Fierce and growing competition, high labour costs in mature markets and the need to profitably address emerging markets — this brew of challenges and opportunities confronts many industries today. Of course, having strong, innovative leadership is key to managing effectively when business conditions are changing rapidly. But, to ensure that they will have the leaders they need for the future, organisations must adapt their succession planning and leadership development efforts to produce executives with the skills and experience required for the new order. In the short term, they also may consider recruiting executives from outside the industry to add valuable expertise.
The automotive industry is one example of an industry in the midst of profound change. Amid globalisation, shifts in consumer demand and high labour costs in traditional markets, automakers and their suppliers have less room for error and inefficiency; they must make the right bets on technology, product development, market expansion and cost management.
How are automotive companies ensuring they have the leaders they will need for the future? Spencer Stuart explored this question in a recently released study, “Leadership in the automotive industry.” The study examined the primary challenges facing the industry, the competencies and experience senior automotive leaders must possess, and the state of talent development and succession planning in the industry.
AN INDUSTRY IN FLUX: AUTOMOTIVE TRENDS AND STRATEGIC PRIORITIES
Globalisation
Hardly a new phenomenon, globalisation in the automotive industry accelerated in the 1980s when Japanese automakers made significant headway in penetrating the U.S. market. Today, however, the pace of globalisation has intensified and global sourcing has become a competitive imperative. At the same time, automotive companies see great potential in developing regions such as China and India as their consumer markets begin to emerge. Nearly three-quarters of the automotive executives who participated in our survey said the industry’s greatest challenge is the redistribution of resources to higher growth, lower-cost regions. Forty-four% cited locating global sourcing to low-cost countries as a top priority for their organisations.
Innovation with limited financial resources
Automotive companies face another dilemma: maintaining innovation when financing is tight. Ongoing innovation will be critical to successfully fending off the challenges of globalisation, helping companies to distinguish their offerings in the marketplace and stave off pricing pressure through new must-have technologies or systems solutions.
Yet, automotive companies are finding it difficult to free internal financial resources for investment in research and development. Securing external funding also is more challenging as the industry has become less attractive for investors compared to other sectors, particularly in the short term. Nearly half of the survey respondents cited the need to innovate with limited financial resources as one of the automotive industry’s greatest challenges.
With financing tighter, automotive companies must pursue creative product solutions, leverage their internal strengths and, more often, make acquisitions and cement partnerships with companies that can help enhance and expand product offerings and spread investments over more units.
Flexible production and cost structure
A key priority for nearly half of the automotive companies we surveyed is establishing and maintaining a more variable cost structure. Another strategic priority, cited by more than 40% of respondents, is maintaining a flexible production system to position the company to respond quickly to shifts in global demand. Automotive leaders must be able to manage cash and make costs more variable in order to adjust quickly to volatility in demand and respond to new opportunities.
The drive to cut costs and make expenses more variable also has profound implications for partner relationships. Automakers have taken equity stakes in each other and forged joint ventures and technology agreements. Suppliers are aligning themselves with new players amid shifts in the relative market share of automotive companies.
REQUIRED LEADERSHIP SKILLS
With so much change in the industry, what are the skills automotive leaders must possess to successfully guide their companies today and in the future, and from where will the next generation of leadership come? Through discussions with CEOs, our survey of automotive executives and our own work with automotive clients, we have identified a number of critical competencies and areas of experience required by senior-level automotive leadership.
Alliance and partner management experience
One-third of respondents rate alliance and partner management as the most important functional experience for general management to possess, the highest of all the experience categories.
Automakers increasingly are relying on strategic alliances and partnerships to manage component costs and the development of new platforms and technologies. To ensure that their organisations strike beneficial alliances and partnerships, automotive leaders must be highly knowledgeable about the industry and its complex networks, understand the forces that are driving industry change and have a strategic mindset.
Finally, as automotive companies are likely to build alliances with companies anywhere in the world, executives must be sensitive to the cultural differences that can foster mistrust, said Dr. Juergen Behrend, chairman and managing associate of Hella KG Hueck & Co. “Especially in Asia, you have to be authentic and credible and keep your promises. You have to try to achieve win-win situations as often as you can. In each culture, you must learn the symbolism that builds trust,” he said.
Operations experience and results orientation
While experience in all corporate functions is valuable to senior automotive executives, operational experience is essential in light of the challenges and opportunities facing the industry, our study found. Roles in operations, manufacturing and quality assurance provide exposure to a broad cross-section of the company and the opportunity to lead large and diverse teams. These roles also are great training grounds for future senior leaders as CEOs are spending more of their time on operational issues, particularly as many of the prime targets for cost reduction are in the operations side of the business.
