GLOBAL CEO STUDY

This study is based on conversations with more than 1,000 CEOs and Public Sector Leaders worldwide.
Samuel J. Palmisano
Chairman, President and Chief Executive Officer
IBM Corporation
letter from the chairman 3

A Note to Fellow CEOs

This year marks the third biennial IBM Global CEO Study. In this year’s
study, more than 1,000 of you — CEOs and leaders of institutions
across the public and private sectors— once again shared your expe-
riences and plans, and looked even farther out onto the horizon,
building a remarkably detailed picture of the future of the enterprise.

You told us that you anticipate even more change ahead. And
despite an acute awareness of the difficulty of keeping pace, you
are, on balance, strikingly optimistic and action oriented. This is clear
from the kinds of changes you are planning. They are not small-bore.
For example, you recognize that your customers are far more
informed, and far more demanding today. But instead of viewing this
as a problem, you see it as an opportunity— to draw on their energy
and ideas to collaborate and to differentiate your companies.

I find this deeply encouraging — and it strongly reinforces IBM’s own

experience. We have been observing these same changes in busi-
ness, technology and global markets for several years, and they have
led us to reinvent our portfolio of products and services, to globally
integrate our company, and to change the way we work with our
clients, our approach to R&D, our workforce management practices,
and the way we run our company.
4 letter from the chairman

In the end, the proof of any leader’s decisions is in their outcomes.

And our clients’ experience is consistent: A focus on innovation
works. That is also evident in this year’s study results. Those of you
who are making the boldest plays — pursuing the most global,
collaborative and disruptive business model innovation — are out-
performing your peers.

I hope you find our Global CEO Study helpful, and I’d like to thank all
of you who participated, renewing a conversation that we expect to
continue for many years.

Samuel J. Palmisano
Chairman, President and Chief Executive Officer
IBM Corporation
table of contents 5

how our research was conducted 06

EXECUTIVE SUMMARY 07
CHAPTER ONE HUNGRY FOR CHANGE 13
CHAPTER TWO innovative BEYOND CUSTOMER IMAGINATION 23
CHAPTER THREE GLOBALLY INTEGRATED 33
CHAPTER FOUR DISRUPTIVE BY NATURE 47
CHAPTER FIVE GENUINE, NOT JUST GENEROUS 59
Building your enterprise of the future 70
ACKNOWLEDGMENTS 72
ABOUT IBM GLOBAL BUSINESS SERVICES 73
NOTES and sources 74
FOR FURTHER INFORMATION 76
6

How our research was conducted

This study is the third edition of our biennial Global CEO Study series.

40 nations
from around
the world
This year’s research is based on surveys of 1,130 CEOs, general
managers and senior public sector and business leaders from around
the world.1 IBM leaders conducted more than 95 percent of these

32 different
industries
interviews face to face. The Economist Intelligence Unit administered
the remainder by telephone.

19% are companies

employing more than
50,000 employees
As part of our research, we sought to understand differences
between the responses of financial outperformers and those of
underperformers. For companies with publicly available financial

22%
have less than 1,000
employees
information, we compared revenue and profit track records with the
averages for those in the same industry across our sample.2 Companies
that performed above average on a particular financial benchmark
were tagged as outperformers, and those below the average were
labeled as underperformers. Throughout our analyses, we looked for
insights based on these top- and bottom-half groupings.

FIGURE 1 More than 1,000 CEOs worldwide participated in this study

Our sample was geographically diverse and spanned both emerging and established economies.

japan 121 European union 364 north america 290

asia Pacific (non-japan) 248 non-European union 39 south america 68
 7

Executive Summary
What will the Enterprise of the Future look like? To answer that ques-
tion, we spoke with more than 1,000 CEOs from around the world. These “The rate of change has
increased dramatically.
conversations, together with our statistical and financial analyses, Customers are demanding
provide a unique perspective on the future of the enterprise. radical change in product
innovation. Our company
will need to greatly increase
CEOs are rapidly positioning their businesses to capture the growth
its capabilities to deal with
opportunities they see. Our discussions about their plans and chal- these demands.”
lenges revealed several striking findings: Dennis Jönsson, CEO, Tetra Pak

Organizations are bombarded by change, and many are struggling

to keep up. Eight out of ten CEOs see significant change ahead, and
yet the gap between expected change and the ability to manage it
has almost tripled since our last Global CEO Study in 2006.

CEOs view more demanding customers not as a threat, but as an

opportunity to differentiate. CEOs are spending more to attract and
retain increasingly prosperous, informed and socially aware customers.

