October 1, 2012: Sebastian Steinbach, Managing Partner, Steinbach & Partner
Steinbach & Partner is a “very natural” partner for Indian automotive suppliers looking to acquire small- and midsize German companies, says the managing partner of this top-5 German executive search and audit firm.
What is Steinbach’s relationship with the automotive industry?
We were founded 30 years ago in Stuttgart and Munich. The bulk of the work we did already back then was for the engineering sector related to the automotive industry. That’s natural — when you are in Stuttgart and Munich, and you look the companies you have in the region, many of them happen to be related to the auto industry. Throughout our history we have worked with small, medium, and large suppliers. Some of the OEMs as well, but that is not our bread-and-butter business.
Does your own training as a production engineer give you any advantage?
Production operations play a huge role in the auto industry, and I actually focused during my education on the Toyota Production System and what it has come to be. Before I joined Steinbach & Partner I worked for Trumpf, the company that is best known for laser welding. When you have an engineering background, you have a passion for technology, methods, and structured, methodical working. These are things I try to infuse into the business. Trumpf and many other typical German engineering companies are very driven by innovation this we try to infuse into Steinbach & Partner.
A lot of production capacities are being set up in India, so you could, not only help these companies find top executives but also assist them across a whole range of issues, say in operations. . .
Yes. If you as a search professional are an engineer by education, you can have a good understanding of how the automotive industry works. And my experience in India from what we’ve done so far is that most companies that come to India are new to the country. They’ve had no experience running a business here, so they don’t know how to do it. Of course they would need an executive that heads the unit, but they also need to know how and where to set up shop — should it be a joint venture or a wholly owned subsidiary, should they buy land, where should they buy, where’s the infrastructure available that they need, is it in Gurgaon or Pune? And in some cases there are no clear or easy answers to these questions.To this end we have developed a practice that we call comprehensive advisory, that we do not even make a business out of, but we act as a hub that connects people with other people that will help them in these aspects.
Do you also help them structure their HR policies?
Another service we provide is making sure that the people they’ve hired develop in the right way — that they promote the right people. Everybody wants to get ahead, and if you promote the wrong people you have a problem again. You hire people for the right position, but then when they develop and get into positions that they should not get into, they not only block the position for somebody who could have gotten it who might leave the company, but they themselves do not perform and the company slows down. So internal decisions can have a great impact on the performance of the company. This is where we come into the picture — we use the same methods that we use in selecting somebody from the outside, within the organisation itself.About 15 percent of our overall business is what we call executive audit. This proportion is growing, albeit slowly, because there’s the fear that if they let us come into the organisation and look at all the people they have, maybe we might poach them one day.
In your work for the automotive Tier-1s, have you seen any peculiarities?
Of course, the auto industry was the first one to get up to this enormous pressure that OEMs would exert on their suppliers and they in turn would exert on the lower tiers. It started 25 years ago. The auto industry is, if you ask me, one of the most demanding environments you can have in terms of quality, in terms of margins being low, in terms of the pressure to improve in all aspects — innovation, technology, quality, cost-effectiveness, productivity… The auto industry is a very brutal industry in that sense, where only the best, only the toughest can survive. It sounds pretty Darwinistic, but in many cases this is actually what you see.
What challenges does it place on you as an HR consultant?
These companies demand very high capabilities to be able to get them ahead. So as a search company you have to understand that you can never get some people with some backgrounds close to the automotive industry because they will just not be able to go at that speed. You cannot get into the auto industry normally if you haven’t grown up in it.Another thing that’s important for us to know is that the automotive industry is not uniform. You have different kinds of suppliers. Some are so strong and big that the speed and pressure is lower than for others who are maybe little smaller and attacking the market, who want to get better and want to get ahead. Those will have even stronger demands for more powerful developments.And then, to make it even worse, you have medium-sized automotive companies that are bought by private equity firms. The pressure that these acquired companies experience to grow and improve is much more even than what you already have in the industry. So then you have to look very closely at which person within the automotive community will be good enough, willing, and able for the next 2–3 years to build up this particular company in this pressurised environment.
A number of German companies have gone insolvent, or been taken over, since the last downturn. What kind of impact has that had on your business?
The examples that we witnessed in that crisis are exactly like this. Companies had to give up because the money wasn’t there, even though the products were good. But they didn’t close down — they were bought, for example, by private equity and then suddenly a lot of developments started happening. Money came in and by placing the right people they could catch up, they could reorganise.Sometimes companies need to face this annihilation moment, the fear of being done with, to wake up and be ready to really change. And then when they are lucky and there is money – normally if they have some substance there will be some money coming in from a bank or from investors, – then you can start changing a lot.Many times those companies fell because they made a mistake by sticking with the top management. In most cases it’s mistakes that have been made at a strategic level that lead to problems. It’s many times the workers who have to pay for it, which is not always entirely fair. In situations where it gets really drastic, the chances are they have to exchange the top management — and suddenly you see companies rebounding.
Several Indian companies are on the lookout to buy, and are already buying, German companies. That’s certainly one area where you could be of assistance.
