IBM Global Business Services Global CEO Study | September 2008 ... Nintendo is well-positioned for...

© Copyright IBM Corporation 2008

IBM Global Business Services

IBM Global CEO Study

The Enterprise of the FuturePhilip Thrush

IBM GBS Malaysia & Indonesia Country Leader

September 2008

© Copyright IBM Corporation 2008Global CEO Study | September 20082

The new edition the IBM Global CEO Study builds on the strong momentum created by IBM’s premier business research

2004Your turn!

Key Findings� Revenue growth is the number

one priority� Responsiveness is a new key

competence� Improving internal capabilities

is a first step toward growth

456 personal CEO interviews 765 personal CEO interviews

2006Innovation

Key Findings� Business model innovation

matters� External collaboration is

indispensable� Innovation must be

orchestrated from the top

2008The Enterprise of the Future

� A new cycle is launched with key findings on changes in the value chain -- from customers to global integration -- and the business model innovation necessary to respond

1130 personal CEO interviews


A unique perspective from face to face discussions with 1,130 CEOs globally and 390 in Asia Pacific / Japan

� Sector break down� Communications 10%� Distribution 22%� Financial Services 17%� Industrial 23%� Public 22%� Other 6%

Responses by Region

Source: IBM Global CEO Study 2008; Global n = 1130; AP excl Japan n = 250; Japan n = 118

Americas 31%

EMEA 36%

Japan 11%

Asia Pacific 22%

This deck compares figures for Asia Pacific (AP) excluding Japan with the Global findings


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

How are organizations 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

Scope ApproachANALYSIS

Quantitative and Qualitative

� Current behavior� Investment patterns� Future intent� Choices of financial outperformers� Case studies of excelling organizations

SCOPE & APPROACH

1130 CEOs and Public Sector Leaders

� One-hour interviews� 78% Private, 22% Public Sector � 32 Industries� 33% Asia, 36% EMEA, 31% Americas� 80% Established, 20% Emerging

Economies


CEOs see significant change and opportunity ahead, and in response radically change their business designs

CEOs are

� Expecting significant change (increased by 28%), while the ability to manage change has not kept pace – 39% feel unprepared

� Investing heavily in engaging newly prosperous, more informed and collaborative, and socially aware customers

� Moving aggressively toward global business designs, deeply changing their capabilities, partnering more extensively and using M&A to grow

� Making bolder moves if they are from financial outperforming companies

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

Findings from 1130 interviews


The Enterprise of the Future is……..

Globally integrated

3Hungry for change

1Disruptive by nature

4Genuine, not just generous

5Innovative beyond customer imagination

2


CEOs expect unprecedented turbulence and the change gap triples for Asia Pacific in just two years

� In two years the gap between the ability to manage change and the challenge ahead has tripled

� The number of companies reporting limited or no success nearly doubled in AP

AP CEOs see as much or more change ahead but are more confident about managing change

Source: IBM Global CEO Study 2008; n (2006) = 709, n (2008) = 1104; AP excl Japan n (2008) = 247

ExpectedChange

PastChangeSuccess

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

Expected Change

No/limited Change

Moderate Change

Substantial Change

No/limited Success

Moderate Success

Successful

Past Change Success

18%CHANGE GAP*

4%12%

84%

15%

19%

66%

Asia Pacific

ExpectedChange

PastChangeSuccess

6%CHANGE GAP*

11%

26%

63%

8%35%

57%

2006 2008


“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


CEOs expect faster, broader more uncertain change

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%

External forces impacting the organization in rank order

Source: IBM Global CEO Study 2008; n (2004) = 403, n (2006) = 760, n (2008) = 1130

Market factors

People skills

Technological factors

Globalization

Regulatory concerns

Macroeconomic factors

Environmental factors

Socioeconomic factors

Geopolitical factors


ABB is well-positioned for the future – an organization hungry for change

� Switzerland-based ABB repositioned itself as a global leader in power and automation technology by driving a succession of enterprise-wide change programs and focusing on its strengths

� In 2007, ABB’s net income increased to a record US$3.8 billion

� Launched Step Change Program in 2003

� To improve productivity and cut costs

� Resulting in annual savings of more than US$900 million

� Launched One Simple ABB Change Program in 2005

� To reduce organizational complexity

� Establishing common, global processes for support functions

� ABB’s change program success factors

� Broad portfolio of initiatives designed to deliver specific business and financial objectives

� Programs driven by Global Executive Committee with regional accountability

ABB: Engineering enterprise-wide change


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?


