Transport and Logistics: Five leadership Issues Worthy of Board and Executive Attention

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1 Transport and Logistics: Five leadership Issues Worthy of Board and Executive Attention 1

2 2 Introduction The transportation and logistics (T&L) industry is going through rapid changes in the face of globalization, digitization, and the emergence of new and innovative service offerings leading to entirely new business models. Margin pressures and increasing commoditization, technological advancements, demographic flows, geopolitical shifts and economic changes, and a host of other major risk drivers all are contributing to dialogues in boardrooms and executive offices. Most significantly, executives are asking if they have the right leadership talent in light of the challenges they face. From our conversations with the board members and CEOs in the transportation and logistics industry, the following five issues and their implications on leadership talent have emerged as top of mind for the executives: Creating a solutions-based business Navigating the digital transformation Identifying next-generation leaders Capitalizing on an expanding world Building a best-in-class board We hope this executive briefing document will serve as a discussion starter for thinking through how to attract and retain the right leadership talent in the face of these challenges.

3 3 Creating a Solutions-Based Business The transportation and logistics (T&L) industry traditionally has been driven by an emphasis on operational excellence, process improvements and a focus on cost minimization. Margin pressures and increasing commoditization of services are creating a need to transform the business from a set of standard transactions to a flexible array of solutions-based offerings. MARGINS ARE UNDER PRESSURE IN Transportation AND LOGISTICS REVENUE & PROFITABILITY OF LOGISTICS PROVIDERS Revenue has experienced average growth of 7% per year But profitability has declined from 6.8% to 4.2% Senior Leadership in the industry is relatively insular and traditionally operations focused 3 GROSS MARGIN % IN TRANSPORTATION & LOGISTICS % 17.9% 17.2% 14.8% New Talent requirements in T&L Inspirational leadership Communication and collaboration 83% have only T&L industry experience 75% of external appointments are from competitors in the T&L industry Strategic thinking Global orientation FUTURE TALENT REQUIREMENTS Drive for change Solution orientation and innovation Internal hires fall into one of three categories 3 : % have entered the CEO role immediately after an operational role. 25% have come from the company s board of directors. The remaining 25% held a CFO role. Focus on creating and innovating upon advanced T&L solutions for the client on top of driving operational efficiencies. Review key talent in the company and establish reward systems that encourage creativity, strategic vision and forward thinking. Source and develop talent with the future services-oriented business in view, not just today s immediate needs. Look to hire outside the T&L industry in order to challenge current thinking. 1. Increasing the profitability of logistics. Oliver Wyman, Data include shipping, trucking, rail, air freight and relevant transportation services, S&P Capital IQ, Russell Reynolds Associates analysis of T&L leaders, 2014

4 4 Navigating the Digital Transformation Long before Big Data became a trend, managing massive volumes of data had been part of day-to-day operations in transportation and logistics. However, T&L companies need to be prepared to invest in digital capabilities that will transform their business rather than incrementally improving their heritage of data-driven management. THE DIGITAL CHANGES WILL BE PROFOUND 1 Launch of the U.S. government s International Trade Data System submission of all data for export/ import processes traditionally involving 38 government agencies, now managed through a single window. Mexico, Singapore and Japan are trying to implement similar systems. The Internet of Things An estimated 200 billion devices/ sensors collecting data from manufacturing lines throughput to point-of-sale information, all in real time. The RFID (radio frequency ID) industry is poised to grow from $7.8 billion in 2013 to $30 billion in the next 10 years MOST T&L COMPANIES HAVE DIGITAL STRATEGIES IN PLACE 2 Does your company have a digital strategy? No 26% T&L Total No 27% Yes 73% Yes 74% DIGITAL OWNERSHIP IN T&L 3 33% 29% 3% CMO CEO CDO Champion digital initiatives, execute digital strategy effectively and drive a digitally enabled business. Articulate a digital marketing strategy to better connect with both B2B and B2C customers. Build a future-ready and digitally savvy workforce via recruitment and development. However, many companies HAVE RUN INTO MAJOR BARRIERS IN EFFECTIVELY IMPLEMENTING A DIGITAL BUSINESS 3 80% 80% 80% 77% 77% Lack of single head of digital Departments competing for ownership of digital CEO not recognizing the potential for digital Functional silos Lack of digital expertise and/or skills 1. Inbound Logistics magazine, April Digital Pulse Survey, Russell Reynolds Associates, 2014 Develop and implement a comprehensive approach to managing the impact that digital technologies will have on your business. Ensure that organizational responsibility for digital development in the company is clearly communicated, with clear accountability across all relevant functions. Look beyond the usual suspects when recruiting talent for digital the pool of digital candidates is small, and the competition to recruit such talent will only increase th Annual Global CEO Survey: Key findings in the transportation & logistics industry, PwC, 2014; 16th Annual Global CEO Survey, Transportation & Logistics, PwC, 2013

