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IBM Global Business Services -- Strategies for succeeding in the new economic environment


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"IBM Global Business Services, through the IBM Institute for Business Value,
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IBM Global Business Services -- Strategies for succeeding in the new economic environment

  1. 1. IBM Global Business ServicesIBM Institute for Business Value Strategy and ChangeSucceedingin the neweconomicenvironmentFocus on value,opportunity, speed
  2. 2. IBM Institute for Business Value IBM Global Business Services, through the IBM Institute for Business Value, develops fact-based strategic insights for senior executives around critical public and private sector issues. This executive brief is based on an in-depth study by the Institute’s research team. It is part of an ongoing commitment by IBM Global Business Services to provide analysis and viewpoints that help companies realizebusiness value. You may contact the authors or send an e-mail to for more information.
  3. 3. Succeeding in the new economic environmentFocus on value, opportunity, speedBy Saul Berman, Steven Davidson, Sara Longworth and Amy Blitz The final months of 2008 unleashed sudden and sweeping economic change in the global economy. Amid debates over how long and broad this period of change will be, one thing is clear – a major transformation is underway and “business as usual” responses are not likely to succeed. Based on our experience, our previous studies, an analysis of early winners of this period, as well as longer-term winners from historical economic transformations, we advise CEOs and business leaders to focus more than ever on value, to exploit opportunities presented by the current situation and to act on both quickly. Navigating the economic seemingly rock-solid companies in financial transformation services, retail, real estate, automotive and The growing uncertainty and its widening other sectors, starting with Bear Stearns, then impact create an urgent need for action. This Lehman Brothers and cascading through the paper offers our perspective on what business global economy. And this trend is global, with leaders need to do to succeed in the new many manufacturing companies, for example, economic environment, To provide guidance, closing in Shenzhen, China, and US, European, we have identified patterns in the chaos of Japanese and Korean auto manufacturers 2 economic transformations such as the current facing major losses. Already, Ssangyong, 1 one. On the gloomy side, many companies the South Korean automaker majority owned without the cash reserves or fundamental by China’s SAIC Motor Corporation, filed for 3 strength do not survive such periods, as bankruptcy in January 2009. And many other we have seen with the dramatic collapse, troubled companies are surfacing as well in bankruptcy or threat of bankruptcy facing diverse sectors in Europe, Asia and North America. 1 Succeeding in the new economic environment
  4. 4. On the positive side, history shows that even the emerging industries of that era, notably periods of tremendous dislocation produce movies, radio, automotive and electricity. 4 winners. Looking back to the panic of the Today, many of the early winners are focused 1870s – a period similar to the present with on value-oriented customers, entertainment a mortgage bubble leading to a financial and opportunities in such industries as life collapse and an extreme tightening of credit sciences, telecommunications and the envi- 7 – those with cash, like Rockefeller, Gould and ronment, as well as “flight” sectors like gold. Carnegie in the United States, seized oppor- tunities to establish dominance in oil, steel, What separates the winners from the rest railroads and other then emerging industries. 5 of the pack in times like these? What strate- And while some financial institutions collapsed, gies and characteristics can be emulated a new generation of innovative banks like and applied today across diverse industries, Deutsche Bank was established on the back regions and competitive positions? 6 of the new industries. Likewise, during the 1930s, those who succeeded focused on22 IBM Global Business Services IBM Global Business Services
  5. 5. Succeeding in the new economic environment Focus on value, opportunity, speed Businesses that are Lessons from early winners We then studied each of these companies and To help answer these questions, we identified the strategies that led to their success. From performing well – even early winners in the current period, beginning this, we identified patterns in their strategies thatin these economic straits with large US-listed companies whose stock allowed these companies not just to survive the – are employing three appreciated by at least 5 percent in 2008, at economic transformation but to thrive in it. We common strategies: a time when the S&P declined by 37 percent. 8 then looked beyond this group of standouts to focusing on value, In all, 61 companies emerged as early winners. companies that performed well in Europe and exploiting opportunity Demonstrating the power of strategy over Asia in 2008 and found similar patterns applied. industry trends, these companies span In brief, early winners focus on value, exploit and acting quickly. diverse sectors, with 31 percent in services, opportunity and act quickly (see Figure 1). 