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sourced from BusinessWeek.com |
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PERSONAL & FÜHRUNG
The Way Forward For Industrial And Manufacturing Leaders
Perspectives From The TRANSEARCH Global Industry Practice Group
Leading industrial and manufacturing companies around the world are today confronted with a range of new and increasingly complex challenges.
From intense global competition and a market-driven shift in workforce deployment to new demands for innovation, industrial and manufacturing companies are taking steps to redefine their market position and drive long-term supplier relationships with especially discerning clients whose focus is squarely on value.
The specialist executive search consultants who comprise the global Industrial search practice of TRANSEARCH International - 'Your World Partner In Executive Search' and one of the global 'Top 10' executive recruitment firms - are on the frontlines and fault-lines of the competitive shift. It is beginning to transform how industrial and manufacturing companies do business regionally and globally.
Their informed views of the changes that are redrawing the competitive marketplace and their recent engagement experience with client industrial and manufacturing companies around the world are reflected herein. They may alter your view of the market and competitive forces at work and how to evolve with them.
Regional perspectives on the market shift
So just how are leading industrial and manufacturing companies addressing the mounting pressures on their bottom-lines? Are there any strategic courses they might take to avoid a commodity-driven race to the bottom of the pricing wars?
Hans W. Berg, a partner with TRANSEARCH International Deutschland GmbH in Stuttgart and leader of the TRANSEARCH Global Industry Practice Group, says large companies that are mainly financially driven are continuing to embrace six sigma and similar performance management techniques that support their commitment to very high operational excellence.
"They're using their good cash flow to grow via acquisitions of younger, organically growing, innovative and creative companies," Berg says.
"The most successful route to future growth comes by focusing on certain customers' needs and by addressing them better than anybody else, thus being able to charge for the value provided with little price competition, as demonstrated by the so-called 'hidden champions,' Berg says. But some of these market innovators such as Würth are not as "hidden" as they once were, he adds, because some have grown quite large because of their ability to bring innovative solutions to their customers' top challenges.
An increasing number of industrial and manufacturing companies are developing added value solutions rather than merely selling products, says Anne Cousin, an international partner in the Paris offices of TRANSEARCH International.
Cousin contends that many of these companies are developing strong technology (including Research & Development investments) and are focused on the development of a larger range of services. These extend from repair, spare parts management, training and float management to the development of specific packaging, reverse logistics for packaging, facility management and new software for the best use of equipment.
What is clear about the external pressures facing the world's manufacturing and industrial companies, however, is that not every producer is following the same course to their desired end game.
San Chau, a consultant in the Bangkok office of TRANSEARCH International and Asia region leader of its Supply Chain Practice, says an increasing number of companies across the Asia-Pacific Rim are moving their operations to low-cost countries such as China, India and Vietnam.
"Many companies, including Schindler and Tyco," Chau points out, "are focusing on solution selling as opposed to commodity selling to avoid the commodity-driven race."
Reflecting on market conditions in the United States, Jason M. Meschke, president of TRANSEARCH/EFL Associates in Kansas City, says that despite softness in some bellwether markets such as the supply chain, logistics, transportation and consumer goods sectors, most economic indicators still look positive for North America's industrial and manufacturing companies.
"In my opinion, the capital goods area is still pretty strong in products such as trucks, farm and construction manufacturing. Capital goods and heavy industrial manufacturing are still experiencing some pretty decent economic trends," Meschke says.
Where to invest?
Beyond the immediate economic environment, many industrial and manufacturing companies are wrestling with questions about how and where they should leverage attractive workforce dynamics and manufacturing advantages.
Should they deploy more resources to the emerging markets of Asia? And if so, what are the tradeoffs, and is it important for big industrial and manufacturing companies to retain a base of operations and talent in the West even if they are investing more in the East?
Anne Cousin in the Paris office of TRANSEARCH has her own view: "Western companies used to have the know-how and would use emerging countries as 'manufacturing sites,' which is less and less true."
