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© 2011 IBM Corporation
Leadership in a global reality6th December 2011
Preben Thalund Madsen, Partner IBM Global Business Services
© 2011 IBM Corporation
The Global CEO Study 2010 is the fourth biennial CEO study, building on our insights and findings over the last 6 years
1,541 CEO interviews
2010Capitalizing on Complexity
Key Findings Rapid escalation of
complexity creates need to: Embody creative
leadership Reinvent customer
relationships Build operating dexterity
2008 Enterprise of the Future
1,130 CEO interviews
Key Findings Hungry for change Demanding customers as
opportunity to differentiate Extensive business model
innovations Moving towards global
business designs
2006Innovation
765 CEO interviews
Key Findings Business model innovation
matters External collaboration is
indispensable Innovation must be
orchestrated from the top
2004Your turn!
456 CEO interviews
Key Findings Revenue growth is the
number one priority Responsiveness is a new
key competence Improving internal
capabilities is a first step toward growth
© 2011 IBM Corporation
In this largest known sample of face-to-face CEO interviews, we spoke with over 1,500 CEOs and public sector leaders
The study represents organizations in 60 countries and 33 industries
Note: The CEO response sample has been weighted based on 2008 Actual Regional GDP of the IMF World Economic Outlook, October 2009;* Growth Markets include Latin America, Asia Pacific (excluding Japan), Middle East and Africa
13%Communications
25%Distribution
18%Financial Services
24%Industrial
20%Public 25%
Growth markets*
21%North America
42%Europe
12%Japan
Sectors Regions
© 2011 IBM Corporation
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2011 IBM Corporation
16%17%
14%10
14%16%
CEOs are confronted with massive global shifts in the New Economic Environment
Slow down or reversal of globalizationIncreased protectionism, dominance of local interests and local requirements
Continued globalizationGlobal capital flows, trade, access to markets, skills and knowledge
Mature markets retain economic powerConsumer demand, economic power and innovation skewed towards mature markets
Rapidly developing markets gain economic powerConsumer demand, economic power and innovation shifting to rapidly developing markets
Small government, light regulationMove or return to unrestrained markets with limited state ownership or regulatory reform
Big government, heavier regulationGreater government involvement, more regulation and government as a stakeholder in strategic businesses
Source: Q8 Which of these future scenarios for the next five years do you consider more realistic? Globalization n=1,515; Markets n=1,502; Government n=1,519
67%
76%
70%
Not at all/to a limited extent To a large/very large extentTo some extent
© 2011 IBM Corporation
Continued rise of technology as key external factor for CEOs
Source: Q1 What are the 3 most important “external” forces that will impact your organization over the next 3 years? n=1,538
Three most important “external” forces over the next three years
© 2011 IBM Corporation
Vast majority of CEOs experience the New Economic Environment as distinctly different
More volatileDeeper/faster cycles, more risk
More uncertainLess predictable
More complexMulti-faceted, interconnected
Structurally differentSustained change
Not at all/to a limited extent To a large/very large extentTo some extent
“Last year’s experience was a wake-up call, like looking into the dark with no light at the end of the tunnel.”
President and CEO, Industrial Products, The Netherlands
Source: Q7 To what extent is the new economic environment different? Volatile n=1,514; Uncertain n=1,521; Complex n=1,522 ; Structurally different ,
18%13% 69%
21%14% 65%
22%18% 60%
21%26% 53%
The New Economic Environment
© 2011 IBM Corporation
CEOs are now challenged to close the complexity gap and use complexity to their advantage
Source: Q10 How much complexity will your organization have to master over the next 5 years? n=1,512; respondents who selected “More/significantly more complexity”; Q12 How prepared do you feel for the expected complexity ahead? n=1,508; respondents who selected “Fully prepared”
Expect high/very high level of complexity over 5 years
Feel prepared for expected complexity
30%Complexity gap*
“Complexity should not be viewed as a burden to be avoided; we see it as a catalyst and an accelerator to create innovation and new ways of delivering value.”
