The Chemical Way in Talent Management
Can outstanding, professional people decisions help companies in the chemical industry rise to the challenges that lie ahead and add real value? What are these industry challenges and what exactly does “Talent Management” mean? At our Chemical Forum 2010, entitled “The Chemical Way in Talent Management”, Egon Zehnder’s European Chemical Practice drew on its extensive experience in the chemical industry to structure discussions with top executives around a number of related key issues.
Topics included the industry’s attractiveness in terms of employer branding, the Asia challenge, the value of hiring outside leadership talent and diversity issues. This expertise, along with the insights offered by discussions during the forum and the keynote speeches made by the two guest speakers, Dr. John Atkin and Rolf Deusinger, are presented in this small brochure. The discussion was conducted by Dr. Wundrack and Dr. Flueckiger of Egon Zehnder.
Sustainable Leadership Solutions to Industry Challenges
The European chemical industry staged a remarkable recovery in 2010 and has made a brilliant start to 2011, mainly thanks to the current upturn in the global economy, but also because chemical companies have done their homework over the past decade. However, the industry remains sensitive to economic cycles, as well as to events like the uprisings in the Arab world and the recent catastrophe in Japan.
Other challenges facing the chemical industry include its centre of gravity shifting towards Asia, the increasing importance and volatility of raw material prices, significant portfolio shifts, partnerships along the value chain, and tighter regulation, which has intensified pressure on European chemical companies in recent years in particular. Furthermore, chemical companies must continuously renew their “licence to operate” with relevant stakeholders, due to the nature of dealing with hazardous chemicals and natural resources.
Looking to the future, what are the strategies that will ensure sustainable leadership of a highly volatile industry in transition? In our view, supplementing a shrinking talent pool with outstanding industry outsiders and fostering global, consistent and transparent Talent Management that is deeply embedded in the corporate culture are potential solutions to many of the challenges mentioned above.
Building a Better Image to Attract Top Talent
Is the chemical industry in general suffering from an image problem? Do talented youngsters see chemical companies as part of the “old economy,” offering few exciting new career opportunities and comparable with industries like steel, for example? A survey of MBA graduates conducted by the German Manager Magazin  reveals that only two chemical companies (ranked 27 and 36) were among the top 100 preferred employers for MBAs. The sector scored slightly better among engineers, with four firms making it into the top 100, but the statistics are still disappointing in terms of the chemical industry’s appeal to top talent.
So how can chemical companies raise awareness of the industry’s seminal importance? Chemicals are hidden in most products, but consumers are not always aware of their existence. Indeed, many of today’s global challenges in terms of energy, the environment, demographics, food supply etc. cannot be resolved without substantial input and innovation from the chemical industry. But while this is indeed an advantage when it comes to attracting talent, in fast-growing economies like China in particular, our Chemical Forum discussions suggest that young talent is not always attracted by “hidden materials”, but rather by high profile (consumer) brands.
The 2011 United Nations International Year of Chemistry represents a golden opportunity for the industry to showcase the contribution that chemicals make to society. Several participants at our latest Chemical Forum felt strongly that the industry also needed to spotlight its contribution to society to enhance its image and attract talented executives. However, half of our forum participants nevertheless thought that the industry was attractive to young talent and offered a wide variety of functional, operational and general management roles, as well as international opportunities, especially for high potentials seeking broad career paths.
Europe vs. Asia: Boosting Innovation and Customer Focus via Outside Talent?
One of the major strengths of the chemical industry in Europe is its ability to innovate, or more specifically to promote process efficiency, product modifications and business model innovation. While Asia benefits from rapid growth and huge market potential, and the Middle East enjoys tremendous raw material advantages, Europe’s ability to innovate represents a key competitive advantage.
To ride tomorrow’s innovation wave, European firms will need to focus on the development of environmentally-friendly technologies that represent more efficient use of natural resources. Segments offering significant potential for innovation and growth include biologically decomposable plastics, wind power, photovoltaic chemistry and chemicals used in energy storage media such as batteries for electric cars. Many major players have already defined a path away from commodities/ base chemicals and towards specialities/fine chemicals.
To implement such major changes, however, companies naturally require high calibre leaders. Given the shrinking executive pool within the industry, this injection of outstanding talent may have to come from the outside. In response to the question of whether the chemical industry needs an influx of outside talent at middle or upper management level, 52 percent of our forum guests were unsure and only 26 percent agreed with this view. Although such an influx may initially seem beneficial, many executives reported cases of major failures in their companies. In one participant’s opinion, a thorough understanding of the chemical business is the key to success in the industry, regardless of an individual’s background.