The most important thing here is that the companies have to know who they are buying, and I don’t mean purely the technological aspects — they’re probably very able to find out for themselves how good or bad the technology is that they are buying. But what I think is very important to understand, in each case that you buy a company but here especially, because you are buying in a different country that you don’t know so well, is: what’s this company like? What is the culture that has been ingrained in the minds of the people? How will they work? If you don’t know these things, you could be lucky and strike the right tone. But if you’re not, things will not work the way you expected, and you won’t understand why.We know a little bit about these companies, and can give an estimation. And if there’s more knowledge required we can specifically go in and work with these people to give them a clear understanding of the important things you have to look at when you work together. But certainly, because of our 30-year experience in the automotive market in Germany, we know a lot about many, many companies — Howdo they behave? What’s their reputation? Are they reasonably priced? Are they reliable? All these things will reflect on the Indian company that buys.
You mentioned culture fit for executives — so you also advise on culture fits for companies?
We always do that. An integral part of each assignment is to understand the culture of both sides, and make sure that culture fits because you can’t change your culture. You can’t change the vices you have as a person. The company can’t just change it to accommodate the manager they would like — if he doesn’t fit in, there will be frictions. Sometimes you accept it, because the skill set is so unique, but otherwise in many ways it creates more problems than are acceptable. There are some companies that have good reputations. Other companies have not-so-good reputations. And that you only know when you’ve been in the market for a long time, like we have.
Let’s rewind a bit — what percentage of your business is from automotive? What levels of people you hire, and to what depth of the management hierarchy?
At least 30 percent of our business is related to the auto industry. The companies we work for could be small companies with 200 people all the way up to big companies with 20,000. Interiors, drivetrain, electronics… Everything you can imagine from a technological and a product point of view.The positions we hire for are 50 percent managers of the first two levels. The kinds of people we find for companies are general managers or vice-presidents of production, operations, R&D, programme management, sales, etc.Again, 20 percent of all assignments will be managers at the middle management level. That could be, as in recent cases, people that led a specific development or department, but not the whole development — a department leader for R&D, for example, or production.The rest will be specialists. They could be sales specialists or key account managers that are important in the auto industry, or specialists in the production environment — people who can, in the terms of industrial engineering, design new production lines, make them run, improve them. I would say that up to 15 percent of the people we find for the auto industry are people who improve production.
Do companies engage you for comprehensive hiring and an ongoing relationship?
Exactly. I have an example of a company that was bought by a private equity investor. They’ve changed their two levels of management – except the CEO – entirely in two years. That’s almost 10 executives. And we did all of this for them. The company is not the same anymore, but that’s why it’s so successful. We did a good job, and I hope it stays like that.Normally companies don’t develop so radically. They normally don’t exchange all their upper management within a year, because that is also quite disruptive to do.
Steinbach & Partner is also engaged in education of advisory boards. How does that work in Germany? Where do you bring value there, and what is the value that you can bring to India?
Under German corporate law, stock corporations must have an executive board and and non-executive supervisory board. On the one hand side, we help to find the right supervisory board members for those boards, which sometimes brings real added value — if the owners of the company want, of course. But the new thing we have developed is, we educate people that act as supervisors in a board on how to do that job. The curriculum is very tough. It covers strategy, HR, legal, and financial terms, and the people that do it know fully what is expected from them, what the responsibilities are, and how to do the job competently. Because you have very many competent executives, and how can you expect to work with competent executives if you yourself are not competent enough?
Is this something you plan to offer here?
Not so quickly. Education of this kind, actually, nobody offers. It could be a good idea here, but we would have to adjust the curriculum to the Indian realities. [Our Indian partner] Ramgopal [Rao] here has been doing this already in his individual capacity. He’s been in touch with the Institute of Directors in the UK. This is a globally acknowledged body that educates in governance and corporate issues. India is more UK-oriented in the way your company law is structured, but with Steinbach backing it could be a powerful thing. We have discussed this, but have not moved into the nitty-gritty of it.
When we were talking about Indian companies taking over German companies, and your being able to alert them to hidden reputations, or find out whether it’s a good fit — do you see competitors in this kind of service that you could offer?
As a search firm, we are probably one of the very few that can do it. If you talk about Indian companies coming to Germany, we would probably be the best one. Because we are now an Indo-German organisation. We have an Indian expert who has known the industry for decades; we have a German organisation on the ground that knows the industry for decades; we share our the knowledge and work hand in hand on every assignment. Nobody else offers this.The Big Five search firms have very strong relations with US and European multinationals. They understand the Indian executive scene, and they would recruit the CEO. But I don’t think they would have the capability of mentoring Indian multinationals getting into those countries. Now Indian companies wanting to take over German ones will look for small, medium-sized targets that they can grow. We have a much better understanding of this market than the big consultancies.
What distinctive value proposition would you claim?
In the global search business there’s only a handful of companies that are really “global”. Most of them are American. Not one of them is German. There is a very interesting case for another global search firm that has distinctive roots in a couple of industries, where we are very strong, that has distinctive roots in the type of company that is not the huge Fortune 500 corporation but mainly the companies with 5,000 to 15,000 employees. Put these two distinctive roots together on a global level and you have something very interesting. And it makes all the difference, because normally customers of the big firms that go abroad will have to deal with some network partner. These firms only have network partners. None of them is truly global.Since we have evolved into a truly international company in these sectors, more and more clients are telling us they’d rather work with us than with another firm because they think we do the better job.
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