22 percent in financial services, 12 percent in While some of the early winners were simply in health care and 12 percent in basic materials, the right place at the right time (notably a few followed by energy, capital goods, utilities and gold companies), most demonstrate the power transportation. Moreover, those who won in of having a strategic vision that can thrive in 2008, won big, with their stock appreciating even the toughest of times. by an average of 24 percent, well above our 5 percent hurdle. FIGURE 1. Firms that outperformed the S&P 500 in 2008 share three common strategies. Average 52-week stock price change of Strategies employed by top top performers* versus S&P 500 in 2008 performing companies 24% 1. Focus on value 2. Exploit the opportunity 3. Act quickly +64 % S&P 500 Change Top performers -40% * Performance period spanned December 21, 2007 to December 18, 2008. Criteria for top performers (n=61) included those with market capitalization greater than US$1.4 billion and a 52-week stock price appreciation of more than 5 percent. Source: IBM analysis of data from Google Finance. 3 Succeeding in the new economic environment
  6. 6. Overall, the early winners: vations in its broadband services and mobile Focus on value via sustainable strategies communications offerings in 2008, including that emphasize long-term value. For example, the world launch of its Next Generation Dutch Rabobank Group, along with several Network, which aims to provide ubiquitous 11 other commercial banks in our 2008 data services on full IP-network infrastructures. sample, performed well by avoiding high- Act quickly, with the agility to respond ahead profit, high-risk offerings such as sub-prime of, or at least to keep pace with, rapid changes mortgages, and instead held to low-risk in the new economic environment. Barclays, 9 lending principles. Companies targeting for example, acted swiftly – leaping regula- value-oriented customers also did well. While tory and other hurdles – to acquire Lehman several including McDonald’s provide offerings Brothers assets by September 23, 2008, just at very low prices, others including Netflix and days after Lehman’s September 14 collapse. Strayer Education (an online service) are using Within hours of the acquisition, the screens technology in innovative ways to slash prices wrapped around 745 Seventh Avenue in by introducing revolutionary new business Manhattan switched from the Lehman name 10 models. 12 to Barclays’ blue logo. Equally decisive was Exploit opportunities presented during Tesco’s move in 2008 to introduce a new downturns, including growing through low-cost Discount Brand line to avoid losing customers 13 acquisitions and stock buy-backs. Another to lower-cost competitors. key area of opportunity is growth through Succeeding in the new economic innovation, transforming existing industries or introducing new offerings in emerging indus- environment Based on our analysis, our experience, as well tries. Early winners in this area spanned life as several of our previous studies on related sciences/biotech, electronics, environmental topics, we define key elements of the three quality and telecommunications. For example, strategies successful companies deploy well Japan’s Nippon Telegraph and Telephone in times of uncertainty (see Figure 2). continued to introduce groundbreaking inno- FIGURE 2. To thrive, not just survive, companies need to take action on three fronts. 1. Focus on value 2. Exploit opportunities 3. Act with speed 1.1 Do more with less 2.1 Capture share 3.1 Manage change • Cut costs strategically • Disrupt weaker competitors • Overcome the “change gap” • Conserve working capital • Focus on growth markets 3.2 Empower leaders • Protect cash reserves • Acquire bargain-priced assets • Establish strong, aligned • Increase flexibility, 2.2 Build future capabilities leadership responsiveness • Protect and acquire critical talent • Communicate strategy clearly 1.2 Focus on the core • Establish corporate infrastructure and often • Create value for clients for growth 3.3 Manage risk • Reduce non-core costs • Invest in innovation • Reduce risk and increase • Shift from fixed to variable costs 2.3 Change your industry transparency 1. 3 Understand your customers • Understand your place in new • Target value-oriented customers environment • Reduce complexity • Pioneer new industry approaches • Exploit new revenue models • Cultivate strategic partnerships Source: IBM Institute for Business Value.4 IBM Global Business Services
  7. 7. How and where 1. Focus on value For companies with a global presence, now is 1.1 Do more with less the time to drive robust optimization efforts to companies cut costs Cut costs strategically. Traditional bring down costs by locating activities in the has a long-term approaches often involve spreading the pain right place using the right level of resourceseffect – far beyond the of cost reductions evenly across business and slashing duplication. Figure 3 illustrates current downturn. units and geographies. This may appear how companies can take a more strategic fair and might minimize disputes within the approach to cutting costs, driving revenue and management team, but it avoids the difficult improving profits. and important decisions that will drive future Conserve working capital. Clearly, given success. Significant cost reductions are current restrictions on credit, companies better accomplished through more strategic need to focus on reducing working capital decisions to exit whole activities, businesses in their businesses if they have not done so or markets. Both revenue and cost need to already. Proactively managing working capital be considered. Leaders need to preserve involves driving down inventories, accounts key investments that will drive future growth. receivable and accounts payable. Inventory For