Industrial Goods Five Leadership Issues Worthy of Board ... · Industrial Goods Five Leadership...
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Industrial Goods
Five Leadership Issues Worthy of Board and Executive Attention
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Introduction
The industrial goods sector, including manufacturing of electric goods and electronic systems, as well as discrete manufacturing and industrial machinery, is transforming due to the changes in technology and company structures, as well as globalisation. The increased pressure to innovate, influx of private equity investors, ongoing mergers and acquisitions, and a host of other major risk drivers all are contributing to dialogues in boardrooms and executive offices. Most significantly, executives are asking if they have the right leadership talent in light of the challenges they face.
From our conversations, the following five issues and their implications on leadership talent have emerged as top of mind for industrial goods sector executives:
ɳ Capitalising on the industrial Internet
ɳ Fostering innovation to fuel future growth
ɳ Creating an agile and flexible supply chain
ɳ Identifying and developing next-generation leaders
ɳ Building a board to tackle the future
We hope this executive briefing document will serve as a discussion starter for thinking through how to attract and retain the right talent in the face of these challenges.
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Capitalising on the Industrial Internet
THE INDUSTRIAL INTERNET ENABLES COMPANIES TO OPTIMISE BUSINESS OPERATIONS
ɳ Manufacturing industries have always worked with data to enhance processes. The industrial Internet holds opportunities for further operational improvements, as well as the creation of completely new business models.
ɳ Industrial goods companies should prioritise building out Data & Analytics teams that collect and convert data into tangible knowledge and intelligence through modeling and analytical processing. These teams are key in delivering timely insights to shape major business decisions and strategies.
KEy POINTS
ɳ Develop and recruit forward-thinking leaders who can build innovative and diverse teams to drive digitisation.
ɳ Establish infrastructure, supporting tools and systems to enable world-class data collection, storage, quality and access.
ɳ Consider acquiring talent from adjacent industries (software companies, systems integrators, startups) to fill the gaps in capabilities.
THE MAJORITy OF INDUSTRIAL GOODS COMPANIES ARE NOT CONFIDENT THAT THEy HAVE THE RIGHT TALENT NOR ORGANISATIONAL STRUCTURE TO REALISE DIGITAL OPPORTUNITIESF
% of respondents who believe …
IN COMPARISON wITH OTHER SENIOR EXECUTIVES, DIGITAL TRANSFORMATION LEADERS ARE MORE INNOVATIVE, DISRUPTIVE AND BOLDG
THERE ARE THREE MAIN BARRIERS FACING DIGITISATION IN INDUSTRIAL GOODS COMPANIESF
48% 38% 27%… they have the right people to
define their digital strategy
… they have the right people to execute their
digital strategy
… their organisation is structured in the right way to realise
digital opportunities
Organisational inertia—functional departments are too fixed in their ways.
Competing departments want to own digital.
Functional silos create barriers to effective coordination.
SociallyAdept
Bold inLeadership
Disruptive
Determined
Innovative
New ProductConception Prototyping Sourcing of
Materials Manufacturing Distribution A�ermarket/Services
Smart factories connect manufacturing units and hold the potential to create customisable products on the assembly line.A
Trial with 3D; test virtual parts in virtual labs before production commences.C
Telematics and sensor-equipped devices track goods real time in transit and minimize delays and bo�lenecks.E
Real-time communication enabled by connected devices and cloud-based technologies across site and company boundaries will lead to enhanced issue resolution.D
Remote monitoring systems improve issue resolution and collect performance data that inform development of new products and services.B
3D printing drives accelerated prototyping.
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Fostering Innovation to Fuel Future Growth
INDUSTRIAL GOODS COMPANIES LAG FAR BEHIND OTHER SECTORS IN TERMS OF INVESTMENT IN R&D AND PERCEIVED INNOVATIVENESS
ɳ In order to succeed in the future, industrial goods companies must continue investing in research and development (R&D) and innovation. Treating R&D and innovation as a strategic priority means carefully assessing and handpicking talent that understand how to commercialise R&D efforts without stalling creativity.
