Leadership in a global reality
6th December 2011
Preben Thalund Madsen, Partner IBM Global Business Services
© 2011 IBM Corporation
The Global CEO Study 2010 is the fourth biennial CEO study, building on
our insights and findings over the last 6 years
2004
Your turn!
Key Findings
 Revenue growth is the
number one priority
 Responsiveness is a new
key competence
 Improving internal
capabilities is a first step
toward growth
456 CEO interviews
2006
Innovation
2008
Enterprise of the Future
2010
Capitalizing on Complexity
Key Findings
 Business model innovation
matters
 External collaboration is
indispensable
 Innovation must be
orchestrated from the top
Key Findings
 Hungry for change
 Demanding customers as
opportunity to differentiate
 Extensive business model
innovations
 Moving towards global
business designs
Key Findings
 Rapid escalation of
complexity creates need to:
 Embody creative
leadership
 Reinvent customer
relationships
 Build operating dexterity
765 CEO interviews
1,130 CEO interviews
1,541 CEO interviews
© 2011 IBM Corporation
In this largest known sample of face-to-face CEO interviews, we
spoke with over 1,500 CEOs and public sector leaders
The study represents organizations in 60
countries and 33 industries
13%
Communications
20%
Public
21%
North America
25%
Growth markets*
25%
Distribution
12%
Japan
24%
Industrial
42%
Europe
18%
Financial Services
Sectors
Regions
Note: The CEO response sample has been weighted based on 2008 Actual Regional GDP of the IMF World Economic Outlook, October 2009;
* Growth Markets include Latin America, Asia Pacific (excluding Japan), Middle East and Africa
© 2011 IBM Corporation
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2011 IBM Corporation
CEOs are confronted with massive global shifts in the New
Economic Environment
Mature markets retain
economic power
10 14%
76%
Consumer demand, economic
power and innovation skewed
towards mature markets
Small government, light
regulation
Consumer demand, economic
power and innovation shifting
to rapidly developing markets
16% 14%
70%
Move or return to unrestrained
markets with limited state
ownership or regulatory reform
Slow down or reversal of
globalization
Big government, heavier
regulation
Greater government involvement,
more regulation and government
as a stakeholder in strategic
businesses
17% 16%
67%
Continued globalization
Global capital flows, trade, access
to markets, skills and knowledge
Increased protectionism,
dominance of local interests
and local requirements
Not at all/to a limited extent
Rapidly developing markets
gain economic power
To some extent
To a large/very large extent
Source: Q8 Which of these future scenarios for the next five years do you consider more realistic? Globalization n=1,515; Markets n=1,502; Government n=1,519
© 2011 IBM Corporation
Continued rise of technology as key external factor for CEOs
Three most important “external” forces over the next three years
Source: Q1 What are the 3 most important “external” forces that will impact your organization over the next 3 years? n=1,538
© 2011 IBM Corporation
Vast majority of CEOs experience the New Economic Environment
as distinctly different
The New Economic Environment
13%
18%
More volatile
69%
Deeper/faster cycles, more risk
14%
21%
More uncertain
65%
Less predictable
18%
22%
More complex
60%
Multi-faceted, interconnected
26%
21%
Structurally different
53%
Sustained change
“Last year’s experience was a wake-up call, like looking into the
dark with no light at the end of the tunnel.”
President and CEO,
Industrial Products, The Netherlands
Not at all/to a limited extent
To some extent
To a large/very large extent
Source: Q7 To what extent is the new economic environment different? Volatile n=1,514; Uncertain n=1,521; Complex n=1,522 ; Structurally different ,
© 2011 IBM Corporation
CEOs are now challenged to close the complexity gap and use
complexity to their advantage
Expected level of complexity and preparedness to handle
Expect high/very high level of
complexity over 5 years
79%
49%
30
%
Complexity gap*
Feel prepared for expected
complexity
“Complexity should not be viewed as a burden to be avoided; we see it as a
catalyst and an accelerator to create innovation and new ways of delivering
value.”