example, many global companies are analysis needs to examine each item’s profit- driving higher cost reduction targets in mature ability, its value to the company, as well as the markets to invest more heavily in emerging associated variability, velocity and volume markets. Others are considering significant to enable significant inventory reductions. business model innovations involving, for Addressing accounts receivables can improve example, more partnering or outsourcing to cash management by, for example, adjusting provide up-front savings and greater flexibility. processes to focus on accounts that chroni- cally pay late versus those that pay on time. FIGURE 3. Cost reduction opportunities should be evaluated in a strategic context. • Price Increase revenues • Volume Repurchase Increase shares revenue Increase operating • COGS margin • SG&A Total • Channels Create value Use competitive shareholder Capital Reduce costs • Process R&D return internally advantage • Product R&D Decrease working • Inventory capital • AP/AR Invest Optimize externally assets Decrease capital • Utilization expenditures • Decapitalize Dividends Leverage technology Decrease cash tax • Debt/equity paid • Tax location Source: IBM Strategy and Change consulting practice. 5 Succeeding in the new economic environment
  8. 8. Protect cash reserves. In a credit crisis, 1.2 Focus on the core cash is central to survival and strategic flex- Create value for clients and preserve ibility. It serves as a buffer against lean times differentiation. It is critical to cut spending on and enables the strategic acquisition of low-value activities, and redeploy it to invest- undervalued, perhaps even bargain-base- ments that generate growth, margins and true ment priced, assets. Of course companies differentiation. Being able to accurately identify that do not have strong cash reserves today where value is generated at all levels of the cannot reinvent history to create them; but organization – from divisions to specific prod- a value-based reassessment of the port- ucts or offerings to particular customers – is folio may reveal opportunities to generate an essential first step. But for those without a greater return through divestment or liqui- strong financial systems or good manage- dation, especially when weighed against ment information this could be a complex task. investment opportunities to improve or However difficult, the benefits are clear. Here expand core businesses. Leaders should also again, Ford has cut costs and raised capital explore alliances or partnerships that provide through borrowing and divestitures, including 15 access to cash or cost-effective capabilities, Jaguar, Land Rover and Aston Martin. particularly if their preferred strategies require Similarly, UK grocer Waitrose has performed significant investment. well in terms of customer growth by leveraging its strong reputation for high-quality food Increase flexibility and responsiveness. while controlling the average cost of a shop- Companies must understand how vulnerable ping basket by offering deeper discounts on they are to declines in demand and revenues, commodity products. 16 and develop the flexibility in their capacity and cost base in order to cope. They need Strip out non-value-add activities and to engage in active scenario modeling to reduce non-core costs. Companies need to evaluate how far production cost breakeven understand which activities contribute strategic points must be lowered and capacity reduced value. As part of this, companies must rethink (or used differently) to prevent losses. In doing initiatives, have more-regular capital review this, companies must also plan for the upturn cycles and examine initiatives as an entire by avoiding cutting too deep, so that they can portfolio not only to “trim the fat” on a project- ramp up quickly once conditions improve. This by-project basis, but also to cut entire projects requires a strong understanding of industry or groups of projects, allowing no “sacred trends, competitor performance and behavior, cows.” This approach requires a commitment as well as underlying economic conditions. to eliminate weak businesses and divest Companies must also develop more sophisti- where needed, moving non-core activities to cated sense-and-respond capabilities. In the shared services or to outsourced solutions. For automotive industry, for example, Ford Motor example, many companies are reprioritizing Company has sidestepped many of the chal- large-scale technology investments. They are lenges others in its industry face by cutting also reducing the cost of managing today’s factory capacity to match decreased demand, systems to free up investment for more stra- announcing in 2005 the closing of 17 facto- tegic IT projects. ries and the elimination of 50,000 jobs, many 14 through buyout and early retirement.6 IBM Global Business Services
