How to become a standout company – whatever the economic weather

IBM recently conducted a global survey of over 1,500 chief executives, including 81 from Australia and NZ, and found it is the ‘change animals’ who are not only emerging from the economic meltdown intact, but have even grown during the recession…

You want to be in the upper right-hand sector of the quadrant analysis chart beloved by marketers and consultants and now IBM too, it seems. This is where the “standout” companies of those IBM surveyed for its recent Global CEO Study sit. In this case, it’s those companies that have not only performed consistently well over the last five years, but during economic crisis too.

Big Blue’s quadrant diagram (figure 1) was derived from its analysis of the data from its global study, which involved interviewing 1,541 CEOs, 81 from Australia and New Zealand. It conducts its global study, now its fourth, every second year.

Figure 1: Standouts ranked in the top 50% during the GFC (08-09) and over the longer term (03-09)

IBM found what it calls the “standouts” not only performed well in the long- and short-term, but were using “entirely new approaches to tap new opportunities and overcome challenges to growth.”

What also emerged was that we are a much more complex world – a complexity that is increasingly impinging on Australia and New Zealand as our historic isolation from the rest of the world, imposed by our remote geography, breaks down in the face of our now vastly more interconnected world.

This is both good and bad – the GFC showed the bad side.

“The house of cards fell over” as a result of a US problem, says Ross Pearce of IBM Global Business Services. But there is a good side too. As we pick our way through the complexities of the modern world we can choose to embrace this complexity and turn it to advantage.

This is what IBM’s survey threw up: that while complexity is growing the ‘standouts’ weren’t – and aren’t – phased by this at all, rather they use it instead of letting it “become a stifling force that slows responsiveness, overwhelms employees and customers, and threatens profits.”

While embracing complexity was the over-arching theme to emerge from the global study, three attributes of standout companies emerged that are worth emulating. After all, they helped these companies survive and thrive in the recession.

Australasians less prepared
The study reveals that the going is not set to get any easier.

The global results revealed that less than half of the 1,541 CEOs questioned believe their companies are adequately prepared to handle a highly volatile, increasingly complex business environment.

In the local context, this translated to 84 percent of A/NZ CEOs who thought the world was getting more complex, but only 39 percent felt prepared to deal with this complexity.

See Figure 2 – the global preparedness average was 49 percent.

Some of these “complexity challenges” include a shift in economic influence from the mature to the rapidly developing markets, as well as greater government intervention and regulation, which has traditionally been light in New Zealand in particular.

While the mature markets regulate themselves to a standstill, the Indias and Chinas of the world expand rapidly with strong domestic demand from their emerging middle classes, and compete globally with their cheap labour costs.

Figure 2: The Complexity gap A/NZ CEOs anticipate much more complexity than they feel confident about handling.

The ‘complexity gap’ poses a more serious challenge than any other factor measured over the eight years IBM has been undertaking these surveys, says the study.

Pearce, who was the local leader of the study, says this demonstrates that “our economy and society are becoming increasingly more closely linked with developing and global markets, as well as the impact of regulation and technology on organisations.

“This interconnectedness is creating a world of complexity for organisations over the next few years, and this represents both significant challenges and opportunities, at the same time.”

Managing director of Foodstuffs Auckland Tony Carter, who took part in the study, comments that, “There’s no doubt that business has become more complex over the past few years and this dramatically increased the challenges CEOs face.”

The Big Three: creativity, customers and dexterity Creativity; customers; dexterity: these are the three ways in which the “standouts” are capitalising on complexity, according to the study.

Creativity refers to “creative leadership”, which was seen as the key leadership competency by most CEOs interviewed, except those in Australia and New Zealand, who put it second, behind integrity.

A legacy of the jaundiced view they took of the global financial crisis perhaps? Maybe the reason Australia’s banks (and the few New Zealand banks that aren’t Australian owned) didn’t face bankruptcy the way a number in the US and Europe did?

Perhaps our local ‘integrity before creativity’ score isn’t such a negative on the global stage.

Standout management of ‘Customers’ means re-inventing the customer relationship through more collaboration and single-mindedly focusing on customers’ needs. ‘Dexterity’ means developing operational dexterity, so as to be able to cope with change and make quick, nimble decisions.

Decision making, it seems, is strongly favoured over analysis paralysis by these standout businesses.

Creative leadership
Creative leaders drive change both internal and external, and “break with the status quo of industry, enterprise and revenue models,” says the study.

“CEOs recognise that they will need to re-invent their organisations,” says IBM. This involves looking at their management style. There is a need to move beyond the old fashioned command-and-control style of management.

