The Conference Coard CEO Challenge

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The Conference Coard CEO Challenge

  1. 1. research reportThe Conference Board CEO Challenge™ 2011 FUELING BUSINESS GROWTH WITH INNOVATION AND TALENT DEVELOPMENT
  2. 2. The Conference Board creates and disseminatesknowledge about management and the marketplaceto help businesses strengthen their performanceand better serve society.Working as a global, independent membership organiza-tion in the public interest, we conduct research, conveneconferences, make forecasts, assess trends, publishinformation and analysis, and bring executives togetherto learn from one another.The Conference Board is a not-for-profit organization andholds 501(c)(3) tax-exempt status in the United States.www.conferenceboard.org
  3. 3. The Conference Board CEO Challenge™ 2011 Fueling Business Growth with Innovation and Talent Development RESEARCH REPORT TCB-R-1474-11-RR 5 Preface 7 Challenges It’s All about Growth 8 Regional View Contrasting Cultures, Divergent Needs, Different Solutions12 Industry View Growth, Talent, and Government Regulation Top the Charts13 Company Size View Growth and Talent Are Chief Concerns for Companies of All Sizes15 Strategies Innovation and Talent to the Rescue16 Business Growth Strategic Links in the Global Growth Chain21 Talent Developing Leaders, Improving Effectiveness27 Cost Optimization Bigger Is Better, but Technology and People Count Too32 Innovation Mashing Up Technology, Culture, and Talent to Find the Next Big Thing37 Government Regulation Obstacle or Opportunity?42 Strategies to Meet Unique Challenges45 Survey sample46 Acknowledgments
  4. 4. Preface
  5. 5. Global events in the first part of 2011 demonstrate just how fragile and interdepen- dent—and ultimately resilient—the world’s economic system is. Meeting the business challenges selected by 704 CEOs in The Conference Board CEO Challenge 2011 Survey would require herculean effort, even in a world immune from shocks and surprises. As this report goes to press in April 2011, the effects of the earthquake in Japan, the political distress in the energy-rich Middle East, labor unrest and wage pressures in Asia, and the ongoing sovereign-debt crisis in Europe all continue to underscore why crisis and risk management, flexibility, and agility need to be part of any corporation’s or government’s DNA. While it will take considerable time before the full impact of these events can be measured, the effort to meet the top five challenges chosen by CEOs in our survey (Business Growth, Talent, Cost Optimization, Innovation, and Government Regulation) just became more difficult. Perhaps the only certainty in the coming years is that more shocks to the global eco- nomic system will occur. With the center of consumer and business gravity shifting from advanced to emerging markets—clearly an issue CEOs must deal with on a strategic level—short-term shocks demand immediate attention at an operational and tactical level. The “challenge of challenges” for CEOs, however, is to focus on meeting the long- term issues outlined in this report and putting their companies on a solidly sustainable path to growth. If anything, the challenges cited by CEOs will grow more intense as the world and its surprising “black swans” highlight the volatility and unpredictability of today’s complex and interdependent business environment and the importance of being innovative to cope successfully. A New Survey for 2011 This year’s survey is entirely new shares. Each response was assigned an “importance-adjusted” score for and features a fully revised and con- a weight according to its relative each strategy. densed set of 10 overall challenges ranking. A challenge ranked number Due to this survey redesign, any (down from 84 in previous surveys) one, therefore, was assigned greater year-over-year comparisons (the and a more in-depth strategy importance than a challenge ranked first CEO Challenge report was section. From November 2010 to number three. The calculation of published in 1999) in this report January 2011, CEOs were asked to the mean of the ranks resulted in are limited to broad trends rather rank order the top three challenges an overall score. (If a challenge was than specific challenges. Upcoming they anticipated their companies not chosen, it was assigned a value releases of the CEO Challenge will face in the coming year. The 704 of zero.) To get deeper insights Survey results will use the new responses were weighted according into how CEOs plan to meet their model, which will hopefully allow to the country GDP of each respon- challenges, respondents were also for specific comparisons in future dent. Regional, industry sector, and asked to rank order three critical reports. revenue groups were also weighted strategies for meeting their top based on individual country GDP three challenges, which resulted inwww.conferenceboard.org Research Report The conference board CEO Challenge 2011 5
  6. 6. Challenges
  7. 7. IT’S ALL ABOUT GROWTHBusiness growth is the According to respondents to The Conference Board CEO Challenge 2011 Survey, com-top-ranked challenge globally panies are revving their engines for growth. CEOs from around the world cite Business Growth as the “most important” issue they face. However, while they may be in agree- importance-adjustedrank top three strategies score ment on the importance of growth (no other challenge is ranked higher in the global results for industry and company size), the strategies CEOs cite as critical to meeting this1 Business growth 1.65 challenge differ considerably by geography, by industry, and by company size, although2 Talent .74 slightly less so for the latter two. Since 1999, the CEO Challenge Survey has asked CEOs, presidents, and chairmen across3 Cost optimization .72 the globe to identify their most critical challenges. According to the 704 top executives who responded to the 2011 survey, it’s all about reorienting their organizations toward4 Innovation .70 growth after years of hunkering down to combat the effects of the global recession and, in some cases, to fight for survival.5 Government regulation .59 With growth clearly established as the critical challenge for CEOs, the next four most Corporate brand and6 .42 highly ranked challenges—Talent, Cost Optimization, Innovation, and Government reputation Regulation—all have links to the growth chain. (For more information on the new sur-7 Customer relationships .40 vey model, see “A New Survey for 2011” on page 5.) The first three of the four are clearly enablers of growth, both for the top and the bottom line, while Government Regulation,8 Sustainability .37 depending on the industry, the country, or even a CEO’s personal view about govern- ment’s role in the markets, can be seen as either an obstacle to growth or an opportunity 9 International expansion .29 for innovation and new product lines.10 Investor relations .09 The three “most important” strategies that CEOs pick to deal with their top challenges reflect the growing complexity of the global business environment. They also highlight N=704 the need for the coordinated interaction of diverse parts within their organizations. Number of observations varies for Meeting these challenges will demand clear organizational alignment, teamwork, and, each challenge. not least of all, strong, thoughtful, and visionary leadership. Each score represents the mean of the ranks given the challenge. For more information on how the scores were created, see “A New Survey for 2011” on page 5. www.conferenceboard.org Research Report The conference board CEO Challenge 2011 7