The Enterprise of the Future is Innovative Beyond Customer Imagination

Globally integrated

3Hungry for change




2


Asia Pacific CEOs are even more positive than their global peers about new customers

Source: IBM Global CEO Study 2008, n = 609;AP excl Japan n = 200 , * Total investments: all asset investments + all investments in R&D, marketing and sales

Expected impact from the rise of purchasing power

in rapidly developing economies and

prosperity in Western economies

Global AP

No impact 19%

Positive impact 67%

Negative impact 14% No

impact 9%

Positive impact 82%

Negative impact

9%

“In the future, we will be talking more and more about the ‘prosumer’— a consumer/producer who is even more extensively integrated into the value chain. As a consequence, production processes will be customized more precisely and individually.”Hartmut Jenner, CEO, Alfred Kärcher GmbH


And like their peers are increasing investment to engage informed and collaborative customers

Expected impact from the rise of informed and

collaborative customers

Global AP

No impact 14%

Positive impact 76%

Negative impact 10% No

impact 11%

Positive impact 82%

Negative impact

7%

Investment* past 3years

Investment* next 3years

22%INCREASE

16.7%20.4%

Investment in informed and collaborative

customers



25%INCREASE

13%16.3%

Source: IBM Global CEO Study 2008, n = 609; AP excl Japan, n = 136 * Total investments: all asset investments + all investments in R&D, marketing and sales


Nintendo is well-positioned for the future – an organization innovative beyond customer imagination

� To regain its leadership position, Nintendo leveraged the loyalty and expertise of its core customer segment

� Established online community of experienced and loyal gamers called “Sages”

� Offering incentives in return for customer information and community contributions

� Gaining valuable insights into market needs and preferences

� Nintendo successfully connected with two new customer groups

� New customer groups included women and older men

� Influencing everything from game offerings to new product design

� Regaining market leadership with 44% market share after a low of 22% in the mid-2000s

Nintendo: Building market share through customer collaboration


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?


The Enterprise of the Future is Globally Integrated

Globally integrated

3Hungry for change




2


“A few years ago, we were a national company; now we’re a global company. Our integrated supply chain must adapt to meet demand in 50 countries. We’re going to have to bring people in from the outside.”Jim Guyette, President and CEO, Rolls-Royce North America


Especially in Asia Pacific, CEOs are embarking on radical new business designs to exploit global integration

3 2 1 0 1 2 3

40%

39%

39%

33%

24%

26%

30%

30%

37%

33%

40%

32%

45%

50%

58%

34%

45%

27%

21%

29%

22%

26%

16%

36%

25%

57%

62%

55%

60%

43%

47%

32%28%

35%

30%

37%

10%11%

10%

10%

20%16%

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

Defend your coreActively enter new markets

Maintain current mix of capabilities, knowledge and assets

Source: IBM Global CEO Study 2008; private sector responses; AP excl Japan (n=211)

Global

AP

Global

AP

Global

AP

Global

AP

Global

AP

Global

AP

Global

AP


Over 60% of CEOs are pursuing more global business designs, and Asia Pacific CEOs are more polarised

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

Actively enter new markets

Extensive Globalizers (Global n=230; AP* n=70)

Globalizers (Global n=246; AP* n=45)

Blended Thinkers (Global n=131; AP* n=28)

Localizers (Global n=140; AP* n=42)

Source: IBM Global CEO Study 2008; AP excl Japan

Maintain mix of capabilities, knowledge and assets

Global 31% 33% 18% 19%

AP 38% 24% 15% 23%


Blended Thinkers

12%

Extensive Globalizers

32%

Globalizers 39%

Localizers 17%

Outperformers opt for globalized business designs

Two-thirds of firms choose a globally integrated business design

Blended Thinkers

17%

Extensive Globalizers

31%

Globalizers 33%

Localizers 19%

64%

Outperforming companies more often than underperforming companies chose a globally integrated path to their future

71%

All Companies Outperforming CompaniesGlobal financial analysis


Li & Fung is well-positioned for the future – a globally integrated organization

� Hong Kong-based Li & Fung Limited sources from virtually anywhere in the world and builds customized solutions for its retail customers

� Network of 10,000 suppliers and staff in 40 different countries

� Orchestrating the supply chain for customers without owning any piece of it

� Li & Fung steadily moved up the value chain

� Changing its capability and asset mix to provide more sophisticated and profitable services

� Li & Fung is able to be both locally relevant and globally optimized

� Established a significant onshore presence in the US to provide product design and brand development services

� Acquisitions are key to grow market share in target geographic markets

� Li & Fung is growing through global integration

� Revenue CAGR 1992 to 2006 of over 22%

Li & Fung Limited: Growth through global integration


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?