  9. 9. Investment choices Shift from fixed to variable costs. Shifting and pricing innovation can outstrip an orga- from fixed to variable costs requires a clear nization’s ability to manage the operational should center on identification of and focus on core activities. complexity it creates. With margins threatened activities that The need for more flexible costs and capacity by falling revenues, operational complexitydifferentiate and drive is leading some companies to look afresh that does not create customer value cannot revenue growth. at their business and operating models and be tolerated. Companies should examine the consider outsourcing some functions that case for simplifying product portfolios, pricing they previously chose to keep in-house. For structures and the number of promotions, and example, a significant number of multina- cease offering customizations that customers tional companies are considering increased will not pay for – even if making these changes outsourcing of their IT development centers requires investment. in India and China. More holistic sourcing strategies, from workforce management and Are you ready? contract labor to strategic partnering, are also Have you taken urgent steps to protect revenue, key here. conserve cash and reduce costs while developing 1.3 Understand your customers and implementing a more strategic approach to Target value-oriented customers. Another such issues? strategy likely to succeed in this environment Do you know which businesses, markets, is to rebalance offerings to serve new, more products and customers contribute the most value-oriented customers. Eight of the 61 early value, growth and profit to your business? Which winners have business models that center are not aligned closely to your business strategy on offering very low-cost goods and services and should be cut? in diverse sectors spanning retail, entertain- Have you reviewed and prioritized your initiatives ment, education and fast food. And this can so that you can not only survive but also seize be a long-term strategy for success in good the opportunities presented by the new economic times as well as in bad, as companies like environment? McDonald’s have demonstrated. Are you making your costs more flexible? Are Reduce complexity. As they focus on you considering new workforce management their core activities, companies should take strategies or innovative business models to the opportunity to reduce or eliminate the achieve this? complexities that may have crept into their Have you reassessed your partnering strategy businesses during the good years, including and relationships? Are you clear about which customization or extensive variations to a partners are strategic and which are commodity- product or service that the customer may not based? value or understand. In telecommunications and banking, for example, the pace of product 7 Succeeding in the new economic environment
  10. 10. 2. Exploit opportunities markets, raising growth targets as they do so, 2.1 Capture share even in these uncertain times. Many business Disrupt weaker competitors. For those with leaders are also reviewing how they segment a clear vision for their companies and indus- and organize to engage their customers, tries – and the financial resources to act – the with the growth/mature market distinction current downturn will clearly create opportu- becoming more important. nities to set the change agenda rather than Acquire bargain-priced assets. Companies respond to someone else’s, to gain share and with significant cash reserves have the oppor- to build key capabilities. Bold moves, disrup- tunity to buy attractively priced assets that tive strategies and positioning to win in a support their overall strategies. Several of our globally integrated economy are all part of the early winners are focused on acquisitions or path to success. Reaching out to and under- stock buy-backs, taking advantage of current standing the needs of customers, both current bargains. Overall, we are seeing substan- ones and those who may consider shifting tial merger and acquisition (M&A) activity from competitors in such unusual times, will be throughout the global economy, particularly in an important element of the strategy. Business financial services, such as the acquisition of partners should also reassure customers Lehman Brothers segments by Nomura and that they are allies in this era, seeking to 19 Barclays in late September 2008. We also help reduce the impact of the current market expect to see M&A activity in pharmaceuticals uncertainty. A friend in need is a friend for the as well as in other sectors. For both acquirers long term. And before considering strategies and targets, it is important to act quickly: such as developing lower-cost products with for example, UK frozen food retailer Iceland fewer features, it is important to understand profited from its acquisition of 51 Woolworths fully what the customer truly wants. stores in January 2009 after its previous higher 20 Focus efforts on growth markets. For bid in 2008 was rejected. companies seeking growth, markets in Asia, 2.2 Build future capabilities Central and Eastern Europe, the Middle East Protect and acquire critical talent. Despite and Latin America are currently proving fertile extreme market pressures, leaders must ground, offering stronger opportunities for balance tactical concerns of today with a expansion than mature markets in Western clear focus on the longer term. To build future Europe or North America. Vodafone, for capabilities, it is important to stay focused example, has performed very well in recent on human capital issues, such as keeping years by selling assets in saturated markets and motivating top performers, recruiting such as Japan and Belgium and investing in new talent at potentially lower cost and lever- growth markets such as Romania, India and 17 aging a global workforce. Top performers are Turkey. Similarly, Tesco has maintained strong the people who have the flexibility to move growth at the group level by following an somewhere else if they are not convinced a international portfolio approach to investment, company has the right strategy and execu- which has generated strong gains in Hungary 18 tion capabilities to survive and succeed. It is and Malaysia. Facing slowing growth in important to engage these top performers, mature markets, many business leaders communicate the strategy effectively and give are redirecting investment toward emerging them a role and stake in the company’s future success.8 IBM Global Business Services
