This is IBM’s fifth biennial Global CEO Study. From this research, we now have data from more than 5,000 CEO interviews stretching back to 2004, which has enabled extensive longitudinal analysis to shed light on how perspectives are changing – or not – over time. How are CEOs responding to the complexity of increasingly interconnected organizations, markets, societies and governments – what we call the connected economy? To find out, we spoke with more than 1,700 CEOs, general managers and senior public sector leaders from around the globe. Our key findings: CEOs have a new strategy in the unending war for talent Obsessed with understanding customers as individuals, CEOs are building analytical muscle to engage them with relevance and immediacy Extensive partnering is providing the edge CEOs need to take on radical innovation
Six years. That is the average time-in-role of the CEOs and public sector leaders we interviewed for this Global CEO Study. During that time, these leaders have experienced the full spectrum of economic volatility – booms, dips and financial disintegration. This study is based on face-to-face conversations with chief executive officers in 64 countries and across 18 industries. Sixty-eight percent are located in mature markets; the remaining 32 percent are in growth markets. To smooth any geographic distortion, CEO responses were weighted based on actual regional gross domestic product (GDP) for 2010. Aerospace & Defense (1%), Automotive (4%), Banking (9%), Chemicals & Petroleum (4%), Computer Services (3%), Consumer Products (6%), Education & Research (3%), Electronics (6%), Energy & Utilities (3%), Financial Markets (3%), Government (9%), Healthcare (4%), Industrial Products (10%), Insurance (10%), Life sciences / pharmaceuticals (3%), Media & Entertainment (5%), Professional Services (3%), Retail (6%), Telecommunications (4%), Travel & Transportation (5%)
As part of our analysis, we sought to understand differences between responses of CEOs in financially outperforming organizations and those in underperforming organizations. This categorization was based on CEOs’ assessment of their own organizations. We asked CEOs to rate their organization’s three-year revenue growth and profitability as compared to their industry peers. Organizations that excelled against both financial measures were classified as outperformers; those with low rankings in both areas were classified as underperformers; and all others were considered peer performers. We referenced the CEO self-assessed position to quantitative data for the 2011 CIO and CMO Studies and assessed correlation between indicated performance and actual performance - and obtained 80%+ correlations. This method of self-assessment was selected as the best option because external data is generally only available for less than 50% of organizations due to some being private, some being public, and some being regional CEOs. Using this approach we have more than 99% data coverage, enabling us to do extensive performance analysis. The average time-in-role or tenure of CEOs is 6 years. The CEOs we interviewed are very experienced and all say basically the same thing: they know how to be CEOs and know what to say as a CEO. The difference lies in what they do. As an example: in one of our questions we asked to state the organization’s revenue from new sources past and future. There was a significant difference between outperformers and underperformers on the revenue they stated coming from new sources over the last 5 years. But there was no difference in future expectations on revenue from new sources.
Drawing on more than 1,700 CEO conversations and our own management consulting experience, we believe three imperatives are essential for outperformance: Empowering employees through values Engaging customers as individuals Amplifying innovation with partnerships
Technology is now driving more organizational change than any other force – even the economy. How are CEOs harnessing this unrealized potential?
Since our CEO Study series began, technology – in its widest sense – has progressively risen on CEOs’ radar. It now ranks as the number-one factor impacting organizations. Some CEOs spoke of how advances in alternative energy, biotechnology, nanotechnology and other fields far beyond IT are revolutionizing products, operations and business models. Others described new possibilities created by a physical world outfitted with millions of networked sensors. CEOs also discussed the whirlwind of “social” change they’re witnessing. Facebook, Renren, Twitter, Weibo, Foursquare and other technology upstarts have stormed across markets and industries.3 Smart, mobile devices are increasingly pervasive. And new technologies are emerging to help organizations store and make sense of the “big data” this digital storm is creating. Other percentages: Macro-economic factors: 62%, Regulatory concerns 58%, Globalization 43%, Socio-economic factors 37%, Environmental issues 30%, Geopolitical issues 23%
More than half of all CEOs see human capital, customer relationships and innovation as key sources of sustained economic value. Definition of human capital: people in the organization and their knowledge, skills, abilities and capacity to develop and innovate. As we looked across the whole of CEOs’ responses, one consistent theme emerged: an overwhelming focus on changes in how people engage with the organization and with each other. The view that technology is primarily a driver of efficiency is outdated; CEOs now see technology as an enabler of collaboration and relationships – those essential connections that fuel creativity and innovation. Each of CEOs’ key sources of sustained economic value – human capital, customer relationships and innovation – is being fundamentally affected. Technology is creating entirely new ways of connecting innovators inside and outside organizations, altering organizational composition, structure and span of control.
