New Economic Environment for Business v3.0 - IBM€¦ · The New Economic Environment for Business...

© 2009 IBM Corporation© 2010 IBM Corporation

After the Crisis: What now? The New Economic Environment Agenda for 2011Dr Mary KeelingManager, Global Centre for Economic DevelopmentIBM Institute for Business Value

November, 2010

© 2010 IBM Corporation2

Contents

� The New Economic Environment for Business

� How to respond?


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Ireland, is experiencing the deepest recession ever recorded in the history of the Euro area member states since the Great Depression

New economic environment for business

Source: Data from CSO, Quarterly National Accounts

Gross Domestic Product, €m


And consumer spending and confidence - major driving forces for growth – are suffering

Source: Data from CSO, Quarterly National Accounts and ESRI

Retail Sales and Consumer Confidence

30

40

50

60

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110

120

2005

M01

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Retail sales value Index

Consumer confidence Index



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2006 2007 2008 2009

The fall in investment by businesses reflects lack of confidence in long term prospects for recovery, credit conditions and poor growth domestically and internationally

Source: CSO

Gross Domestic Fixed Capital Formation, €m


-50%


Uncertainty, risk and complexity are increasing – not decreasing

Uncertainty

Co

mp

lexity

Black Swans

• Government hand in business

• Networked economy• Complex interdependencies

• Price instability

Exchange rates;

Commodity prices

InflationPre-Crisis

Business Environment

• Data overload

• End-to-Stimulus

• Demographic Shifts

“We don’t’ know what we don’t know”

- Nicholas Taleb

• Debt Overload

• Credit Constraints

• Protectionism

• Industry Restructuring

Sources: IBM Analysis, The Black Swan, Nassim Nicholas Taleb, Random House 2007

• Sovereign Defaults



Strategy and operations will continue to become more global and complex

Going Global

Between 1995 and 2007, foreign subsidiaries tripled from 265,000 to nearly 790,000

Increased Network Complexities

3X

Transnational companies more than doubled from 38,000 to 79,000

12X

Nearly 80% of executives expect collaborative relationshipswith third parties to increase

80%

Between 2007 and 2010, R&D outsourcing is estimated to have increased by 65%

65%

•

Businesses and supply chains are becoming more global

Supply chains are involving more companies



More than 80% of CEOs

expect some form of climate

change regulation in their

home country within 5

years.

8 in 10

Businesses are facing growing pressures and challenges to becomegreener


IT energy expense is

expected to increase 35%

in the next four years.

35%


22% of the world’s population,

1.46 billion people, are online

and this number is estimated to

reach 2.2 billion by 2013 – an increase of 50%

Store POS

Web

Mobile

Immersive

Source: IBM Global Retail Industry

Between 2000-2010 the number

of internet user in Ireland

increased by 288.1% with 65.8% of the population now online

Technology is changing the way consumers interact, obtain information, and purchase goods and services

63% of adults research

through social networks and

blogs, and 47% of the time

they are influenced by what is read

There are 9 times

more mobile phone

accounts than cars in

the emerging world.

Americans alone have

access to 65,000 iPhone

apps



Businesses are experiencing significant upheaval and bold and breakthrough thinking is the most important leadership quality going forward

Source: Q19 Which of the following leadership qualities do you think are most important in the next five years? n=1,538

60%

52%

35%

28%

26%

26%

12%

12%

Creativity

30%

Integrity

Global thinking

Influence

Openness

Dedication

Focus on sustainability

Humility

Fairness

“Creativity is vital in a complex

environment.”Government Official,

Hong Kong

Most important leadership qualities over the next five years

“Only leaders who act with integrity

shall and will survive.”CEO, Electronics Industry,

Switzerland



Contents

� The New Economic Environment for Business

� How to respond?


Businesses can identify three immediate priorities to respond to this new economic environment

Get ahead of scarcity – before

values fully recover

Drive cost efficiency

through productivityand agility

Find targeted approaches to grow

revenue21 3

How to respond


1. Find new approaches to grow revenue

�Financial pressures and tightened credit have driven changes in the priorities of business and consumer buyers.

�Enterprises can no longer look to market growth to drive revenue expansion.

�They need to generate growth by generating new demand in mature markets, while shifting focus to developing economies

Key Moves:

• Engage customers through digital

channels

• Promote value-conscious offerings

"It used to be about price and want. Now it's

about value and need." Guy Blissett, consumer

products leader for IBM Institute for Business Value

How to respond


Engage customers through digital channels that reveal unmet needs, generate new demand and facilitate collaboration

Converse

through

social media

Uses social networks Twitter and Facebook to reach

customers -1300 followers on Twitter

Sources: IBM Client References, ; “In a Downturn, Provoke Your Customers” Lay, Moore Hewlin, Harvard Business Review, March 2009, “Geeks in Toyland” Wired Magazine, 2/06

How to respond

Developed a new marketing strategy by analyzing user

generated content in blogs, message boards and social

sites


While customers continue to have aggressive demands for differentiated products & services, suppliers are failing to tap into consumers for knowledge on how to satisfy this demand

What are your planning processes for synchronizing supply

& demand?

Formal meetings with sales, marketing and supply chain

operations

Demand and supply plans are formally aligned and agreed upon

cross business functions

Supported by integrated demand and supply planning applications

External supply planning collaboration with suppliers

External demand collaboration with customers

79%

78%

58%

63%

53%

To a very great extent To a significant extent Some extent

No extent

19%

Very great extent

5%Significant extent

15%

Moderate extent

33%

Little extent

28%

And customers are the last on the list for collaboration overall

Extent of external demand collaboration with customers

10%Top supply chains claim to collaborate with customers more

Almost Half (47%) FAIL to Collaborate with Customers!

How to respond


78% of consumers are willing to co-create -- help retailers determine product variety, store layouts, and service ideas

2%

3%

17%

38%

40%

0% 10% 20% 30% 40% 50%

Very likely

Somewhat likely

Neither likely nor

unlikely

Somewhat unlikely

Very unlikely

Lik

elih

ood

Percent selected

Likelihood to co-create

Source: IBM Institute for Business Value Analysis, Retail 2010, total population=32,087; Instrumented likely to co-create n=9976; Advocates likely to co-create n=8745

78% =‘Likely to co-create’

How to respond


To what extent do the following statements describe your

planning process?

* Leaders determined based on respondents found in AMR Research Supply Chain Top 25 for 2008

Sales &Operations Planning

External Demand Collaboration with

Customers

External Supply Collaboration with

Suppliers

Integrated Demand and Supply Planning

Applications

Very great extent Significant extentLeaders:

Very great extent Significant extentOthers:

19%

24%

10%

10%

96%

81%

73%

63%

Gaps

63%

53%57%

77%

30% 18% 19% 11% 12% 5%7%

Some extent

Some extent

4%

This trend will intensify – we expect further integration of customer demands from inception to delivery – the entire global network focused on the end consumer

How to respond

Top supply chains

claim to collaborate

with customers

10% more

81% of top supply

chains are planning

further integration of

demand and supply

applications


Value-conscious buying patterns require organisations to continue to reduce costs and improve efficiency

Source: IBM Client References, Business Week 50, 2009; http://online.wsj.com/article/SB124933474023402611.html ;

“Latest Starbucks Buzzword: 'Lean' Japanese Techniques” WSJ, August 4, 2009

Reduce your

customer’s

costs

Ryanair is to offer self-service payment terminals equipped

with chip-and-PIN readers to allow customers to purchase

services at the airport.

The initial phase of the rollout will see 250 unmanned kiosks

installed in London Stansted airport

Ryanair claims the initiative is a world first and plans to

expand it to 450 kiosks at other airports

How to respond

Company rolled out an efficiency initiative - took a fresh look

at how its stores operate, aiming to accelerate retail transactions, lower service costs and reduce wait times.

Focuses on creating more value with less work, and has

resulted in changes ranging from where coffee beans are

stored and when they are ground to how the pastry counters

are stocked each day

Improve

service

efficiency


2. Focus on productivity and agility

�First reaction to the economic crisis was to cut costs to offset lower revenues

�Now it’s impossible to predict when and how demand and opportunity will recover

�Enterprises need to focus on building productive, scalable processes

– continue to do more with less– be capable of flexibly scaling up and

down with variation in demand, customer requirements, and new market opportunities.

Key Moves:

• Tap the power of information through

predictive analytics

• Improve collaboration

How to respond

© 2010 IBM Corporation

Source: Business Analytics and Optimization for the Intelligent Enterprise, April 2009. www.ibm.com/gbs/intelligent-enterprise

33%business leaders frequently make critical decisions without the information they need

50%don’t have access to the information across their organisation needed to do their jobs

80%business leaders see information as a source of competitive advantage

Businesses see the need to adopt new ways of working to improve speed to insight and speed to impact

How to respond


Tap the power of information through predictive analytics to increase efficiency and productivity of assets and investments

Major Irish Beverage

company

Customer

relationship

productivity

Process

efficiency

� Leading beverage company is able to break down

effectiveness of promotions and better analyze sales data

� Teal-time and easy-to-read sales information to better

understand the buying trends of customers before, during,

and after a promotion

� Improved process efficiency analysing sales data

� Improved ability to forecast revenue and costs

Predictive Analytics Examples

Sources: IBM client references; “If You Liked This, You’re Sure to Love That”, NY Times, November 21, 2008

How to respond

� Analytics engine Cinematch recommends movies based

on customer feedback, to match customer’s taste with

Netflix’ inventory

� Uses analytics to gain information advantage during DVD

distribution rights negotiations


Improve collaboration to make processes more efficient, and expose the enterprise to broader sources of innovation

• Connect & Develop program searches and co-develops with a

wide network of partners to create new products

• Result: Examples of blockbuster products include Swifter

cleaning products, motorized toothbrushes and Printed Pringles

• Connects first responders, specialists, and administrators with seamless collaboration

• Reduces patient processing time and making EMS efforts faster and more effective

• Result: a 10-15% improvement in productivity

Collaborate

internally

Collaborate

externally

Metropolitan Emergency

Services system

Collaborate for Productivity

Sources: IBM client references, BusinessWeek, Connect & Develop web site: success stories https://secure3.verticali.net/pg-connection-portal/ctx/noauth/0_0_1_4_83_4_6.do

How to respond


3. Get ahead of scarcity – before prices fully recover

• The economic crisis interrupted the escalating trend toward scarcity – in critical supplies, environment, talent, other factors.