The study revealed that A/NZ managers have been good at moving to a more modern style of management, with 71 percent tending to persuade and influence rather than command and control; and 43 percent prefer managed viral communication to top-down communication.

Our recent iStart CEO interview with New Zealand PriceWaterhouseCooper’s CEO, Bruce Hassall gave an insight into this trend. Hassall has recently started an internal CEO company blog and is gradually seeing staff gain in confidence when it comes to commenting on his blog posts.

Early on they would email him personally.

An Australian example of someone who has driven even bigger change is utility Energy Australia, which is headed by managing director George Maltabarow.

His industry is very conservative and he says he realised that to drive change he had to move beyond just bright ideas. He came up with what he calls “Electric Thinking”. One manifestation of this is dedicated groups of skilled people who are empowered by being given the necessary resources to bring about change.

Change is also their sole task.

This isn’t always easy, says Maltabarow, as it can involve turf wars and wresting control of technology away from others.

“You have to establish where the technological frontier is, and where it’s moving to [but] the people who might have bright ideas… are not going to get to the objective; you’ve got to have large-scale funding and you have to give it to these dedicated groups and resource them appropriately.”

One example of this innovative thinking is the Smart Grid Home – see our box story.

Re-inventing the customer relationship
A/NZ CEOs were especially determined to put customers – or citizens, in the case of public sector leaders – to the fore, says IBM.

“‘Getting connected’, to better understand, predict and give customers what they really want is a top priority for 91 percent.” They also see this connectedness as involving information.

An Australian example of getting closer to the customer and being more collaborative is the aforementioned Energy Australia’s smart grid initiative. But IBM’s Pearce points to TradeMe and its customer feedback system as a Kiwi example of the re-invented customer relationship.

TradeMe buyers rate sellers on their integrity – too many negative comments and you’re history – a very different way of operating than many companies do when it comes to managing customer relationships. A similar customer feedback system operates among vendors at Book-a-Bach, says Pearce.

Foodstuff ’s Carter observes that “customers have become much more demanding and discerning in recent years and successful companies need to meet that challenge by improved information. There is no doubt that poor service simply will not be tolerated by customers like perhaps it was in the past. Successful companies will be those that better meet their customers’ expectations.” (See Customers are ‘gold’ box story).

Pearce also points to Progressive Enterprises, which runs supermarkets on both sides of the Tasman and its One-Card system, which rewards customers with bonus vouchers, based on knowledge of what you buy on a regular basis.

“It’s targeted marketing which makes you feel you’re a customer of one and not just part of a mass,” says Pearce.

Build operating dexterity
One curious feature to emerge from the study was that only 36 percent of CEOs of companies in New Zealand and Australia were focused on simplifying their products and operations to better manage complexity (see Figure 3).

Foodstuff ’s Carter says he was a little surprised at this. “As the world gets more complex and demanding, companies will need to simplify their own operations to better meet the challenges they are likely to face.”

While the 36 percent is a smaller percentage than that for any geographic area, 63 percent of A/NZ CEOs are intent on reducing their fixed costs and increasing their variable costs, so they can rapidly scale up or down as need dictates.

Figure 3: Plans for simplification A/NZ CEOs place much less weight than other CEOs on simplifying their products and processes to better manage complexity

Pearce points to the growing popularity of SaaS (Software- as-a-Service) or cloud computing, as it’s also called, as being one way of managing costs and growing a business up or down quickly.

“It’s radically changing the way people think about how they can organise their business.”

But, in addition, there is a need to simplify business processes, which tend to grow like topsy, says Pearce. But, more importantly, planning needs to be “iterative”, that is, ongoing rather than once-a-year and allied to the budget as part of the formal annual strategy review.

This is another aspect of “creative leadership” – dealing with ambiguity – and A/NZ CEOs are adept at dealing with it.

According to study responses, 53 percent use iterative strategic planning processes as distinct from the annual review. However, they are less keen on quick decision making, with only 25 percent favouring the quick response, compared with a global average of 33 percent.

“It’s being prepared to re-visit business plans on a regular basis so you can respond to change, rather than relying on a business plan that took six months to prepare,” says Pearce.

Pearce sees technology as being “the glue that holds it all together” and helps us manage complexity. Except for the likes of Fonterra, Air NZ and exporters, much of New Zealand, and Australia, has been shielded from having to deal with complexity. But this is no longer the case and is the challenge we increasingly have no choice about facing.

The combined insight from the 1,541 interviews calls for CEOs and their teams to: