The Need For Leadership China Commercial Aircraft Forum 2008

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Information about The Need For Leadership China Commercial Aircraft Forum 2008

Published on November 24, 2008

Author: TKarlsson



Why does leadership matter to the Aerospace industry? Harvard Business School has found that leaders account for 14 percent of a company’s performance, but the impact varies. In the hotel sector, an area very closely related to the hospitality focused airline industry, the figure was as high as 40%. Another Harvard study attributes that anywhere from 30-40 percent of the performance of a company is attributable to industry effects, 10 to 20 percent to cyclical economic change and perhaps 10 per cent to the CEO. Other research has found that nearly 50% of a company’s reputation is linked to CEO reputation. In short, if the right leadership can improve performance by more ten percent, especially when considering the dismal return of our sector over the last 10 years, it is clearly an area we should be paying attention to! Here are some thought on how and why…

The Need for Leadership An Aerospace Perspective - Based on a global Heidrick & Struggles and Team SAI joint Survey Presentation To: Commercial Aircraft Forum China 2008 By: Torbjorn Karlsson Managing Partner Aerospace, Defense and Aviation Practice; Asia-Pacific November 21, 2008 0

Introduction to Heidrick & Struggles Heidrick & Struggles’ Overview We Help Clients Build Winning Leadership Teams ► An international, premier provider of executive search and ► Searches and services for Boards and CEOs leadership consulting services, including talent management, ► Searches and services supporting CEOs and the entire C-level board composition, executive on-boarding, M&A effectiveness executive group ► 50+ years of industry experience and brand equity ► Access to large, global candidate pool ► Global team of nearly 400 consultants working from more than ► Focused knowledge of candidates in specific functions and 60 locations in principal cities of the world and emerging markets industries ► Pioneer in establishing industry practices, equity billing, and ► A range of services to help them build and retain effective presence in China and other emerging markets leadership teams Global Presence Industry and Functional Search Practices With over 60 locations and more than 1,500 employees around the Global Industry Practices world, we have the resources and contacts necessary to conduct a ► Business & Professional Industrial ► global, multinational, national, or local market search. Services Life Sciences/Health Care ► ► Private Equity & Venture Consumer ► Capital Technology ► ► Financial Services Global Functional Practices Board of Directors Human Resources ► ► Chief Executive Officer Legal ► ► Chief Information Officer Research & Development ► ► Chief Marketing Officer Supply Chain ► ► Financial Officers ► Specialty & Local Practices ► Diversity Services ► Middle East & North Africa ► Education/Nonprofit ► Russia & Commonwealth of Independent States ► Interim Executives 1 0000000

The War for Talent – A Global Issue All over the world we are facing a shortage of talented people who have the transferable technical skills to compete in global business ► Today, only 20% of Americans have passports, yet American companies are looking to aggressively expand into Europe and Asia ► Meanwhile European businesses are searching for footholds in Asia and also further expansion in North America ► The Japanese, for the first time in 15 years, given their economic upturn, are looking to expand outside of their borders yet are finding they don’t have the senior management to get them there ► Chinese companies are following this trend and are increasingly committed to gaining a place on the international stage. In particular, Chinese organizations which were once state owned want to know if they have the same talent to compete against a General Electric, a Pepsi Cola, a Dell ► Indian companies are rapidly going global and as seen in their airlines, among other industries, are rapidly tapping into the global talent pool 2 0000000

The War for Talent – Going Forward In industrial nations the shortage of talent will worsen ► Japan alone will lose up to 60 million people over the next 30 years ► In 30 years there will be 70-80 million fewer Europeans than there are today ► 50% of the top people in US companies will leave in the next 3 years We know the situation in China and India is different. Yet, in spite of the population wealth, the talent problem in China is just as pressing ► The talent pool in China is shallow ► Exacerbated by the Cultural Revolution which affected a large group of individuals who would be in management position now ► In China, just as in the rest of the world, there is a severe shortage in globally experienced senior management ► A recent report by Business Week showed there is shortage of 70,000 globally experienced Chinese managers and by 2010, McKinsey predicts India will face a shortfall of 500,000 staff capable of doing work for multinationals 3 0000000