We see that outperformers are even more focused on combining technology with the business to drive innovation and growth.
Whether struggling for share in mature markets or grabbing territory in growth markets, CEOs must differentiate their organizations. And our study findings suggest they intend to do so through new and deeper connections. To drive outperformance, CEOs are: Empowering employees through values Engaging customers as individuals Amplifying innovation with partnerships
CEOs see greater organizational openness ahead. But as rules are refined and collaboration explodes, how will they avoid chaos, protect the business and deliver results? Control has delivered benefits over the years: it helps enforce regulatory compliance, drive standardization and avoid waste. However, the movement toward greater openness is inevitable and offers tremendous upside potential – empowered employees, free-flowing ideas, more creativity and innovation, happier customers, better results. But openness also comes with more risk. As rigid controls loosen, organizations need a strong sense of purpose and shared beliefs to guide decision making. Teams will need processes and tools that inspire collaboration on a massive scale. Perhaps most important, organizations must help employees develop traits to excel in this type of environment. Examples Organizational openness introduces new opportunities to create value through collaboration Pepsi Introduced social media including comment spaces, blogs and an idea network - Integrated enhanced podcasts with two-way interactions - Pursued community out-reach To re-balance control with openness, CEOs are focused on values, collaboration and mission Siemens Built and aligned common values to promote performance with integrity - Created ambassadors among employees - Articulated core beliefs and expected behaviors - Enabled employee dialog across intranet - Promoted social polling and twitter-like platform
CEOs believe their organizations will be impacted more by the pressure to be open than the need to control. Tight control gives way to more openness. They anticipate demands for even more transparency, and the competitive need to open up their organization to collaborate more internally and externally. The question we asked was whether the influence of openness was impacting the CEO’s organization more, OR if the influence of operational control was of greater impact. CEOs from outperforming organizations had a clearer sense than those of underperforming organizations about the influences impacting their organization; they had a more binary perspective. There were fewer outperformers in the middle, and most selected one of the extremes. This outcome suggests that outperforming organizations understand their environment better; they have a clearer sense of their environment and the influences impacting their organizations. Outperformers believe that openness is impacting them, and they are therefore beginning to respond to that influence in more substantial ways than CEOs from underperforming organizations.
CEOs acknowledge the need for continued operational control and are backed by their CFOs to enforce regulatory compliance, drive standardization and avoid waste.
CEOs anticipate demands for even more transparency, and the competitive need to open up their organization to collaborate more internally and externally.
To draw out the best in their workforces, CEOs are most focused on three organizational attributes. CEOs recognize the need for organizational values and a clear sense of purpose to guide decisions and actions as some formal controls loosen. Clearly, openness increases vulnerability. The Internet – especially through social networks – can provide a worldwide stage to any employee interaction, positive or negative. For organizations to operate effectively in this environment, employees must internalize and embody the organization’s values and mission.
Four traits stand out as critical for employees’ future success: being collaborative, communicative, creative and flexible. Given their intent to create greater openness, CEOs are looking for employees who will thrive in this kind of atmosphere. CEOs are increasingly focused on finding employees with the ability to constantly reinvent themselves. These employees are comfortable with change; they learn as they go, often from others’ experiences.
Thirty percent more outperformers recognize the emergence of openness and see it as a more pervasive influence than underperformers. And there is the outperformers’ advantage: these organizations demonstrate a much stronger track record of successfully managing change. Examples: the MTN Group and Safaricom, leading telecommunications providers in Africa and the Middle East. Out of necessity there has been a synthesis of telco and payments systems in Africa, because there simply was no landline and no effective established payments and banking network in existence. Therefore telco organizations started to offer these services as clear opportunity. This is now moving throughout rest of world. Example: Docomo Japan is entering into partnerships with banks. From a very early stage this organization had contacts with payments organizations and partnerships with retailers such as 7-eleven and now are pursuing more explicit partnerships with major financial institutions such as Bank of Tokyo Mitsubishi UFJ to form more formal payments businesses, such as Jibun.