5 5 Identifying Next-Generation Leaders Companies that fully comprehend the challenges ahead in the transportation and logistics industry know there is a shortage of talent with the skills and competencies needed for the future. Securing the talent necessary for tomorrow s business requires next-generation recruiting and strategic development of high-potential executives. THE CHANGING OF THE GUARD 1 The T&L CEOs surveyed have been in their current role for an average of 6.2 years. In 2013, the average tenure in the company preceding CEO appointment was 4.6 years. 1/3 of T&L CEOs surveyed are less than five years away from retirement age 2 BREAKING THE MOLD 1 14% already are overdue to retire 2 T&L CEOs are remarkably similar to one another and have long tenures, suggesting their set of skills/experiences have been well-valued. Little international diversity: 85% of CEOs are of the same nationality as the country of the company s headquarters PROFILE OF TODAY S AND TOMORROW S LEADERS Headquarters country national Single-country/region experience Operational star Limited out-of-industry experience TODAY IN THE NEXT FIVE YEARS Track record of strategic success International experience (multilingual and/or having lived in multiple countries) Experience in a digital or in a digitally enabled company Gender diverse and/or ethnically diverse Start succession planning early. Tenure is rewarded: Average tenure before CEO appointment is 12.6 years but ranges from 2 to 34 years Almost entirely male: 97% Build a strong succession process that develops internal talent and actively tracks promising external talent. Identify areas of business growth, as well as areas of high risk, and the leadership capabilities needed to manage growth opportunities. 1. Russell Reynolds Associates analysis of T&L leaders, Assumes average retirement age of 65, based on Organisation for Economic Co-operation and Development s average of 37 countries statutory retirement age

6 6 Capitalizing on an Expanding World Demographic flows, geopolitical shifts and economic changes have an immense impact on transportation and logistics, but the industry is not uniformly prepared to navigate the opportunities and threats of growing cities and emerging markets. To make the most of opportunities in these non-traditional markets, companies need to get smart about the talent they place at the helm of these countries and must articulate a robust international growth strategy. RISE OF THE MEGACITIES 1 Increasing population densities in cities are creating urban economies exceeding the scale of entire nations. (in billions USD) TOKYO $1,520 NEW YORK $1,358 SHANGHAI $517 TURKEY $820 NORWAY $512 AUSTRIA $415 RISING IMPORTANCE OF EMERGING MARKETS 2 The traditional flow of goods internationally is set to move in reverse: from mature markets to emerging ones as spending power increases. USD$9.3 BILLION 2014 Sales on Singles Day in China for Alibaba Group alone 135 MILLION 2020 Middle class consumers in Indones alone USD$18 TRILLION 2030 Projected volume of global goods trade: double today s values; trade among emerging economies will grow at 6% per annum almost double the global rate THE INDUSTRY S PREFERRED COUNTRY LEADER PROFILE 3 Locals are a minority of regional leaders. Only 36% of regional heads surveyed across mature and emerging regions are local to the area that these leaders manage. Among both locals and expats, a majority (63%) never have had experience in the company s headquarters and, instead, have spent their career managing region after region. Less than a fifth of these heads were externally recruited into their role. Among the internally appointed, these geographical leaders, on average, have extraordinarily long tenures in the company preceding their current role, ranging between 5 to 38 years, with an average of 16.8 years. 1. Global MetroMonitor, Brookings Institution, Indonesia s Rising Middle Class and Affluent Consumers: Asia s Next Big Opportunity, The Boston Consulting Group, March 2014; Volume of global goods trade set to nearly double by 2030, PwC news release, October 2, Russell Reynolds Associates analysis of T&L country managers, Agility Emerging Markets Logistics Index, Transport Intelligence, 2014 No Smooth road to success 4 Companies in the sector know there are complex challenges to address in emerging markets. Problems associated with doing business in emerging markets Poor transportation infrastructure Corruption and fraud Difficult customs procedures Government policies Difficulty setting up/doing business Security Difficulty in repatriating profits 3.8% 13.8% 13.2% 10.8% 9.7% 21.0% 19.9% Identify the competencies necessary in a highperforming country head: individuals performing at a global level who have an ear to the ground and can capitalize on each market s unique profile. Hire more local talent to ensure growth and local knowledge in emerging markets.

7 7 Building a Best-in-Class Board An effective board is one that represents a rich variety of perspectives, allowing companies to develop (and execute) robust strategies while simultaneously managing risk. The work of the board of directors never has been more complex. Traditional issues like CEO succession and remuneration remain, while shareholder activism and digital transformation present new challenges. THE Transportation & LOGISTICS BOARD OF DIRECTOR PROFILE 1 Age of director % % % industry experience Diversity 23% Female directors % 21% of current board seats could turn over in the next five years. Transportation 28% 77% Male directors 25% 7% 5% 5% Financial services Government Leisure and hospitality Consumer goods FUTURE CHALLENGES FOR T&L Boards 1 Directors joining the board of T&L companies today will be faced with a host of both traditional and new challenges. FORMULATE A WRITTEN CEO SUCCESSION PLAN This plan should include the skills, competencies and experiences required for the next CEO, as well as assessment and development plans for internal candidates. Boards also must regularly revisit an emergency succession plan. Strategic differentiation Digital transformation Globalization Conduct regular board and individual director evaluations this will help ensure that director performance is aligned with the company s strategic objectives. Urbanization Sustainability issues Cybersecurity Look beyond the usual suspects and the typical board of director profile. Focus on the capabilities, experiences and perspectives necessary to provide insights and effective corporate governance. 1. Russell Reynolds Associates analysis of T&L Boards, 2014

8 8 Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for chief executive officers, boards of directors, and key roles within the C-suite. With more than 300 consultants in 45 offices around the world, we work closely with both public and private organizations across all industries and regions. We help our clients build boards and executive teams that can meet the challenges and opportunities presented by the digital, economic, environmental and political trends that are reshaping the global business environment. Follow us on Global Offices Americas Atlanta Boston Buenos Aires Calgary Chicago Dallas Houston Los Angeles Mexico City Minneapolis/St. Paul New York Palo Alto San Francisco São Paulo Stamford Toronto Washington, D.C. Europe Amsterdam Barcelona Brussels Copenhagen Dubai Frankfurt Hamburg Helsinki Istanbul London Madrid Milan Munich Oslo Paris Stockholm Warsaw Zurich Asia/Pacific Beijing Hong Kong Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo Copyright 2015, Russell Reynolds Associates. All rights reserved.

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