Manufacturing Leadership Council

50 Years of Growth, Innovation and Leadership

Next-Generation Manufacturing Leadership:
Learning to Adapt to Collaborative Business Models

A Manufacturing
Leadership Council
White Paper

www.manufacturing-executive.com

Manufacturing Leadership Council/Frost & Sullivan

Introduction............................................................................................................................. 3

Next Generation Manufacturing Leadership:
Learning to Adapt to Collaborative Business Models......................................................... 3

Evidence of Organizational Inertia Surfaces...................................................................... 4

The Need to Develop Knowledge about Collaboration..................................................... 5

Changing Customer Engagement Models........................................................................... 6

Business Direction/Courage Retains Top Leadership Spot................................................. 7

Customer SAT Leads Strategic Priorities, but Vision and Financial Performance Rise..... 8

Reducing Cost a Top Initiative, but New Markets rise Strongly......................................... 9

Strong Uptick Seen in Key Functional Activities................................................................. 10

Inertia is Evident in Current Organizational Structures.................................................... 11

…But Strong Majority still sees Collaborative Model in Five years.................................. 12

Stronger Emphasis this year on Collaborative Skills........................................................... 13

New Products take Lead in Innovation Intentions............................................................. 14

Social Media inches Upward on Engagement Front........................................................... 15

Social Media holds Place as Future Collaborative Model................................................. 16

CONTENTS

Next-Generation Manufacturing Leadership: Learning to Adapt to Collaborative Business Models

INTRODUCTION

In May of 2012, the Manufacturing Leadership Council’s Board of Governors authorized
a research project entitled Next-Generation Leadership. The intent of the study is to
explore how senior manufacturing executives think about their leadership roles today
and how those roles may change in the future; how their companies are organized today
and how structures may change in the years ahead; and how business activities such as
customer engagement are conducted today and will be conducted in future years.

The following report summarizes key findings of a survey fielded to senior-level manufacturing
executives, including members of the Manufacturing Leadership Council, in North America in
July of 2012. More than 200 completed surveys were returned.

NEXT-GENERATION MANUFACTURING LEADERSHIP:
LEARNING TO ADAPT TO COLLABORATIVE BUSINESS MODELS

When manufacturing executives think about what it will take to be an effective leader of their
own organization in the years ahead, they know they will have to juggle two balls at once.
One ball has to do with constant, fundamental disciplines—growing revenue, making the right
product, controlling costs, hiring and retaining the right people, and making a profit.

The other ball isn’t quite so fully formed. It has to do with change—new ways of
working, shifting customer and employee expectations, new technologies that can alter even
long-established processes and organizational structures, and new competitive threats.

Keeping both balls in the air at the same time may seem like a simple trick that has always been
a key test of leadership. In some ways, that’s true. Leaders have always had to be capable of
focusing on the present and preparing for the future. Making the right product that delights a
buyer and makes a profit is something that has never changed and will never change.

So, what’s different about today’s business environment? Simply put, rapidly accelerating
information and communication technologies are changing the rules of business with a speed
and an effect rarely seen in the annals of industrial history. We are in a time where we are
rethinking business models, the way we structure our companies and organize work, how we
define our markets, how we engage with customers, and how we build products for them.

Today, just about everything is on the table, subject to change. And in the center of that table
is how we organize our companies, how people work and where they work, how we engage
with customers and use information from them and about them, and how we build things.
In short, manufacturing today is rewriting its own script. As we do, manufacturing executives
know they need to move to a business and operational model that enables them to engage
and maximize the use of every resource within their organizations and within their networks
of customers and partners.

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Evidence of Organizational Inertia Surfaces

This movement to a more collaborative way of doing business is one of the key findings of the
Manufacturing Leadership Council’s third annual Leadership Poll. More than 200 senior-level
manufacturing leaders from across the industrial landscape weighed in on how they think about
the leadership role, the emphasis they place on strategic and operational activities, how they
are organized today and expect to be in the future, and how they expect the rules of customer
engagement to change going forward.

One of the key findings in this year’s poll is an apparent inertia in the shift to that collaborative
model. While poll respondents are clear in their intent to move to the model, it is evidently
no simple task to do so. The need to change cultures, behaviors, and established processes in
order to embrace a collaborative way of doing business is hard work that takes time.

When asked, for example, to characterize their current organizational model, the
percentage of those respondents indicating that they currently have a collaborative
approach was essentially the same as last year’s finding. In the new poll, only 11.4
percent say they have such a structure, compared with 10.7 percent last year. And no
statistically meaningful movement was seen in the number of respondents, indicating
that they currently have a traditionally centralized command-and-control structure
in their companies. Those saying they have adopted a highly decentralized model
grew to 14.4 percent, from 9.9 percent last year.

But the trend line toward the collaborative approach appears inexorable. Even though 40.3
percent of poll takers this year say they are holding onto their organizational models—more
than the 34.7 percent who said so last year—nearly 60 percent, down from 65.3 percent last
year, say they expect their models to be different in five years’ time. And of those who do
expect to be organized differently, 72.5 percent this year say the collaborative model is their
choice, up from 66.5 percent last year.

