© Copyright IBM Corporation 2008 IBM Global Business Services IBM Global 2008 CEO Study The...

© Copyright IBM Corporation 2008

IBM Global Business Services

IBM Global 2008 CEO Study

The Enterprise of the FutureFEI Vancouver Chapter

October 21, 2008

Global CEO Study 2008 | October 2008 2 © Copyright IBM Corporation 2008

We spoke to 1,130 CEOs face-to-face and conducted in-depth analysis to determine the characteristics of the Enterprise of the Future

Industry break down of the 1,130- Communications 10%- Distribution 22%- Financial Services 17%- Industrial 23%- Public 22%- Other 6%

EMEA36%

Americas31%

Asia Pacific33%

The IBM Global CEO Study focused on how organizations are addressing: New and changing customers – changes at the end of the value chain Global integration – changes within the value chain Business model innovation – their response to these changes

68 in Canada

Geographic break down of the 1,130

Source: IBM Global CEO Study 2008,


CEOs see significant change and opportunity ahead, and are radically changing their business designs to respond

CEOs are: Expecting significant change (increased by 33%) Clear that the ability to manage change has not kept pace – 39% feel

unprepared Investing heavily in engaging newly prosperous and more informed and

collaborative customers Moving aggressively toward global business designs, deeply changing

capabilities, partnering more extensively and using M&A Responding to customer expectations of corporate social responsibility as an

opportunity to differentiate

The collective wisdom of these CEOs has led us to the five core traits of the Enterprise of the Future.


The Enterprise of the Future is …

Globally integrated

3Hungry for change

1Disruptive by nature

4Genuine, not just generous

5Innovative beyond customer imagination

2




Hungry for Change… capable of changing quickly and successfully. Instead of merely responding to trends, it shapes and leads them. Market and industry shifts are a chance to move ahead of the competition … and disadvantage competitors


More CEOs than ever before – 8 in 10 – anticipate turbulent change and plan bold moves in response .. and at the same time the Change Gap* has tripled

* Difference or ‘gap’ between expected level of change needed and past success in managing changeSource: IBM Global CEO Study 2008

Change Needed

No/limited Change

Moderate Change

Substantial Change

No/limited Success

Moderate Success

Successful

Past Change Success

20068%

CHANGE GAP*

Change Needed Past ChangeSuccess

13%

22%

12%

31%

57%

200822%

CHANGE GAP*


6% 19%

20%

61%65%

11%

83%


… and the Change Gap for Canadian CEOs was 50% larger than their global peers

* Difference or ‘gap’ between expected level of change needed and past success in managing change


2008 (Global)

22%CHANGE GAP*

6%

11%

83%

19%

20%

61%


2006(Global)

8%CHANGE GAP*

13%

22%

65%

12%

31%

57%


2008 (Canada)

33%CHANGE GAP*

5%

86%

10%

21%

24%

53%

No/limited Success

Moderate Success

Successful

Past Change Success

Change NeededNo/limited Change

Moderate Change

Substantial Change



Companies that delivered higher revenue growth managed change more successfully


* Difference or ‘gap’ between expected level of change needed and past success in managing change


Source: IBM Global CEO Study 2008; n (underperformers) = 173, n (outperformers) = 164** Performance based on industry comparisons within survey

sample of revenue CAGR 2003 to 2006

Change NeededNo/limited Change

Moderate Change

Substantial Change

No/limited Success

Moderate Success

Successful

Past Change Success

Outperformers**Underperformers**

19%CHANGE GAP*29%

CHANGE GAP*

CEOs of organizations with outperforming revenue growth are more confident about their ability to implement change

5%10%

85%

17%

17%

66%

4%

13%

83%

24%

22%

54%


CEOs say the gap widens because of the accelerating pace of change

“The key to successful transformation is changing our mind-set. For large companies, it is easy to be complacent — we have to change this. Our company culture must have a built-in change mechanism.”Masao Yamazaki, President and CEO, West Japan Railway Company

“The speed of change, with regard to the Chinese market, is very quick. You have to be ready or you are left behind.”Richard Lavin, Group President, Caterpillar Inc.