• Prices for resources and assets - including the talent and skills - dropped precipitously, and in many cases far below fair value.

• But prices are already recovering, and the trend toward scarcity will return.

Key Moves

• Assure access to key supplies

• Secure the best global talent

• Embrace the financial case for green

How to respond


The post crisis period offers a window of opportunity to assure access to key supplies that can provide long term advantage

• Kingspan has agreed to acquire the European insulation

activities of CRH for €120m.

• This will bolster its position as Europe’s leading provider of

non-fibrous insulation throughout Europe, the company

said.

• Give a greatly enhanced portfolio of solutions at a time

when building regulations are becoming more rigorous in

encouraging energy efficient buildings across Europe

• Buys 5% stake in Smithfield Foods to access critical

technology and mgmt skills

• Seen as essential to meet China’s growing demand for

pork

Sources: www.reuters.com, July 1, 2008; Wall Street Journal, December 2005 “Pepsi Takes Up Potato Farming”; China Daily, July 2008, “Cofco buys into leading U.S. pork firm”; UN Food & Agriculture organisation

Critical resource varies by firm

Resources

Technology

Resource Scarcity Plays

How to respond


Move quickly to secure the best global talent

Sources: Wall Street Journal Online, March 3, 2009; Toray Corporate, Nikkei Business, Toyo Keizai, Chugoku Shinbun

Greater complexity in the business

environment raises the value of Talent

2.27x

1.85x

1.52x

Low Moderate High

Top 1 % Employee Productivity vs. Average

Source: IBM Analysis, Hunter, Schmidt, & Judiesch (1990), Journal of

Applied Psychology, vol 75 (1), pp. 28-42.

Job Complexity

The post-crisis environment has allowed

some firms to accelerate Talent advantages

Enhance

Redeploy

Instituted program to transfer under-utilized employees from mature geographies to emerging markets

Helped IBM’s accelerate growth in emerging markets, while maintaining a globally integrated operating model

Took advantage of reduced production schedule to cross-train 600 single-skill employees on multiple positions within work cell

Increased ability to adapt to uncertain demand and reduced contract worker use

How to respond


Before energy and environmental pressures return in full, position to embrace the financial case for green

Resource reduction potential

Supply Chain:

Fuel and ElectricityMaterials, eg. waterAsset management

Human Resources

Office spaceTravel expenseTalent retention

Marketing, Sales & Service

PaperReturns

Product Design

Information Technology

Data center reductionElectricity usage

Hardware disposition

Finance, Legal &

Operations

Regulatory impactConsumer litigation

Paper

Sources: IBM client references, BusinessWeek

Introducing “Trash Talk” sneakers made from recycled shoes

Green ROI

How to respond

Irish company, Barry Global Innovation (BGI), is creating what it says is “a new category for wines in travel retail” with the launch of multi-layered PET (MLP) wine bottles to the trade worldwide.

their long shelf life (at least twice the life of monolayer PET),

lightness (three MLP bottles weighs the same as two glass wine bottles)

unbreakability.

recyclable (both capsule and bottle).

reduce consumers’ carbon footprint (one can transport 46% more wine in MLP containers than in glass in a 40ft container).


Are you prepared?

• What resources are critical to your business?

• What impact would a return to higher costs for supply have on your business?

• How can you preemptively secure preferential access?

• Are there acquisition or investment opportunities you should move on quickly before prices rise and ahead of your competition?

• Can you hear what the market is saying through the huge volumes of data at your fingertips?

• Are you able to flexibly scale your production to quickly meet variable and uncertain demand?

• Are you getting the most from your existing assets, investments and talent?

• How do you accurately forecast demand and customer requirements and develop new revenue opportunities?

• How can you utilize digital channels to reach new customers and engage them in new and different ways

• How will you offset revenue challenges in mature markets?

Get ahead of scarcityFocus on productivity and agility

Find targeted approaches to grow revenue

1 2 3

Summary

© 2010 IBM Corporation2828 22-Nov-10

The IBV Global Centre for Economic Development has published a number of studies on topics relating to economic development and ICT

You can find more information on the IBV Global Centre for Economic Development at:

www.ibm.com/ie/ibvireland

For further information, please contact:

Dr. Mary Keeling ([email protected])

New Economic Environment for Business v3.0 - IBM€¦ · The New Economic Environment for Business...

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