ɳ The cultivation of innovation cannot be done by chief technology officers (CTO)/R&D leaders alone—it also requires a culture that encourages entrepreneurialism and tolerates failures.
INDUSTRIAL GOODS CTOs AND R&D LEADERS ARE MOSTLy INTERNAL APPOINTMENTS, AND THE MAJORITy STEPPED INTO THEIR ROLE FROM GENERAL MANAGEMENTC
PRECEDING ROLE
KEy CHARACTERISTICS OF wORLD-CLASS CTOs/R&D EXECUTIVESC
68%INTERNAL
32%EXTERNAL
58%GENERAL MANAGEMENT
42%R&D/
TECHNOLOGY
KEy POINTS
ɳ Foster a culture conducive to innovation by ensuring that innovation teams are composed of diverse professional backgrounds and skill sets. Allow ideas to “bubble up” and develop innovative thinking at all levels of the organisation.
ɳ Build a talent pipeline and expose high-calibre R&D profiles to broader business and customer interaction. Create a conduit between R&D and general management.
ɳ Mandate the head of R&D to be the steward of innovation on the leadership team. He/she should be a change champion who is leading efforts relating to innovation beyond the traditional scope of the R&D department.
ɳ Consider creating an advisory board that stays in tune with what is happening externally, thus enabling the company to be open to new technologies and trends.
21 12TECHNOLOGY AUTOMOTIVE
companies companies2
INDUSTRIALGOODS
companies
AMONG THE TOP 50 COMPANIES THAT INVESTED THE MOST IN R&D IN 2014, ONLY 2 WERE INDUSTRIAL GOODS COMPANIESA
7INDUSTRIAL
GOODS
15TECHNOLOGY
companies companies48
CONSUMER
companies
ONLY 7 INDUSTRIAL GOODS COMPANIES MADE IT INTO FORBES’ 100 MOST INNOVATIVE COMPANIES LIST IN 2014B
CommercialMindedness
Awareness ofCu ing-Edge Technologies
GlobalExperience
Services and BusinessModel Innovation
InternalInnovationStewardship
ExternalStakeholderEngagement
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Creating an Agile and Flexible Supply Chain
DIGITAL INNOVATIONS ALLOw SUPPLy CHAIN MANAGERS TO BETTER ALLOCATE RESOURCES AND ENHANCE CUSTOMER SERVICE
KEy CHARACTERISTICS OF THE CSCOA SUPPLy CHAIN LEADERS IN INDUSTRIAL GOODS ARE MOSTLy INTERNAL APPOINTMENTS, AND NEARLy HALF PREVIOUSLy HELD A SUPPLy CHAIN ROLE
FOUR ELEMENTS THAT MATTER FOR SUPPLy CHAIN LEADERS IN THE DIGITAL AGEA
Dig
ita
l Data Automation
Digital Acce
ss
Connectivity
Broadband Mobile Internet
Internet of Things
Big Data
Connected Devices
Robotics
3D Manufacturing
Cloud Computering
Social Network
ɳ The supply chain of the future must be able to respond to changes in supply and demand before they impact production. Sophisticated data and analytics tools are an important part of the solution.
ɳ The chief supply chain officer (CSCO) is becoming a key C-level report integrating planning, procurement, manufacturing and logistics in industrial goods companies.
87%
48%
ARE INTERNALAPPOINTMENTSB
held a supply chain role as their previous roleB
Finance
26%Operations
SupplyChain 4%
22%
48%
GeneralManagement
Understanding of data, related systems and potential for value add from connected solutions
Influential and collaborative approach
Cross-functional and global experience
Ability to develop new skills, innovate and train others
GreatCommunicator
MasterCollaborator
DigitallySavvy
Global
SystemsPerspectives
Flexible andAdaptable
Strong BusinessAcumen
KEy POINTS
ɳ Develop analytical capabilities in the supply chain team. Metrics matter to the CEO, CFO and COO, and the ability to interpret and make data-driven decisions is increasingly important.