  11. 11. Amid economic Establish the corporate infrastructure to 2.3 Change your industry seize future growth opportunities. When Understand the impact of the current chaos, once-in-a- markets turn, the best returns often go to transformation on your industry, and profitlifetime opportunities those companies that respond quickly. Recent from it with innovative new business models. often emerge. years have shown how long it takes to build Business leaders must assess whether their the structures, capabilities, processes and industries are apt to consolidate, grow, shrink systems to seize growth market opportuni- or even die. They must also understand how ties. Now is the time to invest for the mid-term. competitors, suppliers, consumers and others Many Chinese companies, for example, are are responding to the economic changes, currently establishing the governance, orga- and whether barriers to entry are increasing nization structures, human capital, processes or decreasing. From this analysis, busi- and systems to enable them to run on a ness leaders should gain insight into where truly global basis. Likewise, many banks, a opportunities for new business models are. sector clearly under fire, are investing in new Two-thirds of the CEOs who participated in our assets and upgrading core banking systems Global CEO Study are implementing signifi- in order to increase operational effective- cant business model innovations; Figure 4 ness and improve transparency for the long outlines the specific types of business model term. A focus on forward-looking IT invest- innovation they are pursuing. ments (funded by reductions in maintenance costs for today’s systems) will be essential for Pioneer new industry approaches and enabling business agility. standards. Goldman Sachs, Morgan Stanley and other venerable investment banks have 22 Invest in innovation. Several of the outper- become bank holding companies. This forming companies in 2008 are focused on subjects the companies to far more govern- innovation, primarily in life sciences, telecom- ment regulation, but provides access to munications, electronics and environmental government guarantees. In another example, quality. By carving out a niche in a downturn, Rolls-Royce plc has designed an innovative companies can establish long-term domi- new aircraft engine that uses fuel more effi- nance beyond the current turmoil, a strategy ciently and, more importantly, can be scaled IBM, for example, used effectively in the 1930s. up or down, allowing the company to compete By investing in R&D during the depths of the across a far wider range of aircraft than its Great Depression, IBM was well-positioned competitors. In fact, Rolls-Royce is the only when the recovery began and customers one of the three main engine-makers with 21 needed complex data management systems. designs to fit the three newest airliners under Today’s early winners – from Netflix and development, the Boeing 787 Dreamliner, the Nippon Telegraph and Telephone to others in Airbus A380 and the new wide-bodied version 23 life sciences/biotech and environmental quality of the Airbus A350. – are already demonstrating the power of inno- vation in a downturn. 9 Succeeding in the new economic environment
  12. 12. FIGURE 4. CEOs are focused most on reconfiguring their businesses to specialize and collaborate. Types of business model innovation considered Multiple types 20% Enterprise model innovation Industry model 39% Redefine an existing industry, move into a new industry or create an entirely new one. Revenue model Change how revenue is generated by introducing new Industry model pricing models. innovation Enterprise model 18% Reconfigure the business by rethinking what is done Revenue model in-house and what is done through collaboration and innovation partnering. 23% Source: “The Enterprise of the Future: IBM Global CEO Study 2008.” IBM Corporation. May 2008. Identify and exploit new revenue models. With strategic partnerships, companies need New pricing models are emerging, particularly a more collaborative approach aligned with in digitized supply chains. In electronics, for the overall strategy and focused on the longer example, the ongoing transition to a digital term. In the case of commodity-based rela- supply chain has substantially reduced tionships, now may well be the time to drive inventories and thus the potential downward down cost and look for alternatives. For those pressure on prices caused by over-supply. relationships that continue, a shared sense of Indeed, the strength of supply chain manage- engagement and interdependence, a tight- ment in this sector is expected to make the ening of collaboration, can help companies impact of the downturn shorter here than it manage demand volatility and risk, and enable might have been otherwise. Other examples of innovative new business models. For example, digitized supply chains include Netflix for film Indian telecommunications leader Bharti Airtel and Apple iTunes for music, as well as Strayer has been able to grow quickly using a radical 24 for education. partnering strategy and business model. Similarly, Lenovo was able to establish its full Cultivate strategic partnerships. Partnering global presence much more quickly through is a quick route to business model innovation. its purchase of the IBM PC business than In the current environment, it’s particularly 25 through organic growth. In another creative important to differentiate between strategic partnering strategy, companies like Nintendo partners and those offering more easily are using Web 2.0 approaches to engage replaced commodity goods and services. customers in new product development and 26 customer service.10 IBM Global Business Services