Juan Ramon AlaixPresident, Pfizer Animal Health, United States
“The world is non-linear, so the ability to cut through complexity relies on processing a large amount of information quickly and extracting nuggets to make quick decisions. Building advantage will be an outcome of dealing with complexity better than our competitors”
Julian SegalDirector and CEO, Caltex Australia Limited, Australia
Expected level of complexity and preparedness to handle
* Complexity gap = difference between expected complexity and the extent to which CEOs feel prepared to manage complexity
49%
79%
© 2011 IBM Corporation
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Complexity challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2011 IBM Corporation
We identified Standout organizations that delivered superior performance during both the long term and recent short term
Lo
ng
-te
rm,
stea
dy-
sta
te
per
form
anc
e
Short-term,crisis performance
Performance Analysis Framework
Top 50 percent
Long-term Performance4 year operating margin CAGR (2H03/1H04 – 2H07/1H08)
Short-term Performance1 Year operating margin growth (2H07/1H08 - 2H08/1H09)
Standouts
Top
50
perc
ent
© 2011 IBM Corporation
Standouts are also better prepared to manage the expected complexity
Complexity gap*
Note: Long-term performance: 4 year operating margin CAGR (2H03/1H04 – 2H07/1H08); Short-term performance: 1 year operating margin growth (2H07/1H08 - 2H08/1H09)Source: Q10 How much complexity will your organization have to master over the next 5 years? n=299; Q12 How prepared do you feel for the expected complexity ahead? n=296
“Really, I am not afraid of complexity at all. On the contrary, this just motivates me.”
Jacques PellasSecrètaire Général, Dassault Aviation,
France
* Complexity gap = Difference between expected complexity and the extent to which CEOs feel prepared to manage it
Lo
ng
-te
rm,
stea
dy-
sta
te
per
form
anc
e
Short-term,crisis performance
Top 50 percent
Standouts
22% Gap 6%
Gap
52% Gap 35%
Gap
Top
50
perc
ent
© 2011 IBM Corporation
Standouts capitalize on complexity in three ways
• Creativity is #1 leadership quality• Drive change in the organization to
stay ahead of market and use a wide range of communication styles and tools
• Break with status quo of industry, enterprise and revenue models
© 2011 IBM Corporation
Creativity is the #1 leadership quality
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
© 2011 IBM Corporation
Standouts focus on quick decisions despite uncertainty
42%15% 43%
41%31% 28%
Ways in which to achieve rapid change over next five years: Decision Making
54%more
Source: Q21 How will you realize rapid change over the next 5 years? Quick decision vs thorough decision n=299
Thorough decisions Quick decisionsBoth
Standouts
Others
“We need to keep making quick decisions instead of waiting and thinking about it: good decisions that may not be absolutely right because we don't know all the information. We have left competitors behind by making quick decisions – it is a differentiating factor for us.”
CEO,Life Sciences, Belgium
© 2011 IBM Corporation
Standouts leap ahead with new management and leadership styles and balanced communication approaches
13%8% 79%
25%17% 58%
Continuouschange
Ad-hocinitiatives
Persuade andinfluence
Commandand
control
“There isn’t the luxury of time. We used to say, ‘Wait until this crisis is over and we get back to normal,’ but that never happens. We have to be ‘change animals.’ ”
Michele McKenziePresident and CEO, Canadian Tourism Commission,
CanadaSource: Q21 How will you realize rapid change over the next five years? n=300
28%33% 39%(Managed) viralcommunication
Top-downcommunicatio
n
Standouts realizing rapid change over the next five years: Management Style
Both
© 2011 IBM Corporation
So what builds creative leadership?
Embrace ambiguity: Reach beyond silos, exemplify breakthrough thinking, act despite uncertainty.
Take risks that disrupt legacy business models: Pilot radical innovations, continually tweak your models, borrow from other industries’ successes.
Leapfrog beyond “tried-and-true” management styles: Strengthen your ability to persuade and influence, coach other leaders, use a wide range of communication approaches.
Recommendations
How will you develop the critical capabilities to enhance creativity among your leadership?
In what ways can you explore, reward and integrate diverse and unconventional points of view?
What is your approach to evaluate every element of your business model to get the most from currently untapped opportunities?
How will you leverage new communication styles, technologies and tools, both to lead a new generation of talent and encourage breakthrough thinking?
