CEOs shed light on: the enterprise of the future

Hungry for change, wildly imaginative, disruptive by nature, totally wired to the people who matter most. These are the qualities companies will need to thrive in the near future, according to IBM’s latest CEO study...

Every two years, IBM talks to more than 1,000 CEOs and public sector leaders worldwide, asking these executives a range of questions including: What are they thinking about? Where are they investing? What do they believe the enterprise of the future will look like?

In its latest survey, IBM also reviewed the differences between outperforming and underperforming businesses.

This year’s global CEO survey was IBM’s third (following similar studies in 2004 and 2006).

This year’s study is based on in-person interviews with 1,130 CEOs, general managers and senior public sector and business leaders from around the world, including 60 is Australia and nine in New Zealand. Here's what the research found.

Hungry for change
Coping with change is nothing new. What's different is the head-spinning rate of change today and the fact that it's coming from so many different quarters.

In 2004, CEOs worried about market factors. In 2008, while the market still dominates the agenda, executives now face additional socioeconomic, geopolitical and environmental challenges including people skills, technology advances and environmental concerns.

And companies are struggling to keep up. There is a gap of 22 percent between how CEOs rate their ability to manage change successfully versus their expected need for it – a gap that has nearly tripled since 2006, when it was only 8 percent.

Matt English, head of the Australia/New Zealand strategy and change consulting business within IBM Global Business Services, says the survey’s results from the ANZ region mirrored the international picture when it came to the issue of grappling with the change gap.

“CEOs – both globally and in ANZ – overwhelmingly said the whole change agenda is continuing to increase, it’s becoming more complex, there’s more change coming, and so on,” says English, who lead the study for ANZ.

“One of the key messages out of the study is that CEOs are bombarded with change and there’s a bit of a struggle to keep up.”

So how does the Enterprise of the Future manage constant change?

The Swiss engineering firm ABB can offer some insights. ABB launched its Step Change Program in 2003. Hundreds of measures were identified and executed on schedule resulting in savings of more than $US900 million.

Their change program today has a broad portfolio of initiatives, representation from all parts of the company and an Executive Committee that tracks progress and provides regional accountability.

The result? ABB's successful focus on its strengths in power and automation technology and its improved productivity and cost structure were driven largely by its enterprise-wide change program. In 2007, ABB's net income increased to a record US $3.8 billion.

Innovative beyond customer imagination
In India, 400 million consumers will demand new housing in the next 20 years. That's more real estate than the United States has built since the Second World War, pointed out one real estate CEO. Globalisation is producing a new prosperity around the world and two thirds of CEOs are investing to capture this opportunity.

English says the investment intentions of Australia/New Zealand CEOs canvassed in the survey were higher ANZ in this area than was reflected in the global average.

“ANZ CEOs see this as being a very positive initiative going forward. They are very switched into the issue of the rise of the informed and collaborative customer and the importance of them to their business. They see this as a very important area for investment in the future.”

These new – and existing consumers – are more demanding and knowledgeable than ever. With the billion-user Internet, customers can broadcast their opinions about a product. They can link up with like-minded consumer groups and sway public opinion, not to mention company behaviour.

Three quarters of CEOs view these newly empowered consumers with enthusiasm. Here is a chance to get customer input and develop products that differentiate their company and justify premium pricing. This can be much quicker and more effective than developing products in a vacuum, only to find they missed the mark and the market.

Several years ago, Nintendo, the maker of console games, needed to regain its leadership position, find new ways to delight gamers and reach new audiences. To do that, it went straight to the source – gamers themselves.

Through a community of experienced gamers, Nintendo gained valuable insights into marketing needs and preferences. This has influenced everything from actual game offerings – like an online library of "nostalgic" games that appeal to older gamers – to new product design such as the intuitive controls of the new Wii system.

The collaboration seems to have paid off: Nintendo is once again ahead of the competition with 44 percent market share.

Globally integrated
Two years ago globalisation meant paring off a function and moving it abroad: a factory in China, a call centre in India. The key driver was cost. Today, CEOs see globalisation as intrinsic to their business, the means of accessing the best resources wherever they are. It is the gateway to new markets.