  8. 8. REGIONAL VIEW CONTRASTING CULTURES, DIVERGENT NEEDS, DIFFERENT SOLUTIONS The top challenges selected by CEOs in Asia, Europe, and the United States clearly reflect the economic, business, and political realities of their specific business environ- ments. (There were respondents from outside of the three listed regions. Their responses are included in the global results, but the results for the “Rest of world” category are not discussed in the report.) There is not a one-size-fits-all approach to dealing with the regional impact of the forces driving global business today. Only two challenges are ranked in the top five in all three regions: Business Growth and Innovation. Following the deep recession of 2008–2009 and the ongoing shifts of the sites of production from the Western world to emerging markets—especially those in Asia—it is no surprise that growing one’s business is considered the key to success. And since we have returned to an era of hyperglobal competition, where the market advantage derived from new products or technologies can be relatively short-lived, the selection of inno- vation as a shared critical concern is hardly surprising. When looking at the strategies to drive innovation selected by CEOs in each region, there is a clear recognition that a culture of innovation, which fosters entrepreneurship and risk taking and is realized by an incentivized talent pool, is required to produce the stream of new ideas needed for companies to remain competitive on the global stage. Differences in regional rankings reflect unique challenges Global Asia Europe United States N=704 Importance-adjusted top three challenges N=174 N=169 N=261 1 Business growth 2 1 1 2 Talent 1 7 T4 3 Cost optimization 6 2 T4 4 Innovation 3 3 3 5 Government regulation 7 5 2 6 Corporate brand and reputation 4 9 8 7 Customer relationships 8 4 7 8 Sustainability 5 8 9 9 International expansion 9 6 6 10 Investor relations 10 10 10 N=Number of overall respondents. Response rate varies for each challenge. T=Tie8 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org
  9. 9. ASIA TALENT IS THE TOP CHALLENGE; CORPORATE BRAND AND REPUTATION AND SUSTAINABILITY ARE ALSO CONCERNSAsia CEOs rank talent their CEOs in Asia cite Talent—finding it, growing it, keeping it, and rewarding it—as themost critical challenge “most important” challenge they face, making Asia the only region where Business importance-adjusted Growth is not the number one issue. A focus on aggressive growth targets, rapidly chang-rank top three strategies score ing business models, workforce demographics and preparedness issues, and the demand for language skills means there is constant pressure to keep the talent pipeline filled.1 Talent 1.36 This is consistent with earlier editions of the CEO Challenge Survey in which “finding2 Business growth 1.19 qualified managerial talent” consistently ranked higher in Asia than in other regions.1 Both Corporate Brand and Reputation and Sustainability are two of the five top chal-3 Innovation .73 lenges in Asia, the only region where these two issues receive such a high ranking. These Corporate brand and challenges speak to recent high-profile incidents related to quality that have plagued4 .64 reputation the region, and China in particular (chemically tainted pet food and toothpaste, baby formula, toys infused with lead paint), as well as growing strains on resources, environ-5 Sustainability .63 mental quality, and the social fabric.6 Cost optimization .51 The region is home to some of the world’s fastest growing economies, but such rapid development has come at a high cost. Much of emerging Asia’s growth has been heavily7 Government regulation .33 dependent on carbon-intensive, polluting industries and labor-intensive manufacturing. Growing concerns about the region’s unbalanced growth model and its long-term impact8 Customer relationships .25 on natural resources, public health, and social equity are forcing governments to take significant regulatory action toward implementing a more sustainable growth model that 9 International expansion .20 encourages markets to reward responsible business practices. Despite these pressures, CEOs in Asia rank Government Regulation seventh out of the 10 challenges.10 Investor relations .11 Increased public exposure of corporate misconduct, including revelations made by N=174 China’s rapidly growing online community, nongovernmental organizations, and the Number of observations varies for media, are raising the profile of reputational issues on CEOs’ business agendas. In a each challenge. recent survey by The Conference Board about sustainability and reputational issues in Each score represents the mean of the ranks given the challenge. For the region, more than 50 percent of Chinese companies said that environmental pol- more information on how the scores lution and increasing income differentials will have a significant impact on their busi- were created, see “A New Survey nesses in the long term. The survey results also show that “reputation/public image” is for 2011” on page 5. one of the top three drivers for Chinese companies when they consider investment in corporate sustainability programs.2 1 CEOs in Asia ranked the “finding qualified managerial talent” challenge seventh in the 2009 survey and first in the 2007 survey. Source: CEO Challenge 2010: Top 10 Challenges, The Conference Board, Research Report 1461, 2010, p. 8; and Esther V. Rudis, CEO Challenge: Perspectives and Analysis: 2007 Edition, The Conference Board, Research Report 1418, 2008, p. 9. 2 The Conference Board China Corporate Sustainability Survey is scheduled for publication in spring 2011. www.conferenceboard.org Research Report The conference board CEO Challenge 2011 9
