By investing in leadership development, ALJ Saudi Arabia automotive operations thrives amid the financial crisis
In 1955, Abdul Latif Jameel responded to an advertisement in Newsweek to engage Toyota. After visiting Saudi Arabia, Toyota approved Mr. Jameel as the sole Toyota distributor in the country. At that time, there were few cars in Saudi Arabia and fewer paved roads. Toyota was not even known as a brand. With 10 Toyota FJ43 pickups, Mr. Jameel (1909-1993) pioneered the way for Toyota's entry into the local market.
Mr. Jameel sold those initial vehicles, and the company went on to become one of Saudi Arabia's largest privately held companies. Today, the company he founded, Abdul Latif Jameel Co. Ltd. (ALJ) of Jeddah, Saudi Arabia, operates in 13 countries, including Japan, and employs more than 10,000 associates. The ALJ group imports, distributes, and provides after-sale parts and service for Toyota, Lexus, and Daihatsu vehicles. The company's automotive financing division is the largest non-banking financial intermediary in the Middle East and North Africa (MENA) region. ALJ also imports and distributes consumer electronic products and has pioneered a wide variety of job creation programs as part of its community service in the region.
Vehicle sales and after-sale parts and service are the core of the business. The group has consistently strived for sustainable healthy growth. In 2008, ALJ sold 300,000 vehicles, becoming Toyota's largest independent distributor worldwide. Two-thirds of this volume was sold in Saudi Arabia, enabling the company to attain a 42% market share.
The sustainable healthy growth of the company has been the result of ALJ's principle "engaged associates delight their guests." ALJ doesn't have employees -- they are called associates -- reflecting the respect and empowerment to which the workforce is entitled. Moreover, ALJ doesn't have customers; it has guests, reflecting the special care a host gives to a visitor at his home.
When the crisis came
Since the last quarter of 2008, ALJ's business model was put to the test. Like most businesses around the world, ALJ was affected by volatile and uncertain circumstances that led to a drastic decline in consumer and business confidence on a scale not experienced since the 1929 U.S. stock market crash. The challenges for business in Saudi Arabia and other oil-based economies were exacerbated by the fall in oil prices; from late September 2008 to mid-December 2008, crude oil prices plummeted from more than $100 per barrel to around $30 a barrel.
These events were also complicated by a 19% appreciation of the Japanese yen, which put ALJ at a disadvantage against its Korean competitors, who enjoyed a 32% currency exchange advantage. In addition, as the first symptoms of crisis in the MENA auto industry appeared, vehicle inventories piled up to all-time highs.
Despite all this, ALJ has been weathering the storm. 2008 was a very good year in terms of unit sales. These results aren't the product of chance or serendipity. ALJ has been preparing for the worst as well as the best for several years. ALJ's resilience during the crisis is the result of five major differentiators:
- Ongoing disaster planning and risk management. ALJ's disaster preparedness program is called Anitrak (an anagram of "Katrina" -- the infamous hurricane). Anitrak is planned annually; severe scenarios of 30% and 50% sales drop in combination with other key macro-economic and internal variables are planned. When one or more of these variables reaches pre-established numbers, a prescribed set of actions to reduce risk is initiated. During the financial crisis, Anitrak has gone to extremes, measuring more key variables such as stock market indexes, oil prices, consumer and business confidence, exchange rates, accounts receivables, inventories, cash flow position -- as well as Associate Engagement and Guest Delight indexes -- every day.
- Top management leadership. The top management team has executed what may seem like counterintuitive measures. These include continuing a push for growth despite the market challenges, taking active steps to alleviate the foreign exchange disadvantage on pricing, enhancing the guest experience, and developing a greater degree of transparency with ALJ associates.
- Collaboration with Toyota. As soon as it became apparent that a storm was looming, ALJ and Toyota drew up several crisis scenarios and countermeasures to deal with the different levels of disaster. This resulted in an even stronger partnership between the two parties as the crisis unfolded.
- The trust that the Toyota and ALJ brands inspire. Toyota has earned the world's trust because of the quality of its vehicles, service, and parts. And ALJ is well-respected in the countries in which it operates because of its brand image and community service programs. When people lack confidence, as they do during difficult economic times, they tend to take refuge in the brands and organizations they know they can trust.