Evidently, the road to the collaborative model will not be a straight line and will have
stops, even steps backward, along the way. And different parts of the manufacturing
enterprise—marketing, supply chain, production—will move at different speeds toward
the collaborative idea.

At Campbell Soup, for example, the desire to be innovative is driving much effort around
collaboration, but there are differences on how far along this work is within internal
organizations such as marketing and supply chain. “We are much more active in innovation as
a CPG company on the business side,” says Eric Fidoten, vice president of global supply chain
strategy and operations excellence at Campbell Soup, and a poll respondent. “Culturally within
the supply chain, there are some inhibiting factors that are changing slowly. The rules of the
road need to be worked out.”

Among the rules that need work, according to Fidoten, who is a member of the Manufacturing
Leadership Council, are how to better manage trade secrets, deciding who owns collaborative
ideas that are generated within the company, how to share information more effectively, and
putting in place the systems necessary for the greater information load.

4 Manufacturing-Executive.com


Fidoten also says that customer segmentation is very important as an organization goes
through the collaborative journey. “There are clearly different strategies,” he says. “Wal-Mart
sometimes isn’t necessarily collaborative. We need to better understand what collaboration
means to create win-wins.”

The Need to Develop Knowledge about Collaboration

Developing greater knowledge about and expertise in collaboration is clearly on the radar
screens of survey respondents. When asked about the degree of emphasis they will place
going forward on a range of activities, developing knowledge and expertise in collaborating
with customers and partners saw more than a 10-point jump, to 43.4 percent of poll takers,
compared with 33.2 percent last year. The goal, survey respondents indicate, is to drive new
product introductions and better service and support, including the creation of new services
that can be bundled with product sales.

This push is part of a changing customer engagement landscape, and one in which not only
new information-gathering mechanisms such as social media are at play, but also how that
information is fed back into internal business processes to create products customers want
and get those products to market with greater speed.

Today, most manufacturers have a fairly traditional engagement model that includes periodic
satisfaction surveys, live customer meetings, and feedback through the sales channel. The
use of social media today is still a small part of the mix, but growing noticeably. This year’s
survey shows that today, social media is used by 13.1 percent of respondents, up from just
7.9 percent last year. Looking forward over the next five years, however, social media is
projected by respondents to become the most dominant mechanism for engagement.

At L’Oréal, top management has identified digital marketing as “the next frontier,” says Morris
Lenczicki, vice president of industrial systems applications at L’Oréal USA, and social media will
be a significant part of it.

“L’Oréal has identified a whole new area in digital social media,” says Lenczicki, a survey
respondent and a member of the Manufacturing Leadership Council. “We’re trying to figure
out how to get quick turnaround information that is meaningful and can be used to make
directional decisions.”

He says that L’Oréal still uses traditional ways of engaging customers. L’Oréal New York’s
Beauty Center, for example, invites people to try products live, an engagement mechanism,
Lenczicki says, that the company will continue to need. “But I also think there will be more use
of social media for immediate feedback,” he adds.

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Changing Customer Engagement Models

Better understanding of customers and achieving higher levels of satisfaction with them is the
driving force behind changes many manufacturing companies are making to their engagement
models. Since the inception of the survey three years ago, customer satisfaction has indeed
been the top strategic priority identified by survey respondents. This year, 76.7 percent of
survey takers ranked it at the top of their priority list, up from 72.7 percent last year. This
priority is significantly more important to respondents than a range of other strategic issues,
including leadership vision, culture, and even financial performance.

That makes sense, of course, because a loyal and growing set of customers can drive just about
everything else. But manufacturers also know that there are other aspects of running the
business that are central to success. One of them is what might be called an innate capacity
for leadership. And it all has to do with that other, not fully formed ball. Where do I take my
company tomorrow and in the days after? Where do I find the strength and stamina to do so?

Again this year, a third of survey respondents said that knowing which direction to take the
company in and having the courage to do so best describes the leadership challenge to them.



2012
1. Business Direction/Courage Retains Top Leadership Spot 2011

Q. Which statement best describes what leadership means to you?

Knowing in which direction to take the company
and having the courage to do so
33.2%
35.4%

Doing right by customers, employees, and shareholders
31.3%
30%
Achieving consistent growth and profitability
11.2%
8.2%

Striking the right balance between what we
should do and shouldn’t do
4.7%
5.3%

Educating others on the right things to do
0.9%
3.3%
Inspiring ever yone around me, ever yday
14%
13.6%

Relying on my own experience, instincts
and judgement to make decisions
3.7%
2.5%

Being ahead of the competition
0.9%
1.6%

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2. Customer SAT Leads Strategic Priorities, But 2012
Vision And Financial Performance Rise 2011

Q: What degree of emphasis do you place on the following
strategic activities? (Responses of 5 on a 1-5 scale)

Customer satisfaction
76.7%
72.7%

Vision and overall strategy
56.0%
46.4%

Financial Performance
48.8%
42.3%

Operational excellence
47.9%
40.6%

Establishing and maintaining the right culture
47.2%
34.9%



3. Reducing Cost A Top Initiative, But New Markets 2012
Rise Strongly 2011

business initiatives? (Responses of 5 on a 1-5 scale)

Reducing costs
43.2%
43.2%

Regulator y compliance
37.9%
33.3%

Indentifying new markets, customers
37.2%
27.8%

New product innovation
32.4%
24.7%

Process innovation
32.4%
27.5%

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4. Strong Uptick Seen In Key Functional Activities 2012
2011

internal activities? (Responses of 5 on a 1-5 scale)

Sales
51.6%
41.2%

Assembly/production
36.9%
31.8%

Design, product development
37.1%
29.4%

Ser vice and support
38.6%
32.4%

Marketing
31.2%
21.5%



Section II: Organization
2012
5. Inertia Is Evident In Current Organizational Structures 2011

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, ever ybody is expected
to fall into line
16.8%
16.9%

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
48.5%
55.5%
Highly decentralized, with corporate loimited in size and ser ving
administrative functions while individual business units, divisions and
departments formulate budgets and strategies
14.4%
9.9%

Somewhat decentralized, with corporate and business units in a
form of federal structure
8.9%
7.4%

Collaborative and virtually distributed, where traditional hierarchies
have been eschewed in favor of ever yone working together ; most
people have a meaningful voice in how the business is run
11.4%
10.7%

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6. ...But Strong Majority Still Sees Collaborative Model 2012
In Five Years 2011

Q. Which statement best characterizes how you would like to see
your company organized five years from now?
Same as it is today
40.3%
34.7%

Differently
59.7%
65.3%

Q. If differently, what form would you like your company’s
organization to take in five years?
Centralized in terms of systems and processes,
but decentralized in terms of decision-making
10.0%
17.7%

Decentralized in most respects, with Corporate
providing financial ser vices as well as shared ser vices
16.5%
15.8%

Collaborative, in which employees, partners, suppliers and customers
are part of an overall virtual ecosystem contributing to the business
72.5%
66.5%



2012
7. Stronger Emphasis This Year On Collaborative Skills 2011

Q. Looking forward over the next couple of years, what
degree of emphasis would you place on the following
areas in terms of development knowledge and expertise?
Social Media
10.2%
6.9%

New technologies, including cloud computing
19.8%
19.7%
Greater collaboration with customers, partners
43.4%
33.2%

Digital factor y techniques to link design and production
22.7%
19.8%

Ser vices that can be associated with sold products
20.2%
12.9%

Sustainability or "green" techniques and technologies
19.2%
18.6%

Better use of customer data
28.6%
26.2%

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2012
8. New Products Take Lead In Innovation Intentions 2011

Q. Looking forward over the next several years, what will be your
priorities in terms of improving innovation in the following areas?
New product introductions
42.4%
33.6%

Doing right by customers, employees, and shareholders
31.3%
30%
Customer ser vice and support
41.5%
37.6%

Product design and development
33.2%
33.5%

Marketing/brand development
31.4%
19.3%
Product idea generation
30.6%
25.7%



2012
9. Social Media Inches Upward On Engagement Front 2011

Q. How does your company involve its customers, suppliers
and partners in its business today?
We conduct periodic satisfaction sur veys and build the results
into improvement plans
15.7%
24.7%

In addition to sur veys, we conduct in-person meetings
as well as focus groups to obtain feedback
31.9%
30.8%
We are increasingly using social media (Twitter, LinkedIn,
Facebook, etc.) to involve these groups on a continuous basis
13.1%
7.9%

Relationships are mostly transactional and feedback is anecdotal
19.0%
18.9%

Input and feedback are mostly through the sales channel
19.4%
18.9%

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2012
10. Social Media Holds Place As Future Collaborative Model 2011

Q. Looking forward over the next five years, what
engagement model would your company prefer?
One that is highly collaborative, with social media as
a primar y mechanism
24.7%
25.1%

More live events
11.6%
7.9%
Pretty much the same as today
18.4%
26.0%

More executive involvement with key customers
21.1%
19.4%

Providing greater visibility into the company's operations
and processes through IT dashboards and portals
24.2%
21.6%


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ABOUT THE MANUFACTURING LEADERSHIP COUNCIL

The Manufacturing Leadership Council, now a key element of Frost & Sullivan’s value proposition,
offers an integrated portfolio of leadership networking, information, and professional development
products, programs, and services for industrial executives worldwide. The Manufacturing Leadership
Council’s mission is to help senior executives define and shape a better future for themselves, their
organizations, and the industry at large. The Manufacturing Leadership Council’s integrated portfolio
consists of the Manufacturing Executive website, an online global business network; the Manufacturing
Leadership Council, an invitation-only executive organization; the annual Manufacturing Leadership
Summit conference; the Manufacturing Leadership 100 Awards program; and the Manufacturing
Leadership Journal. For more information, visit us at http://www.manufacturing-executive.com/index.jspa.

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