  13. 13. Discontinuity will Outperformers expected even more change Are you ready? but were significantly more adept at managing likely bring about What is your company’s competitive context change than their peers. In a separate studyindustry-changing (supply, demand, barriers to entry), and where entitled “Making Change Work,” we found that business models. do you fit? companies that are good at change manage- What new business models are likely to emerge 28 ment are really good at it. On average, in your industry, and are you working to get project practitioners rated only 41 percent of there ahead of your competitors? projects as successful. In contrast, the top Are you watching other industries for concepts 20 percent reported an 80 percent project and business models that could transform your success rate, nearly double the average, market? and they did this by following a systematic Do you have the right team – especially your top approach. They focused on: talent? And do they believe in your strategy to • Real insights for real actions – Striving for a survive and succeed? full, realistic awareness, understanding the What capabilities do you need to develop to be upcoming challenges and complexities, ready for the upturn, and do you have a robust and taking actions to address them plan in place to develop them? • Solid methods for solid benefits – Using If you had the cash, which companies and assets a systematic approach to change that is could you buy to change the game? Or could focused on outcomes and closely aligned you be someone else’s acquisition target? with formal project management methods • Better skills for better change – Demonstrating top management 3. Act quickly sponsorship, assigning dedicated change Finally, the new environment will favor the managers and empowering employees to fast and agile. Indeed, the urgency of the enact change current situation can actually provide a unique opportunity to overcome organizational inertia • Right investment for the right impact – and barriers to strategic transformation. Allocating the right amount for change Transformation has never been easy, but in this management by understanding which types environment it may be more possible than is of investments can offer the best returns, in usually the case. terms of greater project success. 3.1 Manage change 3.2 Empower leaders Overcome the “change gap.” We learned Establish strong and aligned leadership. in the IBM Global CEO Study that eight out In this environment, speed is of the essence, of ten CEOs anticipated substantial or very and strategy must be set from the top. substantial change over the next three years, Leadership teams must make decisive “no yet they rated their ability to manage change regrets” decisions and live with the conse- 27 lower, creating a change gap of 22 percent. quences, correcting course as necessary. This is especially relevant for those cultures that are very consensus-oriented, and find quick and decisive action difficult. 11 Succeeding in the new economic environment
  14. 14. Communicate your strategy clearly and 3.3 Manage risk often. The challenge in the current uncertainty Reduce risk and increase transparency. is to set an achievable strategy and manage The issues of risk and transparency have change quickly and effectively. Doing this come to the fore in the current period. To well requires the repeated communication of address these issues, organizations must simple goals, together with clear targets and apply analytics to improve decision making strong follow-through (including the measure- and create greater predictive capability. They ment of results). It also requires the dedication must also establish risk management gover- and empowerment of high-ranking executives nance and processes. And they must integrate to act as change leaders, able to seek and and rationalize business information into the leverage experience throughout their organiza- overall risk management process. The recent tions, and empower the layers beneath. It is unprecedented losses in the financial services essential that these leaders align around an sector, as well as exposure to unseen threats agreed vision for the future and a course of of criminal activity like the Madoff scheme, action to achieve it. highlight compelling examples of the dangers FIGURE 5. Those who focused on all four facets of what we call the Change Diamond experienced an outstanding increase in project success. 80% Project success rate of individual facets Increase in project success due to synergy effect of all four facets together 19 % 52% 52% 43% 43% 41% Average project success rate Real Insights: Solid Methods: Better Skills: Right Investment: Change Champions: Awareness of Change Consistent use of Professional Change >11% Change Budget Combining All Four Challenge Formal Methods Managers Facets Source: “Making Change Work.” IBM Corporation. October 2008.12 IBM Global Business Services