“What worked in the past will not work in the future. This is the 21st century, not the latter half of 20th.“US

“The rate of change has increased dramatically. Customers are demanding radical change in product innovation. Our company will need to greatly increase its capabilities to deal with these demands.”Dennis Jönsson, CEO, Tetra Pak

“My organization has not been quick enough; change is hard. A few years ago we were a national company, now we're a global company.”US

“We're in a white-water world.”Canada

“Change in our organization is not happening fast enough… the gap is opening up.”Australia


2004 2006 2008

Market factors

People skills

Macroeconomic factors

Globalization

Regulatory concerns

Technological factors

Socioeconomic factors

Environmental factors

Geopolitical factors

84% 67%

42%

33%

44%

41%

48%

48%

35%

CEOs can no longer focus on a narrow set of challenges and intend to manage a broader agenda and greater uncertainty

External Forces Impacting the Organization

Source: IBM Global CEO Study

Market factors

People skills

Technological factors


Interestingly, people skills top the list in Canada by a long shot!

Canadian CEOsGlobal CEOs

External Forces Impacting the Organization

64%

44%



Are you ready?

Does your organization have a healthy appetite for change?

Have you seeded your organization with visionary challengers and provided them with the freedom to effect meaningful change?

Do you manage change as a structured program and measure change management effectiveness?

Do you have robust processes in place to incubate new product, service and business model concepts — and redirect investment when required?

Ad hoc and reactive change

Project-driven change

Change portfolio and program

Anticipating and proactive change

Change becomes the strategy

HUNGRY FORCHANGE

Building the Enterprise of the Future




Innovative Beyond Customer Imagination

… surpasses the expectations of increasingly demanding customers. Deep collaborative relationships with customers and partners foster innovation


Customers are becoming more demanding, but rather than seeing this development as a threat, CEOs see an opportunity for differentiation

Means

5.04

5.30

5.19

5.29

5.28

4.62

1 2 3 4 5 6 7

Increasing customerexpectations for Corporate

Social Responsibility

Rise of informed andcollaborative customers

Rise of purchasing power inrapidly developing

economies and prosperity inWestern economies

Global Canada

Very negative impact

Very positive impact

No impact


“Developing countries grow gradually at first, then suddenly emerge as large markets. We must be prepared to respond quickly. This will require us to make fundamental changes to our business now, rather than implement event-driven reactions.”Yasuo Inubushi, President, Kobe Steel


Three-quarters of CEOs view increasingly demanding customers not as a threat, but as opportunity to differentiate

Source: IBM Global CEO Study 2008

No impact 14%

Positive impact 76%

Negative impact 10%

Impact

“The rise of the informed and knowing consumer will continue to have an impact regarding our go-to-market priorities. We must know how to leverage new media. We've been surprised by the impact that just a few consumers can have with their blog entries.”Rob Hurlbut, CEO, Attune Foods

“There are no homogenous consumers anymore. We have to find ways to address different segments with individual sales channels and product offerings without increasing complexity and its related costs.”Dr. Torsten Oletzky, CEO, ERGO Versicherungsgruppe AG

• New operational capabilities• Increased transparency• New customer segments

Focus Areas“We must redefine our value proposition to customers. Information and advisory content are becoming even more valuable than traditional drivers.”H. Edward Hanway, Chairman & CEO, CIGNA Corp.


Are you ready?

Which of your offerings are breaking new ground, opening entirely new segments or markets? What can you learn from them?

Are you systematically evaluating potential geographic markets?

How do you achieve the efficiencies of global brands, products and services while remaining locally relevant?

When customer preferences shift, are you the first to understand and act on this or do your competitors react more quickly?

Are you effectively integrating disparate data and systems to gain new customer insights?

Customer intelligence

Customer information transparency

Two-way customer interaction

Customer collaborative development

Expanding customer aspirations

INNOVATIVE BEYONDCUSTOMERIMAGINATION





Globally Integrated… business designs are strategically designed to access the best capabilities, knowledge and assets from wherever they reside in the world and apply them wherever required


CEOs are planning radical changes in business design to capitalize on global integration

57%

55%

43%

40%

39%

24%

30%

32%

35%

37%

33%

32%

50%

34%

10%

11%

20%

27%

29%

26%

36%

Partner extensively

Globalize brands/products

Drive multiple cultures

Optimize operations globally

Deeply change mix of capabilities, knowledge

and assets

Grow through mergers & acquisitions

Do everything in-house

Localize brands/products

Strive for one culture

Optimize operations locally

Grow organically

32%

35%

33%

32%

50%

34%

Defend your coreActively enter new markets 37%

Maintain current mix of capabilities, knowledge and assets

Source: IBM Global CEO Study 2008; private sector responses

Equally Important


CEOs are planning radical changes in business design to capitalize on global integration; Canadian CEOs however seem more domestically focused