For CEOs, it’s no longer a question of should the organization become more open and collaborative? But rather, it’s how do I run an open organization? Replace rulebooks with shared beliefs: as a practical matter, CEOs cannot manage openness through process alone. In an open environment marked by constant change and increased complexity, organizations need a new way of enabling everyday decision making. Employees must instinctively know how to handle unexpected situations. Their choices and actions are best guided by shared beliefs and values. Build future-proof employees: it is difficult for organizations to predict the emerging capabilities they will need even just a few years from now. CEOs can’t teach employees to be “future proof,” but they can create an environment where these traits develop more naturally. Provide the means to collaborate at scale: as organizations globalize and the boundaries between functions blur, organizations need more extensive, sophisticated methods of collaborating.
Business challenge: this organization had problems with compliancy and the question of ethical behavior by its employees.
Business challenge: the organization recognized that major competitors were dramatically increasing the amount of innovation and felt they needed to respond. They wanted to improve their speed and quality of innovations.
Business challenge: this organization recognized that key market segments started to embrace social media aggressively. It wanted to help spur growth and greater loyalty among core customers by embracing social media and explicitly including input in product development.
Bausch + Lomb Mobile Business Intelligence: http://www.hrcommunication.com/Main/Articles/Bausch_Lomb_communications_team_3_13000_a_global_r_2369.aspx B&L uses the entire workforce to communicate via social media: Baush & Lomb's intranet, "the eyeway", features employee-written articles. McDougall (VP of corporate communications) calls this “deputizing employees.” He simply asks employees to handle a variety of internal and external communications tasks, including posting videos to an internal YouTube site, writing articles for the intranet, and monitoring social media and the news. McDougall estimates 60 to 70 percent of the company’s intranet content comes from employees. “Like any multinational, we have monitoring systems set up from the media and social media perspective,” McDougall says. “They’re great, but the best monitoring is still your employees, who may see a trade article, a local news media report, a tweet or a Facebook posting.” Employee Social Platform: http://www.noesis-design.com/portfolio/social_media/bausch_lomb Bausch + Lomb's internal social platform allows their international sales agents to log in and communicate based on their experiences out in the field. This has proved invaluable in terms of providing information, for example, on what a competitor might be doing, in an instant format to all other agents Internal Media/ TV channels improves employee integration/ satisfaction http://images.tmcnet.com/tmc/vertical/businessvideo/pdf/videoCaseStudies/VCS_EEVA_BL_PDF.pdf Bausch & Lomb Achieves Tangible ROI Using Video communications and media relations team wanted to be able to reach as many key constituents as possible, and to do so in a way that provided a very user-friendly experience for end users. Bausch & LombTV The platform at the heart of Bausch & Lomb’s video initiatives is called Bausch & Lomb TV, which is the company’s branded internal video portal and which is based on technology provided by The FeedRoom. Within the video portal, employees can click on a variety of different channels, such as company TV commercials, information about the company, training videos, as well as channels dedicated to business units such Reduced Costs by Eliminating Shipments of DVDs — Bausch & Lomb has generated significant cost savings by using online video as a primary communications tool for many different types of content that was previously published to VHS tapes or DVDs and shipped to locations all around the world at considerable cost. Enhanced Communications with Employees in Native Languages — The company has been able to reach its wide base of geographically dispersed employees with video content such as messages from senior executives, but now with the closed captioning capabilities the firm is reaching more employees with content that can be subtitled in their native language. This really helps to create a more connected feeling among employees according to McDougall. Additional support: General Customer Service As Temkin says, it shows a recognition that improving customer service must be a "cross-functional, transformative effort" rather than a collection of isolated departmental or divisional activities. http://www.itbusinessedge.com/cm/blogs/all/forget-aligning-it-with-business-bausch--lomb-aligns-it-with-customer/?cs=11665
CEOs are searching for customer insight. But even if they discover it, are their organizations equipped to respond with relevance and speed? To effectively engage an individual consumer, client or citizen, organizations must weave together insights about the whole person from all kinds of sources. They will need stronger analytics capabilities to uncover patterns and to act on insights. Examples: Customers share insights into what they value individually, and when and how they want to interact Westfield Insurance - Identify high-value and high-potential customers and maximize their lifetime value through customer profiling, micro-segmentation, and analysis - Improve understanding of market potential and competitive forces to help make better decisions To connect individually, CEOs plan a step change in social media interaction and continuing face-to-face engagement Frito Lay Europe – Uses Facebook, Twitter, YouTube, and on local social networks (Hyves in Netherlands for example) to set up contests across the global to collect "Mystery Flavors": guess the flavors and win 50,000 Euros. First Lays collects ideas for new flavors, and then it selects a top 6 and reveals the flavors one by one. You can guess the flavors in the mystery bags and win a price.
Organizations are under intense pressure to respond not only how customers want, but also when and where. Immediacy has value. Organizations can profit from unique insights they discover about customers. But long-term value comes when organizations use that knowledge to help individual customers achieve their own desired outcomes. From our 2012 Retail Study, we learned that customers will share information if they perceive a benefit from doing so.
In terms of investment, CEOs are prioritizing customer insights far above other decision areas. A significant 73 percent of CEOs are making significant investments in their organizations’ ability to draw meaningful customer insights from available data. Although customer insight has always been highly prized, in recent years, the pursuit has changed in two key ways. First, there’s far more raw data to draw from than ever before. And second, “knowing the customer” is no longer confined to segmentation, statistical averages and historical inferences.
CEOs recognize the need for improved capabilities. Seven out of every ten CEOs are making major changes in their organizations to deepen the understanding of individual customer needs. CEOs are implementing extensive changes to enable faster, more relevant responses to markets and individuals.
According to CEOs, face-to-face interaction via their sales forces and other institutional representatives is by far the most dominant method of engaging with customers today. But the future landscape looks drastically different. Currently, social media use is so low today, but is expected to displace traditional media massively over the next 3 to 5 years. Face-to-face interaction will not go away – -- the channels of significance will be the ones where there is interaction, i.e. two-way communication rather than one-way communication. A major gap now exists between the existing activities in social media space and the extent to which social media will be embraced in the future. CEOs are challenged by what to do with social media, how to use it, how to manage their organization, putting together frameworks, how to drive revenues from it, how to incorporate feedback in a meaningful way. There is a big gap that CEOs recognize needs to be filled. Social media usage is expecting to grow from 16% now to 57% in the next 3 to 5 years. This is a massive challenge and opportunity for CEOs.
Across the three dimensions of access, insights and action, outperformers far surpass underperforming peers. Essentially, they are insight-driven. Across the full sample, though, one-quarter of CEOs say their organizations operate below par in terms of driving value from data. CEOs expressed frustration about their inability to capitalize on available information. This is a double positive: CEOs from outperforming organizations are assessing whether they also outperform their competitors in their abilities to access data, draw insights from data, and translate insights into actions. It is very clear that outperforming organizations are simply much better in these areas. There seems to be a strong correlation between the ability to tap into and use data effectively and performance.
Let “big data” reveal the customer you never knew: in our connected economy, data is a critical new “natural” resource. And knowing how to effectively access, analyze and use it is crucial to understanding and engaging individual customers. Listen lavishly, respond with focus: the goal of understanding customers better is to be discriminating and perhaps offer less – exactly what this individual customer needs, precisely when and where he or she needs it. Be where your customers expect you to be: mobility is supersizing customer expectations. Organizations have a tremendous opportunity to create value out of immediacy – to be ready with relevant services and information in the context of the moment.
Business challenge: the customer base of the organization’s business was changing and developing greater expectations. They wanted to be recognized on a more individual basis than part of a group and wanted to understand how they compared to other people like themselves as they made their financial decisions.
Business challenge: After the global economic crisis, banking received very bad press and response from the public for two years. And banks recognized the need to re-engage effectively with their customers and to be more responsive, to their customer needs and aspirations.
Business challenge: The organization began to understand that with the poor economic environment they needed to engage with their customers on a deeper more emotional level. They decided to pursue a strategy incorporating social business to understand their customers better, respond more effectively and to build loyalty and trust and customer commitment.
Since 1957, Magazine Luiza has connected with customers in Brazil on a human level, to fulfill dreams and provide a happy and memorable experience. Magazine Luiza provides an online store and more: In their stores, shoppers sit with associates who guide them on Internet shopping trips Local stores act as social hubs and offer community services, like cooking classes or computer training The online site contains a virtual salesperson “Lu”, interacting with customers In response to today’s customer individualization, Magazine Você (“Your Store”), allows anyone to create personalized storefronts and share them via Facebook or Orkut: Store “owners” earn a commission when selling products Conversion rates are running higher than the retailer’s online store Already, more than 20,000 social stores have sprung up. Magazine Luiza expects to touch 1 million customers within one year of launch.
Amplify innovation with partnerships: with nearly 70 percent of CEOs aiming to partner extensively, what will make this a differentiating strategy? Rising complexity and escalating competition have made partnering a core innovation strategy for many organizations. But to enable sustained, fruitful innovation partnerships, organizations will need deeper, more integrated relationships. Partnering organizations will have to share collaborative environments, share data – and share control. They’ll need to enable close working relationships among staff, not just executives. And even when the organization is performing well, CEOs must occasionally break from the status quo and introduce new external catalysts, unexpected partners and some intentionally disruptive thinking. Examples: Commitment to external partnering has grown significantly American Express - Formed relationships with leading social media organizations to promote innovation in customer engagement - Partnered with Twitter to create location-specific discounts for customers when they tweet their location - Created "Small Business Saturday“ by offering a $ credit to customers who spend at participating small businesses Virtually all organizations now partner, creating new avenues for innovation Toyota - Formed collaborative partnerships with suppliers to promote innovation - Reduced procurement costs and improved component design
Partnering is now at an all-time high. In 2008, a little over half of the CEOs we interviewed planned to partner extensively. Now, more than two-thirds intend to do so. Partnering is pervasive: over the next five years, external partnerships will become even more critical to CEOs’ operating strategies.
CEOs are supported by their CIO and CMO – all working together to enable effective partnerships. For CIOs, increased partnering is associated with a desire to refine the mix of capabilities. CMOs increase use of external partnerships in the areas of sales, analytics, direct marketing, and IT skills.
More than half of the CEOs told us they intend to partner extensively to innovate. Financially successful organizations are even more inclined to innovate with partners. Innovation is becoming more fundamental and foundational to organizations. But as they start to focus their energy on their core capabilities, they recognize that much of the dynamic input ideas and processes that they need to incorporate are best obtained from other organizations rather than themselves. Outperforming organizations have begun to more aggressively pursue and embrace partnerships with other organizations, business partners, communities of interest, academic institutions, and community organizations to pursue innovation.
When comparing outperformers with underperformers, we saw no significant difference in their approaches to product and service innovation. Both groups have similar plans for integrating, bundling and tailoring products and services, and extending their product/service portfolios. Where they differ is in their approach to business model innovation. While underperformers focus more on improving operations and redefining their own enterprise models, outperformers have more ambitious innovation targets. They intend to upset entire industries. As a group, outperformers are 50 percent more likely to break into other industries and twice as inclined to invent entirely new ones. Examples: Entering different markets Swatch (Swiss watch maker) to sell hydrogen cars: http://www.zimbio.com/Hydrogen+vehicles/articles/qxPKxS9-0K6/Time+Swatch+Sell+Hydrogen+Cars Apple went into phones after it was good at making portable media players, and it went into advertising after it had millions of people using its apps on a daily basis. People are now speculating that Apple will move into the TV industry Create entirely new industries Comcast - Comcast piloted Xcalibur, its next generation cloud-based TV platform that aims to revolutionize the way people watch TV - Xcalibur moves beyond set top boxes to leveraging cloud architecture to deliver live TV service to any internet-connected device Value Created - Meets customer demands for easier access to TV and other internet-enabled content - Delivers content to a broader range of devices - Creates new apps faster and more cheaply - Makes UI changes faster and easier
How can CEOs help their organizations connect with partners in new ways that accelerate innovation? Fundamentally change how you partner: as the pressure to innovate (and the cost to do so) mounts, CEOs are reevaluating how they engage partners. The need for transparency is rising. Control and governance must increasingly be shared. Make partnerships personal: as with customers and employees, technology now presents opportunities for much deeper connections with partners. Break collaboration boundaries: to address rising complexity, organizations need to look beyond traditional partners and conventional views on innovation for new inspiration and necessary capabilities.
