Summary:
IBM study on thoughts and views on the future of business (the "Enterprise of the Future"). Concludes that the Enterprise of the Future hungry for change, innovative beyond customer imagination, globally integrated, disruptive by nature and genuine, not just generous. CEOs are most concerned about the impact of three external forces: market factors, people skills and technology. Organisation should act like VCs to establishe processes and structures that promote innovation and transformation. Informed and collaborative customers are viewed as chance to differentiate. Views of globalization are shifting from labor arbitrage and riding the wave of economic growth in China and India to global integration. Majority sees M&A as part of their global integration strategies. Business model innovation more important because it is increasingly difficult to differentiate based on products and services alone. CSR increasingly important, impacting on both top and bottom lines. (Published: 30/05/08)
Notes:
Change
- In our 2006 Global CEO Study, we were surprised when two-thirds of the CEO s said their organizations were facing substantial or very substantial change over the next three years. But in 2008, even more CEOs — eight out of ten — are expecting such change.
- CEOs find themselves — as one CEO from Canada put it — in a “white-water world.”
- CEOs are most concerned about the impact of three external forces: market factors, people skills and technology.
- Market factors: Customer expectation shifts, competitive threats and industry consolidation continue to weigh on their minds.
- “ The market is so dynamic. Visibility is very low.”
- People skills: CEOs are also searching for industry, technical and particularly management skills to support geographic expansion and replace aging baby boomers who are exiting the workforce.
- They rated insufficient talent as the top barrier to global integration — even higher than regulatory and budgetary hurdles.
- “ We’re making acquisitions for the people, not the assets.”
- Technology: CEOs also described how technological advances are reshaping value chains, influencing products and services and changing how their companies interact with customers.
- “ Technology is driving huge changes in our industry landscape.”
- Change management
- In a 2008 study of change management practices, 75 percent of the companies surveyed said their approach to change management was usually informal, ad hoc or improvised.
- In contrast, the Enterprise of the Future defines and manages change as robust programs, structured around and driven to deliver defined business outcomes.
- It tracks the business benefits of change and change management effectiveness.
- Strong change management is a core competence at all levels and nurtured as a professional discipline, not an “art.”
- Operating like a venture capitalist
- The Enterprise of the Future establishes processes and structures that promote innovation and transformation.
- It actively manages a portfolio of investments, protecting and supporting the fledgling ideas, while systematically weeding out the weak ones.
- "Do you have robust processes in place to incubate new product, service and business model concepts — and redirect investment when required?"
Innovation
- investment in new markets
- In both developed and rapidly developing economies, rising prosperity is creating growth opportunities for many companies
- In rapidly developing economies worldwide, the middle class is growing and becoming progressively more prosperous. Greater disposable income brings new demand for more sophisticated, higher-value products and services.
- e.g. “In India, 400 million consumers will demand new housing in the next 20 years — that’s more real estate than the United States has built since the Second World War.”
- In established economies, significant wealth accumulation among aging baby boomers and a corresponding increase in young, affluent inheritors are boosting prosperity in what some might otherwise consider flat-growth markets.
- but: tapping into these new geographic and demographic segments will require a deeper understanding of these customers and a more tailored approach.
- informed and collaborative customers: chance to differentiate
- rising expectations from increasingly informed and collaborative customers
- in increasing numbers of industries, customers are swapping passive roles for much deeper involvement.
- “Consumers” are becoming “producers,” creating entertainment and advertising content for their peers and even generating their own electricity.
- serving the informed and collaborative customer as an opportunity to distinguish their organizations
- a chance to justify premium positioning and price.
- understanding timing and network effects
- Exceeding expectations: there is a fine line between “beyond” and “too far.”
- The Enterprise of the Future understands the need to introduce innovation that the market is ready to accept and works to perfect its market-entry
timing.
- It exploits the network effects of early adoption to take a commanding early lead.
- Market insights are critical to the Enterprise of the Future.
- It recognizes the value of the information it collects through its many channels and actively mines it for insights.
- It uses emerging technologies to gain insights in new ways.
- It also puts systems in place that allow very fast feedback cycles.
- When customer preferences and demand start to shift, it knows before the competition.
Global integration
- Traditional views of globalization: labor arbitrage and riding the wave of economic growth in China and India
- replaced by a new focus: global integration
- i.e. new business designs that facilitate faster and more extensive collaboration on a worldwide scale and rapid reconfiguration when new opportunities appear
- more than half of CEOs plan to deeply change their organizations’ capabilities, knowledge and assets.
- New customer expectations are driving some of these shifts.
- “We need to move away from an operational focus to a client interface focus. This requires new skills and a new skill mix for the corporation.”
- found that outperformers are 20 percent more likely to partner extensively than underperformers
- reinforces what we discovered in our last CEO Study: extensive collaborators outperform their competitive peers
- Sixty-six percent of CEOs plan to use mergers and acquisitions (M&A) as part of their global integration strategies
- described M&A as a key way to rapidly expand global reach
- integrating new capabilities, knowledge and assets and gaining access to new customers.
