Wanted: 4.0. Leadership Playbook for Manufacturing. Manufacturing leadership journal

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1 . Survey /October 2015 Wanted: A Leadership Playbook for Manufacturing 4.0 Manufacturing executives believe that the new Manufacturing 4.0 era of cyber-physical systems, digitization and information-driven factories will require a major change in leadership approach and skills, but many believe their current executive teams may not be up to the challenge.... By David R. Brousell 16

2 . The world of M4.0 won t be business as usual. Manufacturing leaders will need to develop a substantially different set of skills to manage in the new era. The recent history of the publishing industry may be a good example of what is about to happen to the manufacturing industry. The arrival of the Internet, the World Wide Web, Google, and the ensuing digital business model dramatically transformed the publishing industry from its head to its toes. The shift from print to digital forms of finding and delivering information has resulted in the creation of many new datadriven job functions in publishing companies, radically different financial and business models, much larger potential audiences, and new, often global competition. Along the way, publishing executives who had been steeped in analog leadership disciplines had to change and adapt to the digital world. Those that could not or did not found that they and their companies could not survive. In the manufacturing industry today, something similar is about to happen. The emergence of cyber-physical systems on the plant floor, the digitization of business processes from sales to service, and the mining and analysis of information from every facet of the business have combined to create a new vision of manufacturing. That new vision, which the Manufacturing Leadership Council calls Manufacturing 4.0, is characterized by technology-savvy leaders, flatter and more collaborative organizational structures, and empowered employees. It will also be defined by a global competitive environment whose table stakes include information-driven factories, real-time information, great speed and agility, and rapid adaptability. But, for manufacturing leaders, the road to the new, digital world of Manufacturing 4.0 may not be any easier or faster than it was for the executives in the publishing industry. Manufacturing executives will have to devise different approaches to managing their businesses in the era of M4.0. They will have to develop new skills to manage the new, more collaborative organizational structures that underpin the new way of doing business. They will have to more fully integrate their organizations and learn how to manage the vast quantities of data that flow from pervasive connectivity. They will have to transform cultures and thinking within their companies. And they may very well have to re-tool their business models as well as their employee ranks to survive in the future. The industry must now write a new leadership playbook for the world of Manufacturing 4.0. Survey Tracks March to a Digital Future These are just some of the top-line findings of the latest Manufacturing Leadership survey on Next-Generation Leadership. To get a 18 Section 1 Leadership in the Manufacturing 4.0 Era 1 Significant Leadership Model Change Foreseen with M4.0 Q: Indicate the extent to which you agree with this statement: The emergence of the Manufacturing 4.0 era of cyber-physical systems, digitization, and information-driven factories will require a substantially different approach and set of skills on the part of manufacturing leaders. Fully agree 43% Partially agree 47% 2 Process Integration, Managing Change Key to M4.0 Q: What degree of importance would you assign to the following leadership skills and abilities for the M4.0 era? (% reflects top two levels of response on 1-5 scale) Understanding a wide range of processes and functions and how they can be integrated 82% Ability to manage accelerating market and technology change 82% Collaborative skills to manage flatter organizations, expand partner networks 75% Using computer-based analytics to help make data-driven decisions Ability to accept and manage more open, virtual working cultures across multiple locations 68% Global market experience to help drive geographic expansion 48% Fully disagree 4% Partially disagree 4% Don t know 3% 3 Culture, Pace of Change Are Top Challenges with M4.0 Q: What do you think will be the most important challenge for leadership with M4.0? Changing culture and the attitudes of employees 28% Understanding and anticipating the pace of change 24% Understanding the business case and ROI with M4.0 17% Determining how to migrate to a pervasively digital future 11% Understanding how the company should be organized 6% Cybersecurity 6% Don t know 2% Survey/ Wanted: M4.0 Leadership Playbook/4/9 4 Strong Majority Has Already Embraced Digitization Q: As of today, how far along the digitization path is your company? Substantially digitized 19% Some digitization in selected business processes 42% Just getting started 22% Investigating the digital model 11% Don t know 6% Section 2 Leadership Talent Management 5 Substantial Time is Being Spent on Talent Management Q: What percentage of your time do you spend actively managing issues related to employee and leadership talent? Less than 10% 10% 10% to 20% 19% 21% to 30% 31% 31% to 40% 15% 41% to 50% 7% 51% to 60% 7% 61% to 70% 7% More than 70% 6% 6 Less than One-Quarter Rate Talent Management Programs High Q: Rate the effectiveness of the following talent management programs at your company. (% reflects high and very high responses) Employee (non-leader) development programs 19% Leadership selection / promotion systems 24% Leadership development programs 24% Employee (non-leader) selection / promotion systems 17%