“Not only are most of the cost-reduction issues facing automotive companies driven by operating issues, but working in operations also is the place where one learns the most about leadership, given the large numbers of people involved and the closeness of the contact with people who are working on day-to-day issues and who are fundamentally running the company,” said Rodney O’Neal, president and chief operating officer of Delphi Corporation.
For Tenneco CEO Mark P. Frissora, operational experience surpasses in importance even the leadership qualities associated with “best athlete” executives. “I used to think that an athlete was an athlete, but increasingly I have come to the point of view that hands-on operations experience is essential,” he said. In interviewing candidates, Frissora said he asks very detailed questions about how individuals have used lean manufacturing strategies and asks them to describe in detail their product development process. He probes deeply to understand if they really have driven the process or simply have overseen it from a high level.
Strategic orientation and innovation leadership
Automotive companies must continually reinvent themselves to take advantage of new market opportunities and maintain long-term profitability. The CEO needs to be able to recognise those opportunities and drive innovation in the company. Automotive leaders must have a passion for challenges, seek innovative ideas within the organisation and externally, and be willing to make bold moves.
“I don’t know if it is true more today than in the past, but, certainly, automotive companies need a CEO with vision, capable of anticipating the business cycles and managing through continuous reorganisation. The CEO needs to be one who squeezes the cost structures, constantly challenges the internal structures to find better ways, keeps the pressure high and stimulates the organisation to move — even physically,” said Emanuele Bosio, CEO of Sogefi, a producer of automotive filters and suspension components.
Automotive leaders also must possess the skills of an entrepreneur, according to Behrend. They should be able to identify solutions for issues related to organising processes, pull together the right team, create value and ensure that everyone in the company strives toward excellence and reliability. “Those are the critical skills I would seek in a leader,” he said.
Finance and capital allocation experience
The challenges of streamlining costs while maintaining R&D investment require that automotive executives be financially astute. They must lead efforts to vary costs, be thoughtful about capital spending and free up resources that do not provide competitive advantage. Twelve percent of survey participants ranked finance and capital allocation as the most important functional experience for senior general management during the next five years.
“Cash management is a critical skill,” Frissora said. “A strong balance sheet is important for funding investments in new technology. Companies also must be able to vary their cost structure through outsourcing and new production methods.”
International experience and a global perspective
Automotive leaders must have a truly global perspective and be culturally and intellectually flexible. More than one-third of survey respondents cited global perspective as a critical competency for automotive leaders. This includes being sensitive to cultural differences and having a keen ability to identify and leverage international opportunities.
Many of the executives we interviewed said living abroad and serving in long-term overseas assignments are the best ways to gain international experience and a global perspective.
Automotive executives in our survey and those we spoke with frequently told us that they would have liked to have had more international experience. Others were grateful for the international exposure they received early in their careers.
However, Daniele Pecchini, CEO of Comau, a subsidiary of Italian manufacturer Fiat Group, said international knowledge and sensitivity can be cultivated even while without living abroad. “It doesn’t matter if one has actually been a resident for years in a country or not; you may stay two to three years in a different country without developing a real global vision, because today we need to interface with many cultures and several different countries. I have always managed the business in every part of the world, traveling extensively. Even though I always returned home, I have accrued a deep understanding of different markets and different cultures,” Pecchini said.
Team-leading skills, people development experience
Another recurring theme that emerged from our interviews and survey is the importance of strong team-building and effective people development skills. These include exceptional communication and interpersonal capabilities, internal networking skills, people management and team leadership experience, and the ability to choose the right team and get the maximum from it. Senior automotive leaders should combine personal authority with a humble and credible approach.
“It is important for automotive leaders to continually motivate the organisation to not rest on its laurels and to continue to work toward stretch targets,” according to Marco von Maltzan, CEO and chairman of BERU Aktiengesellschaft. Of his own leadership style, von Maltzan said he makes it a priority to recruit and develop young talent, delegate authority and responsibility, give as much room as possible to good people and tolerate mistakes as long as they are not made twice.
“People management and team leadership are first and foremost, and then business acumen, of course. But, more and more important is the capability to understand cultural differences. The world is our market today,” said Bernhard Mattes, CEO of Ford Germany.
Credibility and influencing skills also are essential when dealing with external audiences. “The most effective leaders are those with balanced egos who are able to talk about their failures as well as their successes,” said David Rayburn, president and CEO of Modine Manufacturing Company. “They are able to talk to the investment community with candor, blending details about what they do right with areas in which they need to improve.”
WHERE ARE THE LEADERS OF TOMORROW?