Western companies that want to tap the "huge market potential" of foreign geographies, Cousin cautions, would be wise to keep their know-how and their added value close to their existing headquarters to protect their intellectual property. There is also a huge legal territory they should control when transferring plants and technology to the emerging markets of the East. "Quality and R&D should be maintained at Western level," Cousin contends, despite all the other attractions of those fast-growth markets overseas.
The realities of today's commodity-driven industrial and manufacturing markets make emerging Asian markets a growing consideration for companies that want to compete on cost. That is, of course, unless quality is a concern.
"If you are competing on manufactured costs then it only makes sense to locate your manufacturing operations in the most cost effective locations," says San Chau in the Bangkok office of TRANSEARCH. "These locations tend to be in the Far East. The only time you would want to locate your manufacturing operation in Europe or the United States is when the shipping/transport costs to ship the goods to the customer are too high or the desired/perceived quality can not be achieved remotely."
His TRANSEARCH colleague in Germany, Hans Berg, says that despite the growth of markets and operating environments in Asia, many industrial and manufacturing companies have found that a strong European footprint is essential.
"You cannot be the global market leader without presence in Europe," Berg says. "Most big companies already have this presence, in most cases with local leadership and, depending of the size of the company, with some expatriate talent from the United States, who can thus develop the international experience and competencies which will be required later by those among them who will become global leaders of their companies."
If the recent engagement experience of TRANSEARCH Global Industry Practice is reflective of broader market trends, a major challenge for industrial and manufacturing companies is to strike a balance between developing new business in mature markets versus emerging markets in the developing world.
"Companies will go where there is a need for their products. It's about supply and demand," says San Chau in Bangkok. "If they don't adopt and embrace the ever changing environment they will not be very competitive."
Hans Berg in Germany agrees. "They must not miss the emerging markets, especially when volume counts. It provides the platform and customer base for developing the market further globally in a profitable way afterwards. Developing new business in mature markets provides not only business but also the reputation of being an innovator and leader, thus creating the right reputation for growth in the emerging markets, where state-of-the-art or even avant-garde solutions are requested."
Regional case studies
Along with the risk of truly global competition comes the risk of remaining static and unbending in the face of serious market challenges. Increased customer expectations of value may also be moving one's competitors to change their business strategy.
"One of our larger clients, a Dow Jones-listed company and worldwide market leader has bought its main European competitor, which was one of three businesses of a Dax-listed company," says Global Industry Practice Group leader Berg in Stuttgart.
"Both companies benefited from the operation," he says. "The Dax company used the cash to grow further in its core business. The Dow Jones company had considerably increased its market share in Europe and will surely improve performance levels of the acquired business."
For small and medium-sized companies that may be unable to pursue an acquisition strategy, Berg explains, success in the new global environment depends on a different approach.
"Our successful smaller or medium sized clients focus on a core business and expand globally, usually with high emphasis on R&D in the early stage, then increasingly on marketing and distribution and finally on production and operational excellence, as well," Berg observes.
"In those companies management is much closer to the customer and decisions can be made easier and faster. True market innovators are those who have fundamentally changed their market or created new market definitions," Berg adds.
"A good example," he says, "is Varta who gained new business momentum by taking the challenge of developing extremely small rechargeable batteries for Apple's iPod, something which had seemed impossible in the beginning."
Another strategy, especially for traditionally production-oriented industrial companies, Berg says, is to develop service offerings further. "This usually brings very profitable business by itself and leads one closer to the customer, understanding his or her needs better and thus being able to fine tune the product offering or to come up with innovative solutions within the product business as well."
Berg says companies in the automation business like Honeywell, Emerson, Johnson Control as well as Eisenmann, a leader in paint automation for the automotive industry, have all had success offering operating contracts instead of just selling their equipment.
