues within the MRO space and assess the implications, the two organizations jointly developed a survey instrument to gage staffing and leadership issues facing the MRO industry today and in the coming years. ► The survey was administered in a web-based format and delivered to 2,800 individuals (valid and unique email addresses) across the world and representing a range of responsibilities within the MRO and aviation industry. 8100051 15
  17. 17. Introduction Airline (maintenance Other department) 15% 18% Senior Other Executive 32% Airline-owned Officer 39% or affiliated MRO 8% Director/ Other Manager Corporate Independent MRO 42% Officer 19% OEM/ 4% OEM maintenance division 8100051 16
  18. 18. Continued Globalization Across the board—by geography, company type and job functions and titles —there is a very strong belief in continued globalization. ► 88% of the respondents feel the industry will be more globalized in the next three years. There is also strong belief in continued consolidation ► 79% of respondents believe in more consolidation vs. the 21% that believe a plateau has been reached. ► Interestingly, executives are the least bullish about increased consolidation with 67%, but an additional 30% of the executives think it will at least hold steady.. Globalization Consolidation Less Globalized Remain the 2% same Remain the 10% same More 21% Consolidation More 79% Globalized 88% 8100051 17
  19. 19. Continued Growth Opportunities Future Growth Opportunities by World Region 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% North North Latin Western Eastern Asia- China India Middle Africa America America America & Europe Europe Pacific East US Canada the Caribbean Organic/internal Mergers/acquisitions Joint ventures/alliances Private equity/leveraged buy-outs Off-shoring Other 8100051 18
  20. 20. Challenges In the face of continued globalization and consolidation, respondents considered the human resource shortage as their companies’ greatest challenge. 41% ranked a human resource shortage as their top concern amongst possible challenges. Looking at the impact of recruiting, the vast majority of respondents feel it is a significant or moderate issue for the MRO industry at large this year. It is expected to become an even more important issue just three years into the future, as evidenced by a stated shift toward considering the issue more “significant” than “moderate” (68%/30% significant/moderate in 2011 vs. 45%/50% significant/moderate in 2008). 8100051 19
  21. 21. Challenges Challenge Ranking #1 #2 #3 Human resource shortage 41% 30% 13% Qualified leadership shortage 31% 30% 20% Adequate training 4% 18% 26% Parts and materials / supply chain issues 9% 13% 22% Marketing and business development 13% 10% 20% Other 3% 1% 1% 8100051 20
  22. 22. Recruiting Impact ► Looking at the impact of recruiting across all employment levels 40-60% of respondents agree that recruiting will be a real (moderate to significant) challenge for each level in 2008 and that this will have an impact on the business. ► As companies consider their future employment needs, it was noted that there is a general trend that suggests there will be an increased reliance on other regions of the world to fill those needs. ► Airline-owned or -affiliated MROs are expected to be the most reliant on foreigners for support staff (27%), but will be among the lowest (13%) for operational staff. The Middle East is expected to maintain a strong demand for technicians and mechanics, but China's demand appears like it may fall (27% vs. 9%), perhaps due to improved skill development within their borders as regions develop. A very similar trend is expected for support staff in these two regions. The trend in China is reversed or flat for the upper employment levels, suggesting they will have a continued demand for managers and executives from outside the region. 8100051 21
  23. 23. Leadership ► Over one-third (37%) of all MRO organizations do not believe their organization has the right management in place to deal with expected growth and changes. ► Independent MROs and OEM maintenance divisions have the most confidence in their leadership. Airline maintenance departments have the least trust in their management (45%). ► Interestingly, when looking at this issue through the lens of the respondent’s title (see Figure 18), it was noted that senior executives were the most confident (45% feeling moderately to strongly that their company had the right management in place). Confidence at this level fell to 20% amongst the director/manager types. ► Perhaps most concerning was the 17% confidence at the moderate to strong level amongst the other members of the C-suite (other corporate officers); however, 67% were more confident than not amongst these individuals. The numbers are not necessarily unexpected, but they do suggest there is some level of concern about the leadership. 8100051 22
  24. 24. Impact ► From a worldwide perspective, 80% of the respondents feel that the human resource shortage will have some impact on the MRO capacity available. ― Some 28% of the respondents believe this impact will be high or significant in nature. ― The shortage is predicted by more than a third (37%) of the respondents to drive a 15% or more salary increase worldwide. ► Growth is clearly expected to be affected with greatest (high or significant) impact in North America (36%), Asia-Pacific (34%), China (31%), and India (31%). ► Overall, all business segments expect salaries in China and India to increase by 15% or more over the next three years. Other regions are expected to see salary increases of less than 15%. 8100051 23
  25. 25. Impact Region Impact effecting High/ Significant Salary increase growth impact >15% North America 83% 36% 30% Latin America & the Caribbean 76% 17% 13% Western Europe 88% 29% 29% Eastern Europe 85% 21% 34% Asia-Pacific 84% 34% 47% China 73% 31% 56% India 71% 31% 54% Middle East 85% 26% 39% Africa 71% 15% 21% Worldwide 80% 28% 37% 8100051 24