  15. 15. Especially now, the of poor risk management and lack of transpar- From surviving to thriving 29 ency. Our Global CFO Study confirmed that To be sure, some companies will not surviveability to take requisite risk management is increasingly a boardroom these uncertain times. For the strong, however, actions depends issue, with each member of the executive the current period may actually present rare, on having superior team having a role and responsibility. 30 possibly once-in-a-lifetime opportunities. In change management order to seize them, companies must first capabilities, strong Are you ready? establish financial stability in the short term. leadership and robust Does your organization have a consistent, tried But the winners will also invest for the medium and accepted method for change management and even long terms. As preconditions for risk management. that is applied to every project? success with this, companies will need to achieve: Does your organization invest in building change management skills that can be leveraged across • A robust understanding of how the transfor- projects? mation will impact their industries as well as Are there processes and technologies in place allied industries that allow people to become involved in the • A keen appreciation of their own core change, to access accurate information and to competencies and how these can be provide feedback? leveraged to take advantage of emerging Do your leaders share a common view of the opportunities and profitable innovation future of the industries in which you operate? Of • Committed and aligned leadership with your own and your competitors’ strengths and a clear strategy for creating sustain- weaknesses? Do your leaders agree on where able competitive advantage so that their your organization needs to go? enterprise can move as swiftly as current Do you understand the risks you currently circumstances demand. harbor? Do you know how vulnerable you are to changes in your current operating environment? While the final months of 2008 launched a period of tremendous change and uncertainty, How transparent is your current management the good news is: even, perhaps especially, information? Are you confident you are tracking in times like these, winners do emerge. And the variables that give you an accurate picture of despite the noise, chaos and confusion, the health of your company and the risks facing it? there are patterns in the strategies winning companies use to navigate such times. Based on our experience, previous studies, and an analysis of early winners of this period and longer-term winners from historical economic transformations, we advise business leaders to focus more sharply than ever on value, exploit opportunities presented by the current situa- tion and act quickly in order to capitalize on these opportunities. 13 Succeeding in the new economic environment
  16. 16. About the authors Dr. Amy Blitz is the Strategy and Change Dr. Saul Berman is a Partner and Global Leader for the IBM Institute for Business Executive of IBM Global Business Services Value. She has led major research initiatives and leads the IBM Global Strategy and on issues related to strategy, innovation and Change practice. He has over 25 years’ expe- economic development. Her work has been rience consulting with senior management, featured in Harvard Business Review, The Wall has published extensively and is a frequent Street Journal, MSNBC and other major media keynote speaker at major conferences. He outlets. Amy can be contacted at ablitz@ was named one of the 25 most influential consultants of 2005 by Consulting magazine. Saul can be contacted at saul.berman@ Contributors This paper would not have been possible without the substantial contributions of the IBM Steven Davidson leads the IBM Strategy Strategy and Change team, notably Richard and Change consulting practice for Growth Christner, Dan Barter and Ragna Bell who Markets, including Asia Pacific and Greater helped steer the content development; Dave China in particular. He also leads the IBM Lubowe and Eric Riddleberger who provided Institute for Business Value in Asia Pacific. leadership and guidance throughout; Jim Based in Hong Kong, he has 20 years of Byron for input on cost reduction strategies; strategy consulting experience in Europe and and Anubha Jain and Madhulika Kamjula for Asia, and works across industries to help data analysis and overall research support. clients develop and implement strategies and transformation programs in complex environ- ments. Steven can be contacted at steven. Sara Longworth leads the IBM Strategy and Change consulting practice in Europe, the Middle East and Africa. Based in London, Sara is particularly interested in the role of leader- ship in transformational change, and has led engagements for European, American and Japanese multinationals to implement compet- itively advantageous operating models. Sara can be reached at com.14 IBM Global Business Services
  17. 17. About IBM Global Business Services References 1 With business experts in more than 170 coun- Much interesting research has explored tries, IBM Global Business Services provides patterns of economic transformation over clients with deep business process and long periods of time from Nikolai Kondratiev industry expertise across 17 industries, using to Joseph Shumpeter and more recently: innovation to identify, create and deliver value Braudel, Fernand, Civilization and Capitalism, faster. We draw on the full breadth of IBM 15th-18th Century, Berkeley: University of capabilities, standing behind our advice to California Press, 1992; and Perez, Carlota, help clients innovate and implement solutions Technological Revolutions and Financial designed to deliver business outcomes with Capital: The Dynamics of Bubbles and Golden far-reaching impact and sustainable results. Ages, Cheltenham, UK and Northampton, MA: E. Elgar Publishers, 2002. Perez, for example, IBM Global Business Services Strategy argues that we are currently in a period of and Change transformation as the information revolution IBM Global Business Services offers one of evolves from the “installation” to the “synergy” the largest Strategy and Change practices phase. in the world, with over 3,000 strategy profes- 2 Fackler, Martin. ”Toyota expects its first loss sionals. Our Strategy and Change practice in 70 years.” The New York Times. December fuses business strategy with technology 23, 2008. insight to help organizations develop, align and business/worldbusiness/23toyota.html implement their business vision across four 3 “China’s SAIC Motor assessing Ssangyong strategic dimensions – business strategy, oper- bankruptcy impact.” January 12, ating strategy, organization change strategy 2009. and technology strategy – to drive innovation 4 and growth. Perez, Carlota, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, Cheltenham, UK and Northampton, MA: E. Elgar Publishers, 2002. 