New profile additions in the C-suite – Chief Growth Officer (CGO)

In recent months, organic growth has risen to the top of the corporate agenda. A Marakon survey in April 2004 found that organic growth is the key issue for 59 percent of the senior executives running US, European and Asian companies. For 57 percent, the priority has increased over the past year. Other studies highlight similar sentiments. For instance, a recent IBM survey of CEOs worldwide found revenue growth is the top agenda item for four of five.

Most if not all of a company's resources are spent moving through its corporate lifecycle, and that movement is typically fixed along a predetermined path. What happens when that company experiences rapid sales growth and an immediate change is required?

What happens when a rapid shift must occur due to unexpected competitor activity or due to a recent exodus of staff in light of the current labor shortage?

The challenge today is that with companies running lean and efficiently they cannot typically afford the time, money, and people required to deal with these issues effectively. They usually cannot afford the expensive trial-and-error associated with both learning and implementing new best practices, either. This is as true for Fortune 500 companies trying to reinvent themselves as it is for startups just entering the marketplace and experiencing fast growth.

Growth has become so important that an increasing number of companies--H.J. Heinz, Interpublic Group and Hain Celestial, among them--have carved out a new executive position: "Chief Growth Officer."

Popularly termed as Mr. Idea, this profile is basically to have one person in charge of all-around growth helps you to look at business processes holistically. Typical role entails creating new products, finding new ways to repackage old products, or just enhancing relationships.

A CGO is like having 5 key positions in one:-
1. Chief Growth Officer/Organization Development Director
2. Chief Information & Technology Officer
3. Chief Learning Officer (Top HR Executive)
4. Chief Operating Officer
5. Strategic Advisor

Generic job responsibilities:
- Evaluates the corporate structure and ensures that the structure is aligned with the company's objectives.
- Analyses effects of proposed changes to structure and its effect on the motivation and work/life balance of employees.
- Works with managers to develop effective line of communication and chains of responsibility.
- Requires a bachelor's degree with at least 10 years of experience in the field.
- Familiar with a variety of the field's concepts, practices, and procedures.
- Relies on extensive experience and judgment to plan and accomplish goals.
- Performs a variety of tasks.
- Leads and directs the work of others.
- A wide degree of creativity and latitude is expected.


Fig: Org Structure

Companies like Colgate Palmolive, Dentsu Media, Thomas Group, Zurich Financial Services, Hershey Company, TradeKing, H.J. Heinz, Interpublic Group and Hain Celestial etc. have already hired renowned professionals for this profile.

According to a recent job post for this profile, following are the expected qualities of this profile: -
# Identify root causes for missing opportunities and create conditions for growth
# Focus on new business models that leverage enabling trends, solve customer problems in larger potential markets and rapidly assemble internal and external capabilities required to build the platforms
# Validate ideas and achieve milestones in the development and execution of new business opportunities
# Promote new product development
# Design and build an organization to screen, select, fund and deliver the company Enterprise Growth
# Agenda and support Group Growth Agendas; define the mission of the organization and establish budget and investment requirements
# Support the CEO and Group VPs in shaping their enterprise and group growth agendas and related plans and priorities
# Understand future trends and targeted domains/markets and related dynamics
# Identify domains in which the company should seek opportunities to build a leadership position; explore big potential opportunities, (which customers could the company work with to prototype/build out the opportunities? what core capabilities can be leveraged in this new and emerging opportunity space?)
# Identify the systemic and interrelated challenges that drive towards and away from growth; align key elements of infrastructure and culture/behavior to the growth goals and agendas
# Mobilize business building leaders and teams to build out new targeted businesses/growth platforms

Requirements: Critical Traits for the CGO Role:
# Abstract reasoning, flexibility and idea orientation (able to 'connect the dots')
# Assertiveness and aggressiveness (can state opinions forcefully and deal with resistance or confrontation effectively)
# Self-discipline and urgency (sense of time pressure and motivation to complete activities)
# Risk taking (willing to try new things and explore new domains)
# Natural curiosity with bias for action exploring possibilities
# Ego drive and ego strength
# An undergraduate degree is required

Critical Experiences:
# Experience in strategy development with a history of innovation and passion for growth
# Track record indicating focused time to the external environment, customers, and external networking

US Institutional Fixed Income Asset Management Industry

Market Size

# The U.S. fixed income market is one of the largest securities markets in the world with more than $29.2 trillion in outstanding debt according to SIFMA as of September 31, 2007.
# The average daily dollar value traded rose from $274.0 billion in 1996 to $508.9 billion in 2001 and $889.8 billion in 2006.

Market Segmentation

# The retail fixed income market accounts for approximately 70 percent of the total fixed income transactions and is expected to expand as 75+ million baby boomers enter retirement and begin shifting investment assets from growth to preservation strategies. Institutional fixed income market accounts for the remaining 30% of the total market share. (Source: Knight Capital Group, Inc.)

Institutional asset management industry has become an important feature of modern financial markets, with the scale of this business’s importance readily apparent from the size of assets under management by different types of institutional asset managers. The growth of the professional asset management industry has been a key feature of the structural changes in the international financial system, a development with implications for many different aspects of the financial landscape - market turnover, securities issuance, international capital flows, market stability, industrial organization and corporate governance. A wide variety of institutional investors, with professional asset managers, has emerged - pension funds, insurance companies (life and non-life), and investment companies (of all kinds).

Market Trends

The sources of profitability & growth in the industry are shifting rapidly as evidenced by the following major trends:

=> With asset management involving a delegation process, shaping appropriate incentive structures is essential for aligning the incentives of owners of funds with those of the institutional managers of these funds.

=> As the industry is still regarded as an evolving business, its strong recent growth is expected to continue well into the foreseeable future. As a result, structural changes in the industry, to the extent that they affect asset managers’ incentives, are likely to have their effect on their decision-making and, possibly, market outcomes. Ongoing industry trends have therefore an obvious potential to change institutional investor behaviour in ways that can be important for global financial markets.

=> Traditional products are now trapped in a vise-like squeeze, with higher alpha and "cheap beta" products again capturing almost all asset growth;

=> The most successful traditional firms dramatically grew both their revenues and profits from alternatives, with these products now accounting for more than one-third of institutional revenues – up from almost nothing only five years ago;

=> As a result of both these trends, retail and institutional net prices have now almost fully converged, with major implications for client segment attractiveness;

=> The defined benefit market is far from dead, but flows are undergoing a radical shift, with higher-alpha, fixed income and cheap beta products the main sources of growth.