Tough questions to consider
© 2011 IBM Corporation
Standouts capitalize on complexity in three ways
• “Getting closer to customers” is the single most important theme
• Better understand customer needs through collaboration and info sharing
• Exploit the information explosion to deliver unprecedented customer service
© 2011 IBM Corporation
“Getting closer to the customer” is THE top priority for Standouts
83%
Others
95%
Standouts
Getting closer to customers
14%more
Getting closer to customer
People skills
Insight and intelligence
Enterprise model changes
Risk management
Industry model changes
Revenue model changes
88%
81%
76%
57%
55%
54%
51%
Dimensions to focus on over the next 5 years
“Our customers want personalization of services and products. It is all about the market of one.”
Tony TylerCEO, Cathay Pacific Airways, Hong Kong
Source: Q13 Which of the following dimensions will you focus on more to realize your strategy in the new economic environment over the next 5 years? n=1,523, n=303
“To surprise customers requires unexpected ideas through interactions of people with diverse perspectives.”
Shukuo IshikawaPresident and CEO, Representative Director, NAMCO
BANDAI Holdings, Inc. Japan
© 2011 IBM Corporation
CEOs want to better understand customer needs and actively work with them
Source: Q15 To what extent will your customers’ expectations of you change over the next five years? n=1,518
12%82% 6%Better understanding of needs
20%70% 10%New or different services
20%69% 11%More collaboration, information sharing
22%61% 17%New or different products
25%51% 24%New or different channels
24%45% 31%Stronger focus on price-value equation
30%46% 24%Increased focus on social responsibility
Not at all/to a limited extentTo a large/very large extent To some extent
CEOs’ view of “How customer expectations will change over the next 5 years”
All participants:
© 2011 IBM Corporation
Customer-centric CEOs exploit the information explosion to better understand and serve customers
49%
OtherCEOs
63%
Customer focusedCEOs
Impact on organization ofinformation explosion
29%more
66%
OtherCEOs
78%
More focus on insight and intelligence
to realize strategy
18%more
Customer focusedCEOs
Deep dive analysis: CEOs that scored high or very high on “getting closer to the customer”
... to generate insight and intelligenceCustomer focused CEOs use data...
Source: Q9 To what extent will the following factors impact your organization over the next 5 years? n=1,507; respondents who selected Information explosion “to a large/very large extent”; Q13 Which dimensions will you focus on more to realize your strategy in the New Economic Environment? n=1,516; respondents who selected insight and intelligence “to a large/very large extent”
“Insight and foresight are linked with leadership. It's insight that helps to capture opportunity.”Zhou Ming, Executive Vice
President and Secretary General,
China Council for Int’l Investment Promotion
China
“Information is not well validated. The problem is a ‘misinformation explosion.’ ”
Dr. Paul Byrne, President,
Grant MacEwan UniversityCanada
© 2011 IBM Corporation
So how do you reinvent customer relationships?
Honor your customers above all else: Unprecedented level of focus, heightened customer exposure for every employee, measure what customers value.
Use two-way collaboration to sync with customers: Make customers part of your team, solicit customer wants, co-innovate and interact with customers in new ways, deliver true process transparency.
Profit from the information explosion: Tap the value of limitless data, use analytics to translate data into insight into action that creates business results, share information freely to build trust and improve customer relationships.
Recommendations
How will you engage customers in new ways that increase interest and loyalty to generate new demand and revenue sources?
How can you involve customers more effectively and directly in product and service development?
Can you hear the voice of your customers through the vast amount of data? Can you understand and act upon the information?
Tough questions to consider
© 2011 IBM Corporation
Standouts capitalize on complexity in three ways
• Simplify operations and products to better manage complexity
• Use iterative strategies, make quick decisions and execute with speed
• Integrate globally, increase cost variability and exploit partnering to increase agility
© 2011 IBM Corporation
Standouts simplify operations and products to better manage complexity
Changes to operating strategy: Simplify
“Simplification and standardization are key strategies that we have been using for several years to reduce existing and future complexity.”