In addition to identifying the likely profile of future automotive CEOs and other senior-level leaders, the study explored the likely sources of future leaders with the required skills, experience and characteristics. We asked about companies’ internal succession planning programs as well as the willingness of their organisations to recruit executives from outside the industry.
Looking outside the industry
First, hiring new talent seems to be a fairly low priority for the industry at this time. Just 15% of the executives we surveyed indicated that “attracting top talent” was one of their company’s top-three strategic priorities. When they do hire external candidates, the majority, 55%, said their organisations recruit within the automotive industry.
Interestingly, while automotive companies are not doing so in large numbers now, three-quarters of respondents believe it will be important for automotive companies to recruit from outside the industry, although not necessarily for positions at the highest levels of the organisation. Top talent from other industries can help by injecting new and creative ideas that can break the traditionally insular industry out of old patterns; improve the talent pool; and supply specialised knowledge in areas such as supply chain management, marketing, turnarounds, change management and electronics, automotive leaders told us.
Sarna CEO Matti Paasila points to his experience as a young manager at Nokia in different countries during the early stages of a fast-growing industry as the kind of development experience that is valuable to the automotive industry. “In five years, I went from software engineer to sales manager to export manager to general manager of the German subsidiary,” he said. “The lesson here is that young talent should start their career in very dynamic, fast-growing industries, and automotive companies would benefit by recruiting more executives from these types of industries.”
Bosio agreed that recruiting executives from outside the automotive industry can infuse new ideas and provide a fresh perspective. “I don’t believe my successor must come from the automotive industry, although some experience here will help for sure. I would like someone who brings a different perspective,” he said. “Those who have been in the same industry for too long — or, worse, in the same company — become used to that standard and have trouble seeing a different or higher standard. Obviously, I wouldn’t bring in someone who made pet food; there has to be some technology relevance, such as white goods, for example.”
Although they acknowledged exceptions, others were less confident that an executive from outside the industry would be successful as CEO because of the industry’s complexity and the importance of building industry relationships.
“It takes time to develop the relational network in the auto industry, which is a key element for success,” said Heinz Pfannschmidt, president of Europe and South America for Visteon Corporation. Rather than recruiting a CEO or other very senior executives from outside the industry, automotive companies would be better off bringing in that talent several levels below the CEO to give the individual the time to learn the industry and forge relationships, he said.
“It’s important that future CEOs know the auto industry,” said John MacKenzie, managing director of Pacifica Group Ltd. “It’s too complex and dynamic for someone to learn it quickly and be successful.”
Succession planning
Are automotive companies developing the leaders they will need for the future? Our survey findings indicated that most companies are doing some succession planning and talent development, but the commitment to and quality of these programs vary.
More than half of the respondents said their company does an average job of succession planning and talent development, while 17% felt that their organisation’s talent development and succession planning programs meet or exceed best-in-class standards. However, many of our respondents found room for improvement in their company’s succession planning efforts. Nearly one-quarter of executives participating in the survey rated their company’s efforts in this area as below average, and 7% said their company does no succession planning.
The succession planning and talent development programs that were viewed as most effective were those that included the following elements:
- Clear, well-managed and systematic processes
- Executed widely throughout the company
- Closely tied to company strategy
- Results measured and leaders held accountable
- Viewed as an important strategic initiative for the company
- Attention to identifying and developing the skills of future leaders
Delphi’s O’Neal said instituting initiatives that continually challenge individuals to grow is the key to talent development. As he said, “In challenging situations, the talent is obvious.”
The automotive industry is dramatically more complex, more global and more interconnected through alliances and partnerships today than just five years ago. While automotive executives recognise the challenges posed by globalization and overcapacity, many companies are struggling to adequately respond.
Automakers and suppliers continue to look for opportunities to streamline production and impose flexible cost structures that allow them to respond quickly to shifts in demands. They require leaders who possess strong operational experience and financial acumen who can identify these opportunities and ensure that technological innovation, which absorbs enormous financial resources, actually will be perceived by the end users.
Many automotive executives believe the industry could benefit by bringing in new talent from other industries, leaders with vision and the ability to anticipate business cycles and challenge internal structures to find more effective processes. However, because of the automotive industry’s complexity and dependence on relationships, most believe leaders from the outside would be better positioned to succeed if they were brought in one or more levels under the CEO and given time to learn the industry.
Today’s automotive executives should ensure that their organisations have the leadership they need for the future by identifying areas ripe for improvement in their succession planning and talent development efforts. These programs are most effective when they have the support of the highest levels of management and the board, and are closely linked to company strategy and executed widely across the organisation. They should include clear, well-managed and systematic processes, including processes for measuring results and holding managers accountable for success.
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