Juan Ramon Alaix
President, Pfizer Animal Health, United States
“The world is non-linear, so the ability to cut through complexity relies on
processing a large amount of information quickly and extracting nuggets to make
quick decisions. Building advantage will be an outcome of dealing with complexity
better than our competitors”
Julian Segal
Director and CEO, Caltex Australia Limited, Australia
* Complexity gap = difference between expected complexity and the extent to which CEOs feel prepared to manage complexity
Source: Q10 How much complexity will your organization have to master over the next 5 years? n=1,512; respondents who selected “More/significantly more complexity”; Q12 How
prepared do you feel for the expected complexity ahead? n=1,508; respondents who selected “Fully prepared”
© 2011 IBM Corporation
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Complexity challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2011 IBM Corporation
We identified Standout organizations that delivered superior performance
during both the long term and recent short term
Top 50 percent
Long-term,
steady-state performance
Performance Analysis Framework
Standouts
Top 50 percent
Short-term,
crisis performance
Long-term Performance
4 year operating margin CAGR (2H03/1H04 – 2H07/1H08)
Short-term Performance
1 Year operating margin growth (2H07/1H08 - 2H08/1H09)
© 2011 IBM Corporation
Standouts are also better prepared to manage the expected
complexity
Top 50 percent
Long-term,
steady-state performance
Complexity gap*
“Really, I am not afraid of
22
%
Gap
6
%
Gap
Standouts
52
%
Gap
35
complexity at all. On the
contrary, this just motivates
me.”
Jacques Pellas
Secrètaire Général, Dassault Aviation,
France
%
Gap
Top 50 percent
Short-term,
crisis performance
* Complexity gap = Difference between expected complexity
and the extent to which CEOs feel prepared to manage it
Note: Long-term performance: 4 year operating margin CAGR (2H03/1H04 – 2H07/1H08); Short-term performance: 1 year operating margin growth (2H07/1H08 - 2H08/1H09)
Source: Q10 How much complexity will your organization have to master over the next 5 years? n=299; Q12 How prepared do you feel for the expected complexity ahead? n=296
© 2011 IBM Corporation
Standouts capitalize on complexity in three ways
• Creativity is #1 leadership quality
• Drive change in the organization to
stay ahead of market and use a
wide range of communication
styles and tools
• Break with status quo of industry,
enterprise and revenue models
© 2011 IBM Corporation
Creativity is the #1 leadership quality
Most important leadership qualities over the next five years
Creativity
60%
Integrity
52%
Global thinking
35%
Influence
30%
Openness
28%
Dedication
26%
Focus on sustainability
26%
Humility
Fairness
12%
“Creativity is vital in a complex
environment.”
Government Official,
Hong Kong
“Only leaders who act with integrity
shall and will survive.”
12%
CEO, Electronics Industry,
Switzerland
Source: Q19 Which of the following leadership qualities do you think are most important in the next five years? n=1,538
© 2011 IBM Corporation
Standouts focus on quick decisions despite uncertainty
Ways in which to achieve rapid change over next five years: Decision Making
Standouts
15%
42%
43%
Others
31%
41%
Thorough decisions
28%
Both
54
%
more
Quick decisions
“We need to keep making quick decisions instead of waiting and thinking about it: good
decisions that may not be absolutely right because we don't know all the information. We
have left competitors behind by making quick decisions – it is a differentiating factor for us.”
CEO,
Life Sciences, Belgium
Source: Q21 How will you realize rapid change over the next 5 years? Quick decision vs thorough decision n=299
© 2011 IBM Corporation
Standouts leap ahead with new management and leadership styles
and balanced communication approaches
Standouts realizing rapid change over the next five years: Management Style
Ad-hoc
8% 13%
initiatives
Command
and control
Top-down
communication
33%
17%
25%
Continuous
change
79%
58%
28%
39%
Both
Source: Q21 How will you realize rapid change over the next five years? n=300
Persuade and
influence
(Managed) viral
communication
“There isn’t the luxury of time. We used to
say, ‘Wait until this crisis is over and we get
back to normal,’ but that never happens. We
have to be ‘change animals.’ ”
Michele McKenzie
President and CEO, Canadian Tourism Commission, Canada
© 2011 IBM Corporation
So what builds creative leadership?
Recommendations
 Embrace ambiguity: Reach beyond silos,
exemplify breakthrough thinking, act despite
uncertainty.
 Take risks that disrupt legacy business
models: Pilot radical innovations, continually
tweak your models, borrow from other
industries’ successes.
 Leapfrog beyond “tried-and-true”
management styles: Strengthen your ability
to persuade and influence, coach other
leaders, use a wide range of communication
approaches.
Tough questions to consider
 How will you develop the critical capabilities
to enhance creativity among your leadership?
 In what ways can you explore, reward and
integrate diverse and unconventional points of
view?
 What is your approach to evaluate every
element of your business model to get the
most from currently untapped opportunities?
 How will you leverage new communication
styles, technologies and tools, both to lead a
new generation of talent and encourage
breakthrough thinking?