3 . 7 A Majority Sees Deficiencies in Leadership Ranks Q: How vulnerable is your company s overall success as a direct result of current deficiencies with your leadership ranks? Very vulnerable 12% Moderately Don t know 1% vulnerable 39% Not vulnerable 7% Slightly vulnerable 41% Section 3 Defining the Leadership Role 8 Inspiring People Still Is Key Leadership Definition Q: Which statement best describes what leadership means to you? Inspiring and engaging everyone around me, every day 33% 29% Knowing which direction to take the company and having the courage to do so 29% 27% Doing right by customers, employees and shareholders 15% 21% 9 Most See Adequate Response to Change Q: How does your company typically respond to change? It resists change 18% Its response is static 5% It is proactive, ahead of the curve 25% It adapts well 29% It reacts after the fact 20% 0 Customer Satisfaction Remains Strategic Focus Q: What degree of emphasis do you place on the following strategic activities today? (% response indicates top two levels of response on 1-5 scale) Customer satisfaction Operational Excellence Financial performance Vision/strategy Product, process innovation Staying ahead of the competition w Reducing Costs is Once Again Top of Business Agenda Q: What degree of emphasis do you place on the following business initiatives today? (% response indicates top two levels of response on 1-5 scale) Reducing costs New product innovation Identifying new markets, customers 76% 71% 85% 80% 78% 73% 69% 71% 75% 67% 91% 97% q Vision/Strategy/OpEx Rise in Importance in 5 Years Q: What degree of emphasis will you place on the following strategic activities in the next five years? (% response indicates top 2 levels of response on 1-5 scale) Customer satisfaction Finance/OpEx Vision/strategy Culture Staying ahead of the competition 89% 85% 87% 82% 80% 94% 98% handle on what Manufacturing 4.0 means for leadership, the Council s Board of Governors authorized a research survey of Next-Generation Leadership in Manufacturing. Fielded in August, the survey offers insights into how manufacturing leaders are beginning to think about the leadership requirements of Manufacturing 4.0, where they are focusing their attention today as leaders and where they must focus in the years to come, how their businesses are structured now and how they must be realigned going forward, and where they need to develop knowledge and expertise in order to both survive and thrive in a time of M4.0. Specific questions this year on the subject of talent management were contributed by ML Council member Development Dimensions International, Inc., a talent management consultancy. The survey, which has been conducted for the past several years, has over time been charting the often-uneven march toward a digital future. A key theme has emerged: the influence of digital technologies on loosening what had historically been hierarchical organizational structures in many manufacturing companies. This year, for example, 61 percent of survey respondents say that their companies e Cost Reducation Yields to New Markets, Customers in 5 Years Q: What degree of emphasis will you place on the following business initiatives in the next five years? (% response indicates top two levels of response on 1-5 scale) Identifying new markets, customers New product innovation Reducing costs 82% 78% 70% Survey/ Wanted: M4.0 Leadership Playbook /6/9 have digitized their business processes to one extent or another. But this year s survey for the first time looks specifically at a number of questions around the broader context of Manufacturing 4.0. Chief among the findings is a near-universal acknowledgement that M4.0 is not going to be business as usual for leadership executives. When asked whether M4.0 will require a substantially different leadership approach and set of skills compared with what they have today, 90 percent of respondents were in either full or partial agreement that a new playbook is needed. And the chapters in that playbook, according to powerful majorities of survey respondents, need to align with a new set of leadership skills that will be required in the era of M4.0, including: Understanding a wide range of processes and functions and how they can be integrated, a fundamental requirement of M4.0 The ability to manage accelerating market and technology change Collaborative skills to manage flatter organizations Using computer-based analytics to help make data-driven decisions The ability to accept and manage more open, virtual working cultures across multiple locations A Plethora of M4.0 Challenges As might be expected, many of the requirements of M4.0 have corresponding leadership challenges associated with them. But when asked what they think is the most important challenge before them, survey respondents cited a range of issues, with no one concern garnering anywhere even close to a majority. For example, 28 percent of survey respondents said that changing culture and the attitudes of employees is the most important challenge they face with respect to M4.0. Understanding and anticipating the pace of change came in second, with 24 percent of respondents citing this factor. And Cultural transformation, dealing with the rapid pace of business change, and understanding M4.0 s business case are top challenges with M4.0.