The Enterprise of the Future is Disruptive by Nature

Globally integrated

3Hungry for change




2


Business model innovation explodes, and collaborative models are the most common

Business Model Innovation Focus

29%

2%

69%

Limited/NoBMI Focus

Moderate BMIFocus

Strong BMIFocus

Global AP

Responses 1 or 2 in all questions = Limited / No FocusResponse 6 or 7 on any of the questions = Strong FocusIntermediate Combinations = Moderate Focus

28%

0%

71%

Limited/NoBMI Focus

Moderate BMIFocus

Strong BMIFocus

Business Model Innovation Preferences

Multiple BMI Types20%

Enterprise Model Innovation

39%Industry Model

Innovation18%

Revenue Model Innovation

23%

Multiple BMI Types19%

Enterprise Model Innovation

45%Industry Model

Innovation17%

Revenue Model Innovation

17%

Source: IBM Global CEO Study 2008; n = 757; AP excl Japan n = 248


Outperformers make the boldest moves

Underperformers* Outperformers*

Revenue ModelInnovation

Industry ModelInnovation

Enterprise ModelInnovation

Source: IBM Global CEO Study 2008; * Performance based on industry comparisons within survey sample of absolute profit margin (average of 2003 and 2006)n (underperformers) =120, n (outperformers) =109

“For us, enterprise model innovation is primarily about having the right business model to enter other markets and secure new capabilities.”Andrew Brandler, CEO, CLP Holdings Limited

22%

28%

49%

36%

44%

20%

Business Model Innovation Focus


Eli Lilly is well-positioned for the future – an organization disruptive by nature

� U.S. pharmaceutical maker Eli Lilly and Company is constantly evolving its business model

� Bringing new medicines to market faster through integrated partner network

� In 2001 Lilly launched open marketplace for innovation – InnoCentive

� Marketplace for scientific challenges with members from 175 countries

� Best solutions can earn financial awards up to US$1 million

� Lilly has spun off InnoCentive while retaining partial ownership

� Lilly established Fully Integrated Pharmaceutical Network (FIPNet)

� Pioneering risk-sharing relationships with partners to develop new compounds

� Lilly’s collaborative business models offer several benefits

� Reducing costs, increasing development capacity, accelerating drug development process and better leveraging own and partner’s assets

� Revenue CAGR 2002 to 2007 of over 11%

Eli Lilly: Building pipeline through collaborative business models


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?


The Enterprise of the Future is Genuine, Not Just Generous

Globally integrated

3Hungry for change




2


CEOs positive about customers’ CSR expectations, especially in Asia Pacific

CEOs view of increasing customer expectations of corporate social

responsibility “The consumers’ concept of quality will no longer be measured by only the physical attributes of a

product – it will extend to the process of how the product is

made, including product safety, environmental and social

responsibility compliance.”

Victor Fung, Chairman, Li & Fung

Negative impact 11%

No impact

20%

Positive impact

69%

Source: IBM Global CEO Study 2008, n = 609; AP excl Japan n = 149 * Total investments: all asset investments + all investments in R&D, marketing and sales

Negative impact 9%No

impact 10% Positive

impact 81%

Global AP






CEOs are rapidly increasing their investment in CSR, and even more so in AP

Investment in customers’ focused on corporate social responsibility

Source: IBM Global CEO Study 2008, n = 609; AP excl Japan n = 203 * Total investments: all asset investments + all investments in R&D, marketing and sales

“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

42%INCREASE

10.7%13.4%

8.9%12.6%

Global AP

25%INCREASE


Marks & Spencer is well-positioned for the future – an organization genuine, not just generous

� To meet growing corporate social responsibility expectations, British retailer Marks & Spencer (M&S) has embarked on a £200-million, five-year plan

� Impacting almost every aspect of its operations

� Engaging customers in solving issues (e.g., giving shopper bags “for life”)

� M&S established online supplier exchange

� Connecting the thousands of factories, farms and fisheries that supply its products

� To simultaneously improve efficiency and sustainability

� M&S has proven it is possible to do well while doing good

� Operating profit CAGR of over 14% over past five years

Marks & Spencer: Serious about social responsibility


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?


Positioning for your Enterprise of the Future……..

Globally integrated

3Hungry for change




2


The Enterprise of the Future maturity model?

Ad hoc and reactive change

Project driven change

Change portfolio and program

Anticipating and proactive change

Change becomes the strategy

HUNGRY FORCHANGE

Regulatory compliance

Strategic philanthropy

Values based self-regulation

Efficiency through CSR

CSR as growth platform

GENUINE, NOT JUST GENEROUS

Exploring Business Model Innovation opportunities

Experimenting with BMI

Implementing BMI initiatives

Multiple BMI strategies

Radical and pervasive BMI

DISRUPTIVE BY NATURE

Exploring global opportunities

Driving specific global initiatives

Building global capabilities systematically

Global centers of excellence

Global enterprise innovation

GLOBALLYINTEGRATED

Customer intelligence

Customer information transparency

Two-way customer interaction

Customer collaborative development

Expanding customer aspirations

INNOVATIVE BEYONDCUSTOMERIMAGINATION

Building the Enterprise of the Future


Are you ready?

� Is your organisation able to anticipate change, and adopt change as its strategy?

� Are you effective at engaging the new and changing customer? Can you satisfy the information omnivore?

� Is your Enterprise truly globally integrated – addressing the right opportunities with the right mix of capabilities?

� Is your business model disruptive and do you have the right mix of enterprise and industry innovation?

� Have you integrated CSR into your values and business strategy – as an engine for growth?


The Enterprise of the Future is …

Globally integrated

3Hungry for change




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