© 2011 IBM Corporation
Standouts capitalize on complexity in three ways
• “Getting closer to customers” is the
single most important theme
• Better understand customer needs
through collaboration and info sharing
• Exploit the information explosion to
deliver unprecedented customer
service
© 2011 IBM Corporation
“Getting closer to the customer” is THE top priority for Standouts
Dimensions to focus on over the next 5 years
Getting closer to customer
Getting closer to customers
88%
95%
People skills
81%
Insight and intelligence
Enterprise model changes
more
83%
76%
57%
Risk management
55%
Industry model changes
54%
Revenue model changes
14
%
51%
Others Standouts
“To surprise customers requires unexpected
ideas through interactions of people with
diverse perspectives.”
Shukuo Ishikawa
President and CEO, Representative Director, NAMCO
BANDAI Holdings, Inc. Japan
“Our customers want personalization of
services and products. It is all about the
market of one.”
Tony Tyler
CEO, Cathay Pacific Airways, Hong Kong
Source: Q13 Which of the following dimensions will you focus on more to realize your strategy in the new economic environment over the next 5 years? n=1,523, n=303
© 2011 IBM Corporation
CEOs want to better understand customer needs and actively work
with them
CEOs’ view of “How customer expectations will change over the next 5 years”
Better understanding of needs
82%
New or different services
70%
More collaboration, information sharing
69%
New or different products
61%
New or different channels
51%
Increased focus on social responsibility
46%
Stronger focus on price-value equation
45%
All participants:
To a large/very large extent
To some extent
12%
6%
20%
20%
11%
22%
17%
24%
25%
30%
24%
10%
24%
31%
Not at all/to a limited extent
Source: Q15 To what extent will your customers’ expectations of you change over the next five years? n=1,518
© 2011 IBM Corporation
Customer-centric CEOs exploit the information explosion to better
understand and serve customers
Deep dive analysis: CEOs that scored high or very high on “getting closer to the customer”
Customer focused CEOs use data...
More focus on
insight and intelligence
to realize strategy
Impact on organization of
information explosion
29
63%
%
more
“Information is not
78%
Customer
focused
CEOs
Dr. Paul Byrne,
President,
Grant MacEwan University
Canada
18
%
more
“Insight and
66%
foresight are linked
with leadership. It's
insight that helps to
capture opportunity.”
well validated. The
problem is a
‘misinformation
explosion.’ ”
49%
Other
CEOs
... to generate insight and intelligence
Other
CEOs
Customer
focused
CEOs
Zhou Ming, Executive Vice
President and Secretary
General,
China Council for Int’l
Investment Promotion
China
Source: Q9 To what extent will the following factors impact your organization over the next 5 years? n=1,507; respondents who selected Information explosion “to a large/very large
extent”; Q13 Which dimensions will you focus on more to realize your strategy in the New Economic Environment? n=1,516; respondents who selected insight and intelligence
© 2011 IBM Corporation
“to a large/very large extent”
So how do you reinvent customer relationships?
Recommendations
Tough questions to consider
 Honor your customers above all else:
Unprecedented level of focus, heightened
customer exposure for every employee,
measure what customers value.
 How will you engage customers in new ways
that increase interest and loyalty to generate
new demand and revenue sources?
 Use two-way collaboration to sync with
customers: Make customers part of your
team, solicit customer wants, co-innovate and
interact with customers in new ways, deliver
true process transparency.
 How can you involve customers more
effectively and directly in product and service
development?
 Profit from the information explosion: Tap
the value of limitless data, use analytics to
translate data into insight into action that
creates business results, share information
freely to build trust and improve customer
relationships.
 Can you hear the voice of your customers
through the vast amount of data? Can you
understand and act upon the information?
© 2011 IBM Corporation
Standouts capitalize on complexity in three ways
• Simplify operations and products to
better manage complexity
• Use iterative strategies, make quick
decisions and execute with speed
• Integrate globally, increase cost
variability and exploit partnering to
increase agility
© 2011 IBM Corporation
Standouts simplify operations and products to better manage
complexity
Changes to operating strategy: Simplify
Others
47%
Standouts
61%
30
%
more
“Simplification and standardization are
“When things look very simple, you need
key strategies that we have been using
for several years to reduce existing and
future complexity.”