  26. 26. The War for Talent Appendix 25
  27. 27. The War for Talent – A Global Issue All over the world we are facing a shortage of talented people who have the transferable technical skills to compete in global business ► Today, only 20% of Americans have passports, yet American companies are looking to aggressively expand into Europe and Asia ► Meanwhile European businesses are searching for footholds in Asia and also further expansion in North America ► The Japanese, for the first time in 15 years, given their economic upturn, are looking to expand outside of their borders yet are finding they don’t have the senior management to get them there ► Chinese companies are following this trend and are increasingly committed to gaining a place on the international stage. In particular, Chinese organizations which were once state owned want to know if they have the same talent to compete against a General Electric, a Pepsi Cola, a Dell ► Indian companies are rapidly going global and as seen in their airlines, among other industries, are rapidly tapping into the global talent pool 8100051 26
  28. 28. The War for Talent – Going Forward In industrial nations the shortage of talent will worsen ► Japan alone will lose up to 60 million people over the next 30 years ► In 30 years there will be 70-80 million fewer Europeans than there are today ► 50% of the top people in US companies will leave in the next 3 years We know the situation in China and India is different. Yet, in spite of the population wealth, the talent problem in China is just as pressing ► The talent pool in China is shallow ► Exacerbated by the Cultural Revolution which affected a large group of individuals who would be in management position now ► In China, just as in the rest of the world, there is a severe shortage in globally experienced senior management ► A recent report by Business Week showed there is shortage of 70,000 globally experienced Chinese managers and by 2010, McKinsey predicts India will face a shortfall of 500,000 staff capable of doing work for multinationals 8100051 27
  29. 29. An Engineering Perspective ► The shortage of top executive and engineering talent is just starting to be noticed. ► In the United States a presidential commission was established in 2003 and predicted a “devastating loss of skill, experience and intellectual capital”. ► According to a study by Bain & Co. and Deloitte Consulting only half of the 68,000 military engineers due to retire by 2010 can be replaced. ► According to a study by McKinsey Global Institute, young engineers coming forward in China may not be enough to meet even local demand. The number who are considered suitable for work in multi-nationals is just 160,000 – about the same number as are available in Britain. ► The supply of graduates isn’t the only problem. It is the depth of experience that is lacking, as well as exposure to new and developing technologies. 8100051 28
  30. 30. The challenge is in finding talent… So how does all this help attract and retain talent in this region and globally? ► If you want to look like heroes, if not to your board, but potentially to your successor, you have to invest in human capital ► That means making a decision to send high potential individuals abroad where they can gain the technical skill sets, organisational know-how and experience that will help your company grow, long term ► The mistake most organisations make is that they send their Chinese nationals abroad for a short period of time, not allowing them to reap the benefits of this experience ► …the other mistake is that they only send a couple ► It’s a long term investment – you need to operate a talent pipeline with employees continually being sent abroad, to return a few years later ► Human Capital is the oil of tomorrow – it’s in high demand and is often hard to find In addition, most organisations think that once the talent has been acquired the hard work is over The acquisition itself may not be easy but the retention and on-boarding is just as critical Currently 40% of senior hires globally leave their firm or are fired within 18 months of joining It is in all of our best interests to decrease this percentage 8100051 30
  31. 31. Heidrick & Struggles and Team SAI have combined their industry experience and resources to focus attention on this critical challenge facing the global aviation community. Torbjorn Karlsson Torbjorn Karlsson joined Heidrick & Struggles in 2006 to lead the Aviation, Aerospace and Defence practice in Asia. He is also involved in the transportation and supply chain sectors. Torbjorn has spent many years in aerospace industry in consulting, airports, aviation equipment sales and aircraft trading. Based in Singapore, he can be reached at tkarlsson@heidrick.com or +65 6332 5001. www.heidrick.com About Heidrick & Struggles International, Inc. Heidrick & Struggles International, Inc. is the world’s premier provider of senior-level executive search and leadership consulting services, including talent management board building, executive on-boarding and M&A effectiveness. For more than 50 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, TeamSAI is a Denver based practice of strategic & tactical management and operations consulting, serving all aspects of the aviation community including airlines, airports, manufacturers, MROs, and corporate/fractional operations. TeamSAI also produces the annual World MRO Forecast, and is a partner with McGraw-Hill’s Aviation Week Group in their new MRO Prospector web based market development tool for the MRO industry. TeamSAI, providing better direction through Strategy, Action & Insight. Additional information about TeamSAI is available at www.teamsai.com 8100051 31
  32. 32. #20-01 Suntec Tower One 7 Temasek Boulevard Singapore, 038987 +65 6332 5001 www.heidrick.com Copyright © 2008 Heidrick & Struggles. All rights reserved. Reproduction without permission is prohibited. 32

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