Consequences

While the industry overall remains highly profitable, firms that are unable to adapt to these changes will have a hard time maintaining future growth and profitability. Indeed, a direct consequence of the shifting sands of growth and profitability is that most firms continue to struggle to gain real operating leverage.

=> Even in this rapidly moving environment, the effective use of scale remains the dominant characteristic of the most successful asset management firms. Players pursuing any one of three "winning" business models – at-scale, multi boutique and focused-asset players – remain almost twice as profitable as those that do not. Moreover, firms following these models appear better positioned than their peers to adapt to the shifting sources of industry growth and profitability.

=> These rapid industry shifts pose a real challenge for firms' middle and back offices. Indeed, operations and technology have taken on a new strategic imperative, in particular around innovation, customer service, and efficiency; with leading asset managers already recognizing that the payoff for aggressively managing O&T has never been more compelling than it is today.

=> Broadening array of asset classes: The rise in professionally managed assets, both in absolute terms and as a share of overall financial wealth, was complemented by rising interest in non-core markets and, recently, some growth in funds placed with unregulated asset managers.

Sources: McKinsey and CGFS

Profile of Tata Companies - An analysis

Excerpts sourced from Economic Times and TNN


TATA MOTORS

Competencies & Opportunities: Tata Motors has some new offerings on the block. This includes the 200-500 horse power ‘World Truck’ for the global market. It has also taken a huge stride to grow inorganically by acquiring the business of Ford under the brands, Jaguar and Land Rover. New models such as Sumo Grande and the Rs 1-lakh Nano car are likely to give a fillip to the domestic business.

Challenges: Higher interest rate may dampen the demand for cars. Rising cost of key raw materials such as steel and aluminium will put pressure on margins. Turning around of the Jaguar Land Rover business into a higher profitable business is a major challenge. Positioning of the Tata brand over such a wide variety of vehicles segments starting from the cheapest Tata Nano to the luxury brands like Jaguar will not be easy.


TATA STEEL

Competencies & Opportunities: The Corus acquisition will give Tata Steel the access to global markets and higher volumes. The strong outlook for global as well as domestic steel sector will improve sales realisation. Acquisition of iron ore and coking coal mines in different parts of the globe will improve the operating margin of Corus and contribute more towards the bottomline of the combined entity. The new greenfield and brownfield projects in Orissa, Jharkhand and Chhatisgarh will add significantly to the topline.

Challenges: The higher inflation and pressure from the domestic government might force steel producers to reduce domestic steel prices, resulting in lower profit margins. The higher synergy from Corus will come through only if Tata Steel manages to integrate it successfully.


TCS

Competencies & Opportunities: TCS has been focussing on contracts with larger deal size and time span. This helps in increasing client engagement. Broadening of deliverables will also help in improving competence in the global market for IT services. TCS has opened delivery centres in low-cost destinations of Asia and Latin America. Such a multi-shore delivery strategy comes in handy in times of economic slowdown and lower IT spends by the clients. Presence in the domestic market is worthwhile in the scenario of a stronger home economy and depreciating dollar.

Challenges: Exposure to dollar denominated income increases risk of margin erosion given appreciating rupee. Slowdown in the US may impact the IT budgets of the US clients. This may retard the topline growth. Competition from MNCs in India will intensify. TCS has to come up with firm strategies for its domestic business.


TATA POWER

Competencies & Opportunities: Tata Power is India’s largest private sector power utility with installed capacity in excess of 2,300 mw. Over 600 mw new capacity is likely to be added during FY09, with another 8,000 mw capacity to be added over the next five years including a 4,000-mw UMPP at Mundra. TPL has acquired a 30% stake in two major Indonesian coal producers to assure future fuel requirements. It is emerging as an integrated player in India's power sector with investments in power generation, transmission, distribution and fuel supplies (coal mining and transport).

Challenges: Meeting the time and cost deadlines while executing the long gestation projects is a big challenge as the costs of equipment and project implementation services have gone up substantially. Even after the successful completion of its projects, TPL has to manage the regulatory environment well to ensure sufficient return on its investments.


INDIAN HOTELS

Competencies & Opportunities: Indian Hotels runs the largest domestic hotel chain with 71 hotels and an inventory of 10,487 rooms. It enjoys presence across wide range of hotels right from deluxe properties to budget. This puts the company in a bright spot and helps it take advantage of the growing tourism industry in India. Besides, the company has 14 properties overseas and is expanding its global footprint via acquisitions and greenfield ventures. This is likely to result in greater brand recognition abroad. Its recent entry into lucrative segment of business jets will help the company to take advantage of growing opportunities in this space.

Challenges: Its revenue is greatly dependent on India, where average room rates are expected to see a decline beyond FY09 when supply starts coming in. Rising real estate costs have greatly reduced the return on capital on new properties in major cities.


TATA TEA

Competencies & Opportunities: The company has taken initiatives to introduce different variants of tea. It has also forayed into bottled water and other beverages. This is likely to help it transform itself from a tea company to a beverages company. Acquisitions, geographic expansion and new products are the way to go for Tata Tea, which is already the second largest integrated tea company in the world. Its retail foray through ‘Chai Unchai’ beverage stores is likely to open a new route of growth for the company.

Challenges: Tata Tea operates in a labour-intensive tea industry, which has long gestation periods. This can be an imepdiment in improving operational efficiency. The company will have to grapple with the increase in raw material prices. The appreciation in the rupee is likely to drag profitability of the international businesses.


TATA COMMUNICATIONS

Competencies & Opportunities: Utilisation of existing infrastructure to deliver valueadded services is a sound proposition for Tata Communications. The company recently tied up with Telsima to provide WiMAX services in the country. It has also launched its global telepresence network service to offer virtual meeting solutions. These initiatives will fuel future revenue growth. Tata Comm’s strategy to build global tie-ups for high-end technologies will help it keep pace with the fast-changing technology scenario and improve its global presence.

Challenges: Tata Comm needs to increase focus on deploying managed services, given the stiff competition in domestic as well as global enterprise data space from bigger telecom operators. The company has to improve operational processes in order to increase customer base for its broadband and other services rapidly.


TATA CHEMICALS

Competencies & Opportunities: The recent acquisition of US-based General Chemicals has consolidated position of Tata Chemicals (TCL) in the global soda ash market. Post-acquisition, TCL has become the second largest soda ash manufacturer in the world with majority of the production coming from cheaper natural sources. This goes well with its overall global strategy. TCL is already on an expansion spree for its inorganic chemicals and fertilisers plants in India. This will help it to strengthen its domestic presence. TCL is setting up a 30,000-litres-per-day ethanol plant and has ventured into wholesaling of fresh agricultural produce. This diversification would help in mitigating risk from slowdown in the core business.

