Why is the transportation industry in need of change?
The transportation industry is a cornerstone of modern society, connecting people, businesses, and economies around the world. At the same time, the industry faces environmental challenges. Road transportation alone produces about one quarter of all greenhouse gas emissions. Fortunately, e-mobility and hydrogen are making great strides in replacing fossil fueled modes of transportation while developments in autonomous driving and artificial intelligence are unlocking untold possibilities in other areas. As a result, traditional transportation patterns are evolving to encompass entirely new platform solutions, which are on the verge of revolutionizing on-demand services and door-to-door transport.
In the midst of this dynamic and constantly shifting environment, transportation executives need to reposition their companies with respect to these external metatrends. This will enable them to do their fair share to fight global warming while simultaneously creating new revenue streams capable of offsetting and eventually exceeding the costs of technological investments. Naturally, these changes will significantly affect their stakeholders – first and foremost the workforce, from labor unions to bus drivers and train conductors all the way up to middle management and board members. This impulse outlines the obstacles the transportation industry will face in enacting those transformations which are necessary for its future success; it also elaborates the key factors necessary to address these challenges successfully. By looking closely at the industry data, it becomes quite clear that companies need to master the people side of the transformation successfully. This impulse outlines the five factors distinguishes those companies who succeed in their intended transformations from those who fail: sense of direction, controversial dialog, communication channels, cross-functional collaboration, and incentives.
Why are transformations so difficult to achieve?
Despite the dire need for change, less than 10 percent of transformation initiatives in the transportation industry achieve their stated goals, compared to an average success rate of 30 percent across all industries. These figures point to a lack of successful transformation management and effective leadership, especially in the transportation industry. It is rarely the definition of a new strategy that is the problem. Rather, it is activating management and the workforce to embrace imminent transformation that poses a challenge. The willingness to change and, above all, the ability to change is critical at all levels. And the difficulties that plague unsuccessful transformations in the transportation sector often start right at the top. While the transformation process must necessarily be a priority for any CEO, in those companies who fail to enact a change, only 37 percent of CEOs take an active part in their strategic transformation. The executive problem is often compounded by employees and management who feel trapped in their status quo and do not have the necessary skills or commitment to alter their habits. On the other hand, among those CEOs who successfully brought about some sort of transformation in their company, active participation is nearly 100 percent.
As our figures show, resistance to change within the transportation industry is particularly strong. Among middle management and the workforce, 65 percent are reluctant to change. There is another related result in our survey, which is also quite telling: Within middle management, 75 percent lack the skills to enact a transformation within their domain of action. Among the workforce, the number lies at a staggering 80 percent. The challenge is clearly in motivating and empowering employees to back the planned transformation, but if this is done well and according to sound strategic principles, the potential for success is enormous.
How can transportation CEOs successfully lead transformations?
By looking closely at industry-specific data, we have gathered evidence from those transportation companies who managed to achieve their strategic endeavors successfully and have distilled their commonalities down to a winning formula. While the specific challenges and circumstances differ among the companies surveyed, a consistent pattern emerges which distinguishes those who succeed in their intended transformations from those who fail. In the transportation industry, the key is to master the people side of the equation. This cornerstone of transformation, as it is practiced by outstanding companies, can be summarized in five success factors.
Provide a sense of direction
Our project and our studies show quite clearly that people crave a coherent vision, a mission, and a compelling purpose within the organizations for which and with which they work. For a globally active transportation industry, a captivating picture of the future, which emphasizes its overall global impact, creates a goal state for any company undergoing a transformation as well as for its people. Here, it is successful leaders who arouse an emotionally charged sense of purpose among their people. Almost 100 percent of the successful CEOs in the transportation industry understand the importance of this factor, as compared to just 58 percent of those who were less successful. In industry in general, 81 percent of successful CEOs take an active role in leading their transformations.