An Engineering Perspective ► The shortage of top executive and engineering talent is just starting to be noticed. ► In the United States a presidential commission was established in 2003 and predicted a “devastating loss of skill, experience and intellectual capital”. ► According to a study by Bain & Co. and Deloitte Consulting only half of the 68,000 military engineers due to retire by 2010 can be replaced. ► According to a study by McKinsey Global Institute, young engineers coming forward in China may not be enough to meet even local demand. The number who are considered suitable for work in multi-nationals is just 160,000 – about the same number as are available in Britain. ► The supply of graduates isn’t the only problem. It is the depth of experience that is lacking, as well as exposure to new and developing technologies. 4 0000000

A Rapidly Changing Business Environment – Market & Talent There is a strong belief in continued globalization ► Globalisation and consolidation. 88% of the respondents feel the industry will be more globalized in the next three years. Less There is also strong belief in continued consolidation, globalized ► 79% of respondents believe in more consolidation vs. Remain the 2% the 21% that believe a plateau has been reached. same 10% This globalization and consolidation will be impacted ► negatively by a shortage in human capital. That shortage is considered the single most important ► issue facing the respondents’ companies and the industry at large. According to a survey of 1,410 CEOs in 45 countries ► More globalization is having a positive impact on their globalized organizations (Pricewaterhouse Coopers) 88% Factors that led to increased internal business complexity ► for CEO’s to a large or very large extent included expanding their operations into new territories (65%) engaging in mergers or acquisitions (65%) and launching new products and services (58%). Externally, complexity was driven to a large extent by international, national or industry-specific regulations, ► laws, standards and reporting requirements as well as by competitor's actions. This global focus is also reflected in leadership compositions, of 250 companies in ten markets, the nationality of ► over 18% of board members was that different from that of the company they managed. (EIU) 5 8100051

Key Points – Impact Over one-third (37%) of all MRO organizations do not believe their organization has the right management in place ► to deal with expected growth and changes. Independent MROs and OEM maintenance divisions have the most confidence in their leadership. Airline ► maintenance departments have the least trust in their management (45%). Less than 25% of respondents moderately to strongly believe their organization has a world class supply chain ► function to allow for global competition, and just over 20% believe (to the same extent) that their processes capabilities (i.e., Six Sigma and Lean) are world-class. Geographically Canadians show the strongest belief in their organizational capabilities. Looking forward, the search to fill such positions will increasingly lead companies to other regions of the world ► especially for developing regions. It appears that upper level employees will continue to be imported from overseas, but this will not necessarily correct their shortage for operational level employees which are less likely to be sourced to foreigners. Executives do seem to be involved in addressing this issue, but there ► is also a concerning level of distrust with the existing management. Given the potential impact to reduce MRO capacity and raise ► wages, the issue is not expected to be solved easily. Results suggest that shortages of operational level staff ► (mechanics and technicians) may well drive the greatest challenges the MRO industry faces in this area. 6 8100051

Conclusion Its an industry problem - we no Globally, Engineering is not attractive, the “NASA years” are over ► longer attract the best and Industry pay has only recently started to become attractive but still lags ► brightest: alternative professions like legal, medical and finance If you want to look like heroes, if not to your board, but potentially to ► your successor, you have to invest in human capital That means making a decision to send high potential individuals abroad ► where they can gain the technical skill sets, organisational know-how and experience that will help your company grow, long term The mistake most organisations make is that they send their Chinese ► nationals abroad for a short period of time, not allowing them to reap the benefits of this experience …the other mistake is that they only send a couple It’s a long term investment – you need to operate a talent pipeline with ► employees ccontinually being sent abroad, to return a few years later Long term leadership Human Capital is the oil of tomorrow – it’s in high demand and is often ► development is a senior change hard to find management program and should Aerospace needs to embrace globalization at all levels, not just blue- ► be treated as such: collar It requires the full attention and explicit and continuous support of the ► CEO HR Needs to be professionalized with strong focus on training and ► development, succession planning, retention and career development, complementation and benefits A need to move to competency based hiring: identify global best ► practices and bring in talent from other industries 7 0000000

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