Another client of the TRANSEARCH Global Industry Search Practice, a world leader in Business-To-Business (B2B) chemical solutions, is pursuing a new strategy to enter the Business-To-Consumer (B2C) market.
According to Paris-based TRANSEARCH partner Anne Cousin, that company is pursing its new target market by creating a small unit dedicated to the consumer space.
It recently hired a Business Development Director with this specific knowledge, with proper marketing and product development (including R&D) experience, and with the intent of adding other key executives who can bring the requisite consumer market expertise to the company.
The common denominator for each of these new senior-management recruits, Cousin says, is that they must be willing and able to fit with the strong industrial legacy culture of the group.
The new leadership challenge
As the rules of doing business within a fiercely competitive industrial and manufacturing environment continue to evolve, so too, do the requirements for world-class management leadership within these markets. In fact, the demands of corporate leadership have never been higher in the industrial and manufacturing markets.
San Chau, TRANSEARCH's Bangkok-based consultant and Supply Chain Practice leader for Asia, says companies, in general, are constantly looking to upgrade their management leadership bench strength.
"Companies in the manufacturing sectors are no different," Chau says. "They are keen to attract executives with solid, blue chip experience and strong academic qualifications. In the developing markets such as China and Vietnam, this has led to an acute shortage of quality talent at the middle- and senior-management level. Retention of these qualified professionals has become a major issue for many organizations."
From an executive search perspective, Chau adds, recruiting in these regions has become challenging, "Because one is working with a relative small pool of qualified candidates, who will each have several offers. Currently the market in Asia is very much candidate-driven."
A European Perspective On The Evolving Nature Of Executive Leadership In The Industrial And Manufacturing Markets
Ann Cousin, international partner with the Global Industry Search Practice of TRANSEARCH International, says her recent client engagement experience suggests a matrix of leadership skills are now expected of senior-management leaders across the Industrial and Manufacturing markets in Europe and beyond. These include:
- Personal leadership - Other than direct authority, personal leadership is definitely required now for nearly 100 percent of executive positions. The matrix configuration of many global organizations requires leaders to develop their own network and to initiate contacts with colleagues working in far-flung time zones.
- Culture fit - There must be a deep synergy between the company or group's organizational culture and the behavior and attitude of senior managers.
- Pressure to produce results - More and more companies who change towards harder targets and processes say they want to get results, but they must be achieved "the right way" - as a result of careful planning and strategic execution
- Personal fit - Besides adapting to a harsher competitive environment and global pressures being felt at all stages of the manufacturing process, industrial leaders must have the right personal chemistry with their teams in order to obtain the desired results.
- Well-rounded perspective - Manufacturing and industrial innovators are building new businesses on leaders who bring a global attitude in terms of technical skills, as well as leadership, organization skills and cost controls.
Source: TRANSEARCH International
Jason Meschke of EFL Associates/TRANSEARCH in the United States says that a demographic shift alone - the acceleration of retirements among Baby Boomers - has intensified the search for industrial and manufacturing leaders.
"Even though there might be softness in the market just in terms of the economy, industrial and manufacturing companies are having to replace a lot of top line executives because they're losing baby boomers to retirement," Meschke says.
He also predicts that the loss of so many experienced executives around the world to retirement will force industrial and manufacturing companies to make ongoing investments in their workforces. Companies will need to replace key performers and feed a pipeline of succession candidates regardless of how the economy is impacting profits.
Industrial and manufacturing companies have to be ahead of the curve when it comes to recruiting, developing and retaining top executives to make that happen, Meschke says.
Further reflecting on the shifting requirements for management leadership in the industrial and manufacturing sectors, Hans Berg, the TRANSEARCH Global Industry Practice Leader, acknowledges that the bar has indeed been raised on senior management.
"The new leadership challenge is to cope with an increasingly faster and 'flat' world, to benefit from ever faster changes by having the courage to exploit new opportunities by leading change instead of following," Berg says.
Hans Berg
Partner
Global Practice Leader Industry
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