  10. 10. EUROPE PAYING FOR HIGH WAGES AND SLOW GROWTHEurope Cost optimization In Europe, the focus is on Business Growth and Cost Optimization. These choices reflectfollows business growth as the region’s overall economic climate, which has been characterized by the uneven speeda top challenge of recession recovery on a country-by-country basis; structural issues concerning mar- kets and labor; the expensive euro; national debt crises in Spain, Ireland, Portugal, and importance-adjustedrank top three strategies score Greece; and the region’s relatively weak productivity growth.1 Business growth 1.83 While the region as a whole has emerged from the global recession relatively late, some countries—and especially Germany, which is reliant on exports to fuel growth—are2 Cost optimization 1.12 seeing robust improvement. Concerns about downside risks, however, are still preva- lent in many parts of the region. Stubbornly slow growth in some internal markets, tax3 Innovation .66 increases (which, in many cases, are being absorbed by companies rather than passed on to battered consumers), and concerns about the financial health of some of the region’s4 Customer relationships .57 banks have caused many CEOs in Europe to keep a cautious eye on the bottom line. Their stance is similar to that of many U.S. CEOs before the U.S. rebound began.5 Government regulation .47 Europe is also the only region to rank Customer Relationships a top five challenge,6 International expansion .35 although the notion of listening to customers is also woven throughout the strategies selected by CEOs in the United States and Asia. In some European industries—tele-7 Talent .30 communications, banking, travel, and utilities—deregulation and increased choices for consumers have reinforced the need to enhance the loyalty and retention of existing8 Sustainability .28 customers. The explosion of technology and social media tools has also created a more Corporate brand and knowledgeable and demanding consumer, which may have led respondents to put even9 .25 reputation more emphasis on maintaining positive relationships with customers.10 Investor relations .14 As in the United States, where it is ranked second, Government Regulation is considered a major challenge in Europe, although it is ranked lower. This is probably a reflection of N=169 the region’s long experience with a relatively high degree of regulation. Number of observations varies for each challenge. Like their counterparts in the United States and Asia, CEOs in Europe also give a high Each score represents the mean of rank to Innovation, which is the third “most important” challenge in the region. the ranks given the challenge. For more information on how the scores were created, see “A New Survey for 2011” on page 5. 10 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org
  11. 11. THE UNITED STATES GOVERNMENT REGULATION IS A CRITICAL CONCERNUnited States Government The attention paid by CEOs in the United States to Government Regulation, which isregulation is the second- their second-ranked challenge, is greater than the emphasis placed on the concern byranked challenge executives in Asia (where it is ranked seventh) and Europe (where it is ranked fifth). The influence of the regulatory environment first appeared as a top 10 global challenge in importance-adjustedrank top three strategies score 2009, when it zoomed from twenty-sixth place in the 2008 “crisis” edition of the survey to tenth.31 Business growth 2.00 Although U.S. CEOs see legislation as a challenge, it is a challenge that has the potential2 Government regulation .94 to be viewed as an obstruction to growth or as an incentive to increased innovation and opportunity creation. While some CEOs undoubtedly take the latter view and look for3 Innovation .63 ways to adjust their business models to profit from the new reality, there is evidence that many view it as a negative. In the October 2010 edition of a survey conducted three timesT4 Talent .61 a year by The Conference Board for The Business Council, a U.S.-based association of CEOs from some of the world’s largest business enterprises, members expressed a strongT4 Cost optimization .61 message of concern about increasing government regulation and intervention, especially, but not only, in the United States. When asked to rate a wide range of risks to the business6 International expansion .38 climate, 88 percent of Business Council members cited greater U.S. government regulation7 Customer relationships .34 as a “high” or “very high” risk, and 71 percent said that government regulation and poli- cies that create an uneven playing field were “high” or “very high” business climate risks in Corporate brand and all countries. The emphasis on government regulatory risk was in contrast to other listed8 .25 reputation risks. For example, slightly more than half of respondents said that trade protection and9 Sustainability .22 slowing growth in advanced economies were “high” or “very high” risks, and only about 38 percent saw adverse public attitudes toward business as a major risk.410 Investor relations .02 N=261 Number of observations varies for each challenge. Each score represents the mean of the ranks given the challenge. For more information on how the scores were created, see “A New Survey for 2011” on page 5. T=Tie 3 CEO Challenge 2010: Top 10 Challenges, p. 5. 4 CEO Survey Results, The Business Council in collaboration with The Conference Board, October 2010. www.conferenceboard.org Research Report The conference board CEO Challenge 2011 11
  12. 12. INDUSTRY VIEW GROWTH, TALENT, AND GOVERNMENT REGULATION TOP THE CHARTS CEOs in all three industry sectors—manufacturing, financial services, and non- financial services—cite Business Growth as their number one challenge. Talent, Cost Optimization, and Government Regulation all land in the top five, although the latter is of greatest concern, as would be expected, to the financial services sector. CEOs in the manufacturing sector, which faces highly variable costs on inputs, rank Cost Optimization their second “most important” challenge, compared to their counter- parts in financial (fourth place) and nonfinancial services (fifth place). For their part, CEOs in the financial services sector rank Government Regulation their second most crit- ical challenge, and they are the only sector to rank Corporate Brand and Reputation a top five challenge. They are also the only group that does not rank Innovation among their top challenges, although financial services CEOs do rank introduce innovations and new value propositions their second “most important” strategy for pursing growth (page 19). This disconnect may be the result of CEOs in financial services holding a narrower view of innovation than their colleagues in other industries. Cost optimization is critical to manufacturing, while one of the financial sector’s top concerns is government regulation Financial Nonfinancial Manufacturing services services Global Importance-adjusted top three challenges N=265 N=104 N=330 1 Business growth 1 1 1 2 Talent 4 3 2 3 Cost optimization 2 5 4 4 Innovation 3 7 3 5 Government regulation 5 2 5 6 Corporate brand and reputation 6 4 8 7 Customer relationships 9 6 6 8 Sustainability 7 8 7 9 International expansion 8 9 9 10 Investor relations 10 10 10 N=Number of overall respondents. Response rate varies for each challenge.12 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org
  13. 13. COMPANY SIZE VIEW GROWTH AND TALENT ARE CHIEF CONCERNS FOR COMPANIES OF ALL SIZES Whatever their revenues, CEOs participating in the survey rank Business Growth and Talent their top two challenges, which indicates that CEOs do see a strong talent pool as an enabler of growth. While the rank order of the remaining challenges varies according to size, Cost Optimization also makes the top five in each size category. For the smallest companies (those with annual sales of less than $1 billion), Customer Relationships cracks the top five, but Government Regulation, a top five challenge in the other remaining three size categories (and number three after Business Growth and Talent for the largest firms) does not. Unlike respondents in the other size groups, execu- tives from the largest companies (those with annual sales of $15 billion or more) do not rank Innovation a top five challenge, even though their top strategy for pursuing growth is introduce innovations and new value propositions (page 20). As with the similar ratings for the financial services industries, CEOs of the largest companies may have a narrower definition of innovation and see it as more of a tool to fuel growth and less as an end in itself. CEOs from this largest group also rank Corporate Brand and Reputation their fourth “most important” challenge, which underscores the importance they place on their public face as a critical but fragile intangible asset that can account for a large por- tion of their market value. Industries of all revenue sizes are focused on growth and talent Less than $1 billion to $5 billion to $15 billion $1 billion under $5 billion under $15 billion and above Global Importance-adjusted top three challenges N=309 N=160 N=72 N=82 1 Business growth 1 1 1 1 2 Talent 2 2 2 2 3 Cost optimization 4 3 3 5 4 Innovation 3 5 4 6 5 Government regulation 8 4 5 3 6 Corporate brand and reputation 6 8 9 4 7 Customer relationships 5 7 7 8 8 Sustainability 7 6 6 9 9 International expansion 9 9 8 7 10 Investor relations 10 10 10 NR N=Number of overall respondents. Response rate varies for each challenge. NR=Strategy was not ranked by any of the respondents.www.conferenceboard.org Research Report The conference board CEO Challenge 2011 13
  14. 14. Strategies
  15. 15. INNOVATION AND TALENT TO THE RESCUE After ranking their top three challenges, CEOs ranked their top three strategies to meet these challenges. The specific strategies CEOs chose highlight the importance of talent management and innovation—not just in products and services but in processes, business models, and organizational design. The range of strategies selected also demonstrates a demand for a cross-functional, enterprise-wide approach; reliance on new technologies; and, in the case of Business Growth, Innovation, and Government Regulation, an open (and perhaps new for many organizations) approach to alliances and collaboration that may include nontraditional partners. To successfully respond to the CEO challenges, organiza- tions must both leverage their core fundamentals and try new approaches while maintain- ing alignment with their overall business strategy. All of this will place greater demands on corporate leadership teams for flawless and timely execution and a more flexible and less autocratic leadership style throughout their organizations.Top five strategies to meet the top five challenges Global Challenge #1 Global Challenge #2 Global Challenge #3 Global Challenge #4 Global Challenge #5 Business Growth Talent Cost Optimization Innovation Government Regulation Improve leadership Redesign business Apply new technologies Engage with competitors1 Develop or development programs, processes (product, process, and/or critical expand sustainable products/services grow talent internally information, etc.) stakeholders to influence portfolio regulatory agenda Enhance effectiveness Improve productivity Foster entrepreneurship, Increase lobbying2 Introduce innova- of the senior of employees innovation, and activities to promote a tions and new value propositions management team appropriate risk taking level playing field Provide employee Achieve economies Engage in strategic Engage with the public to3 Enter or expand into training and of scale through alliances with customers, influence government emerging markets development product/process suppliers, and/or other standardization and business partners harmonization4 Increase value offer- Improve leadership Achieve economies Find, engage, and Strengthen internal ing by improving the succession planning of scale through incentivize relevant talent regulatory compliance price-quality ratio of business growth processes products/services Hire more talent in the Invest in new Change business model Engage in public/private5 Seek external open market technologies and partnerships growth through mergers & automation acquisitions (tie) Enter or expand into new customer/client segments (tie) www.conferenceboard.org Research Report The conference board CEO Challenge 2011 15
  16. 16. BUSINESS GROWTH STRATEGIC LINKS IN THE GLOBAL GROWTH CHAIN challenge rank 1 Global 2 Asia 1 Europe 1 United States While global rankings cite the development of sustainable products and services as the key strategy to fuel growth, U.S. CEOs are far less enthusiastic about this approach than their counterparts in Asia and Europe. Business leaders in all three regions have their eye on emerging markets and merger and acquisition targets, and all agree that these initiatives will require an innovative approach. CEOs are looking to new ideas, new products, and new markets to drive growth. Their strategy set is a balanced mix that links internally focused actions (development of sustainable products, improved quality, and new value propositions for products and services) to external expansion (expansion into emerging markets, growth through mergers and acquisitions, and moving into new customer and client segments). But a look beyond the global results reveals that the emphasis is not the same in all regions. Take the develop or expand sustainable products/services portfolio strategy, which emerges as the number one importance-adjusted strategy for driving Business Growth globally. Business Growth Strategies CEOs in Asia and Europe look to sustainable products to drive growth Global Asia Europe United States N=463 Importance-adjusted top three strategies N=92 N=116 N=200 Develop or expand sustainable products/ 1 1 T2 7 services portfolio Introduce innovations and new value 2 4 T2 1 propositions 3 Enter or expand into emerging markets 5 1 3 Increase value offering by improving the 4 3 T4 6 price-quality ratio of products/services Seek external growth through mergers and T5 2 7 4 acquisitions Enter or expand into new customer/client T5 7 6 2 segments 7 Introduce new products/services 6 T4 5 8 Enter or expand into developed markets 12 8 8 9 Increase speed to market 8 9 T9 10 Enter or expand into new industries 9 12 T9 Bring business decision making closer to 11 10 11 11 local markets 12 Provide products/services for public sector 11 13 13 13 Provide products/services at lower price 13 10 12 N=Number of overall respondents. Response rate varies for each strategy. T=Tie16 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org
