Posted By David Brousell, August 17, 2015 at 3:40 PM, in Category: The Adaptive Organization
I traveled to New York City last week to attend the 11th annual Jefferies Industrial Conference, a diverse gathering of more than 200 companies in the chemicals, aerospace and defense, automotive, metal fabrication, biofuels, and other market segments.
Every company has its own set of market issues to contend with, of course, but if there was one major topic of conversation that ran through four days of presentations conducted in five concurrent session tracks, besides a growing feeling that the economy is slowing, it was business transformation – pervasive, market-driven change that is forcing many company executives to reorganize their companies, sharpen and re-align their priorities, reduce costs, in some cases move production outside the U.S., and find new ways to leverage their strengths to create advantage and compete.
One might expect companies that are not performing well or up to expectations to indulge in rearranging their deck chairs, but even companies in currently booming market segments, such as aerospace and defense and automotive, are taking pains to improve operational efficiency, time to market, and to find new or better ways to become more agile. Underneath it all, there was a sense from many of the CEOs at the conference that the pace of business is simply speeding up.
“The world is changing very quickly,” said Darren Jamison, president and chief executive of Capstone Turbine Corp., a manufacturer of microturbine products for the power generation market, based in Chatsworth, CA. Among Capstone’s “headwinds”, he said, are new government emissions regulations, declining grid reliability, lower oil prices, and ongoing geopolitical tensions. As a result, Capstone’s corporate focus has been on reducing costs.
Continually finding new ways to become more efficient as well as creating greater organizational agility are two major areas of focus at defense contractor General Dynamics Corp. Chairman and chief executive Phebe N. Novakovic told conference attendees that GD has had a “laser-like” focus on improving a range of business processes, including manufacturing and back-office functions.
“Continuous improvement is a continuous journey,” Novakovic said. “A lot of it is blocking and tackling, but we have room to go.”
Organizationally, GD has trimmed the number of its business units to 10, from 13, and is also trying to restructure its decision-making processes. “The key to agility is to put decision-making at the lowest possible competency level,” Novakovic said.
Boeing is in the midst of a robust market for commercial aircraft, but the market’s characteristics today are different than in previous cycles, said Greg Smith, executive vice president of business development and chief financial officer. Nearly half of current demand, he said, is coming from a desire on the part of airline companies to replace ageing fleets with the new generation of more efficient aircraft typified by Boeing’s 777 and 787 models.
Smith said the challenge for Boeing, particularly for the new 787 Dreamliner, is both to meet demand and to reduce unit costs. “We have come down the [cost] curve,” he said. “But we would like to come down further.”
Even in the booming automotive market, which some at the conference predicted may hit 19 million vehicles by 2019, a number of companies at the conference described initiatives to transform their businesses.
For example, Superior Industries International, a $745 million, Southfield, MI-based manufacturer of aluminum road wheels for autos and lights trucks, has overhauled management and established a set of strategic priorities that emphasize improving operations, collaborative product innovation, and new technologies.
Kerry Shiba, executive vice president and chief financial officer, told conference attendees that the company replaced most of its board; named a new CEO, Donald J. Stebbins, in May of last year; and moved its headquarters to Michigan, from California. In addition, it filed for two patents last year and is actively working with customers on new wheel design ideas. Superior has also shifted production to Mexico and has installed a new ERP system to manage operations more effectively.
And at Blue Bird Corp., a Fort Valley, GA-based manufacturer of school buses, CEO Phil Horlock said that the company has undertaken a number of “transformational initiatives” to reduce product costs and warranty claims as well as to improve quality even as it has experienced 40% growth over the past five years. The company has also replaced 20% of its dealer network over the past four years.
Horlock believes the company has upside potential with propane-powered buses – he says only 5% of Blue Bird’s customers have tried a propane-powered bus – as well as buses powered by gasoline engines. The company recently announced a gasoline-powered bus that uses Ford’s 6.8-liter, V10 engine.
All in all, the company executives who said that their companies were in the throes of transformation did so from a basic business perspective that involved improving efficiencies and processes, understanding customers more effectively, bringing in new management talent, or working the levers of financial management to improve margins or better allocate capital.
But I could not help wondering if many are sufficiently focused on the longer-term future, a future in which the embrace and wise use of information technologies will spell the difference between winners and losers. Only in a couple of passing references did I hear the words “Internet of Things” used, for example. Not once did I hear any CEO speak of the coming industrial era called Manufacturing 4.0, characterized by the use of cyber-physical systems to create smart factories. And Big Data? Nary a mention.
Now, one might argue that an investment conference may not be the right forum to discuss technological trends and how they are re-shaping the business landscape. After all, the audience at such a conference is interested in financial growth, earnings per share, and what the next quarter might bring. While there may be some truth to this, the short-term focus does not come without peril because the future is coming at us very fast.
If the message of that future, a future replete with its own transformational changes driven by advances in information and automation technologies, isn’t reaching the executive suites of manufacturing companies with sufficient force or at all, the future for many of them may indeed be bleak.
That is until a new generation of leadership takes hold in the manufacturing industry. When that happens – and it will – then we will be talking about transformation in a very different way indeed.
Written by David Brousell
Global Vice President, General Manager and Editorial Director of the Manufacturing Leadership Council