Foster controversial dialog
Having often been onsite with our clients, we have witnessed firsthand the desire on the part of the the current generation of managers in the transportation industry to be involved, to feel recognized, and to have a say in what affects the company – and they themselves wish to be transformation-ready. Dedicated leadership workshops, consisting of discussions and critical feedback – although painful at times – help to bring even critical managers on board for the coming transformation. Critics can often become multipliers, so winning them over is crucial to activating the entire workforce. In successful transformations, top managers foster these sorts of controversial dialogs, compared to less than 50 percent among those managers who fail to bring about a transformation.
Use diverse communication channels
In the transportation industry, companies often operate in silos, even though they are subject to complex supply chains involving multiple stakeholders. These chains may include manufacturers, shippers, carriers, and logistics providers, which naturally results in a high degree of complexity when it comes to communicating across the entire system. And yet, in order to activate all the parties involved, executives must inspire their people regarding the direction the company is headed. Therefore, communication needs to reach every stakeholder, which requires anything from the traditional bulletin board on the shop floor to social media on the intranet to sophisticated town hall meetings. That’s why almost every successful CEO in the industry employs a multitude of channels, ensuring that key messages create a coherent picture across the entire communication landscape. By way of comparison, among those managers who are unsuccessful in enacting their target transformation, only 42 percent of managers exploit multiple modes of communication in this way, whereas in industry in general the number lies at 83 percent.
Enhance cross-functional collaboration
In order for transformations to be successful old patterns must be overcome. It is incumbent on executives to break up current modes of collaboration in order to enhance agility. Quite often, individual teams do not work in tandem because they have opposing goals or simply do not know each other. An important step is the enhancement of cross-functional collaboration. It is also important to accelerate decision-making processes through the empowerment of teams, giving them the possibility to operate independently. Diverse perspectives strengthen innovation capabilities and decision quality and tend to speed up the transformation. Successful CEOs understand the importance of this approach, compared to the less successful ones, among which only 42 percent encourage this sort of independence. In the overall industry the application of this success factor is somewhat less widespread with only 64 percent of successful CEOs using this approach.
Adjust goals and incentives
A remake of the procedural and guidance landscape coupled with adjustments to the system of objectives and incentives can encourage new behaviors by empowering teams and individuals to take more responsibility. Updating benefits to align with the desired outcome by modifying KPIs and monetary rewards, likewise, can provide a major impetus for the desired transformation. Among CEOs who successfully achieve their target transformation, twice as many employ this strategy as compared to the less successful ones.
For example, ESG targets are now an integral part of variable compensation systems for board members. They have the effect of incentivizing economic, environmental, and social sustainability. Several companies, especially in the transportation sector, have begun to implement these targets in their managerial and even executive compensation. Since it involves financial benefits, this is often a very effective method for increasing employees’ commitment toward a new vision for the future.
Apart from incentive schemes, another important strategy is to focus on key moments. With the number of stimuli bombarding an employee at any given time, executives must be prudent in choosing the time and place to convey their message. This is where key moments come in. The quarterly performance review, for instance, can be a perfect opportunity to weave in one’s intentions regarding the future of the company and the contribution everyone is expected to make.
Summary: Success factors can be the deciding factor
In order for the transportation industry to play a key role in a sustainable economy and capitalize on technological advances, it needs to be transformed. Transformations are therefore inevitable, but they will not automatically succeed unless they are actively driven by CEOs and supported by employees. If there is significant resistance to change and skill gaps within the workforce and management, necessary changes can become hindered. A strong strategy that employs the success factors described above can activate people for the impending changes, thereby supporting the transformation agenda. Of the CEOs who successfully brought about some sort of transformation in the transportation sector, 81 percent played an active role in leading the effort and also integrated these factors into their change strategy. In an industry facing significant challenges, intelligent implementation and orchestration of these factors can produce transformations which will have an enormous impact on the industry, setting the stage for a successful future.
European Environment Agency
This article is based on a written survey of 20 executives from Germanys biggest transportation companies as part of the Porsche Consulting Management Compass 2023. It is furthermore informed by comprehensive project insights we have gained through our extensive industry work.
Unless otherwise noted, all figures are from the Porsche Consulting Change Management Compass 2023.