Leadership Insights

AUTO INDUSTRY FACES
CRITICAL HR CHALLENGES

Based on quantitative and qualitative research, this study is an initiative of the Auto Practice Group of Synergy Consultants to acquire and share knowledge with the HR leadership function and others who are keenly observing the growth pangs of the Automobile Industry in India and are concerned about its success.

The Automobile industry in India is today caught in a vortex of rapid ramp-up of production, sales, lean manufacturing and cost-cutting initiatives coupled with an unusual restlessness and churn in human assets. It is passing through a critical phase of increasing complexities and quantum changes. Further, the need to align with global best practices, while managing strategic priorities and uncertain government policies requires a realignment of talent matrices.

The recent spate of product recalls on account of critical defects has resulted in huge losses to many leading global automobile manufacturers, including highly respected brands. What has shaken the faith of industry is the realization that the recurrence of such incidents perhaps points to a more basic, process or systemic failure. The causes do not highlight mere   technical flaws in manufacturing, the mystery element that’s now being analyzed carefully is the ‘human dimension’.

The Dilemma:

Quantitatively, the Indian industry is growing very well and is expected to become the 3rd largest Auto industry by 2015, just behind China and USA. However, perceptive experts notice growth pangs all-around through inadequacies in the senior management pool that’s not future ready.

Therefore, for an organization to decipher the dilemmas and to emerge successful from the current challenges, it is imperative to increase focus on the human dimensions of changing technologies, processes and management principles. This would enable it to strengthen the chain wherever the desired competencies are not available.

During the last six months, Synergy Consultants spoke to a large group of select CEO’s, HR leadership and almost a hundred CXO’s working for major automobile and OEM manufacturers. The objective was to understand their perceptions, concerns and apprehensions about availability, readiness and quality of senior managerial talent, as well as, unravel the leadership challenges being faced by the industry as a whole. The learning’s from this interaction were analyzed in conjunction with insights derived from numerous Search assignments for leadership talent impacting manufacturing operations, technology up-gradation, product design, development and quality.

18% Shortfall in Talent Availability:

The study clearly indicates a critical shortfall in both technical and commercial CXO level talent availability in the auto industry. The situation is serious, the quantum of shortfall being as high as 18%. Even more disturbing is the realization that, in the absence of access to the right quality talent with essential-skills and competencies, many companies have been compelled to lower their expectations and compromise on skills needed for management of critical functions.

A deeper qualitative probing and study of on-record empirical data suggests that industry has not taken any effective steps to meet this  glaring gap in need and availability at the CXO and sub-CXO (its direct report) levels. Also, there is a virtual consensus that the competencies needed have to be studied afresh and unless this level of leadership becomes future-ready to propel the industry in the coming years, there would be a vacuum in strategic growth.

Why Talent is scarce: 5 Factors

This sense of inadequacy stems from five key factors covering various dimensions of leadership:

  • Shortage of CXOs and Sub-CXO talent that has adequate strategic vision and an innovative people-centric approach.
  • The gap is rather obvious despite the professionals having requisite technical qualifications and length of experience in the industry.
  • Non-integration of technology and business imperatives during the growth phase, which is, perhaps, a consequence of singular focus on numbers in recent years.
  • Movement of quality talent to alternate industries due to numerous factors including  better compensation.
  • Excessive focus on quantitative growth through borrowed technologies. This has diminished commitment to Research
  • Development and application engineering. As a consequence, the industry, today, is unable to project “technology challenges” and attract brilliant minds essential for long term advancement.
  • In spite of huge growth and potential, the industry has failed to project itself as an industry of choice for talented professionals.
  • The focus seems to be still on short-term commitment and rewards rather than a long-term career.