5 See Nelson, Scott Reynolds, “The Real Great Depression,” Chronicle Review, Chronicle of Higher Education, October 17 2008, Vol. 55, , Issue 8 for an interesting contrast between the 1930s and the 1870s, centering on the different sources of a severe downturn and the implica- tions for economic recovery. 6 “Our Company: Under the Empire.” Deutsche Bank. under_the_empire.htm15 Succeeding in the new economic environment
  18. 18. 7 12 From IBM analysis of 2008 data of public McGeehan, Patrick. “On Seventh Avenue, companies listed on US exchanges. Goodbye, Lehman, Hello, Barclays.” The New 8 York Times. September 24, 2008. We focused on: (1) public companies listed 13 on AMEX, Nasdaq and the New York Stock Whitehead, Jennifer. “Tesco’s Discount Exchange that (2) had market capitalization Gamble.” Brand Republic News. September 30, greater than US$1.4 billion and (3) saw their 2008. stock appreciate by 5 percent or more in 2008 14 Johnson, Kimberly, and Tom Krisher. “Ford at a time when the S&P 500 Index declined by Bailout Money Unnecessary, Company Says.” 37 percent. Our focus admittedly emphasizes Associated Press. December 10, 2008. US companies; we did this as a starting point 15 because the crisis began in the US and so the Ibid. 16 impact and response registered most quickly “Waitrose Grows Customer Numbers and is in the US, providing more data for analysis at Britain’s top Grocer for Consumer Satisfaction.” this point. The S&P performance data was Waitrose press release. January 15, 2009. accessed from: VGApp/iip/site/advisor/investments/bench- Detail.asp?ReleaseID=888&NewsAreaID=2 marks/performanceSP?File=SPPerfReturns&b 17 O’Brien, Kevin. “Chief of Vodafone ench=SP Unexpectedly Resigns.” The New York Times. 9 “Rabobank Group forecasts moderate May 28, 2008. growth in profit in 2008.” Rabobank 18 Scott, Mark. “Tesco Defies Gravity.” Der Group press release. January 6, 2009. Spiegel. April 16, 2008. 19 news_archive/002-RabobankGroupforecasts- McGeehan, Patrick. “On Seventh Avenue, moderategrowthinprofitin2008.jsp Goodbye, Lehman, Hello, Barclays.” The New 10 York Times. September 24, 2008; Wai-yin Kwok, Strayer Education offers low-cost online degree Vivian. “Nomura Wins the Lehman Asia Stakes.” programs at the undergraduate and graduate Forbes. September 22, 2008. levels, primarily for working adults seeking 20 professional advancement. Netflix Inc.’s rela- “Iceland Buys 51 Woolworths Stores.” BBC tively inexpensive DVD rental service delivers News. January 9, 2009. 21 the majority of its selections to customers “IBM Archives: 1930s.” through the US Postal Service, but also offers a ibm/history/history/decade_1930.html subset of titles that can be instantly streamed 22 Schroeder, Robert. “Goldman Sachs, Morgan through high-speed Internet connections at no Stanley to become Bank Holding Companies.” additional charge. MarketWatch. September 21, 2008. 11 “An Interview with Satoshi Miura, President 23 “Rolls-Royce: Britain’s Lonely High-Flier.” The and CEO.” Economist. January 8, 2009. nttis/2008aut/interview.html; “NEC Video 24 Delivery Platform, “NC7500-VD,” Supported de Asis Martinez-Jerez, F., V. G. Narayanan by NTT’s NGN Business Services.” NEC and Michele Jurgens. “Strategic Outsourcing Corporation press release. November 6, 2008. at Bharti Airtel Ltd.” Harvard Business School Publishing. July 12, 2006. ngnbusinessservices.htm 25 “Lenovo Buys IBM PC for US 1.25b.” Alibaba. August 19, 2008.16 IBM Global Business Services
  19. 19. 26 Porta, Matt, Brian House, Lisa Buckley and Amy Blitz. “Value 2.0: Eight new rules for creating and capturing value from innovative technologies.” IBM Institute for Business Value. January 2008. 27 “The Enterprise of the Future: IBM Global CEO Study 2008.” IBM Corporation. May 2008. Based on availability of financial information, we were able to include 530 companies in our financial analysis. We compared performance on three financial benchmarks: 1) Revenue compound annual growth rate (CAGR) 2003 to 2006, 2) Net profit margin CAGR 2003 to 2006 and 3) Absolute profit margin average for 2003 and 2006. Companies that performed above the average for those in the same industry were tagged as outperformers; those below the average were labeled as underperformers. 28 Jørgensen, Hans Henrik, Lawrence Owen and Andreas Neus. “Making Change Work.” IBM Corporation. October 2008. 29 Gandel, Stephen. “Wall Street’s Latest Downfall: Madoff Charged with Fraud.” Time. December 12, 2008. 30 Rogers, Stephen, Stephen Lukens, Spencer Lin and Edwina Jon. “Balancing Risk and Performance with an Integrated Finance Organization: The Global CFO Study 2008.” IBM Corporation in cooperation with The Wharton School and Economist Intelligence Unit. October 2007.17 Succeeding in the new economic environment
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