What Makes a Leader Tick?
by Arthur R. Tan

This article is based on a presentation given by Arthur R. Tan, President and CEO of IMI, at the 4th Annual Sales and Production Conference of John Clements, held on July 6 and 7, 2007.

The Global Stage
“We live in a truly networked and interdependent world, united by a global economy... The drama takes place on one enormous global stage. The players... are sometimes in competition for the audience’s attention, but movements across the stage are free-flowing, no longer obstructed by obsolete furniture. The global stage is in a state of perpetual motion.” - Kenichi Ohmae, The Next Global Stage

Before, businesses could function independently; now, they take part in a network of global economies. In the book by Kenichi Ohmae, the complex, new global economy is characterized as borderless—communications, financial markets, corporations, and consumer markets do not have borders; invisible—transactions happen not in markets but mostly on and through computers; and cyber-connected—the Internet enables real-time data transfer. In a word, the new global economy challenges both the way we see business and the way we do business.

Given this business reality, individuals will have to learn to adapt. Business leaders will have to take more responsibility upon themselves in order to reap the benefits of the global economy. Kenichi Ohmae gives the following advice:

Embrace Leadership. Have a clear vision; be courageous but not reckless; don’t be imprisoned by ideology; seek practical results. You must be able to lead, i.e. stir and provoke others and communicate your vision for the future. A good leader does not have to be a solitary figure. Thus, you must learn to work well with others so you can all lead effectively.

Value Information and Innovation. Be well-informed and have a passion for innovation. Innovation means finding new and better processes and trying out new approaches.

Embrace Flexibility. Don’t allow yourself to be put in a box. You should not have preconceived attitudes about your role. Keep your mind open to many possibilities.

The New Breed of Leaders
The authors of the book Global Explorers: The Next Generation of Leaders interviewed more than 130 executives in 50 firms based in Europe, North America, and Asia to have an idea of what makes today’s leaders tick. Based in the interviews, the authors wrote that today’s leaders possess the following traits:

Inquisitiveness – This is the foundation on which a global leader can maintain a sharp personal edge and develop a reservoir of knowledge and skills. It drives the leader to understand and explore the new global economy. In a word, you should never stop asking questions and looking for answers.

Perspective - Today’s leaders possesses a global perspective—they read, watch news, surf the Internet, travel, experience other cultures. In addition, you should not be threatened by uncertainties; instead, find innovative ways to deal with them. You should not be paralyzed by the clash of competing forces; view them as an opportunity to find solutions.

Character – This refers to the ability to connect with people emotionally as well as to hold the company to high ethical standards. By combining these two elements, you will be skilled at building trust and goodwill within the company and outside.

Savvy - A global leader needs to demonstrate both exceptional business savvy and organizational savvy. While savvy is built on foundations of factual knowledge, it includes a broader understanding of complex relationships and judgments about what is and isn’t important. The Filipino concept for ‘savvy’ is ‘diskarte’.

Source: Global Explorers: The Next Generation of Leaders by Black, Morrison, and Gregersen.

According to the Leadership Research Institute, of which Tony Smith, the author of Taboos of Leadership, is managing director, leadership credibility is based on six dimensions.

1. Conviction – the passion and commitment the leader demonstrates toward his vision;
2. Character – consistent demonstration of integrity, honesty, respect, and trust;
3. Care – demonstration of concern for the personal and professional well-being of others;
4. Courage – willingness to stand up for one’s beliefs, challenge others, admit mistakes, and change one’s own behavior when necessary;
5. Composure – consistent display of appropriate emotional reactions, particularly in tough or crisis situations;
6. Competence – proficiency in hard skills, such as technical, functional, and content expertise skills; and soft skills, such as interpersonal, communication, team, and organizational skills.

Jim Collins led a team that studied the leaders of 11 Fortune 500 companies that produced mediocre returns for 15 years from 1965 and then outperformed the stock market by a factor of three times or more for the next 15 years. These 11 companies were: Abbott Laboratories, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo.

