HS_ChinasIndustrialGrowth

							Managing China’s
                                                                                                                By
                                                                                                                Steve Mullinjer
                                                                                                                Managing Partner, China




Industrial Growth
A S I A PA C I F I C T H O U G H T L E A D E R S H I P S E R I E S

The outlook for China’s industrial category could not look              in an international corporate matrix. Technical skills are readily
brighter, with many pundits saying that China will continue to          available but the leadership skills necessary to interact with
enjoy 5-8% GDP growth rates over the next 10 to 20 years,               multiple stakeholders at a main board level and the ability to
provided there are no political disruptions. This category              influence a global corporate agenda is still the X factor. Another
encompasses a wide range of industries including automobiles,           key success variable for senior industrial executives is their ability
aerospace, chemicals, natural resources, and several others.            to translate a global corporate agenda into an effective China
Traditionally, multinational corporations (MNCs) in these               strategy. They must be able to educate, modify and reshape the
industries have viewed China as a low cost manufacturing base           often inaccurate views that home office executives may have of
for western markets, but five years ago this changed with the           China, and at the same time create a frame of reference for
realization of the China market’s potential in its own right.           Chinese government officials to better understand and deal with
                                                                        MNC concerns, issues and requests. The ability to effectively
Helping this trend is the tremendous improvement in China’s             align different expectations in a commercially viable way is
transportation and technological infrastructure, not to mention         one of the most elusive leadership competencies in the China
high-profile power projects such as the Three Gorges dam. This          market today.
infrastructure boom in itself offers a huge market. Companies
such as General Electric, ABB, Siemens and Ingersoll-Rand have
been selling a wide range of industrial products for capital-           REENGINEERING HONEYWELL
intensive infrastructure projects as the building boom has created
a huge demand for products ranging from turbines, fire alarms,          Honeywell is a good example of a company that has been successful
intelligent building systems, lifts, specialty materials, control       in identifying and developing this type of management talent in
systems and electronics, to name a few. A massive industrial            China. When Honeywell decided to consolidate its Asia Pacific
products market has opened up almost overnight.                         headquarters in China and build a coordinated ‘Honeywell Inc’
                                                                        approach to its multiple businesses in China, it required a new
The downside of this frenetic growth is the strain it has put on        business model and approach. Honeywell spent considerable time
the market for top industrial managers. Ten years ago companies         thinking through the leadership skills required for this role and
were often led by western expatriates. In the late nineties this        understanding the right mix of strategic consulting skills, industry
changed, with 60-70% of top industrial management positions             experience and market knowledge required to balance their global
being filled by Asian expatriates. In the past two to three years       corporate strategy with the realities of the local market.
things changed yet again, with the focus now on returnee PRCs
– Chinese nationals who have spent six to seven years working           The company carefully reviewed its corporate culture and
overseas. Given the tight market, however, PRC nationals with           developed a benchmark of what attributes and behavioral
10 to 15 years of executive experience (but no overseas experience)     competencies defined success in the company. It also reviewed
are also increasingly sought after.                                     past leadership models to determine which structures, reporting
                                                                        relationships, management responsibilities and accountabilities
Irrespective of his background, the foremost prerequisites for a        were successful and which ones were not. Ultimately, they
top industrial manager in China is the ability to operate effectively   developed a new leadership model that was a departure from
anything they had used before: a model based on their unique              After establishing a steering committee, these companies tend to
corporate culture and on the specific needs of a culturally diverse       conduct a gap analysis of their management ranks for the short
and rapidly growing transitional market. They also undertook a            and medium term. Following this, they need to establish what
realistic assessment of how this role interfaced with their traditional   their key leadership needs are in the next 12, 24, and 36 months.
business unit structure.                                                  They look at the best ways to develop talent through internal
                                                                          development, coaching and training. In addition, once they have
Following this, Honeywell appointed an external executive,                developed an understanding about where their real leadership
Mr. Shane Tedjarati. Mr. Tedjarati had the right mix of                   gaps lie – as opposed to the reactive gaps that stem, for example,
entrepreneurial flair, deep China experience and (most importantly)       from an executive’s departure – they need to enter the talent
a proven ability to influence a global board agenda in the context        market to fill these mission critical holes. This is a proactive,
of China. Furthermore, Mr. Tedjarati had experience establishing          long-term, and, yes, expensive process, but companies prepared
sophisticated frames of reference for Chinese government officials        to follow this path will find their total costs over the years will
and business leaders to better understand legitimate MNC interests.       be considerably lower than if they keep acting in what could be
                                                                          termed a more reactive, traditional manner.

Given the insights Honeywell developed through its leadership
review it was also able to identify and attract an external executive
who would not normally have made it onto their shortlist. To              GE MODEL: NOT FOR EVERYONE
date, Mr. Tedjarati has successfully facilitated ‘step-change’
thinking in terms of Honeywell’s complex business portfolio and           Most companies do not have the luxury of being able to apply
is successfully working as a partner with strong BU heads to              a human capital model similar to that of General Electric, which
effectively link Honeywell’s broad array of products and services         (simply summarized) is based on aggressively developing the top
to real opportunities in the China market. This approach has              10-15% of its future leaders, nurturing its high performing ‘core’
enabled Honeywell to establish a more significant market presence         managers, and ruthlessly refreshing its bottom 10-15% – all on
than it could have done had its individual business units pursued         a yearly basis. This model works at GE because GE has spent
disparate strategies. This leadership model has created for               years developing a ‘culture’ of building winning teams. As a result
Honeywell a competitively differentiated business strategy for            it has developed a business that is renowned for its manufacturing
their business in China.                                                  talent as much as its products.


                                                                          GE is one of a very small number of global companies that has
A ROADMAP FOR SUCCESS                                                     developed a strong internal talent pipeline that it can refresh
                                                                          fairly painlessly. For most industrial companies in China, however,
To get China right from the leadership point of view, companies           the evaluation of management performance is highly inconsistent
must first develop the correct strategy for acquiring, developing,        across functions. Most of industrial companies have ‘put the cart
and retaining leadership bench strength and not just for top              before the horse’ and have attempted to reverse-engineer their
positions, but for second-tier and middle-management ranks.               talent development programs to create a range of tools to help
Most companies, however, aren’t structured properly even to do            build their business. What they have not done is create a culture
this, and most tend to delegate succession planning and talent            of ‘craftsmanship’ or (in GE parlance) a ‘culture’ for developing
development to their senior HR executives. Such companies must            competitively differentiated leadership.
assume a more top down approach to talent development.
                                                                          Finally, a key challenge companies face in hiring the right executive
The companies that have the best talent development strategies            in China is getting beyond culturally comfortable candidate
have formed internal steering committees chaired by the CEO               attributes (such as a strong command of English) to more
that focus on leadership development strategies. The steering             quantitatively assess a candidate’s ability to represent the company’s
committee establishes the organization’s leadership goals and             business effectively in China. If a candidate’s communications
holds management and HR accountable. As a further step, these             and behavioral competencies appear less than acceptable to survive
steering committees are creating external advisory bodies with            in an international matrix management culture then the
which they meet regularly. The advisory body offers external              organization should develop this through training and coaching.
perspectives and ideas about best practices from non-competitive,         This is a far better option than hiring somebody who has excellent
best in class organizations.                                              communications skills but who lacks the core business
competencies to meet the challenge of building and growing a          •    Integrating of multiple stakeholders (both internal and external)
sustainable business in a fast-changing, regionally diverse market.
                                                                      •    Redefining the role of HR as an asset manager and the key
                                                                           custodian of a company’s culture of building winning teams
A HOLISTIC APPROACH:
ALTERNATIVE ASSESSMENT METHODOLOGIES FOR                              •    Investing in technology and inserting alternative culturally
TOP TALENT IN CHINA                                                        attuned assessment methodologies into the corporate DNA.

                                                                      •    Ensuring technology and assessment become core systems
One tool that is emerging as a useful predictive indicator of
                                                                           for the company – there is no point having superior senior
leadership potential is management assessment. Many companies
                                                                           management if the rest of the organization cannot support
are working with outside service providers to develop sophisticated
                                                                           their initiatives or is out of synch culturally with the
assessment methodologies that provide alternative insights into
a candidate’s psyche, behavioral competencies, analytical skills,          management elite.
leadership style and values. Assessment provides an additional
                                                                      •    Developing innovative risk management strategies and processes
view of a candidate’s potential to perform. However, the biggest
                                                                           for management development
criticism of management assessment to date is that these tests are
based on a western value system and have not yet been culturally
adjusted in an academically accredited way to China. In addition,     In summary, there are no shortcuts. Not all companies can do
the assessment methodology is often applied without tailoring         this even though, arguably, all companies should. Those that do
the testing hypothesis and purpose of the test to the unique          it first and do it properly in China will emerge as winners in the
attributes of the company.                                            next five to 10 years. Companies do not have to be big and
                                                                      resource-rich to do this effectively. Companies that run well on
Therefore, at some point in the near future there will be a real      four cylinders will outperform those that run poorly on eight.
need for this type of management assessment, once these tests         A key competitive advantage for companies operating in China
have been calibrated to the Chinese culture and the needs of          will be their ability to develop a culture that supports the creation
cross-culture operating environments, and also tailored to the        and sustainability of high-performance teams.
unique ‘success’ benchmarks of the assessing companies. It is
Heidrick & Struggles’ view that a holistic approach that assesses
multiple quantitative and qualitative criteria and that provides
relative rankings against benchmarked ‘successful’ criteria for a
specific company culture will provide a more effective predictive
tool for creating and developing winning teams. To date no
company is successfully doing this in China as the tools have not         ABOUT HEIDRICK & STRUGGLES INTERNATIONAL, INC.
yet been properly calibrated to the Chinese market.                       Heidrick & Struggles International, Inc. is the world’s premier
                                                                          provider of senior-level executive search and leadership consulting
                                                                          services, including talent management, board building, executive
In summary, as industrial companies evolve from international
                                                                          on-boarding and M&A effectiveness. For more than 50 years,
companies selling products into China to transnational companies          we have focused on quality service and built strong leadership
that create, manufacture and market China-specific products and           teams through our relationships with clients and individuals
services, the need for local yet globally qualified CEO talent will       worldwide. Today, Heidrick & Struggles leadership experts operate
                                                                          from principal business centers in Asia Pacific, Europe, Latin
become increasingly pronounced. Given the scarcity of such
                                                                          America and North America.
individuals companies will often be required to develop this talent
                                                                          For more information about Heidrick & Struggles, please visit
in-house. Companies will need to develop a culture of building
                                                                          www.heidrick.com
winning teams first – otherwise most talent initiatives will be
ad hoc and ultimately fail. Technology and alternative assessment
methodologies will need to become a core process driving every        Steve Mullinjer is the Managing Partner for Heidrick & Struggles, China.
                                                                      He is an active member of the firm’s Industrial and Financial Service practice.
part of the company, including, but not limited to:                   He has spent 15 years living and working in China. He speaks, reads and
                                                                      writes Mandarin and has significant joint venture experience working
•   Developing a culture of building and retaining winning teams      in China.
                                                                      Based in Shanghai, he can be reached at smullinjer@heidrick.com or
•   Fostering top-down ownership of leadership development            (8621) 5298 4840.


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