To fully realize their globalisation strategies, 57 percent of CEOs will make fundamental changes to their organisation's capability and skill mix. What will they do? Of those interviewed, 85 percent plan on partnering; 66 percent will use mergers and acquisitions. One such company is Hong Kong-based Li & Fung.

They used acquisitions – more than 20 in less than 10 years – to grow market share in their target geographic markets.

With a network of 10,000 suppliers and staff in 40 different countries, Li & Fung can source from virtually anywhere in the world. Cotton can be purchased from America, knit and dyed in Pakistan and sewn into garments in Cambodia. When Li & Fung acquires a company, it typically preserves the front-end customer interface, which is often the reason for the acquisition, but merges the back end with its own operation within 100 days of deal close.

Disruptive by nature
A common theme emerged from our interviews: virtually all CEOs are changing their business models. Two thirds are implementing extensive innovations. Why now? Because it's possible. The Internet is allowing them to enter niche markets and reshape their processes, delivery channels and ways of partnering.

Companies are innovating in three ways:

• Rethinking their enterprise business model: which processes are kept in house or spun out to partners?
• Changing their pricing models, such as Gillette which switched its primary revenue from razors to blades;
• Reshaping the way their industry conducts business, such as the way Apple ipod turned the music business upside down.

US pharmaceutical maker Eli Lilly turned to business model innovation to meet an ongoing industry challenge: bring new medicines to market faster.

Its newest model is based on pioneering risk-sharing relationships, such as its 2007 agreement with Nicholas Piramal India Limited (NPIL). NPIL will develop one of Lilly's molecules at its own expense, from preclinical work to early clinical trials. If NPIL is successful and the compound reaches the second stage of human testing, Lilly can reacquire it in exchange for milestone payments and royalties.

Genuine, not just generous
The next generation of socially minded customers, workers and investors is watching every move a company makes. CEOs recognise this and corporate social responsibility (CSR) is climbing higher on the agenda. It's critical to attracting talent, breaking into new markets and protecting the brand.

As a result, 25 percent of companies will increase their investment in this key area, generally focused on developing new "green" products. One challenge will be how to make CSR a more holistic aspect of company processes.

“This is one area which stood out for us, particularly in Australia and New Zealand,” says English.

“It is seen as being an area of significant interest to CEOs It’s an area where they see as being very positive for their businesses going forward, and one where they see a big investment being made in the next two or three years, particularly in ANZ.”

The role of technology
Technology plays an integral part in all five aspects of the enterprise of the future identified above by the CEOs, says English.

For example technology is clearly a very strong enabler of the change process, and a key tool for global integration.

The results from the Global CEO Study have major implications for CIOs, IBM says.

The increasing pace of corporate change identified by the research will put added pressure on CIOs to do more, faster, better – and with less.

Among the many roles CIOs will play in this CEO agenda, two stand out.

As providers of IT services to the enterprise, CIOs must transform their IT applications, services and infrastructures into nimble, automated environments that can support the enterprise of the future – and do it as quickly as possible.

The fact is that, for many, the enterprise of the future will be difficult to support with existing IT environments, which typically include silos of data, applications and hardware that can slow change.

CIOs must break down inhibitors to change while managing the associated risks. Just as the automobile assembly line had to evolve to support the globally integrated automobile companies of the 21st century, IT must continue to evolve as it becomes increasingly critical to the enterprise of the future.

CIOs will need to enhance service management in order to provide the consistent, reliable and innovative service delivery that will be so essential to the Enterprise of the Future.

Second, as leaders of IT, CIOs have the opportunity to transform their IT organizations into models for the rest of the enterprise and to become full partners to the business in the delivery of the enterprise of the future. IT is typically a major function within the enterprise – with significant and visible expense and capital budgets – so it faces many of the same challenges as the enterprise as a whole.

IT is also the provider of the technology-based solutions and services that enable the CEO vision. In fact, CEOs see technology as one of the top three external factors affecting their organizations.

Information will be the key to managing the change and innovation that define the Enterprise of the Future. That means IT organizations must evolve beyond managing data to creating business intelligence.

As an expert on the “art of the possible” the CIO can be a key ally of the CEO in moving toward a shared vision of the enterprise of the future.

For more information

To obtain the IBM Global CEO Study visit www.ibm.com/enterpriseofthefuture

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