Do everything in-housePartner extensively

Localize brands/productsGlobalize brands/products

Strive for one cultureDrive multiple cultures

Optimize your operations locallyOptimize your operations globally

Defend your coreActively enter new markets

Maintain the current mix of c/k/a in your organization

Deeply change the mix of capabilities/ knowledge/assets (c/k/a) in your organization

3 2 1 0 1 2 3

Grow organicallyGrow through mergers & acquisitions

Global

Canada


Equally Important


Cluster analysis revealed four common approaches toward global integration

1. Extensive Globalizers- Highly networked businesses, adopting a global

approach to all elements of integration

2. Globalizers- Businesses that optimize globally, but already

have part of the capabilities, knowledge and assets they need, and focus on a single culture, not multiple

3. Blended Thinkers- Businesses that optimize through a mix of global

and local approaches, with multiple cultures

4. Localizers- Insulated businesses with a blended growth

approach

Blended Thinkers

17%

Extensive Globalizers

31%

Globalizers 33%

Localizers 19%


Localizers19%

Blended Thinkers

17%

Extensive Globalizers

31%

Globalizers33%


Cluster analysis revealed four common approaches toward global integration


Drive multiple cultures

Grow organically

Strive for one culture

Localize brands/products

Do everything in-house

Defend your core

Partner extensively

Globalize brands/products

Optimize operations globally

Deeply change mix of capabilities, knowledge and assets

Grow through mergers & acquisitions

Optimize operations locally

Maintain current mix of capabilities, knowledge and assets

Actively enter new markets

Extensive Globalizers (n=230)

Globalizers (n=246)

Blended Thinkers (n=131)

Localizers (n=140)


Are you ready?

Are you effectively integrating differentiating capabilities, knowledge and assets from around the world into networked centers of excellence?

Does your organization have a globally integrated business design (even if it does not have a global footprint)?

Do you have a detailed plan for global partnering and M&A?

Are you developing leaders that think and act globally?

Do you nurture and support social connections to improve integration and innovation?

Exploring global opportunities

Driving specific global initiatives

Building global capabilities systematically

Global centers of excellence

Global enterprise innovation

GLOBALLYINTEGRATED





Disruptive by Nature… challenges existing business models, disrupting the basis of competition. Shifts the value proposition, overturns traditional delivery approaches and, as soon as opportunities arise, reinvents itself and its entire industry


CEOs implement initiatives to evolve their business model; outperformers aim to disrupt their enterprise or industry model

Business Model Innovation. “Significantly changing the structure and / or financial model of the business”. There are three types of business model innovation:- Industry model innovation – Innovating the industry value chain by Moving into

new industries, redefining existing ones or creating entirely new value chains- Revenue model innovation – Innovating how revenue is generated through new

value propositions or pricing models- Enterprise model innovation – Innovating value chain roles by Changing the

extended enterprise to be either more integrated or more specialized or Transforming networks of employees, suppliers, customers and others


Across the globe, a full two-thirds of all CEOs plan to be engaged in some form of business model innovation over the next 3 years

29%

2%

69%

Limited/NoBMI Focus

Moderate BMIFocus

Strong BMIFocus

“When the business model is innovative, operations and the product will follow automatically.”Ronald de Jong, CEO, Philips Germany

29%

69%

1%

30%

69%

6%

28%

66%

2%

Limited/NoBMI Focus

Moderate BMIFocus

Strong BMIFocus

Established EconomyEmerging EconomyCanadian Economy



56%

91%

New Pricing/TaxationStructures and Models

ReconfigureProduct/Service/Value

Mix

n = 234 n = 203


38%

57%

71%

Work WithinOrganization

Focus onDifferentiating

Activities

IntenseCollaborationwith External

Partners

Enterprise Model Innovation Focus

n = 369

Revenue Model Innovation Focus

36% 36%

73%

Create EntirelyNew Industries

Move Into NewIndustries

RedefineExisting Markets

Industry Model Innovation Focus

Collaboration is instrumental to drive Enterprise Model Innovation

Revenue Model innovators shift the value mix

Industry Model Innovation remains rare

Within the various business models, CEOs plan to implement distinct initiatives


56%

91%

New Pricing/TaxationStructures and Models

ReconfigureProduct/Service/Value

Mix

n = 234 n = 203


38%

57%

71%

56%

44% 44%

Work WithinOrganization

Focus onDifferentiating

Activities

IntenseCollaborationwith External

Partners

Enterprise Model Innovation Focus

n = 369

Revenue Model Innovation Focus

36% 36%

73%

Create EntirelyNew Industries

Move Into NewIndustries

RedefineExisting Markets

Industry Model Innovation Focus

Collaboration is instrumental to drive Enterprise Model Innovation

Revenue Model innovators shift the value mix

Industry Model Innovation remains rare

Canadian CEOs are more focused internally and much less on collaborating with external partners

Canadian CEOs


Are you ready?