Chemical companies, on the other hand, generally need to improve their ability to integrate outside and diverse talent into their organisation at an executive level, not least so as to better understand customer industries and their decision-making processes. As far as formal qualifications are concerned, many forum participants felt that attracting more high potentials with a business or commercial background as opposed to those with a background in sciences was important, as companies need a mix of chemists and non-chemists to boost their performance. Indeed, this can be seen as a form of diversity.
Our informal poll at the Chemical Forum 2010 also reveals a widespread belief that the chemical industry is competitive with other sectors when it comes to compensation. Despite its conservative reputation, forum participants believed, however, that the sector should adopt a more versatile approach to compensation when it comes to critical talent. Indeed, the prevailing opinion among participants was that pay philosophy should be flexible in certain situations like growth markets, for instance, while remaining as closely aligned as possible with corporate strategy. However, chemical companies need to be aware that hiring outsiders, as well as engagement in growth markets, lead to disparities in the corporate compensation structure, with possible implications for those managers who have been with the company for a long time. Firms need to be better prepared for such situations to avoid an upward salary spiral. Elements of such precautions are mainly non-monetary and involve incentives that are more difficult to quantify, including international assignments, transparent talent development opportunities and long-term benefits.
A Shrinking Talent Pool in the Chemical Industry
As statistical data shows, the chemical industry is potentially facing a serious talent crisis driven by the imminent retirement of ageing executives and a drop in the number of students opting for careers in science. On top of this dilemma, the popularity of the chemical industry is waning fast. So what appeal does the industry hold for high-calibre individuals?
Market capitalisation speaks volumes about the attractiveness of the chemical industry for top talent. A comparison of three chemical industry giants, BASF, Dow and DuPont with their Internet counterparts Google, Apple and Amazon reveals that the former trio’s combined sales revenues in 2010 were about 25 percent higher than those of the Internet firms (123 bn EUR vs. 90 bn EUR). However, this substantial difference disappears when it comes to market capitalisation, as the combined value of Google, Apple and Amazon is over three times higher than that of the three chemical giants (405 bn EUR vs. 124 bn EUR). What do these figures mean in terms of talent? Given that market valuation reflects future potential and investor confidence as well as upside fantasy, the chemical industry is not in great shape. Will young leaders really want to work in an industry that suffers from a less creative image?
On top of these factors, a dramatic narrowing in the population pyramid is forecast by 2060 [see “Eurostat, EUROPOP2008”], giving the chemical industry some key Talent Management issues to tackle if it wishes to attract and retain topquality leaders.
A Strategic Approach to Great People Decisions
In today’s turbulent economy, it is difficult for firms to foresee changes in the business environment, but they can plan how they manage the people who are going to deal with these changes. By adopting a sophisticated concept of Talent Management, companies can systematically apply a set of disciplines to enhance people decisions at all levels and maximise their return on investment in human capital.
In a fast-changing industry it is essential for companies to have an accurate picture of their executive team’s competencies at all times and in all parts of the world, so that they can deploy the right people when changes occur.
At A Glance
- The chemical industry is highly successful and in good shape, but highly volatile and vulnerable in terms of potential crises
- The chemical industry is not the favourite industry for top talents on all levels; capital market valuation indicates an “old economy” condition
- The chemical industry is clearly “going Asia”, but Talent Management needs are not yet tailored to this future challenge
To Bridge These Gaps, Chemical Companies Need to:
- Understand that Talent Management is a cornerstone of success, especially when talents are in short supply
- Define clear operational and strategic Talent Management targets
- Explain the benefits of the industry to society, orchestrating a joint effort to communicate future potential to the market for top talents
- Focus on process, product and business model innovation and hire suitably qualified managers who are able to trigger and implement complex projects
- Hire industry outsiders on all levels, especially from downstream industries, and integrate them more systematically
- Reflect the degree of internationalization on all management levels, including the executive and supervisory boards
- Enforce a corporate culture of diversity, especially “thought diversity”, to ultimately generate value for the company
- Put in place consistent, transparent and sophisticated global Talent Management so as not to miss out on rare talents in growth markets
- Ensure greater transparency about compensation inside and beyond the industry and develop more flexible compensation systems
- Provide incentives beyond compensation, such as recognition and international career development opportunities
- Maintain a company-wide overview of in-house and outside talents, which implies that certain aspects of Talent Management should not be decentralized
- Foster teamwork and team effectivenes