  17. 17. While CEOs in Asia rank it their number one strategy and the strategy ties for second with introduce innovations and new value propositions in Europe, respondents in the United States rank it seventh of the 13 listed strategies. Are U.S. CEOs behind the curve when it comes to understanding the components of sustainability as a growth driver? Probably not. Sustainability is at the forefront in Asia, where unbridled growth has led to increased government concern that may force CEOs to address the issue, and in Europe, where CEOs are faced with government mandates for sustainable products and practices.5 Although many U.S. CEOs clearly recognize the need to address sustainabil- ity in some form, the real issue may be execution. CEOs in the region may not be certain how their organizations should address it or even how to define it. (For more back- ground on this problem, see “The Sustainability Challenge at the Board Level” on page 18.) Sustainability requires a mindset shift from short-term goals to long-term horizons, which in many cases may conflict with pay and performance criteria. U.S. companies, which at least until recently have been less constrained by legislation concerning the environmental effects of their operations, may therefore also have been more pragmatic and less strategic about driving their businesses with sustainability. Once it is clear that sustainability contributes to the bottom line, it will be incorporated into business strategy. Demands from customers, employees, governments, “activist” shareholders, and non- governmental organizations (NGOs) for sustainable practices and products are changing expectations and creating potential for new markets. Consumers around the world are developing “green” expectations for pollution-free manufacturing, resource-efficient products, recyclable packaging, organic food products, and paperless invoicing. As a result, savvy companies are seeking ways to turn sustainability into a market advantage and a growth driver. The clear challenge for business is how to implement sustainability- centric approaches that respond to customer demand and ecological and social account- abilities while delivering on the financial bottom line. The development of sustainable products and services is also linked to the need to introduce innovations and new value propositions, which is the number two strategy glob- ally and number one in the United States. CEOs clearly understand that as competition grows and the speed of innovation erodes market advantage by commoditizing once- exclusive products and services, the value proposition presented to today’s informed customers is more critical to growth than ever. CEOs also recognize that being first to market with an innovative product or service may no longer be enough to ensure growth. In the results of the CEO Challenge 2009 Survey, “corporate reputation for quality products/services” was the sixth-ranked global concern.6 Quality still counts for execu- tives, and increase value offering by improving the price-quality ratio of products/services is the fourth-ranked global strategy to fuel growth. Indeed, the advantages of being a first mover can be huge, but they can also quickly dissipate as more functional, better- priced products or services are introduced. (U.S. CEOs rank the category sixth, but an argument can be made that the quality function in the very competitive U.S. market may already be more advanced and embedded throughout U.S. companies.) 5 For an example of European environmental regulations, see the Renewed EU Sustainable Development Strategy (ec.europe.eu/environment/eussd). 6 CEO Challenge 2010, p. 5.www.conferenceboard.org Research Report The conference board CEO Challenge 2011 17
  18. 18. If you want growth, then you must go where the growth is. Emerging and developing countries, which accounted for only 40 percent of global output in 2000, will account for 60 percent by 2020. Enter or expand into emerging markets is the top-ranked of four “expansion” strategies for supporting growth. It is the third-ranked strategy globally, and top executives in Europe rank it number one. CEOs’ interest in this strategy is in many ways a no-brainer. If you want growth, then you must go to the emerging markets where the growth is and place less emphasis on the advanced economies that lag behind. China and India are now the largest and most dynamic economies in productivity terms (measured as output per persons employed), registering 8.7 percent and 5.4 percent growth, respectively, in 2010. Brazil is another emerging economy that continued to strengthen its productivity performance (4 percent growth) in 2010, outperforming the Latin American region as a whole (3.2 percent growth).7 Indeed, the world economy has reached a tipping point when it comes to global growth. According to data from The Conference Board Global Economic Outlook, emerging and developing countries, which accounted for only 40 percent of global output in 2000, will account for 60 percent by 2020.8 The Sustainability Challenge at the Board Level One explanation for why U.S. CEOs give develop or expand sustainable products/ services portfolio a low mark as a growth strategy may be the lack of a structural framework to enable proper director oversight of corporate sustainability. According to a survey conducted by The Conference Board in 2009, many U.S. companies lack access to independent sources of information, as well as the detailed procedures and metrics needed to effectively integrate social objectives into daily business activi- ties. However, a rapidly developing regulatory climate and the increased sensitivity of enforcement authorities to the risk implications of environmental issues have opened the door to shareholder activism in this field. As a result, directors are expected to understand the rationale of requests for change and to adapt strategies and processes to evolving market trends and emerging standards. Source: Matteo Tonello, “Sustainability in the Boardroom,” The Conference Board, Director Notes 8, June 2010. 7 For more information, see the “2011 Productivity Brief Key Findings,” which is available on The Conference Board Total Economy Database website (www.conferenceboard.org/data/economydatabase/). 8 These estimates from The Conference Board Global Economic Outlook 2011 are adjusted for differences in relative price levels between countries through the use of purchasing power parities, which take different price levels between countries into account. For more information on these adjustments, see “Global Economic Outlook 2011 — Key Results” on The Conference Board website (www.conference-board.org/data/globaloutlook_results.cfm).18 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org