Apart from talking to the Auto industry leadership in an organizational context, Synergy Consultants also interviewed over a hundred senior technology professionals in the Automobile and Auto-Components industry who were contemplating a change from their current organizations.
Communication Gaps:

It is now apparent that in many leading companies, there is a distinct mismatch between the Organizational initiatives as annunciated by the top management and as understood by the CXO and sub-CXO professionals. The strategies that top leadership intends to implement to enthuse the future leaders are somehow not getting communicated.  The professionals are unable to comprehend and appreciate the competencies or actions with which quantum benefits and rewards are associated. The resultant discontent is leading to unfulfilled professional aspirations and the people strategy is not getting aligned to the organization’s business strategy.

It was also noted that, barring a few leading large companies, few organizations in the industry have a structured career growth plan for senior management that focuses on building cross-functional capability. While most CXOs grow linearly and miss out on developing and validating their cross-functional leadership strengths, the future-ready CXOs with requisite technology, people skills and business acumen also do not get rewarded adequately. As a result, such professionals move on to greener pastures outside the industry where they get both, more challenging assignments as well as higher compensation.

Based on reverse analysis, it was found that the Auto and Auto-component industry is ranked fourth in its ability to hire talent from other similar sectors.

Even at the Graduate Engineer trainee levels, majority of Auto industry does not appear to be making any special efforts to attract talented technology professionals to its fold. It seems to have reconciled to hiring mediocre talent from tier-2 and tier-3 colleges. In fact, even in the minds of young engineers today, the Auto industry is way behind in their preferred career plans and is chosen more by default and less by design.

Lower Compensation:

Compensation is another bone of contention and has emerged as a critical challenge because better options are available outside the industry. In 2012, the annual increase in compensation in the auto industry varies from 8% to 12% on an average. With few exceptions, this is smaller than other manufacturing sectors. Further, the increase is lower by 1%-2% at CXO and sub-CXO levels putting further strain on the stability at these levels. Coupled with lower base levels in the Auto industry, it’s little wonder that attrition rates have increased from 8%-10% earlier to 12%-13% now.

The lack of stability at CXO levels is now almost as alarming as at the junior management levels. We would soon be circulating the results of the specific study analyzing the dimensions of compensation issue, its impact on attrition and a dearth of capability building initiatives.

While majority of the industry is smug about the status looking at the growth in business volumes, many CEOs are now coming to recognize the urgent need for bold new thinking, initiatives, original research, product development and an increased focus on people issues.

This glaring gap in requirement and availability of quality talent makes it imperative that the industry, as a whole, takes immediate steps to redefine critical competencies, create specific opportunities to attract, develop and leverage leadership talent as a strategic initiative.

 

Background Note:
Auto Industry in India

The automotive industry in India is amongst the largest in the world and one of the fastest growing globally. India’s passenger car, commercial vehicle and 2-wheeler manufacturing industry is racing towards the top spot. With over 17 million vehicles and growing at a cumulative rate of 12%, it’s a $ 60b industry. The auto components industry is also about $31b and growing every year by 13%. The exports are a healthy 15% – 18% and growing impressively.

Many more global companies are looking at India as an automotive hub and are attracted by lower cost technical talent. The large pool of junior engineers and technicians is also an attraction. Thus many companies are contemplating, and some have already taken steps, to set-up development bases in India.

According to the Society of Indian Automobile Manufacturers, annual vehicle sales are projected to increase to 5 million by 2015 and more than 9 million by 2020. By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation’s roads.

Over 50 manufacturers produce vehicles, including trucks and commercial vehicles. Almost a thousand major component manufacturers and almost 10000 minor manufacturers support the industry. It employs over eleven million people, with almost two-third being in un-organized and semi-organized sectors.  This number is expected to reach fifteen million by 2015. The above is based on study of & interaction with Tata Motors, Fiat, Ford, Volkswagen, Honda, Hyundai, Renault, Suzuki, Maruti, Leyland, Mercedes, General Motors, Mahindra, BMW, Audi, New Holland, JCB, ITL, Eicher, Mitsubishi, etc.