The Transportation and Logistics (T&L) industry is known for its fierce competition. In its low margin and commodity service-oriented business environment, market leaders stay ahead in large part due to their keen focus on operational excellence. However, the industry is now at an inflection point, as the sweeping influence of digitalization, diversity and inclusion, and ESG mandates disrupt even top organizations . As a result, T&L leaders are beginning to realize a higher degree of transformation and innovation will be needed within their management teams to develop differentiated value propositions and remain competitive.
2021 Transportation & Logistics Industry Disruptors
- Advancing to a Diverse and Inclusive Culture
- Digitalization and Disruptive Innovation
- Sustainability and Corporate Transparency
A top challenge for the T&L industry is the relative dearth of experienced executives with the necessary competencies and capabilities to respond to current disruptors. T&L executives often have similar training and backgrounds, coming from one of a handful of marquee organizations— and leaders who move between companies tend to hire former team members. This behavior can contribute to a lack of diversity of thought across the executive team, leaving the organization poorly equipped to respond to new pressures. In order to fill the logistics talent gap, it is imperative that companies start looking for talent from other sectors (such as fast-moving consumer goods, automotive, and digital players) that are ahead in adapting and transforming to these new market demands, despite the potential difficulty of onboarding outside talent. In this brief we investigate three primary disruptors in the logistics industry and point to concrete solutions that can help management overcome these challenges.
To investigate the primary transformation challenges facing the European logistics industry, RRA spoke with a select set of industry executives who have successfully transitioned into the logistics industry from different sectors. These leaders shared their views of the specific qualities and capabilities that set them up for success.
Additionally, building on the findings of our 2017 T&L Executive Diversity Study, we analyzed a further sample of 90+ executives from 10 of the leading European logistics organizations to understand the demographic composition and career experiences of their leadership teams, and how those trends have evolved over the previous four years.
Disruptor #1: Advancing to a Diverse and Inclusive Culture
The global T&L industry generally does not have a track record of developing diversity. As we first found in our 2017 T&L Executive Diversity Study and confirmed with our 2021 analysis, the industry has maintained consistently low levels of gender diversity at the executive team level.
Similarly, executive team members usually carry lengthy tenures with their organizations – many for multiple decades. Diversity of background beyond just gender and ethnicity is also crucial to foster innovation, but the logistics industry has continued in their preference to hire most of its leadership internally. For the minority of executives who were hired externally, an even smaller number carry significant experience in an industry outside of logistics. It is worth highlighting that European T&L organizations have made some progress over the last four years. Our 2021 analysis demonstrates a significant decrease in the population of multi-decade tenured executives, and the industry has marginally increased the proportion of outside-industry hires.
|Executive team tenure|
|Origin of executive hire|
|Outside industry experience||15%||22%|
“The industry’s culture is quite hierarchical, but leading in a more modern way is something that logistics needs to develop and is also how it will attract talent. Flatter organizational structures, involvement of a broader group of stakeholders and a feedback culture are all areas where transport can do better.”
What can be done?
- A culture which rewards tenure can have the effect of preventing highly qualified, more junior talent from advancing quickly. Companies should assess how promotion and other talent decisions are made to ensure tenure does not become a hurdle to successful progression of high-potential talent.
- Recruiting external talent is not a magic diversity bullet, but the success of an external hire can be actively fortified through a commitment to supporting inclusivity throughout the hiring process and the company culture, as well as a robust onboarding and in-depth executive assessment to identify potential derailers of success.
- Defining what diversity and inclusion means to your business (beyond gender and ethnicity) and how the current corporate culture supports or undermines it is essential to enacting meaningful change. Once defined, employ data and tools to measure and encourage progress.
- To help out-of-industry executives transition into a new role, prioritize quick wins, and provide strong support from the top of the organization. Results and success stories communicated from upper-level management will significantly help increase traction and buy in.
Disruptor #2: Digitalization andDisruptive Innovation
The T&L industry is transitioning to a technology- enabled future. To maintain competitiveness and avoid commoditization of service offerings, it will be critical for companies to embrace innovation and implement digitalization.
In the past, change in the industry has been reactive and responsive rather than proactive and forward-thinking. Since innovation was primarily driven by operational excellence requirements and based on past experience, it often yielded changes that were only gradual.
How to rise to the challenge?
- The first step needed to progress and innovate is to ensure the availability of real-time data across the organization’s operations. This data allows the organization to effectively craft client-specific solutions and leverage AI to optimize internal processes, allowing for additional services and adifferentiated customer experience.