Challenges: TCL has to see through an effective integration strategy of its soda ash business with the overseas acquisition. Managing overall growth of the company will be a tough task given the diversification into new business domains.


VOLTAS

Competencies & Opportunities: Voltas is a market leader in central air-conditioning and climate control business in India, besides being a major player in booming West Asia. It is also India's leading distributor and re-seller of textile and mining equipment. Recently it went through a corporate restructuring which has transformed it into a leaner and competitive player. The demand for central A/Cs and climate control systems is booming, thanks to rapid growth in retail, real estate and hospitality sectors. It has also got a boost from strong capex in textile, mining and retail sectors where it supplies forklifts.

Challenges: Being a capital goods supplier, it's highly prone to an economic downturn. It faces strong competitors across its product portfolio. The consumer air-conditioner business continues to be a drag on the company's profitability.


TATA TELE (MAHA)

Competencies & Opportunities: The company is aggressively expanding its base in smaller circles. Increasing presence in high-growth telecom circles B and C will help the company grow its subscriber base rapidly from existing five million.

Challenges: Higher competition is likely to put further pressure on the company’s average revenue per user. This necessitates more focus on value-added services. The company currently provides mobile services on CDMA platform. Establishing a GSM footprint would be a challenging task given competition from bigger GSM players. The company needs to expand its operations in the field of managed services to stay competitive. The company lacks brand recognition. It has to establish its brand presence in the highly competitive
markets.


TITAN IND

Competencies & Opportunities: Titan has diversified into a wide consumer-centric product portfolio comprising time pieces, jewellery, eye wear, and precision equipment among others. A good pedigree, reputed brand standing and strong distribution and service network offer good prospects for the company to ride the boom in consumption. Expansion of retail stores, specially in tier II cities, will help the company increase profitability.

Challenges: Record high gold prices can lead to a drop in jewellery demand, restricting the company's growth in the business. International foray may not be very profitable in view of the global economic slowdown. Branded retail segment is fraught with intense competition. Dominance of unorganised players in the lower end of the watch market poses a challenge. Given rising incomes, Titan may have to face competition from international brands in the premium watch category.


TRENT

Competencies & Opportunities: After establishing its foothold in retail space through Westside stores, Trent is taking new initiatives of foraying into the premium segment. Recently, it joined forces with the Benetton Group for the expansion of the Sisley brand in India. It is tying up with designers to mark its presence in a range different from the private labels. This will help the company face stiff competition in the domestic retail space. Trent has reported good growth in the past few years. Revenues have grown consistently (CAGR of 55% from FY04-07). A sustained revenue model is necessary as it facilitates future expansion plans.

Challenges: The roll out of new stores has not been aggressive. The company has added only 19 stores from ’03 till date. Faces competition from aggressive players such as Pantaloon and new entrants including Reliance Retail.

Brain drain is passe, India a hot destination for CEOs

Excerpts sourced from Rediff.com

The Indian office of a leading multinational mobile phone company is facing an unusual challenge. It is losing top executives who have declined senior-level assignments abroad because they do not want to miss opportunities in India.

The brain drain, it seems, is passe. India is becoming one of the hottest destinations for expatriates (both those of Indian origin and foreigners) for top jobs. That is because big business houses in India are ready to offer pay packets that are equivalent to and sometimes more than global benchmarks.

This is a key finding of a study of senior recruitment trends by US-based SpencerStuart, a leading executive search firm that specialises in recruiting CEOs, presidents and COOs for companies globally.

SpencerStuart, which has operations in India and recruits CEOs for almost half the Fortune 500 companies, said for key sectors like retail, real estate, power, oil and gas and refining, transportation and logistics, Indian business houses are offering annual salary packages ranging from $750,000 to $1.5 million - excluding stock options.

Nearly half the CEOs and COOs recruited in these sectors are foreigners (including non-resident Indians).

CEO salaries in these sectors are nearly double what companies pay in other sectors, which could range from $350,000 to $750,000.

"Expats are increasingly finding India a more exciting market in which to work than mature markets. And large Indian companies in certain sectors are willing to match if not better global salaries to get talent which is difficult to get in India," said Anjali Bansal, managing director of SpencerStuart.

In fact, she added, multinationals are finding it difficult to woo Indians at the senior level to take up foreign postings abroad.

As a strategy, SpencerStuart has advised clients to shift regional headquarters from, say, Singapore or Hong Kong to India so that senior Indian executives can operate as heads from India. Several companies are considering this option.

SpencerStuart also said certain countries have been identified for CEO recruitment for India. Contrary to common belief the US is not the favoured recruitment ground.

In real estate the happy hunting grounds include Australia, south east Asia and the UK, amongst others. For oil and gas and power they are Kazakhstan, the North Sea area, Canada and West Asia. For retail the hottest recruitment grounds are West Asia, south east Asia (especially Hong Kong) and Europe.

Bansal said that the recruitment ground is essentially from countries that have seen similar development as India.

Future of IT / ITES / KPOs

We seem to have come a full-circle actually. Outsourcing started with low end menial data entry jobs that were discrete and modularized tasks, not interwoven into the company’s real-time environment. Then we graduated upwards to application maintenance, then onward to application development and then design and system architecture work. Call center and BPO brought about a mission-critical real-time and process driven mode of outsourcing with SLA and metrics based performance measures. With the rise of KPO, the emphasis is now on skills-based and decision-making type of work that is neither “mission-critical” nor “real-time” – yet it is more intimately tied to the top-line performance of companies than ever before in the past. With KPO, there are no metrics, no SLAs, no cultural or accent issues, no time-zone barriers and a productized consulting model that is driving a new breed of companies. With a combination of data aggregation, research, analytical, modeling and consulting skills KPO is redefining the boundaries of outsourcing.

According to me, some of the major drivers were:

• BPO found a niche customer due to a huge demand in back office customer support. BPO was and is mainly successful due to costs effectiveness and the availability of cheap labor – it found a huge pool of workforce as the unemployment rate among English speaking graduates was very high. It created a perfect sector which could find an effective solution to all its workforce requirements among the huge pool of university English speaking graduates.

Slowly countries like India found that although BPO was exploiting the general mass of graduates yet another potential pool of qualified engineering, medical, legal, financial professionals was untapped. There was a clear synergy between the mid-level staff across various companies in US & European regions and this pool in India. Gradually it was realized that the mid-level staff which is mainly involved in offering knowledge based services can be replaced with the pool of talented professionals in countries like India at a much lower cost.

• We can say that BPO has slowly reached to a stagnant point as the factor of realization of using BPO services in new avenues is decreasing. OR we can quote unquote what most industry insiders feel - With the opening of the world economy, many surprises have taken place in the business scenario. This is true for countries across the globe both from outside and within the countries.