- A focus on leadership development. Five years ago, ALJ started a formal leadership development program and increased its efforts to engage associates. This gave ALJ the leadership bandwidth to engage the challenges posed by the crisis.
The fifth differentiator reveals the importance ALJ places on developing its leaders. A few years ago, however, it was a different story. At that time, senior management realized that the company's rapid growth had left behind several areas in Associate Care (ALJ's human resources department). ALJ recognized the need to transform the organization to unleash the power of the company's associates. However, there were some obstacles that had to be overcome.
Much like ALJ's policies -- no discrimination regardless of ethnicity, beliefs, nationality, or age -- the company believes that its associates are a significant part of the company's success, and it will never change. And as a compassionate employer, ALJ aims to provide permanent employment to its engaged associates. Yet if these policies and principles aren't balanced by accountability, they could lead to associate complacency as well as big variations in management approaches that could lead to associate disengagement.
The Kingdom of Saudi Arabia, like all countries in the MENA region, is facing rising unemployment, especially among young adults -- two-thirds of the country's population is younger than 30. In addition, about 56% of ALJ's current workforce consists of workers from outside the country. Thus, ALJ and many other companies throughout Saudi Arabia have had to commit to the development of local leaders for economic reasons. Additionally, ALJ has committed to hiring top management talent locally by the end of 2010 and is providing accelerated development of ALJ's current and future Saudi leaders.
So, to ensure an in-house pipeline of talent, senior ALJ leaders decided to reinforce the concept of meritocracy with intense training and individual accountability. Then, to make sure ALJ had the people to fuel its current and future performance needs, rigorous leadership development programs were implemented. But to achieve these goals, engaged associates were required.
To address and improve associate engagement, ALJ introduced a Gallup Q12 associate engagement program in 2004. As defined by Gallup, associate engagement is an intense psychological and emotional bond one feels for one's workplace. Engaged associates, as Gallup's research has found, are much more productive, profitable, and safe than disengaged ones, which fits the culture of performance and mutual care.
The Q12 methodology is based on 12 items that assess the crucial elements that drive engagement in a workplace. (See graphic "The 12 Elements of Great Managing.") By surveying, measuring, and reporting responses from the workgroup level up, the Q12 identifies the strong and weak engagement areas for each workgroup, department, and division. After he receives his workgroup report, each ALJ manager and his associates discuss the results and design a plan to improve their level of engagement. Over the years, the Q12 has been established as a key performance metric.
ALJ has been making sustained progress in its Q12 scores. Recently, the company attained an organization-wide engagement score above the 60th percentile and, having completed five administrations, ALJ is seeing its investment pay off. For one thing, its associates cannot delight guests if those associates are not first engaged with their jobs and the company. For another, the financial benefits from 2007 to 2008 have been considerable:
Retail centers with significantly improved engagement levels:
improved sales by an average of 25.5 million Saudi Arabia riyal (SAR) per center
increased gross profit by an average of 1.6 million SAR per center
In comparison, retail centers with significantly reduced engagement levels:
- improved sales by an average of only 11.2 million SAR per center
- reduced gross profits by an average of 0.5 million SAR per center
Centers that were above the 75th percentile, meaning they have engagement levels at or above 75% of the companies Gallup has studied, contributed about 22.5 million SAR more net profit compared to centers below the 50th percentile.
None of this would work without effective leadership. But ALJ doesn't believe effective leadership is a matter of luck; rather, it's the result of careful planning and ongoing development. To this end, ALJ has established critical leadership processes that address the development of frontline ambassadors, middle management, and senior management.
With Gallup in particular, ALJ developed two other initiatives: an MBA in Leadership program intended for high-potential individuals who are willing to invest in themselves and a program for very senior leaders, the Leadership Excellence Acceleration Process (LEAP). Though all development initiatives are vital to ALJ's continued success, these two programs serve the most talented -- and crucial -- future leaders.
Gallup designed the MBA in Leadership program in conjunction with the University of Nebraska-Lincoln (UNL) and ALJ. Its purpose is to convert managers, each of whom has the talent to take on more responsibility, into leaders. Each participant contributes 50% of the program costs, which makes students more committed and goal-oriented.