  19. 19. BUSINESS GROWTH BY INDUSTRY challenge rank 1 Manufacturing 1 Financial Services 1 Nonfinancial Services Unlike their counterparts in the services industries, who are primarily focused on product development and new customer segments, CEOs in the manufacturing sector are targeting a mix of external and internal strategies to meet the growth challenge. Enter or expand into emerging markets is their top strategy, followed by develop or expand sustainable products/services portfolio—a strategy representatives from the services sectors also give a high rank, albeit without the same emphasis. CEOs from all three sectors are looking to introduce innovations and new value propositions as a strategy for growth. Business Growth Strategies While manufacturers eye emerging markets for growth, service providers look to innovation Financial Nonfinancial Manufacturing services services Importance-adjusted top three strategies N=170 N=75 N=214 Enter or expand into emerging markets 1 7 7 Develop or expand sustainable products/ 2 4 3 services portfolio Introduce innovations and new value 3 2 1 propositions Seek external growth through mergers and 4 6 5 acquisitions Introduce new products/services 5 5 6 Increase value offering by improving the price- 6 1 4 quality ratio of products/services Increase speed to market 7 9 10 Enter or expand into new customer/client 8 3 2 segments Enter or expand into developed markets 9 10 8 Enter or expand into new industries 10 11 11 Bring business decision making closer to local 11 8 9 markets Provide products/services at lower price 12 13 13 Provide products/services for public sector 13 12 12 N=Number of overall respondents. Response rate varies for each strategy.www.conferenceboard.org Research Report The conference board CEO Challenge 2011 19
  20. 20. BUSINESS GROWTH BY COMPANY SIZE challenge rank 1 Less than $1 billion 1 underbillion to 1underbillionbillion 1 $1 $5 billion $5 $15 to $15 billion and above Companies in the two smallest size categories (those with annual sales less than $5 billion) also rank the sustainable development strategy their number one tactic to support growth, while larger companies rank it fifth. For the latter group, enter or expand into emerging markets is considered much more critical for growth. The strategy ranks first in the $5 billion to under $15 billion category and second for respondents from the $15 billion and above bracket, who rank introduce innovations and new value propositions number one. Only the smallest companies rank seek external growth through mergers and acquisitions in their top five strategies. Business Growth Strategies Smaller companies are interested in sustainable products/services; larger companies indicate plans to expand into emerging markets Less than $1 billion to $5 billion to $15 billion $1 billion under $5 billion under $15 billion and above Importance-adjusted top three strategies N=216 N=99 N=55 N=58 Develop or expand sustainable products/ 1 1 5 5 services portfolio Introduce innovations and new value 2 3 3 1 propositions Enter or expand into new customer/client 3 9 4 3 segments Introduce new products/services 4 7 2 T 11 Seek external growth through mergers and 5 6 6 6 acquisitions Increase value offering by improving the 6 2 7 4 price-quality ratio of products/services Enter or expand into emerging markets 7 5 1 2 Increase speed to market 8 10 8 8 Enter or expand into developed markets 9 8 11 7 Bring business decision making closer to 10 11 9 9 local markets Enter or expand into new industries 11 4 10 T 11 Provide products/services for public sector 12 13 NR 10 Provide products/services at lower price 13 12 12 13 N=Number of overall respondents. Response rate varies for each strategy. NR=Strategy was not ranked by any of the respondents. T=Tie20 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org
  21. 21. TALENT DEVELOPING LEADERS, IMPROVING EFFECTIVENESS challenge rank 2 Global 1 Asia 7 Europe T4 United States CEOs are focused on developing leaders and maximizing the effectiveness of their management teams. On a regional basis, however, clear differences in strategy reflect the varying realities of talent markets around the world. CEOs responding to the survey give high priority to improve leadership development programs, grow talent internally, which is the first-ranked strategy globally and in the United States. For CEOs in Europe, the strategy ties for first place with promote and reward entrepreneurship and risk taking, and CEOs in Asia rank it second. The stress put on this strategy and the second-ranked enhance effectiveness of the senior management team reveals that CEOs are looking beyond identifying talent and are now considering Talent Strategies Leadership development is a top talent strategy in all regions Global Asia Europe United States N=258 Importance-adjusted top three strategies N=104 N=34 N=85 Improve leadership development programs, grow 1 2 T1 1 talent internally Enhance effectiveness of the senior management 2 1 10 4 team 3 Provide employee training and development 3 7 3 4 Improve leadership succession planning 4 11 6 5 Hire more talent in the open market 11 4 2 Promote and reward entrepreneurship and risk 6 9 T1 7 taking 7 Raise employee engagement 5 13 5 8 Increase diversity and cross-cultural competencies 8 3 8 Flatten organization, empower leadership from the 9 T6 5 11 bottom up 10 Redesign financial rewards and incentives T6 6 9 11 Manage multigenerational workforce 12 9 10 Invest in education system to improve workforce 12 10 8 13 readiness Invest in automation and technology to reduce 13 13 12 12 exposure to the scarcity of talent Redesign benefits 14 14 NR NR (e.g., health care and retirement) N=Number of overall respondents. Response rate varies for each strategy. NR=Strategy was not ranked by any of the respondents. T=Tiewww.conferenceboard.org Research Report The conference board CEO Challenge 2011 21