The western world has started realizing the potential and the importance of smaller countries of Asia in providing quality services at much lesser rates and are treating this fact as a revolution. Similarly, within the Asian countries revolutionary trends are taking place in terms of expansion and spread of service providers to small cities. BPO is giving place to a new name i.e. Knowledge Process Outsourcing (KPO).

Now coming to what could be the next stage of transformation: - According to NASSCOM, KPO is expected to reach $17 billion by 2010, of which $12 billion would be outsourced to India. In the future, it is envisaged that KPO has a high potential as it is not restricted only to IT or ITES sectors, and includes other sectors like Intellectual Property related services, Business Research & Analytics, LPOutsourcing, Web Dev. Application, CAD/CAM, Finance & Accounting Management, Clinical Research, Publishing, Market Research etc.

Taking into account the huge potential of intellectual property within India, I strongly feel that next stage of KPO could be a more evolved involvement ie Consulting. As of now, we are only creating the groundwork and consultants abroad use our findings to offer advisory services to their clients. In the next 2-3 years, India could become a One Stop Shop for research, analytics as well as Consulting and Advisory services. Hence future IT/ITES SMEs in India would evolve themselves as Consulting Companies.

Indian M&A Deals Update (Mar-July 07)

North America and Asia were the favourite hunting grounds of India Inc on global acquisition chase as the takeovers deals in these region touched $7 billion and $4.2 billion in the first four months of 2007-08, according to Assocham Eco Pulse Study (AEP). India Inc's global acquisition deals have been worth $15.3 billion. Deals with US-based companies worth $5.1 billion were accomplished during the period April-July 2007 as tracked by the AEP in Study on Mergers & Acquisitions during April-July 2007-08. Tata Group was at the forefront with their total deal values worth $2.13 billion in steel, hospitality and automotives sector. Essar Group acquired Minnesota Steel for $1.65 billion in the US. Reliance Communication expanded to US communications market by acquiring Yipes for $300 million while Infosys plans to acquire Phillips Global for $200 million. Another big acquisition was that of Globeleq by D S Construction for $542 million.

"The equation of business relations with the western countries is undergoing a significant change. Indian business leaders are aiming inorganic expansion through the most industrialised country of the world", said Venugopal Dhoot, President, Assocham, commenting on the success of Indian entrepreneurs in acquiring high value companies based in US. Metal companies in Canada were traced by the Indian bluechips with the war chest of $1.7 billion. Whereas Essar Global acquired Algoma Steel for $1.58 billion, Aditya Birla acquired announced take over of Utkal Alumina International for $0.19 billion. Among the Asian countries, Vietnam was the largest receiver of the deal money as Tata Steel entered into a joint venture with Vietnam Steel with 65% stake for $3.5 billion. Indonesia, Israel and Singapore are the other nations.

12 August 2007, Excerpts sourced from Financial Express

How Toyota develops exceptional people

Excerpts sourced from Rediff.com

Leading Toyota authorities Jeffrey Liker and David Meier give you the keps to growing top performers from within through a detailed preocess of preparation, traning, and follow-up. Here are Toyota's secrets to building an exceptional workforce . . .

No one seems to be sure of the exact course of events that led to the development of the Toyota Production System (TPD) as it is today, but we are sure that without highly capable people the current system would quickly disintegrate. We know that in the early development of TPD, its chief architect, Taiichi Ohno, wanted to press forward with some of this ideas and discovered that people were not ready.

When he went to work to achieve single-piece flow in a machine shop and he needed multiskilled workers, he encountered resistance and learned that he had to be patient and to think about developing people who would be able to support the methods. He could not simply order people to flow the rules (although he was known as being very forceful when necessary).

He needed people with thinking capability because of the challenges resented by the application of his new ideas. In fact, the real purpose of creating flow was to bring problems to the surface, which would force people to think about solving the problems and to help them to develop their abilities. A select few front-office experts could not possibly deal with all the situations that would surely arise as Ono pressurized the system, thereby forcing failures. He needed capable masses.

The development of capable masses requires a clear plan. It requires time and patience. Above all its takes persistence and the willingness to stick with it and to deal with the individual peculiarities and challenges of each person.

When Taiichi Ohno discovered the importance of highly capable people, he sought a method of teaching that would support his needs. He believed he had found such a tool in the Job Instruction (JI) Method taught by the American occupation forces after World War II.

It has been the primary teaching tool for all of Toyota since 1950s. Today the capabilities of Toyota employees are a hallmark of the company. We often talk to managers of other companies who view the capability of Toyota employees to be some sort of anomaly or option that is open only to Toyota.

The truth is that Toyota does like to start with good people who posses the capability to become exceptional employees. The people whom Toyota selects must have the capacity and desire to learn. Those are the only absolutes. In fact if one were to look closely at Toyota employees, one would find a broad spectrum of humanity similar to that in any other company -- with all the beauty and blemishes found anywhere.

Toyota employees bring to bear issues similar to those of other companies, such as attendance problems, resistance to change, lack of motivation, and even reluctance to accept the philosophy of TPS.

What allows Toyota to be successful in spite of these challenges is the efforts and interest in drawing out the best of the employee's abilities and initiating possible solutions (rather than a shrug and the 'What are you going to do?' attitude we hear from other companies). Perhaps Toyota has recognized the reality of human behavior and limitations, and it has created systems that minimize those limitations or take advantage of human desire.

People are carefully selected to join Toyota based on their potential and a judgment that there is a fit with the job and with Toyota's culture. They must have some general problem-solving capability and be willing to work as part of a team.

People develop specific capabilities after they are hired at Toyota. It is Toyota's expectation that it will mold the individual to fit the needs of the organization as well as support the interests of the individual. It is this mutuality of purpose that leads to more satisfied employees who are able to perform in exceptional ways.

One must not assume that Toyota is completely altruistic in its efforts to develop employees and to provide engaging activities. The objective is to provide benefits for the employees, which in turn also returns benefits to the company.

Toyota often creates situations in which there is an equal balance between reward and punishment in order to encourage the desired behavior. For example, given the critical nature of attendance on the performance of the system, a high emphasis is placed on having great attendance (perfect attendance is preferred).

On the reward side, Toyota Motor Manufacturing Kentucky (TMMK) has an annual award ceremony for all employees who achieved perfect attendance in the previous year (over 60 percent in 2005). The award ceremony includes entertainment from some top acts in the country including jay Leno, Bill Cosby, and Brooks and Dunn. In addition, each person has his or her name placed into a hat, and 14 winners are drawn, each receiving a brand new car (a mix of Camrys and Avalonds). To sweeten the pot, each team member with consecutive years of perfect attendance will have his or her name added to the hat an additional time for each year of consecutive perfect attendance.

In 2006 there were more than 400 employees who had achieved 15 consecutive years of perfect attendance (the length of the program)!

On the punishment side, repeated unexcused absences are one of the easiest ways to lose a job at TMMK. The policy is fairly strict and is weighted heavily on attendance history and also the circumstances. Consideration is given for good reasons, but repeated absences for poor reasons are sure to lead to discipline. A flat tire is not considered a 'good' reason, for example, but the effort a team member makes to reduce the time loss is in his or her favor.

If a team member has a flat tire and misses the entire day, it is not viewed favorably. And apart from the fear of being fired, sitting home while all your team associates are at the big bas hoping to win a car is its own punishment.

Human Capital Trends in Indian Automotive Sector

The success of Indian enterprise has encouraged foreign companies to also set up their base in India. Thanks to many Korean, Japanese, European and US auto firms for investing in India and for linking their prosperity to India’s future. All these firms, Indian and foreign, are contributing to making India an automotive and industrial powerhouse, making us a global manufacturing hub.

Amidst this phenomenal growth, there are numerous trends and developments being experienced across the human capital / resources function within the Indian automotive sector. Discussed below are excerpts of some of the available articles and editorials on this topic.

Trend 1: Reverse brain drain for Auto R&D

According to Booz Allen Hamilton, R&D spending in India has grown by 17% in 2006 whereas, comparative figures in US and Europe is only 5.2% and 2.3% respectively. With globalization, Indian corporate segment experience more and more challenges in market competitiveness and product innovation. Indian strategists are focusing on making their R&D investments judicially to get higher research output in lesser costs. Corporate India seems to have realized that product innovation is the key to survival and may serve the best competitive strategy for sustenance.

According to the Society of Indian Automobile Manufacturers, there are already over 250 Indian expatriates who have returned to work on R&D in domestic automobile companies Mahindra & Mahindra, Ashok Leyland, Tata Motors and Hindustan Motors. SIAM predicts that their numbers will double in two years.

With investments of over Rs 100,000 crore lined up in the Indian automobile industry, and European and US car majors making an aggressive push into India, Indian car companies have begun to understand the significance of R&D. Investments are small -- R&D budgets are just 1 to 2 per cent of domestic car makers' turnover -- but are expected to grow rapidly. "The return of expatriates is helping the Indian companies to overcome their human resource challenge in the field of research. The significant development of the automotive industry is now a magnetic proposition for qualified people to return and harness their knowledge," said Dilip Chenoy, director general, SIAM.

SIAM has set up a society in the US known as the Association of Scientists of Indian Origin that taps Indians working in the automobile majors there and provides access to domestic firms to identify and recruit talent in engineering and R&D. There are numerous examples.
# Arvind S Bharatwaj, for instance, took a 50 per cent cut in his salary in General Motors in the US to return to India and now heads the advanced engineering unit of Chennai-based Ashok Leyland. He has been blending the use of electronics and engineering (infotronics) in commercial vehicles to come out with new high-tech products for the company.
# Pawan Goenka, also returned after a 14-year stint with General Motors' global research and development centre in Detroit. He now heads the automotive division in Mahindra and has been the force behind the introduction of Scorpio, the most successful SUV ever launched in India. He has also prepared the blueprint to sell the Indian SUV in the US.
# V Sumantran, who was closely associated with GM's futuristic EV1 electric cars project and then played a key role in Tata Motors' small car before he quit, now advises Ashok Leyland on developing battery-operated hybrid trucks and buses.
# Raja Pant left the design development facility of Ford Motor Company in the US and is now with the body fabrication business of Tata Motors.
# Sudhir Rao, who was with General Motors engine development operations in Detroit, now works with Avtec Engines, a unit of Hindustan Motors, which supplies engines to Mitsubishi Motors and General Motors India.

Source: Business World

MY SAY
=> Although there are only few examples, more and more Indian R&D executives will come back to India.
=> As several Auto biggies have already started setting up their R&D centers in various locations of India, availability of these brains will consolidate & position India as the next R&D hub.
=> Cars in the near future will have a touch of Indian-ness in their designs.
=> After BPOs and KPOs in ITES Sector, manufacturing sector and more specifically its R&D function is going be the next BIG THING in India.

Trend 2: Auto sector in south Indian state to create 500,000 jobs

The automobile industry in Tamil Nadu in south India will be able to generate as many as 500,000 fresh jobs in the next 10 years and emerge as a 20 billion U.S. dollars industry, a study by an Indian industry chamber said Monday. The study by the Confederation of Indian Industry (CII) titled "Mapping of Human Resource Skills in Tamil Nadu - 2015" said by 2015, the auto sector will employ 580,000 people.

The southern Indian state is already home to major auto companies such as Ford, Hyundai, Ashok Leyland and components firms that employ about 80,000 people. Tamil Nadu has 30 percent share of the auto components market and 17-20 percent share of the vehicle industry in India, the CII study says, adding the sector has the potential for a six-to-seven fold increase in output.

It estimates the size of the industry in Tamil Nadu will be 15 billion U.S. dollars to 20 billion U.S. dollars by 2015. The study observes that the recent trends in the auto industry include the adoption of lean manufacturing practices, quality, shift from assemblers to contract manufacturers and techno- commercial purchases. "In product development, the auto industry needs project management and problem solving skills to identify root causes for design issues," the study says.

Source: CII

MY SAY
=> Tamil Nadu would become the Detroit of India
=> Most of the manufacturing and R&D units from Auto sector would be concentrated in this region.
=> Besides, Tamil Nadu, Maharastra is also seeing such investments and could emerge as the next preferred destination for Auto sector.

Trend 3: Stats on Market Size and HR Challenges in Indian Automobile Sector

# Growth Trend
o Auto sector could grow to $145 b by 2016
o The domestic automobile market has been growing at 14.2 per cent CAGR over the past 4 years (2000-01 to 2004-05), While the auto components market has been growing at 19.2 per cent CAGR (2000-01 to 2003-04).
o The automotive sector also offers significant employment opportunities. It employs 0.45 million people directly and around 10 million people indirectly

# HR Challenges
o Insufficient skills in certain areas, including interpersonal communication, computer literacy, and product knowledge
o Insufficient training
o Insufficient numbers of high-performance customer-facing personnel
o Difficulty securing the best talent to sales and management positions
o A low awareness of career opportunities and paths within the industry, and
o A nagging image problem for the industry exacerbating these issues
o Rajeev Dubey, president of HR and corporate services for Mahindra & Mahindra Ltd., one of the 10 largest Indian business conglomerates, says that with the exception of the relatively few managers with multinational experience, India’s homegrown managers are poorly prepared to cope with global challenges arising from mergers and acquisitions, joint ventures, and entering new markets.
o Of 50 companies in the automotive supply sector, Gaurav Lahiri, operations manager at the Hay Group India in Gurgaon, estimates that only three or four are trying out cutting-edge HR practices. “It’s a case of overpromise and no deliver,” he says. “From an intellectual standpoint everyone nods their head and says strategic HR is great. Whether leaders are engaging and motivating people on the ground is a question. We seldom come across a CEO client that loves the HR managers: They’re constantly complaining about how the HR guys are clueless on the business practices.”