4 percent said that their top challenge with M4.0 is understanding the business cases and returns on investment involved in the new model. Organizational and cybersecurity issues, at 6 percent each, were perceived as having far less importance. Perhaps related to some of these management challenges, the survey also reveals something potentially troubling with regard to perceptions of leadership ability within respondent companies. When asked how vulnerable they believe their companies overall success is as a direct result of current deficiencies in its leadership ranks, an astonishing 51 percent of respondents said their companies were either very vulnerable (12 percent) or moderately vulnerable (39 percent) to leadership shortcomings. Another 41 percent perceive that their companies success is slightly vulnerable to leadership rank weaknesses. Who Are Manufacturing 4.0 Role Models? When it comes to Manufacturing 4.0, what do Steve Jobs, Peter Drucker, Warren Buffet and Elon Musk have in common? They were all identified as role models for M4.0 by respondents to the new Next-Generation Leadership Survey. Whenever a new way of doing things emerges, people find it useful to think in terms of role models people whose behavior, example, or success can be emulated by others. The new survey asks respondents to identify a pioneering role model for leadership as the industry moves forward on its journey to Manufacturing 4.0. Answers fell into two categories: individuals and companies. Among the most often mentioned individuals were well-known and public figures such as the late Steve Jobs of Apple; Bill Gates of Microsoft; Jeff Immelt of GE, who was named the Manufacturing Leader of the Year by the ML Council in June; Jeff Bezos of Amazon; the management guru W. Edwards Deming, who died in 1993; Alan Reasons for Perceptions of Leadership Deficiencies What s driving these perceptions? It is no secret, for example, that the manufacturing industry is experiencing an historic demographic shift as baby boomers retire and as the industry struggles to find replacements at both line worker and managerial levels. Successfully managing this transition, particularly with an up-and-coming workforce that has different expectations about work and their role in what they expect will be far more collaboration-oriented organizations than today, is no easy task for executives. Moreover, the ability to focus on the longer-term future, a space that M4.0 certainly occupies, is never an easy task for public companies, which are concerned with the next quarter s financial results, or private companies, which may not have to report results externally with the same frequency as public companies but nonetheless have their own short- and long-term growth issues. But this year s Manufacturing Leadership survey may hold some other clues to Mulally, the former CEO of Ford; and Lee Iacocca, the former head of Chrysler. GE as well as executives from the company garnered the most responses. In addition to Immelt, survey respondents identified GE s former Chairman and CEO Jack Welch as a M4.0 role model. GE was identified as a corporate role model by a handful of respondents. Other corporate role models included ABB, Procter & Gamble, Cisco, Bosch, Siemens, Rockwell Automation, Stratasys, and Lockheed Martin. Manufacturing industry executives identified by survey takers included Drs. Dean Bartles, executive director of the Digital Manufacturing and Design Innovation Institute, and Detlef Zuhlke, Chairman of the Smart Factory Initiative in Germany, both members of the ML Council s Board of Governors; Dow CEO Andrew Liveris; Ratan Tata of Tata Motors in India; and Anton Huber, the CEO of Siemens Digital Factory Division. Section 4 Organization 14 Most Manufacturers Are Still Somewhat Centralized Q: Which statement best describes how your company is organized today? Highly centralized, with a command-and-control environment. Once executive management decides on a course, everybody is expected to fall into line. 20% 19.7% Somewhat centralized, with corporate controlling most key facets of the business, but divisions, departments, and plants have input and some flexibility in how things are done 41% 43.9% Highly decentralized, with corporate limited in size and serving administrative functions while individual business units, divisions, and departments formulate budgets and strategies 17% 7.5% Somewhat decentralized, with corporate and business units in a form of federal structure 8% 9% Collaborative and virtually distributed, where traditional hierarchies have been eschewed in favor of everyone working together; most people are engaged and have a meaningful voice in how the business is run 11% 18.1% 15 A Strong Majority See the Collaborative Model in Future Q: What form would you like your organization to have in five years time? Centralized in terms