Business challenge: the organization wanted to be relevant to the next generation of consumers, and to fortify its role as the credit card for the social media generation.
Business challenge: As the organization had grown aggressively over the past 5 to 10 years, it needed to identify ways to continue its growth trajectory, offering relevant high quality items and avoiding constraints of scale and ability to deliver.
Business challenge: in order to introduce greater innovation into the organization, they needed to get input and stimulation from outside their organization to identify and action opportunities that may not have been clear or actionable without the help of an external partner.
Royal Dutch Shell Biofuels : Sugar Cane Royal Dutch Shell Plc (RDSA) , the world’s biggest distributor of bio-fuels, is shifting research to waste from sugar-cane farming after ending an algae project in Hawaii . Shell, Iogen Corp. and Codexis Inc. (CDXS) have been researching enzymes to produce cellulosic ethanol from wheat stalks and sugar-cane bagasse, a sugar industry waste product. The Anglo- Dutch company has set up a $12 billion venture with Cosan SA Industria & Comercio to produce and market traditional sugar- cane ethanol in Brazil, where it’s used to fuel cars. http://www.bloomberg.com/news/2011-04-08/shell-iogen-shifting-biofuel-technology-focus-to-brazil-sugar-cane-waste.html http://www.biofuelsdigest.com/bdigest/2011/01/31/shell-exits-algae-as-it-commences-year-of-choices/ Pine/ Corn: Three global companies from the worlds of agriculture, petroleum and car manufacturing are lead investors in a company called Virent, which has developed a bio-gasoline that is practically the molecular equivalent of conventional gasoline. The milestone is significant because the feedstock consists of woody, non-food waste from pine and corn (aka corn stover), The partnership includes Honda, Shell, and Cargill, http://cleantechnica.com/2011/06/06/cargill-shell-and-honda-team-up-to-make-gasoline-from-pine-and-corn-waste/ Natural Gas http://www.popsci.com/technology/article/2011-05/harvest-natural-gas-ocean-shell-building-worlds-largest-man-made-floating-object. Shell is making good on its promise to build the largest object ever to float on water, announcing Friday it would build the Prelude FLNG Project to harvest offshore natural gas fields. The gargantuan ship will suck up the equivalent of 110,000 barrels of oil per day. Without an oceangoing facility, it would be impossible to harvest natural gas that far from land, Shell said. The Prelude will be the first facility of its kind, but not the last — the design can accommodate a wide range of gas fields, said Malcolm Brinded, executive director for Shell’s Upstream International, in a news release. So someday, massive floating gas factories could be deployed in various oceans throughout the world. Additional Support Research on water quantity: http://www.shell.com/home/content/media/speeches_and_webcasts/2012/voser_worldwaterforum_marseille_12032012.html
Undoubtedly, our world and the institutions and people in it are becoming more connected. The question is: How will CEOs respond organizationally and personally?
To lead in this period of rapid, disruptive change, CEOs told us three traits are most crucial: customer obsession, inspirational leadership and leadership teaming. These characteristics actually reinforce and complement their goals for the organization: Customer-obsessed leaders will drive the organization toward deeper, more contextual customer insights. Inspirational leaders will engage, motivate and guide employees with values and shared purpose rather than tight control. Leaders who team will model collaboration for their organizations. They’ll be coalition builders, internally and externally. Interestingly, these three areas map very closely to the areas identified by the CEOs as key sources of economic value: Customer obsession maps closely to chapter 2 Inspirational leadership maps to chapter 1 Leadership teaming maps very closely to chapter 3: partnering for innovation, the recognition from CEOs that they need to team with other leaders in their C-suite and other organizations in order to achieve their objectives