Brenda Barnes, Chairman and CEO, Sara Lee, United States
“When things look very simple, you need to look for a competitive edge. When things are complex, you simplify to get the competitive advantage”
Graeme Liebelt, Managing Director and CEO, Orica Limited, Australia
Source: Q18 How will you change your operating strategy? Manage complexity versus simplify n=294
Others
Standouts 30%more
61%
47%
© 2011 IBM Corporation
CEOs that prioritize speed and dexterity are increasing the share of variable cost
12%12% 76%
26%14% 60%
Source: Q18 How will you change your operating strategy? Fixed versus variable cost n=170
Changes to operating strategy of operational dexterity focused CEOs
Deep dive analysis: CEOs that selected ‘iterative strategies, quick decisions and execute with speed’
27%more
Increase share of fixed cost Increase share of variable costBoth
Dexterous CEOs
CEOs not prioritizing dexterity
© 2011 IBM Corporation
Speed and dexterity enable revenue growth from new sources
30%
25%
Next 5 years
Revenue generated from new sources
Source: Q16 What percentage of our revenue (budget) comes from new sources, such as new products or services, new markets or new industries? Median of percentage for past five years n=1380 and median of percentage next five years n=1,388
“Scaling for growth takes a balance of operations, innovation and business model changes to enable growth to the next level of a business. Leadership needs to balance the timing to make the right changes at the right time.”
Jay GeldmacherExecutive VP, Emerson, United States
Deep dive analysis: CEOs that selected ‘iterative strategies, quick decisions and execute with speed’
20%more
20%
15%
Last 5 years 33%more
Dexterous CEOs
Others
Dexterous CEOs
Others
© 2011 IBM Corporation
So what are the steps to build operating dexterity?
Simplify whenever possible: Simplify interactions with customers, simplify products and services by masking complexity, simplify for the organization and partners.
Manage systemic complexity: Put complexity to work for your stakeholders, take advantage of the benefits of analytics.
Promote a mindset of speed and flexibility: Act quickly, push execution speed, course-correct as needed.
Be “glocal”: Leverage the world through partners, constantly tune your operating model – global where possible, local where necessary.
Recommendations
In what ways can you simplify processes, without ignoring underlying complexity, and develop the agility required to execute rapidly?
How can your organization benefit from taking on more complexity on behalf of your clients or customers?
How will you integrate and analyze timely information to gain insight, make quick decisions and enable dynamic course correction?
Have you implemented asset and cost flexibility and defined partnering strategies to compete in your chosen markets?
Tough questions to consider
© 2011 IBM Corporation
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Complexity challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2011 IBM Corporation
Seizing the upside of complexity
Honor your customers above all else
Use two-way communications to sync with customers
Profit from the information explosion
Embrace ambiguity
Take risks that disrupt legacy business models
Leapfrog beyond “tried-and-true” management styles
Simplify whenever possible
Manage systemiccomplexity
Promote a mindset of being fast and flexible
1 2 3
Be “glocal”
Reinventcustomer
relationships
Buildoperatingdexterity
Embodycreative
leadership
© 2011 IBM Corporation
APPENDIX 1
Geographic differences
IBM Institute for Business Value
IBM Strategy & Change
© 2011 IBM Corporation
Geographical divergence of perspectives and actions adds another layer of complexity
North America (US, Canada) European Union
Japan
Market factors 45%Regulatory concerns 41%Technological factors 40%
Market factors 57%Technological factors 39%Macroeconomic factors 36%
Market factors 78%Globalization 41%Technological factors 40%
China
Market factors 54%Macroeconomic factors 45%Technological factors 45%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538
Three most important external factors by geography
“Globalization brings complexity. We must localize decision making to where the action is.”
CEO, Retail Company, United States
© 2011 IBM Corporation
North America: Concerned about the impact of regulation and government
North America (U.S., Canada)Market factors 45%Regulatory concerns 41%Technological factors 40%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538; Q8.2 Which of these future scenarios of the next five years do you consider more realistic? Small vs. Big government n=1,519; Q13.4 Which of the following dimensions will you focus on more to realize your strategy in the new economic environment over the next 5 years? Risk Management n=1,511; Q17.3 To what extent will you make changes to your operating model in the next 5 years? Organization and governance n=1,508; Q19 Which of the following leadership qualities do you think are most important in the next 5 years? n=1,538
“Due to government regulations, cycle time to get our product to market is slowing down.”