Based on the results of their study, the leaders of “good-to-great” companies or “level-5 leaders” combine a self-effacing humility with a ferocious professional will to succeed. They are infected with an incurable need to produce results. They have a clear understanding of three simple truths:

1. If you begin with the “who” rather than the “what”, you can more easily adapt to a changing world;
2. If you have the right people on the bus, it will be easy to motivate and manage them;
3. If you have the wrong people, it doesn’t matter whether you have the right direction. The saying “People are your most important asset” is not accurate. It is the “right” people who are the important asset of a company.

A Short Introduction to IMI
IMI is the next-generation electronics manufacturing solutions provider to some of the world’s leading Original Equipment Manufacturers (OEMs) in the computing, communications, consumer, industrial, automotive, and medical electronics markets.

Leading IMI in Going Global
“Make no little plans; they have no magic to stir men's blood... Make big plans, aim high in hope and work.”
- Architect Daniel Burnham

IMI is regarded as one of the pillars of the Philippine electronics industry. Believing that IMI had already achieved its former vision of being a leading technology player in the industrialization of the Philippines, we amended it in 2003 during our Annual Strategic Planning Session. The resulting vision was: “Be the best electronics manufacturing solutions provider for our global partners.”

We operationalized this vision with a medium-term strategic direction to become a truly global EMS company with annual revenues of more than US$ 500 million by 2008 from US$ 82 million in 2002.

While we served a global market, we could not really call ourselves a global company. We felt that if we were to realize our vision and the strategic direction, we needed to establish a much broader geographic footprint, not just in terms of actual physical production capacity but also in terms of manufacturing and engineering competencies. From the time we were established in 1980 until the end of 2004, IMI was operating only in the Philippines.

While we had built up an excellent reputation with our long-term customers and partners, we realized that we could not remain complacent, as the market we compete in is a very dynamic and fast-changing one. To remain competitive, we had to quickly implement an expansion strategy that allowed us to (1) enhance our capabilities and competencies, particularly in product and process design and engineering; (2) become a more efficient operator by scaling up; and (3) access the unique advantages of running different geographic locations.

When we evaluated our options, we first took stock of what we called promoting factors, or strengths and opportunities.

First, we knew that we were in a good position financially to expand—the company had been consistently profitable, had very little debt on the balance sheet and a strong cash flow from operations, and enjoyed the support of strong and supportive shareholders.

Second, we knew from analyzing market trends that while this was an increasingly competitive time for the industry, there were also many opportunities in the end markets, especially in wireless computing and communication, consumer electronics, and automotive electronics segments.

Third, the outsourcing trend is likely to continue. The EMS industry in 2003 was expected to grow at about 15 percent compounded annual growth rate until 2008, and the ODM market, about 20 percent.

Finally, we believed that if we were going to pursue a significant expansion strategy, Asia was the main region to do it in because of the attractive fundamentals. Asia accounted for more than 40 percent of worldwide EMS revenues and Asia-based players were posting robust growth rates compared with the large, established US-based players.

To complete the picture, we also took stock of the restraining factors affecting our business, or those weaknesses and threats that we needed to adequately address in order to move forward.

The first and most important was that we needed to upgrade and improve our competencies from being mostly manufacturing-based into full-product realization mode.

Second, while there were many growth opportunities, this also has a downside in that it has attracted many new and aggressive low-cost EMS competitors, which put a lot of pressure on the margins of all the players.

Third, the constant innovation also means that product life cycles are becoming increasingly shorter, requiring faster time-to-market and increased flexibility.

Finally, we felt that having all of our facilities domiciled in a single geographic location was not ideal when we considered factors such as materials sourcing, logistics, proximity to the customer, as well as a relatively higher costs of doing business, particularly labor, power, and the cost of capital.

The first M&A activity that IMI made was the acquisition of the EMS/ODM assets of U.S.-based Saturn Electronics and Engineering, Inc. in early 2005.

This acquisition gave us a prototyping and new product introduction facility in the US. We gained access to a tremendous engineering team which had 18 years of experience as well as some patents in areas such as flip-chip, precision placements and very high component density boards. As form factors become increasingly smaller, we felt that these were very critical competencies that we needed to have and be able to offer to new and existing customers. Also, we obtained some additional high-volume SMT capacity in Cebu, which we needed, considering our high utilization rates in Laguna. Further, the Tustin facility now serves as the base for our increasing sales efforts in that region.