- outperformers are 55 percent more likely to use M&A than underperformers
- challenging the preconception that M&A is a risky and often unsuccessful strategy.
- Prior research suggests that frequent acquirers often become extremely effective at M&A and can use it more successfully
- CEOs’ approaches to global integration and optimization are carefully tailored to their businesses
- e.g. global brands and products must have local relevance
- Social networking and realtime collaboration tools improve communication and close the distance between people in different locations.
- Good ideas develop and spread quicker, and problems are solved faster.
Disruptiveness
- outperformers are pursuing more disruptive business model innovations than their underperforming peers
- CEOs told us they are changing their business models because it is increasingly difficult to differentiate based on products and services alone
- also stressed another reason: they simply have more options now
- e.g. With the Internet, businesses can now find niche markets for rare, surplus or highly specialized goods
- a virtual “garage sale,” as it’s often called.
- Business processes, as well as some products and services, are becoming more virtual.
- New delivery channels and electronic methods of distribution are overturning traditional industry conventions.
- these advances are not just changing the way individual companies work: they’re creating entirely new industries.
- Types of business model innovation:
- Enterprise model innovation
- Specializing and reconfiguring the business to deliver greater value by rethinking what is done in-house and through collaboration
- as Cisco has done by focusing on brand and design while relying on partners for manufacturing, distribution and more.
- Revenue model innovation
- Changing how revenue is generated through new value propositions and new pricing models
- as Gillette did by switching the primary revenue stream from razors to blades
- Industry model innovation
- Redefining an existing industry, moving into a new industry, or creating an entirely new one
- think music industry and the Apple iPod and iTunes
- Among CEOs making extensive changes to their business models, enterprise model innovation is the dominant choice
- “For us, enterprise model innovation is primarily about having the right business model to enter other markets and secure new capabilities.”
- main message heard from proponents of enterprise model innovation is that going solo is increasingly difficult.
- “We’re very vertically challenged,” one electronics CEO said when describing the difficulty of owning the entire value chain.
- “We have to collaborate to survive; there are fewer things that will be cost effective to do on our own. We will continue to do less inside the organization and more with partners and even competitors.”
- pursuing industry model innovation: tough to do
- pharmaceutical CEO:
- “Our industry has an ‘innovation paradox.’ We are constantly driving for innovation on the one hand, while being risk averse on the other. Pharma companies still hope for the ‘blockbuster party,’ and they’re trapped in that model. The company that breaks through this will be the winner, and others will follow.”
- outperformers are very interested in enterprise model innovation.
- But they are also planning 40 percent more industry model innovation than underperformers.
- the question is:
- Are these outperformers pursuing more industry model innovation because they have the clout to do so?
- Or are they outperformers because of their insight and inclination to continuously question industry norms?
- it’s actually both: a reinforcing cycle.
- Innovation successes can provide the financial means and industry position to attempt bolder moves, which, in turn, can improve business performance
- thinking like an outsider
- The Enterprise of the Future does blue-sky, green-field thinking.
- Its goal is to spark innovation by thinking about “starting over from scratch.”
- It finds ways to work with people and organizations that are not part of the industry status quo to develop new models.
- It challenges every assumption of its business model
- just as an outsider would
- drawing breakthrough ideas from other industries
- The Enterprise of the Future is a student of other industries because it realizes that game-changing plays spread like wildfire.
- It scours customer and technology trends that are transforming other sectors and segments of the market and considers how they could beapplied to its own industry and business model.
- experimenting creatively in the market, not just in the lab
- The Enterprise of the Future often pilots models in the marketplace, obtaining realtime feedback and making iterative adjustments.
Corporate Social Responsibility
- “I see corporate responsibility going through three phases. People start to consider issues like the environment because they are compelled to do so. Then they realize that it actually makes business sense. Eventually they move beyond compulsion and selfish motives to become passionate becauseit is the right thing to do.” (Vinod Mittal)
- customer expectations of corporate social responsibility (CSR) are increasing
- environment is one obvious touchstone:
- climate change has become an urgent call to action for citizens and companies around the world.
- has sensitized both citizens and corporations to the wide array of environmental and social issues that they can do something about.
- from child labor to recycling to product safety
- only three external forces have consistently ranked higher than CSR in consecutive surveys:
- socioeconomic factors, environmental issues and people skills
- but: all three are linked to CSR.
- With talent in short supply, employers’ CSR reputations are an important tool to attract and retain employees.
- Companies are also recognizing that they are being held mutually accountable, along with the public sector, for the socioeconomic well-being of theregions in which they operate.
- Regulatory compliance is not CEOs’ chief concern
- “Environmental legislation is less of a problem. It is reasonably easy to be ISO 14000 certified. It is much harder to face media and political pressure from socially active environmental NGOs.”
- CSR is impacting top and bottom lines
- “Our organization is responding aggressively to green issues in the marketplace, which have become the focus of several of our key customer segments. We are introducing newgreen-based insurance products into the market.”
- “Consumers will increasingly make choices based on the sources of the products they buy, even the ingredients and processes used in making these products.”