MY SAY
=> I strongly feel that there is very low focus on R&D in Indian companies and thats the reason why India still lacks the ability to compete on designs and technology aspects.
=> Although we have proved to the world that we can produce the best brains yet our managers lack the experience to handle global challenges arising from M&As, JVs and globalization. However, due to the increasing investment from global auto companies in India more and more best practices would be siphoned to India that will gradually give the required exposure to Indian executives. Although it would take some time but I strongly feel that in the next 10-15 years we will see some dynamic leaders in the likes of Carlos Ghosn and Katsuaki Watanabe...

Trend 4: India the latest stop for young executives

# India has become more attractive to executives seeking a chance to test their mettle in a growing market. Some 300 new foreign executives are forecast to come to India this year, according to Kris Lakshmikanth of The Head Hunters.

# According to Evalueserve, India will need more than 100,000 expatriates by 2010. In 2002, the government reported that 13,000 expats were working in the country. Yet the need goes beyond language skills to the highest levels of management. "In India, most business is at the start-up stage, so we need managerial talent," says Sudhakar Balakrishnan, director of Adecco Consulting in Bangalore.

# Indians themselves have filled some of this shortfall, as more are staying here rather than venturing abroad - reversing decades of brain-drain. The need for foreigners remains, however, whether it is for foreign companies establishing their presence in India or for Indian companies wanting experienced Western executives.

MY SAY
=> It would eventually lead to more interaction and exposure for Indian executives.
=> Indirectly this will help in the transition of best practices to Indian corporate world.
=> More and more new executives or rather leaders will emerge from India gradually.

Trend 5: Interesting development in Mahindra & Mahindra – Search process for HR

CEOs in India went outside the HR pipeline to find executives with business acumen who could add a strategic HR perspective. For example, when the leadership team at Mahindra & Mahindra wanted strong HR leadership, they hired Yale University-educated Dubey as president of HR and corporate services. In a career path not usually seen in the United States, Dubey previously had been a CEO for two companies in the Tata Group, India’s largest private conglomerate.

“I had never been part of the HR function, but I dealt with a lot of HR issues when I was a CEO,” Dubey says. Now, he leads 150 HR professionals at Mahindra & Mahindra. “We do a lot of work that’s strategic to the success of our businesses: talent management, creating synergy, creating a culture of integration, mapping, succession planning and developing a global mind-set.”

MY SAY
=> I always feel that HRs in India lack the knowledge on actual business of their company. They are always focussed on the functions, operations and designations and totally ignore the actual requirement of competencies. This leads to the hiring of candidates who eventually prove that they were wrong hires in most of the cases.
=> This practice of picking up a candidate who was earlier a CEO is a very logical and intelligent move of M&A.
=> This offers a very logical approach of hiring i.e. depending on the main corporate strategy of the company, people in the HR function should be chosen from relevant background. This will insure that HR executives will have a clear and complete understanding of not only the human capital requirements but also the competencies required to execute corporate vision.

Trend 6: Indian tech drives autoworld

From infra-red vision in headlamps to in-car Bluetooth applications, Big Auto is turning to India for top-of-the-line technology.

Auto MNCs have been wiring back-office functions to India including supply chain management and procurement functions for their global operations. What’s new is the tech edge in the latest round of sourcing. A host of OEMs due for an India debut are looking at both component and IT sourcing as part of their regional strategy. And car makers like General Motors, Nissan, DaimlerChrysler, BMW and Ford already outsource a host of back-office functions for their global requirements.

Wipro Technologies, Satyam Computer Systems, Genpact are some of the vendors involved in auto outsourcing. Says NS Bala, senior vice-president for manufacturing solutions, Wipro Technologies, “Auto companies are focussing on managing their brands. Applications like Bluetooth in car, remote diagnostics services and new systems that seek to improve safety on roads are being outsourced to India.” Wipro Technologies has eight automobile clients and a 1,000-people team developing applications for global car majors.

Genpact’s BPO has around 1,000 people engaged in finance, accounts payable, analytics, supply chain management and procurement tasks for global auto makers.

Source: Economic Times

MY SAY
=> Its too early to pin our hopes and start projecting on this market in India due to the presence of some of the best technology companies worldwide. It would be really a tough competition for all these companies to earn a share in this market.
=> As India has an edge due to cost effectiveness and availibility of talented yet cheap labour. I foresee these companies to handle all those aspects which would be backend tools or can be outsourced.

India Inc. facing an attrition rate of 20%

Increasing opportunities and employee aspirations induced by robust economic growth have led to an unhealthy attrition rate, exceeding 20 per cent for India Inc, with services sector facing the maximum brunt, an ASSOCHAM study shows.

An ASSOCHAM Business Barometer Survey on 'Attrition Problem in a Growing Economy' has revealed that attrition rate at 40 per cent is alarming in the services sector, while the same in manufacturing was 20 per cent.

Maximum attrition is taking place among employees in the age group of 26-30 years, while those with an experience of 2-4 years are most vulnerable to job-hopping, the survey covering 160 HR heads noted.

Interestingly, women employees were less prone to job changing compared to men.

"For every 10 males jumping the fence there were only two females crossing over. Even if women face the pressure of balancing the management of their families and workplace, they tend to be more stable than their male colleagues," 52 per cent of HR managers surveyed said.

With India joining the globalised world of business, the movement of workforce across national boundaries has also added to the rising level of employee turnover, according to 72 per cent of the ABB respondents.

The immediate gains in salary package was found to be responsible for job change in 61 per cent of the cases, growth potential was also rated quite high as an important reason.

Source: ASSOCHAM

Reverse brain drain for Auto R&D

Excerpts sourced from Business World

According to the Society of Indian Automobile Manufacturers, there are already over 250 Indian expatriates who have returned to work on R&D in domestic automobile companies Mahindra & Mahindra, Ashok Leyland, Tata Motors and Hindustan Motors. SIAM predicts that their numbers will double in two years.