to look for a competitive edge. When
things are complex, you simplify to get
the competitive advantage”
Brenda Barnes,
Chairman and CEO, Sara Lee, United States
Graeme Liebelt,
Managing Director and CEO, Orica Limited, Australia
Source: Q18 How will you change your operating strategy? Manage complexity versus simplify n=294
© 2011 IBM Corporation
CEOs that prioritize speed and dexterity are increasing the share of
variable cost
Deep dive analysis: CEOs that selected ‘iterative strategies, quick decisions and execute with speed’
Changes to operating strategy of operational dexterity focused CEOs
Dexterous CEOs
12%
12%
76%
CEOs not prioritizing dexterity
14%
26%
Increase share of fixed cost
27
%
more
60%
Both
Increase share of variable cost
Source: Q18 How will you change your operating strategy? Fixed versus variable cost n=170
© 2011 IBM Corporation
Speed and dexterity enable revenue growth from new sources
Deep dive analysis: CEOs that selected ‘iterative strategies, quick decisions and execute with speed’
Revenue generated from new sources
Others
15%
Last 5 years
Dexterous CEOs
20%
33
%
20
%
more
Others
25%
Next 5 years
Dexterous CEOs
30%
more
“Scaling for growth takes a balance of operations, innovation and business model changes to
enable growth to the next level of a business. Leadership needs to balance the timing to
make the right changes at the right time.”
Jay Geldmacher
Executive VP, Emerson, United States
Source: Q16 What percentage of our revenue (budget) comes from new sources, such as new products or services, new markets or new industries? Median of percentage for past five
years n=1380 and median of percentage next five years n=1,388
© 2011 IBM Corporation
So what are the steps to build operating dexterity?
Recommendations
Tough questions to consider
 Simplify whenever possible: Simplify
interactions with customers, simplify products
and services by masking complexity, simplify
for the organization and partners.
 In what ways can you simplify processes,
without ignoring underlying complexity, and
develop the agility required to execute
rapidly?
 Manage systemic complexity: Put
complexity to work for your stakeholders, take
advantage of the benefits of analytics.
 How can your organization benefit from taking
on more complexity on behalf of your clients
or customers?
 Promote a mindset of speed and flexibility:
Act quickly, push execution speed, coursecorrect as needed.
 How will you integrate and analyze timely
information to gain insight, make quick
decisions and enable dynamic course
correction?
 Be “glocal”: Leverage the world through
partners, constantly tune your operating
model – global where possible, local where
necessary.
 Have you implemented asset and cost
flexibility and defined partnering strategies to
compete in your chosen markets?
© 2011 IBM Corporation
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Complexity challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2011 IBM Corporation
Seizing the upside of complexity
1
Embody
creative
leadership
2
Reinvent
customer
relationships
3
Build
operating
dexterity
Embrace ambiguity
Honor your customers
above all else
Simplify whenever
possible
Take risks that disrupt
legacy business models
Use two-way
communications to
sync with customers
Manage systemic
complexity
Leapfrog beyond
“tried-and-true”
management styles
Profit from the
information explosion
Promote a mindset of
being fast and flexible
Be “glocal”
© 2011 IBM Corporation
IBM Institute for Business Value
IBM Strategy & Change
APPENDIX 1
Geographic differences
© 2011 IBM Corporation
Geographical divergence of perspectives and actions adds another
layer of complexity
Three most important external factors by geography
North America (US, Canada)
Market factors
Regulatory concerns
Technological factors
45%
41%
40%
European Union
Market factors
Technological factors
Macroeconomic factors
China
Market factors
Macroeconomic factors
Technological factors
57%
39%
36%
Japan
54%
45%
45%
Market factors
Globalization
Technological factors
78%
41%
40%
“Globalization brings complexity. We must localize decision making to where the action
is.”
CEO, Retail Company, United States
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538
© 2011 IBM Corporation
North America: Concerned about the impact of regulation and
government
3 Most important external factors
North America (U.S., Canada)
Market factors
Regulatory concerns
Technological factors
45%
41%
40%
87%
EU
China
Japan
70%
53%
50%
NA CEOs are least focused on risk management to
realize their strategic goals
North America
EU
China
Japan
to get our product to market is slowing
down.”
CEO,
Medical Device Company, United States
NA CEOs expect “big government” and regulation
North America
“Due to government regulations, cycle time
NA CEOs are least likely to change organization and
governance
North America
37%
EU
49%
Japan
67%
China
67%
NA CEOs see integrity as top leadership quality
North America
45%
65%
EU
50%
64%
68%
China
Japan
48%
30%
29%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538; Q8.2 Which of these future scenarios of the next five
years do you consider more realistic? Small vs. Big government n=1,519; Q13.4 Which of the following dimensions will you focus on more to realize your strategy in the new
economic environment over the next 5 years? Risk Management n=1,511; Q17.3 To what extent will you make changes to your operating model in the next 5 years?