In December 2005, IMI completed its merger with Singapore-based EMS company Speedy-Tech Electronics, making Speedy-Tech a wholly-owned subsidiary of IMI. We acquired its ODM capabilities in power electronics. Also, we gained access to its manufacturing facilities in China, Singapore, and Cavite, Philippines. The China facilities (two in Shenzhen and one in Jiaxing), in particular, allow us to offer cost-competitive manufacturing to our clients and tap the OEMs based in China for outsourcing jobs. We also benefit from increased scale as cost advantages are achieved through the integration of operational functions and the consolidation of material purchasing power. We now have broader geographic presence. Moreover, we have expanded and diversified our customer base, especially since there is minimal overlap between IMI and Speedy-Tech business.

After the merger with Speedy-Tech, we started immediately the integration of IMI and Speedy-Tech’s business processes, systems, cultures, and management philosophies. With the SAP enterprise resource system rollout in Speedy-Tech in place, IMI has integrated its purchasing capabilities with those of Speedy-Tech. A strategic plan for global sourcing was developed, including strengthening the supply chain in China. Streamlined sales channels and agents between IMI and Speedy-Tech have yielded a common process in handling customer requests for proposals.

IMI’s acquisition of M. Hansson Consulting, Inc., a Philippine-based engineering-oriented test systems integrator, will enhance its value-added services and make it a complete, vertically integrated solutions provider. This establishes a strong equipment-development group capable of creating testers, handlers, and automated vision systems for IMI's customers. IMI also strengthened its global expansion thrusts by starting its fourth China manufacturing plant through Speedy-Tech’s facilities in Chongqing. Further, IMI established engineering centers in Japan (which focuses on embedded systems and wireless technologies) and Europe (which focuses on automotive electronics and automatic meter readers or AMRs).

In all our acquisitions, we made sure that we were dealing with the right companies; we had taken a lot of time, care, and due diligence. With Saturn, Speedy-Tech, and MHCI, we believe that we had found the right partners because not only are we a good match on paper with complementary capabilities, but we also share the vision of where we want go. We then retained the people with the experience and who could really add value to IMI.

In addition, we hired people with global experience to manage our expanded operations. These include a Global HR Head, Global Quality Head, and Japanese and European engineers, among others.

Regarding the old employees, they were told to enhance their skills (both technical and soft skills) to global standards, to cope with the changes happening around them, and to live up to greater expectations.
  
I believe that IMI is well underway to succeeding in the new global economy because it has focused clearly on three things.

Understanding Well the Playing Field
We wanted to lead in our industry. This is as clear as ice to us and this has driven us to always inquire. We value information because we know that information is power. We do our homework and really understand the playing field. We study the developments in the external markets, understand the forces shaping the industry and its competitive structure, and clearly identify the opportunities and threats that we face. We turn our attention inward and take a frank and realistic assessment of our own strengths and weaknesses and develop a clear plan that takes advantage of the former and addresses the latter.

Deciding Fast and Intelligently
Because the environment in which we operate is in a constant state of flux, perfect information is never available. Speed of execution is very important in this industry and once we had mapped out a clear direction, we move quickly and decisively. Of course, there is a big difference between quick decision making and reckless decision making and this is why all of the homework needs to be done as comprehensively as possible, but without falling into an analysis-paralysis mode.

Getting the Right Things Done Right
At the end of the day, it is all about execution. Even the most carefully crafted strategies and plans can fail, and often do, in the execution stage. When we execute, we embrace flexibility and we innovate. We believe that there are 101 ways to skin a cat and execute the one we have discerned as the best way.

In conclusion, I would like to share with you some famous quotes on leadership.

“Leaders grow; they are not made.”
- Peter Drucker, writer, management consultant and university professor

“The first responsibility of a leader is to define reality.”                                            
- Max DePree, American writer, CEO of Helman Miller from 1961 to 1990, author of Leadership is an Art

“Leadership is action, not position.”
- Donald McGannon, former president and chairman of the board of Westinghouse Broadcasting

“The only test of leadership is that somebody follows.” 
- Robert Greenleaf, founder of the Servant Leadership movement

“If your actions inspire others to dream more, learn more, do more and become more, you are a leader.”
- John Quincy Adams, 6th US President (1825-29), eldest son of John Adams, 2nd US President (1767-1848)