  22. 22. how they can more strategically apply their talent management processes. As markets expand and customer bases change, so do the skills needed by employees, and this requirement is reflected in provide employee training and development, the third-ranked strategy globally for addressing issues of talent management. The task of improving an organization’s leadership development programs, however, rests squarely on the shoulders of its CEO. Too often, according to leadership develop- ment practitioners, leadership development is viewed by the C-suite as an event rather than a long-term strategic program that requires serious commitment and accountability at the top.9 This responsibility cannot be delegated. CEOs in Asia rank hire more talent in the open market eleventh, while their counterparts in the United States and Europe rank it much higher. This probably reflects the realities of the Asian job market, where qualified and experienced talent is generally considered scarce and expensive. While there is general agreement on the top strategy across all geographies, the regional breakdown of the other strategies for the Talent challenge reveals less consensus on other tactics. In Asia, where Talent is the number one challenge, CEOs appear to be inwardly focused on maximizing the impact and improving the skills and development of the staff they already have. CEOs in Asia rate the hire more talent in the open market strategy elev- enth out of 14, while their counterparts in the United States (second) and Europe (fourth) rank it much higher. This result may reflect the realities of the Asian job market, where qualified and experienced talent is generally considered scarce and expensive. Classic retention strategies are often less than fully effective in a white-hot talent market where highly qualified employees have considerable leverage. CEOs in the United States and Asia are also looking to raise employee engagement as a talent management tool. It came in as the fifth “most important” strategy in those two regions (it is ranked thirteenth in Europe and seventh globally). In Europe, CEOs’ Talent efforts appear to reflect their top strategies for Business Growth— expand into emerging markets and introduce innovations and new value proposition. CEOs in the region are the only ones to rank increase diversity and cross-cultural competencies, promote and reward entrepreneurship and risk taking, and flatten organization, empower leader- ship from the bottom up in their top five talent strategies. The notion that global business is a complex, demanding, and borderless expanse of diverse markets, customers, and employees is clearly not lost on European CEOs. Many of their organizations are already struggling to integrate diverse labor forces and seize the opportunities that Europe’s highly diverse and fragmented markets present. 9 Go Where There Be Dragons: Leadership Essentials for 2020 and Beyond, The Conference Board, Council Perspectives 23, October 2010. This report reflects the wisdom of more than 100 executives from seven of The Conference Board Councils in Europe, the United States, and Asia who were asked define the global forces that are influencing the structure of leadership and the essential skills and behaviors that will define an effective twenty-first-century leader.22 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org
  23. 23. The fifth-rank position of flatten organization, empower leadership from the bottom up for executives in Europe indicates a perceived link between their talent strategies and innovation. Some organizations in Europe and North America are already experimenting with this inverted leadership model—leading from the bottom—as a way to harness knowledge and develop innovative ideas from their workers on the frontlines. This approach can result in a whole new pool of empowered talent ready to lead new initiatives and foster innovation. This flattening of hierarchical structures also appeals to the new generations in the workforce. After all, Gen X and Gen Y leaders are used to operating in networks, and networks challenge hierarchies and traditional corporate structures. Of course, inverted leadership may not be suited to all industries or cultures. In Asia, for example, tradi- tional Confucian, Buddhist, and Islamic values may well mean that leadership models that rely on benign authority and clear hierarchy are more effective. While there is no clear consensus on the top-ranked strategies for meeting the Talent challenge, there is some consensus on the lowest. CEOs in Asia are the only respondents to rank redesign benefits (e.g., health care and retirement) as a strategy, and they rank it last. A similar pattern can be seen in the cuts for industry (page 25) and company size (page 26) strategies. Given the headlines in developed countries regarding health care costs, delayed retirement, competitive labor pools, and changing demographics, this consistently low ranking is surprising. Several factors may be at work: • There is a great deal of uncertainty about how health care reform (in whatever repealed or amended form it eventually takes) will affect benefits for current and prospective employees, particularly those in the United States. Any plans made now would most certainly need to be reevaluated as the legislation moves through the courts and other legislation takes effect. • Many companies have already spent the last few years looking at ways to trim costs and have, in many cases, already shifted to a model that shares costs with employees. • In many emerging markets, talent is not expected to remain at a single company for long, and companies may be shifting from long-term retirement benefits to short-term compensation strategies to hire more talent in the open market, a strategy consistently ranked higher. Workforce preparedness is, evidently, not high on the minds of CEOs, even though it does represent a long-term challenge to national competitiveness. Invest in education system to improve workforce readiness ranks twelfth out of the 14 globally, thirteenth in the United States, tenth in Asia, and eighth in Europe.www.conferenceboard.org Research Report The conference board CEO Challenge 2011 23
  24. 24. Why Asia Is Different — Open Source Leadership Development Rapidly changing business models, workforce demo- When it comes to multinationals based outside of Asia, graphics and preparedness, language skills, the battle there can be a fundamental lack of understanding in between national cultures and corporate cultures, and corporate headquarters about the complexities and a focus on aggressive growth targets means there is subtleties of individual country markets, demographics, constant pressure on talent management and leadership and cultures. Companies have only recently begun to development professionals to meet what many on the understand that what may work in Vietnam, where the receiving end view as near-impossible targets for basic average local managing director may be in his or her early recruitment and retention. In Asia, accelerated growth 30s, loses relevance in Malaysia, where a person in the also means there is tremendous demand for accelerated same position will likely be in his or her 40s. The notion of leadership development programs — sometimes cutting an “Asian strategy” needs to give way to a “China strat- what would normally be a three- or five-year develop- egy” or even a “Singapore strategy.” ment track down to one to three years — that corporate English proficiency is also a major issue, especially in headquarters may still consider too slow. China. For a high potential to keep moving forward, an Questions of leadership potential and how a company international assignment is critical but impossible without deals with it can be far more complicated in Asia. Growth foreign language proficiency. Intra-Asian