With investments of over Rs 100,000 crore lined up in the Indian automobile industry, and European and US car majors making an aggressive push into India, Indian car companies have begun to understand the significance of R&D. Investments are small -- R&D budgets are just 1 to 2 per cent of domestic car makers' turnover -- but are expected to grow rapidly. "The return of expatriates is helping the Indian companies to overcome their human resource challenge in the field of research. The significant development of the automotive industry is now a magnetic proposition for qualified people to return and harness their knowledge," said Dilip Chenoy, director general, SIAM.

SIAM has set up a society in the US known as the Association of Scientists of Indian Origin that taps Indians working in the automobile majors there and provides access to domestic firms to identify and recruit talent in engineering and R&D. There are numerous examples.
=> Arvind S Bharatwaj, for instance, took a 50 per cent cut in his salary in General Motors in the US to return to India and now heads the advanced engineering unit of Chennai-based Ashok Leyland. He has been blending the use of electronics and engineering (infotronics) in commercial vehicles to come out with new high-tech products for the company.
=> Pawan Goenka, also returned after a 14-year stint with General Motors' global research and development centre in Detroit. He now heads the automotive division in Mahindra and has been the force behind the introduction of Scorpio, the most successful SUV ever launched in India. He has also prepared the blueprint to sell the Indian SUV in the US.
=> V Sumantran, who was closely associated with GM's futuristic EV1 electric cars project and then played a key role in Tata Motors' small car before he quit, now advises Ashok Leyland on developing battery-operated hybrid trucks and buses.
=> Raja Pant left the design development facility of Ford Motor Company in the US and is now with the body fabrication business of Tata Motors.
=> Sudhir Rao, who was with General Motors engine development operations in Detroit, now works with Avtec Engines, a unit of Hindustan Motors, which supplies engines to Mitsubishi Motors and General Motors India.

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.

Consolidation
=> 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.

Human Capital Trends in Energy, Oil and Gas Sector

Energy is one of the most essential and most visible industries in the world. So it is not surprising that in today’s increasingly complicated world, political volatility and economic struggles have a significant impact on petroleum and natural gas companies. After several years of lackluster hiring, oil-and-gas exploration and production companies are drilling for executives who can help discover new fields or extend the life of existing fields. Industry employers also are hiring senior finance executives and experienced technical professionals, such as geologists and engineers. Analyzing these trends from executive search industry’s perspective it can be concluded that all these recent developments and macro-economic factors affecting energy and utilities sector are going to create an immediate requirement for experienced and talented leaders to tackle these issues. Eventually, executive search and HR consulting firms will get new opportunities from all these developments to consolidate their positions in a sector which till date was quite unexplored.

This article takes into account all these industry trends and macro-economic factors and analyzes the underlying opportunity for Executive Search, HR Consulting, Management Appraisals and Talent Management services in this sector.

Deregulation
Leading executive search firms are consulting with a number of utilities to identify senior managers with the skills necessary to lead their organizations’ transition to the competitive market. The industry requires leaders with deft management skills, international experience and the ability to navigate politically charged situations. This is especially critical as companies expand operations to capture growing reserves in countries such as Russia, and reach new markets, most notably in China.

Instability in Oil producing regions
As many of the world’s main oil producing regions are unstable, petroleum and natural gas companies require leaders with the financial and technological expertise to monitor and reduce their organizations’ risk and liabilities.

Following factors are forcing companies to look overseas for new finds.
# Domestic reserves are dwindling,
# Oil and gas prices have risen at the wellhead, making exploration and production more profitable.
# Rise in prices also boosts overall company valuations, making it more expensive for companies to grow through mergers and acquisitions.

"Companies want to add more through the drill bit than by trying to acquire," says Richard Preng, managing director, global energy, in Houston for recruiter Spencer Stuart. Domestic oil-and-gas companies are clustered in Texas, Colorado and Oklahoma, so U.S. demand is strongest in oil-and-gas centers such as Houston, Denver and Oklahoma City, notes Michael Saunders, a recruiter with the Energists, a Houston-based search firm, who describes hiring activity in these cities as "quite buoyant."

Start-ups and Smaller exploration companies are springing up in major centers
Smaller exploration companies springing up in major centers also have become a hiring force. These companies typically are founded by oil-and-gas executives who have left larger players either voluntarily or as part of a layoff due to mergers or reorganizations. They're then seeking funding and teaming up to start organizations that will tap or explore reserves that aren't profitable to the oil-and-gas behemoths but can be lucrative ventures for smaller, more nimble organizations. Often, the goal of the founders is to build value quickly and then sell the new company. Their game plan is to build up the company and then sell it, so they aren't concerned with hiring feedstock for the future.

Demand is moderate to good for senior exploration executives with strong technical and international backgrounds and good track records of discovery. Small- to midsize U.S. or foreign oil-and-gas exploration companies need such executives to fill VP, SVP, or International VP of EandP roles.

Energy sector could see more mergers in '07 / Production and access challenges may drive growth
Industry experts feel that energy sector could see more mergers and acquisitions to counteract difficulty in gaining access to oil and natural gas and higher costs of getting it to the surface. Analysts expect more mergers in 2007, particularly with increased competition from state-owned oil companies that can make acquisitions unfettered by investor pressure for near-term increases in earnings or cash flow.

Fadel Gheit, an oil analyst with Oppenheimer and Co. in New York, said many oil companies are in prime financial condition with clean balance sheets and billions on hand. But he said the challenge to maintain production - let alone increase it - in the face of rising costs and competition for access could prompt companies seeking growth to go shopping. This year companies largely pumped up or streamlined asset bases with multimillion-dollar deals to buy and sell portions of each other's holdings. Such deals often involved interests in oil and gas fields in North America and the Gulf of Mexico or access to unconventional resources such as oil-soaked sands in Canada or oil shale in the United States.

"They're just seeing an increasingly challenging reinvestment environment," said Dan Pickering, an analyst with Pickering Energy Partners in Houston. "Access to foreign jurisdictions is tougher, competition from national oil companies is hotter, and host governments from across the world are extracting more money to participate." Simmons and Company International, a Houston-based independent investment bank, said in a recent research report that so-called organic replacement of reserves - or ability to replace reserves on their own rather than through acquisitions - was less than 100 percent in the last two years and likely to remain "relatively meager for some time to come." Simmons estimated that oil majors would generate $245 billion in cash flow and asset sales in 2007, and have $80 billion of that available for stock buybacks or acquisitions. Simmons also speculated on which companies are likely acquirers or likely to be acquired.

E.g. ConocoPhillips closing on its $35.6 billion purchase of natural gas producer Burlington Resources.
Anadarko Petroleum Corp. bought Kerr-McGee Corp. and Western Gas Resources for more than $21 billion to increase its North American footprint, particularly in the Rocky Mountains and the Gulf.

Statoil, Norway's state-controlled oil company, announced plans to buy offshore energy and oil operations of Norsk Hydro, Norway's largest publicly traded company. The $28 billion deal, expected to close in the third quarter of 2007, will create the world's largest offshore operator, surpassing Royal Dutch Shell.

It is speculated that potential acquirers would include Irving-based Exxon Mobil Corp., the world's largest oil company, which can best afford an all-cash deal, "but appears to be patiently awaiting one of its large peers to be selling at a steep enough discount to make the plunge." The report also noted that San Ramon, Calif.-based Chevron Corp. has spare cash as well, and Houston-based Marathon Oil Corp. has said it's seeking a Canadian oil sands partner.

CEO Movements in 2005
In 2005, 48 CEO positions changed in the energy sector (including utilities), according to Chicago-based Challenger, Gray and Christmas, a human resources consulting and research firm. Twenty-one of the CEOs retired; 12 resigned or stepped down; and 15 moved on to other companies or pursuits.

Demand for Talent in Energy Sector
Trends in the occupational structure of both mining and the utility sector:
• Employment is projected to decline especially in skilled trades and, to a lesser extent, in administrative, clerical and secretarial, transport and machine operatives and elementary occupations
• For sales and personal service occupations, small increases are expected
Replacement demands of both mining and utility sector:
• Until 2012, there is a replacement demand of (in total) 12,000 staff in administrative, clerical and secretarial occupations
• A number of other occupational groups such as personal service and sales / customer service occupations will experience growth of over 50% of current employment levels over the decade
• Managerial, professional and associate professional occupational groups are all projected to require replacements amounting to 25-35% of current employment levels.

Compensation
“The oil and gas sector is probably better compensated than most other industries, [and executive] pay tends to be higher for companies in this sector than in other industries,” according to Steve Cross, business leader for executive remuneration in the Houston office of Mercer Human Resource Consulting. (See April 2005 Mercer report, “The Wall Street Journal/Mercer Human Resource Consulting CEO Compensation Survey.”)

Talent and Experience requirements
Attractive candidates typically have 15 to 20 years of experience, with at least five years in management and a few years' working overseas, says Lue Gates-Weiss, an independent oil-and-gas industry recruiter in Houston. "The last two years have been pretty dismal, but now companies are assessing possible expansion," says Ms. Gates-Weiss. "Optimism is increasing on the hiring side." Ms. Gates-Weiss says she hasn't seen pay offers increase much for recruited executives, but compensation is rising for employees. In 2003, exploration and production (EandP) companies planned to give executives raises averaging 5.2% and exempt employees raises averaging 4.4%, according to a survey by Effective Compensation, a pay-consulting firm in Lakewood, Colo. Among the 70 surveyed companies, about 95% had short-term bonus programs for executives, managers and professionals.

Demand for Exploration Executives increasing
In larger organizations, top exploration executives are in demand to help find and oversee discoveries in foreign countries and regions, says Ms. Gates-Weiss. They must have experience negotiating for concessions, such as agreements regarding how discoveries might be shared and operated, with foreign governments for single countries or entire regions and continents, such as Latin America or Africa. "They also need a strong technical foundation plus management skills to give them commercial acumen," she says. A vice president in charge of exploration might earn a salary ranging from $200,000 to $300,000 plus a bonus, she says.

Opportunities for Outsiders
Changes in the CEO office, the Sarbanes-Oxley Act of 2002 and the complexity of financial reporting in the oil-and-gas industry also are generating searches for senior financial executives. While new hires for exploration, production and other technical positions always need strong direct-industry experience, oil-and-gas companies occasionally hire finance executives from outside the industry from sectors that typically are stronger than in the oil-and-gas industry in other areas, such as investor relations.

Technology Leaders Needed
The technology executives sought are those who can help EandP companies gain an advantage by using modern exploration technology, says John Westropp, a principal with Christian and Timbers, a New York-based search firm. He is seeking a new CEO for an early-stage company that has developed proprietary technology for the industry. Candidates should have excellent leadership and management skills, plus experience in getting major oil-and-gas companies to adopt new technology. Cash pay for the position will be about $300,000 annually, plus equity.

Demand for technical contributors -- geologists and engineers -- also is high as new EandP start-ups build their teams, says Mr. Saunders. The scarcity of skilled professionals is helping to keeping pay healthy for such candidates. A senior technical professional can negotiate an annual base salary of about $130,000 to $140,000, says Mr. Saunders.

Recruiting crisis in energy industry
While the public frets about high gasoline prices and disruptions by rusty pipelines, one of the biggest threats to future energy supply lurks in the personnel departments of oil and gas companies.

An industry expected to deliver a 50 percent increase in energy supplies by 2030 faces this expanding demand with a shrinking pool of available talent. The industry is on the verge of losing a whole generation of professionals who are reaching retirement age, creating a huge vacuum of talent and no experienced replacements. Finding and retaining qualified talent is a management problem that could turn the situation into a serious operating crisis for many companies.

This assessment comes from Damon Beyer, a Houston partner with the New York consulting firm of Katzenbach Partners. The statistics project a grim scenario for an industry that has long paid too little attention to succession planning, retention, training and recruiting.

# More than 500,000 petroleum jobs were lost between 1982 and 2000 in the United States, from a high of 860,000 in 1982.
# The average age of workers in the oil and gas industry is 49, while average ages in other technology-focused industries hover in the 30s.
# Enrollment in critical U.S. undergraduate programs, e.g. petroleum engineering, fell 85 percent from 1982 to 2003. Only 1,000 graduates are expected this year.
# A quarter of U.S. employees in the most scarce exploration and production skill sets will be eligible for retirement by 2009.
# By the end of this decade, there will be a 38 percent shortage of engineers and geoscientists and a 28 percent shortage of instrumentation and electrical workers.
# The most skilled -- and most critical -- jobs are now the hardest ones to fill. Asked to name the biggest skill gaps, executives of 22 leading energy companies named petroleum engineering (77 percent), and geology, geophysics and engineering analysis (73 percent each).

References
http://www.bizjournals.com/houston/stories/2003/11/03/newscolumn1.html
http://houston.bizjournals.com/houston/stories/2006/08/14/editorial2.html
http://www.careerjournal.com/salaryhiring/industries/energy/20040429-capell.html
http://www.guidance-research.org/future-trends/energy/occupations