The program builds up the participants' leadership capacities based on their individual talents. These talents are identified through the Clifton StrengthsFinder assessment and reinforced through Gallup's ongoing coaching process, which emphasizes how each participant can apply his leadership style using his dominant talents. The MBA program follows an executive model, where participants meet for intensive education in three different venues over the course of the 18-month program; locations have included London, Brussels, Morocco, Dubai, and Bangalore. Participants not only learn classic MBA subjects such as marketing, operations, and strategy, they also learn how to apply newly acquired leadership skills as part of their daily activities outside the classroom.
Throughout the program, each participant conducts a project that puts his acquired knowledge into practice and indicates his leadership transformation. Finished projects are required for graduation and are measured using the criteria of return on investment or sales/profit impact.
Following the completion of the program, ALJ uses four metrics to gauge the effect of the MBA graduates: impact on revenue, cost reduction, associate engagement, and guest delight. To date, five cohorts of 16 managers have participated in the MBA in Leadership program. Three cohorts have finished their 18-month program; the fourth will graduate by the end of 2009, when the fifth will begin. All of ALJ's new MBAs have had a significant impact on business outcomes. The third cohort, for example, boosted growth in revenue, profit, employee engagement, and the Guest Delight Index (GDI) in their functional areas.
Not that they keep those responsibilities for very long: Eight members of the second cohort were promoted within six months after graduation, and more are sure to move up. One project, "Referral Order for Parts," substantially reduced parts-order lead time from the service centers and reduced costs significantly. The project "System for Express Pool Supply" has the potential to save several million SAR in one year by improving supply chain management. These success stories testify to the high quality of the MBA program, as do the higher than average engagement scores of work units led by MBA graduates: the Q12 score for MBA graduates is at the 75th percentile, compared with scores just above the 60th percentile for ALJ.
The Leadership Excellence Acceleration Process (LEAP) initiative, meanwhile, is meant to capitalize on the progress of top management and the most distinguished MBAs and to drive the leadership development process higher in the organization. As such, it is even more extensive and demanding than the MBA program. The objectives of LEAP are threefold: to identify successors for key positions, to develop participants' leadership capabilities, and to help increase associates' potential.
Building leadership capacity requires a willingness to participate in an ongoing learning journey, whereby the leader begins to think and behave with a heightened sense of self-awareness, an increased ability to connect with and draw upon the talents of others, and a capacity to break down organizational barriers and enable transformation. Four levels of leadership development were embedded in the program: self, team, organization, and marketplace. Each LEAP participant is reviewed annually to assess his progress.
It's a tough program, and it's not for those who lack consistency, self-motivation, and tenacity. Of the 87 individuals who were initially selected, 51 remain as ALJ approaches the finish line of the first major module of the program. This is because LEAP is deliberately designed to be challenging. It has to be -- as the emerging leaders go through this difficult program, they must accomplish many things, and perhaps the most difficult task is preparing themselves and ALJ for a future that neither they, nor ALJ, can predict.
Preparing for the future
ALJ is doing a lot of soul-searching. As LEAP leaders learn, so does the organization. The company is learning how best to evolve its business and its leaders. Both ALJ and Gallup are learning how they can make this program meaningful to other companies. One thing that the company has learned very well already is this: ALJ needs to have the very best leaders because no one knows what the future will bring. The leadership programs help the company transform the participants into leaders for themselves, their teams, the organization, and the marketplace.
Most associates are preparing for the future in the company, even as they deal with the troubles of today. ALJ started getting ready several years ago for a future it didn't expect, and it's getting results already. Most associates are on the same wavelength now, and though it's been a major effort, it's the way they have to proceed.
ALJ is not done. Associate engagement isn't where the company wants it yet, and the Guests First Every Day Initiative, which was started a couple of years ago and is used as a guiding principle for all ALJ's practices, isn't completely embedded in the organizational DNA yet. Although ALJ is doing well, that's no reason to relax. ALJ and its competitors are still in turbulent waters, with each one finding its way through them. That's exactly why ALJ needs the world's best leaders.