© 2011 IBM Corporation
Organization and governance n=1,508; Q19 Which of the following leadership qualities do you think are most important in the next 5 years? n=1,538
European Union: Using middle of the road strategies, balancing all
3 Most important external factors
European Union
Market factors
Technological factors
Regulatory concerns
over four continents using today's
technology.”
57%
39%
35%
Managing Director,
Retail, United Kingdom
EU CEOs least impacted by talent shortage
EU
45%
North America
78%
EU CEOs least impacted by shift in economic power
EU
43%
59%
69%
China
73%
Japan
EU CEOs consider client connectivity as crucial to
executing in the NEE
EU
China
48%
Japan
North America
49%
North America
Japan
47%
North America
71%
China
EU CEOs are least likely to focus on enterprise model
innovation
EU
58%
Japan
“Technology is already impacting our clients’
behavior, currently clients are price checking
74%
China
48%
35%
21%
11%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1538; Q9 To what extent will the following factors impact your
organization over the next 5 years? Talent Shortages n=1,523, Shift in economic power to rapidly developing markets n=1,499; Q13 Which dimensions will you focus on more to
realize your strategy in the new economic environment over the next 5 years? Enterprise Model Innovation n=1,491; Q22 What are the 3 most crucial capabilities your
© 2011 IBM Corporation
organization needs to be successful in executing in the next 5 years? Client connectivity n=1,538
China: Increasing global impact but challenged to build capabilities
3 Most important external factors
China
Market factors
Macroeconomic factors
Technological factors
54%
45%
45%
EU
Japan
North America
so the enterprise model has to keep pace with
the fast-changing environment. You cannot run a
business of 1,000 people with same model as
one with 100 people.”
General Manager,
Retail, China
CEOs in China are less concerned about volatility
China
“China is making leaps in economic development,
51%
CEOs in China are most focused on industry model
innovation
China
70%
Japan
71%
CEOs in China are most focused on building new
skills and capabilities
83%
Japan
56%
North America
75%
China
72%
82%
55%
49%
EU
CEOs in China see “global thinking” as a top
leadership quality
61%
China
Japan
42%
North America
66%
EU
33%
EU
66%
North America
33%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538; Q7.4 To what extent is the new economic environment
different? n=1,514; Q17 To what extent will you make changes to your operating model in the next 5 years? People skills and capabilities n=1,514; Q13 Which of the following
dimensions will you focus on more to realize your strategy in the new economic environment over the next 5 years? Industry model change n=1,511; Q19 Which of the following
© 2011 IBM Corporation
leadership qualities do you think are most important in the next 5 years? n=1,538
Japan: Responding to shift in economic power by increasing
execution speed and changes in operating style
3 Most important external factors
Japan
Market factors
Globalization
Technological factors
market for export. Our battlefield will be the
world.”
78%
41%
40%
President,
Banking, Japan
CEOs in Japan see the New Economic Environment as
structurally different
Japan
China
North America
EU
82%
55%
47%
China
China
EU
74%
49%
48%
43%
Japan
North America
The shift of economic power to rapidly developing
markets is most acutely felt by CEOs in Japan
North America
CEOs in Japan are most likely to see execution speed
as a crucial organizational capability
44%
EU
53%
Japan
“Rapidly developing markets will achieve
growth. It is important that we develop a
38%
34%
27%
CEOs in Japan are most focused on developing
people skills to realize their strategy
Japan
China
EU
North America
92%
82%
77%
74%
Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538; Q7.2 To what extend is the new economic environment
structurally different? n=1,523; Q9 To what extend will the following factors impact your organization over the next 5 years? Shift in economic power from mature to rapidly
developing economies n=1,499; Q22 What are the three most crucial capabilities your organizations needs to be successful in executing in the next 5 years? n=1,538; Q13
© 2011 IBM Corporation
Which of the following dimensions will you focus on more to realize your strategy in the new economic environment over the next 5 years? People skills n=1,526
IBM Institute for Business Value
IBM Strategy & Change
APPENDIX 2
Backup
© 2011 IBM Corporation
Standouts capitalize on complexity in three ways
• Creativity is #1 leadership quality
• Drive change in the organization to
stay ahead of market and use of
wide range of communication
styles and tools
• Break with status quo of industry,
enterprise and revenue models
• Simplify operations and products to
better manage complexity
• Use iterative strategies, make quick
decisions and execute with speed
• Integrate globally, increase cost
variability and exploit partnering to
increase agility
• “Getting closer to customers” is the
single most important theme
• Better understand customer needs
through collaboration and info sharing
• Exploit the information explosion to
deliver unprecedented customer
service
© 2011 IBM Corporation