assignments, projections and plans are often disconnected from the such as placing a Chinese manager in Vietnam, are also reality of the talent pipeline in Asia. Moreover, compa- difficult to fill. Even in-country rotational assignments are nies that have found success in the fast development a challenge according to many companies. People just do of potential leaders many times end up being a “net not want to move from Beijing to Shanghai or vice versa. exporter” of rising talent, often to their competitors. In Standard big company practices for expatriation and a hot labor market, retention efforts often do little to rotational assignments may not address these particu- prevent good people, even those who may be years away lar issues. Remuneration strategy in Asia was identified from reaching their leadership potential, from revolving as an area requiring much more attention. (In the CEO out the door. Challenge Survey, executives in Asia rank redesign finan- cial rewards and incentives sixth, while respondents in the In such an era, “open source” leadership development is United States rank the strategy ninth.) the more pragmatic reality for many companies. In this model, companies train people, they leave, and the com- Part of the problem has been that companies have gone pany keeps in touch in the hopes that some will come too far in centralizing their leadership development pro- back after receiving further leadership development grams, giving them far too much of a Western orientation elsewhere. Or, like their competitors, companies hire instead of developing them with input on the local level. trained or partially trained high potentials on the open, What often works is to import the model at the principle and sometimes very inflated, market and try to merge the level and then localize it to fit the country culture. basic leadership training given elsewhere with specific Source: Adapted from Go Where There Be Dragons: Leadership Essentials for company cultural traits and competencies. 2020 and Beyond, The Conference Board, Council Perspectives 23, 2010.24 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org
  25. 25. TALENT BY INDUSTRY challenge rank 4 Manufacturing 3 Financial Services 2 Nonfinancial Services CEOs across all industries cite improve leadership development programs, grow talent internally; enhance effectiveness of the senior management team; and provide employee training and development as powerful strategies to address the Talent challenge. Only manufacturing CEOs cite hire more talent in the open market as one of their top three strategies, a hint perhaps that the sector is beginning to ramp up again as the global eco- nomic recovery picks up steam. Conversely, CEOs in both the financial and nonfinancial sectors rank promote and reward entrepreneurship and risk taking third, while manufac- turing executives rank it eighth. Talent Strategies All sectors give leadership development and enhancing senior management effectiveness high ranks Financial Nonfinancial Manufacturing services services Importance-adjusted top three strategies N=103 N=34 N=117 Improve leadership development programs, 1 1 2 grow talent internally Enhance effectiveness of the senior 2 2 1 management team Hire more talent in the open market 3 7 T9 Provide employee training and development 4 4 4 Improve leadership succession planning 5 6 7 Raise employee engagement 6 5 6 Flatten organization, empower leadership from 7 13 T9 the bottom up Promote and reward entrepreneurship and risk 8 3 3 taking Increase diversity and cross-cultural 9 10 5 competencies Redesign financial rewards and incentives 10 9 8 Manage multigenerational workforce 11 8 11 Invest in education system to improve 12 11 12 workforce readiness Invest in automation and technology to reduce 13 12 13 exposure to the scarcity of talent Redesign benefits 14 14 14 (e.g., health care and retirement) N=Number of overall respondents. Response rate varies for each strategy. T=Tiewww.conferenceboard.org Research Report The conference board CEO Challenge 2011 25
  26. 26. TALENT BY COMPANY SIZE challenge rank 2 Less than $1 billion 2 underbillion to 2underbillionbillion 2 $1 $5 billion $5 $15 to $15 billion and above Clearly, Talent, which is the second-ranked challenge for all size categories, is an impor- tant driver of the business growth desired by all companies. Following that, the strate- gies for addressing talent challenges are consistently focused inward. The two smaller company categories—those with revenues less than $5 billion—rank enhance effectiveness of senior management team and improve leadership development programs, grow talent internally their top two strategies. Companies with revenues between $5 billion and under $15 billion rank enhance effectiveness of senior management team third and raise employee engagement second. With the advent of human capital analytics and the rigor brought by employee engagement’s link to business performance, it’s no wonder that companies of this size are focused on raising their levels of engagement. They may also be making a stronger push for engagement because they find that they cannot compete for talent in the open market with larger companies that have deeper pockets. Finally, although the largest companies rank leadership development programs first, they are the only group to rank provide employee training and development their second “most important” strategy. Perhaps the layoffs during the global economic crisis have resulted in a heightened awareness of skill gaps that large employers need to fill if employees are to deliver the business growth that is desired.Talent Strategies Leadership development is the top challenge for three out of the four revenue groups Less than $1 billion to $5 billion to $15 billion $1 billion under $5 billion under $15 billion and above Importance-adjusted top three strategies N=111 N=47 N=28 N=32Enhance effectiveness of the senior management team 1 2 3 8Improve leadership development programs, grow talent internally 2 1 1 1Promote and reward entrepreneurship and risk taking 3 5 6 10Provide employee training and development 4 4 8 2Hire more talent in the open market 5 9 7 5Improve leadership succession planning 6 8 5 7Raise employee engagement 7 7 2 4Flatten organization, empower leadership from the bottom up 8 6 11 14Invest in education system to improve workforce readiness 9 12 9 12Redesign financial rewards and incentives 10 3 10 9Manage multigenerational workforce 11 11 12 6Increase diversity and cross-cultural competencies 12 10 4 3Invest in automation and technology to reduce exposure to the 13 13 13 11scarcity of talentRedesign benefits (e.g., health care and retirement) 14 NR NR 13N=Number of overall respondents. Response rate varies for each strategy.NR=Strategy was not ranked by any of the respondents.26 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org

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