IBM study: CEOs accept change as a permanent state

Wake-up call for A/NZ executives

Seeking insight into the 'enterprise of the future' IBM yesterday released the findings of what it claims is the biggest global study of CEOs ever conducted.

Based on face-to-face interviews with 1,130 CEOs from 40 countries across 32 industries, including 69 executives in Australia and New Zealand, the study identified the main challenges likely to shape the future of business.

It revealed widespread concern by CEOs about their organisation's ability to absorb and manage change as well as a widening gap between winners and losers in the global economy.

Surprisingly, a high number of CEOs saw change as an opportunity to build new competitive advantage.

Overall, 83 per cent of respondents expect substantial change in the future, an increase of 28 per cent in just two years.

But CEOs believe their ability to effectively manage change is increasing at a far slower pace.

CEOs point specifically to their own customer base as the source of the most important changes they will have to address, as two new and more demanding classes of customers emerge.

They are the 'information omnivore', and the 'socially-minded' customer. Of all the trends identified in the study, CEOs plan their biggest increases in spending to be directed at responding to these two customer sets.

The "information omnivore" craves all types of information and often broadcasts its views and expectations worldwide via the Internet.

These customers are described in the study as producers creating entertainment and advertising content for their peers, while demanding flexibility and responsiveness from companies with whom they choose to do business.

Although these customers are more demanding, the majority of CEOs do not see them as a threat, but as an opportunity for differentiation based on meeting the heightened expectations of this group, and capitalising on new market opportunities that will emerge, the study said.

Overall CEOs are planning a 22 per cent increase in investments in the next three years to serve these more sophisticated and demanding customers.

The investment is even more pronounced among financial out-performers.

CEOs of firms with higher net profit margin growth indicate that investments targeted at information omnivores will increase 36 per cent over the next three years.

The majority of these new investments will be dedicated to new operational capabilities that improve collaboration and product innovation, and are more oriented to transparency and tailored to specific market segments.

The study shows the impact of the information omnivore is driving investment in every major geography.

Respondents also agreed there is a significant rise in customer expectations around corporate social responsibility ('CSR') which will play an important role in differentiating an enterprise in the future.

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The study findings show customers are coalescing around organisations' CSR profile - including, but not limited to "green" initiatives -- and are increasingly demanding socially-minded products, services, and even supply chains.

CEOs indicated that while customers have always cared about societal issues, those concerns are now more frequently turning into action as the more socially aware customer evaluates an enterprise's CSR profile before making purchasing decisions.

To better understand and reach the new socially-minded customer, CEOs plan to increase their investments by 25 per cent over the next three years, the largest percentage increase of any trend identified in the study.

The study shows that while increasing CEO concern about environmental issues has doubled over the past four years globally, this concern is not evenly distributed worldwide.

Asia Pacific and European CEOs lead the world in focusing on environmental issues, followed by the Americas.

CEOs also revealed that CSR reputations are also an important tool to attract and retain employees.

Overall, CEOs recognise CSR is critical to maintaining current market share.

IBM Global Business Services senior vice president, Ginni Rometty, said the enterprise of the future accepts change as a permanent state within their organisations.

"Those CEOs who demonstrate the capacity to manage major change know they can beat the competition by reaching new classes of customers, and making bold moves to shift business design around principles of global integration," Rometty said.

"And it's clear that out-performers are distancing their enterprises from the competition based on their organisational capacity to take advantage of change."

According to IBM's A/NZ strategy and change practice leader, Matt English, the global findings are broadly consistent with trends in the local market.

English said the change gap is as strong locally as it is globally, and is a wake-up call to businesses in A/NZ.

He said this gap highlights an urgent need for CEOs to sharpen capabilities throughout their organisations, and the pressure is on to manage change effectively.

However, local CEOs revealed significant differences from the global findings in relation to the external forces that will shape their business and investment opportunities.

"The CEOs interviewed from Australia and New Zealand highlighted people skills as the greatest external force impacting their business in the next three years," English said.

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"We also found that local CEOs view corporate social responsibility as a key business opportunity, and plan on dramatically increasing their focus and investment in this area."

Global integration was another significant factor in the study's findings revealing fundamental shifts in expectations from these more demanding customers.

The increased purchasing power of these customers in emerging markets is driving major changes in the business models of organisations worldwide.

CEOs plan bold moves around business designs that facilitate faster and more extensive collaboration on a worldwide scale, and rapid reconfiguration when new opportunities appear.

An estimated 86 per cent of respondents plan substantial changes in the capabilities that distinguish leading organisations - their knowledge and asset mix.

CEOs expect to carefully calibrate business model designs based on principles of global integration, which includes global searches for sources of expertise, resources and assets that can help it differentiate.

Moreover, to take advantage of global integration opportunities, 75 per cent intend to actively enter new markets and 85 per cent plan to partner to capitalise on global integration opportunities.

IBM's 'enterprise of the future' study was conducted in conjunction with the Economist Intelligence Unit with interviews conducted in late 2007 and early 2008.

Participants represent private and public sector organisations with 19 per cent of companies employing more than 50,000 employees while 22 per cent have less than 1,000 employees.