Thursday, April 26, 2007

Human Capital Trends in Global Automotive Industry

In order to understand some of the major human capital issues, challenges and trends prevailing in Global Automotive Sector, I conducted a comprehensive research on the web and found some interesting findings by renowned firms like Spencer Stuart, McKinsey Global Institute, Watson Wyatt and Egon Zehnder International.

Listed below are excerpts of some of these findings:

Study 1: Changing Face of Leadership: Insights from Auto Industry (Spencer Stuart)

Required Leadership Skills
=> Alliance and partner management experience: Alliance and partner management is rated 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 and in order 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.
=> Operations experience and results orientation: 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.
=> 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. Automotive leaders also must possess the skills of an entrepreneur. 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.
=> 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. 12% of survey participants ranked finance and capital allocation as the most important functional experience for senior general management during the next 5 years.
=> 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.
=> Team-leading skills, people development experience: Another recurring theme that emerged from this 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.

Where are the leaders of tomorrow?
=> 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.
=> 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.

Succession Planning
=> 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.

Quotations from Industry Leaders
“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. 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.”
- Dr. Juergen Behrend, Chairman, Hella KG Hueck & Co.

“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.” -- Rodney O’Neal, President & COO, Delphi Corporation.

“Automotive certainly 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.” -- Emanuele Bosio, CEO of Sogefi

“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.” -- Daniele Pecchini, CEO of Comau (Fiat Group’s subsidiary)

“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.” -- 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. 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.” -- David Rayburn, President & CEO, Modine Manufacturing

Study 2: The Emerging Global Labor Market: The Demand for Offshore Talent in Automotive Services (McKinsey Global Institute)

Auto Job/Labor Market
=> In 2003 the auto sector employed approximately 3.1 million people worldwide. In 2008, this number is projected to be around 3.4 million employees, which represents a CAGR of 2.1 percent. Two-thirds of this employment is in the manufacturing and assembly of vehicles. When considering all employment in the auto sector, the theoretical maximum for globally resourced labor is 11 percent, which translates to 371,000 jobs in 2008.
=> The Original Equipment Manufacturer (OEM) automotive sector shows extremely limited adoption of globally resourced labor in the services elements of the sector. Currently, only around 1,200 service jobs (or around six in every 10,000 developed world workers) are offshored; by 2008, that number is projected to grow to around 4,500 (or around 20 in every 10,000 developed world employees).
=> A key trend among OEMs in the sector is to integrate teams of professionals across functions. This trend is a result of the perceived effectiveness of face-to-face real-time problem solving. Although small functional groups (e.g., R&D teams working on specific engine components) can theoretically be carved out and moved to remote locations, it is a process that would have to overcome significant concerns over quality (either real or perceived), cost (as small groups necessarily lack economies of scale), and the risk of component or vehicle designs being stolen by local producers.

=> The consolidation of the biggest automakers has resulted in a reduction of employment in key OEMs in the sector over the past five years. DaimlerChrysler, for example, moved from 416,501 employees in 2001 to 362,063 in 2003; General Motors shed 36,000 jobs in the same period. Going forward, some further (though more limited) head count reduction is anticipated as carmakers extract any remaining synergies from recent consolidation activity.

Study 3: Human resource issues for globalising automotive suppliers (Watson Wyatt)

The increasing globalisation of automotive suppliers poses challenges for their human resource management. To understand these challenges, the Michigan Transportation Research Institute teamed with Watson Wyatt in a study of fourteen large, international suppliers.

Summary: Suppliers are building many off-shore facilities in developing nations, particularly in Asia and Eastern Europe. Identifying the right mix of local personnel and expatriates in staffing these sites has been a tremendous challenge for these organisations. Suppliers' HR departments assist with recruitment, retention, and deployment (RRD) and the long-term workforce planning needs, but too often have only a subordinate role in that process.

=> Estimating human capital needs: Part of estimating human capital needs is determining costs of various categories of local employees in off-shore locations. Data on such costs are becoming more available, so HR departments can make approximate projections of labor costs. These costs can change rapidly, however.
Lesson: Globalisation exposes automotive suppliers to more competitors. Bidding among them for local employees drives up compensation considerably. Some decentralisation of human resources decision-making, even in suppliers that are otherwise centralised, is key to successful workforce planning for estimates of local worker availability and skill, and estimates of necessary compensation.

=> Sources of local managers: Recruiting successful local managers is difficult as well as the sources of such local managers are thin. Generally in a number of large suppliers, responsibility for recruiting local managers now rests with global human resources offices. But these firms may still recruit production workers at the local level for off-shore plants.
Lesson: Coordinate global and local HR offices, so that local production workers who aspire to management are known, and so that the company can build career paths for ambitious local employees.

=> Company growth and employee retention: The firms we studied are all growing, in considerable part through mergers and acquisitions. From an HR perspective, issues related with M&As, especially when the headquarters of the firm and the acquired company are culturally dissimilar. In addition, employees of the company being acquired, fearing layoffs, may resign.
Lesson: In making off-shore acquisitions, prepare for the possibility that the most able local employees may be the ones most open to competitor and customer job offers.

=> Importance of expatriate assignments: Survey respondents stressed the importance of good deployment of managers to satellite operations. Off-shore experience is critical in developing excellent leaders. This is especially beneficial to certain functions.
Lesson: Expatriate assignments are valuable in helping to solve the problem of executive succession.

Study 4: Globalization: foreign postings on the increase (Egon Zehnder International – GAI)

Companies are sending more managers abroad than ever, but minimising their costs, reports The Economist. According to a recent survey by Mercer, the number of international transfers from headquarters has increased at 38% of firms over the past 2 years. Yet expats, now often referred to as international “assignees” or “secondees,” are getting fewer allowances than in the past, notes the magazine. To cut costs, many firms are only expatriating employees without families. Others are offering expats “commuter” assignments that involve working abroad during the week, especially in Europe. As a result expats now tend to be under 30 or over the age of 50, with women accounting for 13 percent, up from 8 percent 5 years ago.

In a reversal of the foreign posting trend, managers from developing countries are increasingly being sent to developed countries for a spell at head office before being promoted. Having locals in top jobs can be a major competitive advantage in some countries. Yet finding local employees to replace expats is often tough and the latter are sometimes unwilling to train their successors, warns the magazine. In a sign of the times, more managers are being posted abroad without the guarantee of a job to come home to. Yet despite harsher conditions and fewer perks, foreign postings remain an attractive path to career advancement, the magazine concludes.

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