CEO, Medical Device Company, United States
3 Most important external factors
NA CEOs expect “big government” and regulation
North America
EU
China
Japan
87%
70%
53%
50%
NA CEOs are least focused on risk management to realize their strategic goals
North America
EU
China
Japan
45%
50%
64%
68%
NA CEOs are least likely to change organization and governance
37%North America
EU
Japan
China
49%
67%
67%
NA CEOs see integrity as top leadership quality
65%North America
EU
China
Japan
48%
30%
29%
© 2011 IBM Corporation
European Union: Using middle of the road strategies, balancing all
European Union
Market factors 57%Technological factors 39%Regulatory concerns 35%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1538; Q9 To what extent will the following factors impact your organization over the next 5 years? Talent Shortages n=1,523, Shift in economic power to rapidly developing markets n=1,499; Q13 Which dimensions will you focus on more to realize your strategy in the new economic environment over the next 5 years? Enterprise Model Innovation n=1,491; Q22 What are the 3 most crucial capabilities your organization needs to be successful in executing in the next 5 years? Client connectivity n=1,538
“Technology is already impacting our clients’ behavior, currently clients are price checking over four continents using today's technology.”
Managing Director,Retail, United Kingdom
3 Most important external factors
EU CEOs are least likely to focus on enterprise model innovation
EU CEOs least impacted by shift in economic power
EU
China
North America
Japan
43%
48%
49%
74%
47%EU
North America
China
Japan
59%
69%
73%
EU CEOs consider client connectivity as crucial to executing in the NEE
48%EU
Japan
North America
China
35%
21%
11%
EU CEOs least impacted by talent shortage
EU
North America
Japan
China
45%
58%
71%
78%
© 2011 IBM Corporation
China: Increasing global impact but challenged to build capabilities
China
Market factors 54%Macroeconomic factors 45%Technological factors 45%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538; Q7.4 To what extent is the new economic environment different? n=1,514; Q17 To what extent will you make changes to your operating model in the next 5 years? People skills and capabilities n=1,514; Q13 Which of the following dimensions will you focus on more to realize your strategy in the new economic environment over the next 5 years? Industry model change n=1,511; Q19 Which of the following leadership qualities do you think are most important in the next 5 years? n=1,538
“China is making leaps in economic development, so the enterprise model has to keep pace with the fast-changing environment. You cannot run a business of 1,000 people with same model as one with 100 people.”
General Manager, Retail, China
3 Most important external factors
CEOs in China are less concerned about volatility CEOs in China are most focused on industry model innovation
CEOs in China are most focused on building new skills and capabilities
CEOs in China see “global thinking” as a top leadership quality
61%China
Japan
EU
North America
42%
33%
33%
72%China
Japan
North America
EU
56%
55%
49%
83%China
Japan
North America
EU
82%
66%
66%
51%China
EU
Japan
North America
70%
71%
75%
© 2011 IBM Corporation
Japan: Responding to shift in economic power by increasing execution speed and changes in operating style
Japan
Market factors 78%Globalization 41%Technological factors 40%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538; Q7.2 To what extend is the new economic environment structurally different? n=1,523; Q9 To what extend will the following factors impact your organization over the next 5 years? Shift in economic power from mature to rapidly developing economies n=1,499; Q22 What are the three most crucial capabilities your organizations needs to be successful in executing in the next 5 years? n=1,538; Q13 Which of the following dimensions will you focus on more to realize your strategy in the new economic environment over the next 5 years? People skills n=1,526
3 Most important external factors“Rapidly developing markets will achieve growth. It is important that we develop a market for export. Our battlefield will be the world.”
President, Banking, Japan
CEOs in Japan see the New Economic Environment as structurally different
CEOs in Japan are most likely to see execution speed as a crucial organizational capability
The shift of economic power to rapidly developing markets is most acutely felt by CEOs in Japan
CEOs in Japan are most focused on developing people skills to realize their strategy
Japan
China
North America
EU
82%
55%
53%
47%
Japan
EU
North America
China
44%
38%
34%
27%
Japan
China
EU
North America
92%
82%
77%
74%
Japan
North America
China
EU
74%
49%
48%
43%
© 2011 IBM Corporation
APPENDIX 2
Backup
IBM Institute for Business Value
IBM Strategy & Change
© 2011 IBM Corporation
Standouts capitalize on complexity in three ways
• Creativity is #1 leadership quality• Drive change in the organization to
stay ahead of market and use of wide range of communication styles and tools
• Break with status quo of industry, enterprise and revenue models
• Simplify operations and products to better manage complexity
• Use iterative strategies, make quick decisions and execute with speed
• Integrate globally, increase cost variability and exploit partnering to increase agility
• “Getting closer to customers” is the single most important theme
• Better understand customer needs through collaboration and info sharing
• Exploit the information explosion to deliver unprecedented customer service