ɳ The CSCO must work with other senior internal stakeholders to ensure that newly implemented tools are used and that the supply chain team embraces innovation.
ɳ Look for supply chain talent from other industries, leveraging the data analytics capabilities in the consumer sector and the end-to-end supply chain perspectives in other advanced manufacturing industries such as automotive.
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Identifying and Developing Next-Generation Leaders
COMPARED wITH FORTUNE 100 CEOs, INDUSTRIAL GOODS CEOs HAVE A SIGNIFICANTLy LONGER TENURE, AND THEy ARE MORE INTERNATIONALLy DIVERSE BUT LACK GENDER DIVERSITyA
ɳ Industrial goods companies need to think more strategically about their talent pipeline in order to foster diversity in the company and to meet the challenges of the future.
ɳ Fresh perspectives will come from exposing internal professionals to a variety of challenges and geographical rotations, as well as from pinpointing talent from industries such as technology and software companies.
THE MAJORITy OF INTERNALLy APPOINTED CEOs STEPPED INTO THE ROLE FROM COO OR HEAD OF BUSINESS UNIT (BU) OR REGION. EXTERNALLy APPOINTED CEOs wERE PREVIOUSLy MOSTLy A GROUP CEO OR HEAD OF BUSINESS UNIT OR REGIONA
PROACTIVELy wORK TO RECRUIT AND RETAIN LEADERS wITH A FRESH PERSPECTIVE FROM EXTERNAL COMPANIES, FROM OTHER INDUSTRIES AND wITH GLOBAL wORK EXPERIENCEA
KEy POINTS
ɳ Design a robust talent management programme to identify and develop high-potential executives.
ɳ Groom high-performing internal professionals for when a promotion opportunity arises by exposing them to a variety of challenges and rotating them through different areas of the business.
ɳ Create robust incentive systems to retain high-performing talent.
ɳ Look externally for complementary capabilities in the leadership team.
ɳ Ensure that some members of the leadership team have experience in strategic global markets.
Industrial Goods CEO
F100 CEOs
Female
0%
10%
Nationality differentfrom company HQ
19%
7%
Average years spentwith company
16.9 Years
24.6 Years
Tenure in role
4.7 Years
5.4 Years
Professionalexperience in
a differentworld region
38%
Recruits froma non-industrialgoods company
16%
Externalrecruits
19%Industrial Goods CEOs
81% 19%INTERNALLYAPPOINTED
EXTERNALLYAPPOINTED
4%8%
42%
46%17%
50%
33%
Head of BU or RegionCOOCFOOther
Head of BU or RegionGroup CEOChairman
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Building a Board to Tackle the Future ɳ In addition to key tasks such as CEO succession planning and remuneration, boards need to respond to new
challenges like cyber security, shareholder activism, the industrial Internet and board composition regulation. ɳ In order to prepare for the future, industrial goods boards must bring in diverse skill sets, as well as board
members who appreciate the industrial Internet and who can help steer real transformation.
THE PROPORTION OF FEMALE AND MALE INDUSTRIAL GOODS BOARD MEMBERS IS SIMILAR TO THE F100A
THERE IS AN OPPORTUNITy TO REFRESH PERSPECTIVES ON INDUSTRIAL GOODS BOARDSA
NEARLy A THIRD OF INDUSTRIAL GOODS BOARD MEMBERS HAVE BEEN ON THEIR BOARD FOR OVER 8 yEARS
INDUSTRIAL GOODS BOARD MEMBERS ENCOMPASS A VARIETy OF INDUSTRy EXPERIENCE AND NATIONAL DIVERSITyA
KEy POINTS
ɳ Build a diverse board that can help to future-proof the business.
ɳ Conduct regular director and board evaluations—this will help ensure that director performance is aligned with the company’s strategic objectives.
ɳ Monitor all advance warning signals. Assess and address vulnerabilities and maintain an effective, ongoing shareholder outreach programme.