Is a disruptive business model about to transform your industry? Is it more likely to come from you or your competitors?

Do you spend time thinking about where the next disruption will come from?

Are you watching other industries for concepts and business models that could transform your market?

Are you able to create space for entrepreneurs and innovative business models while continuing to drive performance today?

Exploring Business Model Innovation opportunities

Experimenting with BMI

Implementing BMI initiatives

Multiple BMI strategies

Radical and pervasive BMI

DISRUPTIVE BY NATURE





Genuine, not just Generous

… doing well in the world goes beyond philanthropy and regulatory compliance. it reflects genuine concern for society in all actions and decisions and prospers and profit as a result


Faced with rising customer expectations of CSR, more than two-thirds of CEOs take a positive view, and plan to innovate … more Canadian CEOs see CSR as an opportunity and not a threat

No impact 20%

Positive impact 69%

Negative impact 11%

Impact of increasing customer expectations of corporate social responsibility

Global


“ Our company is investing extensively in corporate social responsibility. We need to be a reference in this domain. As the leader of the luxury industry, we have to stay ahead.”Yves Carcelle, Chairman and CEO, Louis Vuitton

“Our strong commitment to corporate sustainability will be a clear differentiator for us with all stakeholders.”Tom Johnstone, CEO, SKF

“I see corporate responsibility going through three phases. People start to consider issues like the environment because they are compelled to do so. Then they realize that it actually makes business sense. Eventually they move beyond compulsionand selfish motives to become passionate because it is the right thing to do.”Vinod Mittal, Managing Director, ISPAT Industries


Are you ready?

Do you understand your customers’ CSR expectations? How are you involving them in solutions?

Do you know which NGOs your customers listen to and are you collaborating with those groups?

Have you gained insights from current green initiatives that can be applied to your broader corporate social responsibility strategy?

Are you offering employees the opportunity to personally make a difference?

How do you ensure that actions taken throughout the enterprise — and the extended value chain — are consistent with your CSR values and stated policies?

Regulatory compliance

Strategic philanthropy

Values based self-regulation

Efficiency through CSR

CSR as growth platform

GENUINE, NOT JUST GENEROUS




The Enterprise of the Future

Positioning for Your Future


Building an Enterprise of the Future is a journey --- Where does your organization stand?

Ad hoc and reactive change

Customer intelligence

Exploring global opportunities

Exploring Business Model Innovation opportunities

Regulatory compliance

Project driven change

Customer information transparency

Driving specific global initiatives

Experimenting with BMI

Strategic philanthropy

Change portfolio and program

Two-way customer interaction

Building global capabilities systematically

Implementing BMI initiatives

Values based self-regulation

Anticipating and proactive change

Customer collaborative development

Global centers of excellence

Multiple BMI strategies

Efficiency through CSR

Change becomes the strategy

Expanding customer aspirations

Global enterprise innovation

Radical and pervasive BMI

CSR as growth platform

HUNGRY FORCHANGE

GLOBALLYINTEGRATED

DISRUPTIVE BY NATURE

GENUINE, NOT JUST GENEROUS

INNOVATIVE BEYONDCUSTOMERIMAGINATION



Change, disruption and innovative business models

Sustainable growth: the planet and its people

The new customer: informed and empowered

Global integration for large and small

Lead the waves of change with collaborative business models and disruptive innovation

Build brands, products and services that attract a growing class of environmentally and socially-aware customers, employees, investors and partners

Tap into new markets and scarce talent by integrating global organizations and partnering with global networks

Differentiate your organization by engaging a new class of informed, demanding and collaborative customers

IBM launched InnovationJam 2008 to answer the “How” question in closing the gaps in creating the Enterprise of the Future. Participants from across the globe shared views on leading their companies and industries through:

Results will be available in early 2009.


In Summary …

Organizations will evolve to the Enterprise of the Future Need for change continues to accelerate due to both external and internal

factors Entities have only been successful in achieving large scale change about 60%

of the time The culture for and the management of change is thus receiving increasing

focus Change is required around 4 dimensions

- Innovation around the customer reflecting changing expectations for products and services and for how they are provided/delivered

- Global integration to exploit opportunities, capabilities, knowledge and assets where ever they may reside

- Rethinking business models sharpening focus- Address changing expectations around corporate social responsibility


John FurseyStrategy & Change Consulting LeaderIBM Global Business Services [email protected]

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