- Talent is a key consideration. To accelerate progress, European T&L organizations should consider looking externally for talent from industries such as fastmoving consumer goods (FMCG) or digital technology that have already leveraged Big Data to provide a differentiated customer experience.
- When leaders from other industries join, organizations must be ready to foster a culture of experimentation. Innovative ideas often create friction initially; leaders should be ready to persevere through trials and failures. This commitment to innovation must start at the top and be communicated regularly from all upper management.
“If you compare large to mid-size organizations across sectors, they have all faced similar troubles implementing digital. But without all functions and aspects of the company working together enabled by data, you cannot lift the organization to its full potential.”
Disruptor #3: ESG and Corporate Transparency
Across sectors, stakeholders are demanding greater levels of corporate transparency – particularly regarding sustainability and the business’ impact on the environment.
External Risk: Companies that fail to address these demands risk losing capital investment and customer demand.
Internal Risk: The next generation of logistics leaders are starting to demand more from their employers when it comes to having a driving purpose or mission. A mindset shift across the industry is critical in order to safeguard the continuity of future leadership teams.
|Sector Name||Global Setor Rating||European Sector Rating|
|Source: CSRHub analysis of 1,829 global ESG rankings, March 2021|
As a downstream industry that directly contributes to the Scope-3 emissions for the bulk of the global supply chain, it is not surprising that T&L carries some of the lowest overall ESG ratings.
Europe as a region has made remarkable progress and T&L companies in Europe are ahead of their global peers, but it is clear the logistics industry has more to learn from other industries excelling against sustainability metrics.
- Logistics companies can and should start looking to hire ESG leaders not only as sources of talent, but for best practices in operating sustainably. Decentralized and siloed organization systems must change, but more than that, the willingness of the company culture to embrace new technologies and diverse approaches will be key to sustainable success.
- Meaningful progress requires sustainability to be embedded throughout the leadership culture and integrated into the objectives, incentives, and remuneration of management.
The Path Forward
- Build an Inclusive Culture by Fostering Diversity of Thought and Experience
- Embrace Data and Technology to Innovate and Maintain Competitiveness
- Operate Sustainably and Transparently to Decrease Risk and Retain Talent
For the T&L industry to move beyond its highly insular legacy culture, leaders at the top must take a broader lens to their talent assessment processes and prioritize competencies such as innovation and strategic development. That does not mean that executives who are focused on KPIs and operational excellence are becoming less relevant. This is about finding the right mix in terms of diversity of thought and changing cultures to allow industry veterans and non-logistics leaders to learn from each other. Failing to do so risks empowering a culture which affirms ‘how it has always been done’ is the only way, which may even present active resistance to change, innovation and diversity. Fostering and understanding diverse perspectives and approaches from other more innovative sectors will be the key to generating differentiated logistics service offerings in an industry currently engaged in a race to the bottom on margins.
The T&L sector has the potential to attract best-in-class talent from other industries. From our interviews with executives that made the transition into T&L from a different sector, we learned that large-company scale and global opportunities were some of the logistics’ industry most attractive aspects.
“The transportation industry is perfect for people who are attracted to the global experience and scale of the company’s operations.”
What to Look For? A Preliminary Checklist of Core T&L Capabilities:
- Technological fluency and ability to anticipate future market shifts, adapting quickly to new business models and innovative analytics
- Past experience living and working in multiple regions and cultures, in both developed and emerging markets
- Customer-experience oriented, with the ability to react quickly and provide differentiated service
- Experience leading or working directly with major aspects of end-to-end supply chains and implementation of operational excellence processes
- Continually questions the status quo; discerning about new markets and opportunities
The T&L industry can no longer can continue to hire executives only from the typical candidate pools. It is imperative that transportation organizations focus on developing a collective diversity of thought within their leadership teams so they can leverage the experiences of those from other industries who have successfully navigated disruption. The culture of the organization must also be open and supportive of new and innovative ideas, with strong executive team sponsorship internally. Resilience and commitment from the top, starting with the CEO, will be key to finding success. Leaders must learn to look long term at the future needs of their customers and stakeholders in order to plan and shape a more sustainable future today.
- Boris Albers, PhD leads Russell Reynolds Associates’ Transportation & Logistics practice. He is based in Hamburg.
- Grant Gilchrist is a member of Russell Reynolds Associates’ Industrial and Natural Resources Knowledge team. He is based in Boston.
- Katie Whittum is a member of Russell Reynolds Associates’ Industrial and Natural Resources Knowledge team. She is based in Boston.