IndustrialGoods F100
25% 75%22% 78%
<3 YEARS31%
3-5 YEARS25%
6-8 YEARS13%
>8 YEARS31%
26% 27%
38% 39%
30%31%
5% 4%
A Quarter of IndustrialGoods Board Members
are 68+
AGE OF INDUSTRIALGOODS BOARDS
AGE OFF100 BOARDS
Under 5050-59
60-6768 and over of Board Members currently
hold an executive position
21%
30%
46%
Are of the same nationality as the company headquarters
77%
IndustrialGoods
FinancialServices
20%Government
Executive Experience of Board Members
TRADITIONALCONCERNS FORBOARDS
NEW ISSUES REQUIRINGBOARD ATTENTION
RISK
CEO SUCCESSIONCYBER SECURITY
REMUNERATION
GOVERNANCE
SHAREHOLDERACTIVISM
BOARD COMPOSITIONREGULATION
INDUSTRIALINTERNET
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CAPITALISING ON THE INDUSTRIAL INTERNET
A “GE unveils new high-speed network for Industrial Internet”, timesunion, July 16, 2015B “Siemens to build open cloud platform for industrial customers”, Siemens, March 12, 2015C “Tours show off GE’s Brilliant new space in Niskayuna”, The Daily Gazette, July 16, 2015D Russell Reynolds Associates interviews, 2015E “IoT a reality in maritime tracking”, IT Online, November 2, 2015F Digital Pulse Survey, Russell Reynolds Associates, 2015G Productive Disruptors: Five Characteristics That Differentiate Transformational Leaders, Russell Reynolds
Associates, 2015
FOSTERING INNOVATION TO FUEL GROwTH
A “The 2014 EU Industrial R&D Investment Scoreboard”, European Commission, 2014B The World’s Most Innovative Companies in 2014, Forbes, 2015C Proprietary research, Russell Reynolds Associates, 2015
CREATING AN AGILE AND FLEXIBLE SUPPLy CHAIN
A “Digitization of the supply chain: How ready are you?” Russell Reynolds Associates, 2015B Proprietary research, Russell Reynolds Associates, 2015
IDENTIFyING AND DEVELOPING NEXT-GENERATION LEADERS
A Russell Reynolds Associates’ proprietary analysis of CEOs of 32 of the largest industrial goods companies globally, 2015
BUILDING A BOARD TO TACKLE THE FUTURE
A Proprietary research, Russell Reynolds Associates, 2015
Endnotes
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GLOBAL OFFICES
Americas
ɳ Atlanta ɳ Boston ɳ Buenos Aires ɳ Calgary ɳ Chicago ɳ Dallas ɳ Houston ɳ Los Angeles ɳ Mexico City ɳ Minneapolis/St. Paul ɳ Montréal ɳ New York ɳ Palo Alto ɳ San Francisco ɳ São Paulo ɳ Stamford ɳ Toronto ɳ Washington, D.C.
EMEA
ɳ Amsterdam ɳ Barcelona ɳ Brussels ɳ Copenhagen ɳ Dubai ɳ Frankfurt ɳ Hamburg ɳ Helsinki ɳ Istanbul ɳ London ɳ Madrid ɳ Milan ɳ Munich ɳ Oslo ɳ Paris ɳ Stockholm ɳ Warsaw ɳ Zürich
Asia/Pacific
ɳ Beijing ɳ Hong Kong ɳ Melbourne ɳ Mumbai ɳ New Delhi ɳ Seoul ɳ Shanghai ɳ Singapore ɳ Sydney ɳ Tokyo
Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for boards of directors, chief executive officers and key roles within the C-suite. With more than 370 consultants in 46 offices around the world, we work closely with public, private and nonprofit organisations across all industries and regions. We help our clients build teams of transformational leaders who can meet today’s challenges and anticipate the digital, economic, environmental and political trends that are reshaping the global business environment. Find out more at www.russellreynolds.com. Follow us on Twitter: @RRAonLeadership.
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RussellReynolds.com
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