of systems and processes, but decentralized in terms of decision making 18% 25% Decentralized in most respects, with corporate providing financial services as well as shared services 12% 10% Collaborative, in which employees, partners, suppliers, and customers are part of an overall virtual ecosystem contributing to the business 65% 62.5% Section 5 Knowledge Development and Management 16 Finance, Competition Most Developed Knowledge Areas Today Q: How would you assess your company s level of knowledge and expertise today in the following areas? (% indicates top two levels of response on 1-5 scale) Financial management 63% Understanding the competition 54% Information technology 43% Asset management 41% Strategic sourcing 38% Demand Forecasting 34% 17 Collaboration, Customer Data Lead Knowledge Demand in Next 5 Years Q: What degree of emphasis would you put on the following areas in terms of developing knowledge and expertise? (% indicates top two levels of response on 1-5 scale) Greater collaboration with customers, partners 80% Better use of customer data 71% New techs (cloud, mobile, big data) 62% Digital factory techniques to link design, production 60% New services with sold products 56% Social media 38% Survey/Wanted: M4.0 Leadership Playbook /8/9 22

5 . A surprising 51 percent of survey respondents say their companies success is vulnerable to current deficiencies in their leadership ranks. as to what may be causing the perception of leadership vulnerability. When queried, for example, about their companies current strategic focus and activities, once again this year respondents ranked customer satisfaction, operational excellence and financial performance all temporal issues, one could argue at the top of their lists with commanding 91 percent, 85 percent, and 84 percent emphasis scores, respectively. Vision and overall strategy formulation, while still very important strategic activities today, nonetheless scored decidedly lower, at 76 percent. And product and process innovation, at 74 percent, comes in at even a couple of points below that. But when asked about the degree of emphasis their companies will place on these activities over the next five years, vision and overall strategy formulation accelerates by five points, while customer satisfaction, finance, and operational excellence remain relatively flat. A similar interpretation emerges from the survey s results about respondent business initiative priorities today versus five years from now. Today, reducing costs, at 78 percent of the sample, clearly is the most important business initiative for respondent companies, nine points higher than the second runner up, new product innovation. But when thinking about the future, 84 percent of respondents elevate identifying new markets and customers, as well as new product innovation, at 82 percent, above the long-standard operating practice of cost reduction. New Areas of Expertise Need to Be Developed Another hint of what factors may be creating the perception of vulnerability within today s leadership ranks can perhaps be found in the survey s results on the state of knowledge and expertise in respondent companies. Today, respondents assess their companies level of knowledge and expertise in such areas as financial management and understanding the competition at commendable, if not exemplary, levels. Sixtythree percent of survey respondents, for example, rate their companies expertise in financial management at the highest levels on a one-to-five scale. But when it comes to information technology, only 43 percent apply the same rating. Looking ahead five years at what knowledge and expertise manufacturing companies need to develop in order to be successful in a M4.0 world reveals a very different agenda. Strong majorities say that greater collaboration with customers and partners (80 percent); better use of customer data (71 percent); new technologies such as cloud computing, mobile technologies, and Big Data (62 percent); and digital factory techniques to link design and production (60 percent) are the top areas where their companies need to develop expertise. All of these signals point to one of the survey s main findings that M4.0 will require leaders to develop a substantially different approach to running the business and a different set of skills in order to lead effectively. But the survey also suggests that many manufacturing leadership teams may not be sufficiently focused on the future, a serious shortcoming in light of M4.0-enabled market changes looming. Much like publishing industry executives have had to retool their thinking about the drivers of success in a digital world, manufacturing executives will now have to undertake a similar transformation if they and their companies are going to successfully migrate to the new M4.0 paradigm. It s time to start writing that new playbook. M 24