Nearly all CEOs are adapting their business models — two-thirds are
implementing extensive innovations. More than 40 percent are
changing their enterprise models to be more collaborative.
 8 executive summary

CEOs are moving aggressively toward global business designs,

“Developing countries deeply changing capabilities and partnering more extensively.
grow gradually at first, then
suddenly emerge as large CEOs have moved beyond the cliché of globalization, and organi-
markets. We must be zations of all sizes are reconfiguring to take advantage of global
prepared to respond quickly. integration opportunities.
This will require us to
make fundamental changes
to our business now, rather Financial outperformers are making bolder plays. These companies
than implement event- anticipate more change, and manage it better. They are also more
driven reactions.”
global in their business designs, partner more extensively and choose
Yasuo Inubushi, President, Kobe Steel
more disruptive forms of business model innovation.

Introducing the Enterprise of the Future

These findings — across industries, geographies and organizations of
different sizes — paint a surprisingly similar view of the traits that we
believe will be needed for future success. At its core, the Enterprise
of the Future is …

HUNGRY innovative GLOBALLY DISRUPTIVE GENUINE,

FOR BEYOND INTEGRATED BY NOT JUST
CHANGE CUSTOMER NATURE GENEROUS
IMAGINATION
executive summary 9

Hungry for Change

“The consumer’s concept
The Enterprise of the Future is capable of changing quickly and of quality will no longer
successfully. Instead of merely responding to trends, it shapes and be measured by only the
leads them. Market and industry shifts are a chance to move ahead physical attributes of a
product — it will extend to
of the competition. the process of how the
product is made, including
innovative Beyond Customer Imagination product safety, environmen-
tal compliance and social
The Enterprise of the Future surpasses the expectations of increas-
responsibility compliance.”
ingly demanding customers. Deep collaborative relationships allow it
Victor Fung, Chairman, Li & Fung
to surprise customers with innovations that make both its customers
and its own business more successful.

Globally Integrated
The Enterprise of the Future is integrating to take advantage of today’s
global economy. Its business is strategically designed to access the
best capabilities, knowledge and assets from wherever they reside in
the world and apply them wherever required in the world.

Disruptive By Nature
The Enterprise of the Future radically challenges its business model,
disrupting the basis of competition. It shifts the value proposition,
overturns traditional delivery approaches and, as soon as opportu-
nities arise, reinvents itself and its entire industry.

Genuine, Not Just Generous

The Enterprise of the Future goes beyond philanthropy and compliance
and reflects genuine concern for society in all actions and decisions.
 10 executive summary

Seizing the opportunities

Grounded in the collective insights and wisdom of more than 1,000

“Simply put, we want CEOs, we offer the Enterprise of the Future as a benchmark and
significant share in markets
growing faster than others, blueprint for CEOs, corporate officers and boards of directors around
which for us is more than the world. It is an aspirational goal: some companies already exhibit
25 percent.”
particular traits, but few, if any, embody them all. Based on our
Ron Logue, Chairman and CEO, conversations and analyses, we believe that significant financial
State Street
opportunity awaits those that become Enterprises of the Future.

Using this report

This Global CEO Study report presents findings related to each of the attributes of the Enterprise of the
Future. It draws on the rich insights from our CEOs through statistical and financial analyses as well as the
voices of the CEOs themselves. Each chapter concludes with some implications and thoughts about how
organizations can move forward toward becoming an Enterprise of the Future and a case study to illustrate
a leading company.
the
enterprise
of the
future is …
CHAPTER
ONE
 13

hungry
for
change
CEOs foresee significant change ahead.
But their confidence in their ability to
manage that change is not nearly as high.
So how will CEOs fare in an increasingly
frenetic environment? Will they be able
to respond effectively?
 14 hungry for change

“Change gap” triples

In our 2006 Global CEO Study, we were surprised when two-thirds
“We have seen more change of the CEOs said their organizations were facing substantial or very
in the last ten years than in
the previous 90.” substantial change over the next three years. But in 2008, even more
CEOs — eight out of ten — are expecting such change.
Ad J. Scheepbouwer, CEO,
KPN Telecom
This rising change challenge may be difficult for companies to meet.
CEOs rate their ability to manage change 22 percent lower than their
expected need for it — a “change gap” that has nearly tripled since
2006. While the number of companies successfully managing change
has increased slightly, the number reporting limited or no success
has risen by 60 percent.

FIGURE 2 the change gap

As the level of expected change continues to rise, many CEOs are struggling to keep up.

EXPECT SUBSTANTIAL CHANGE 65%

2006 CHANGED SUCCESSFULLY IN THE PAST

57%
8 %
CHANGE
GAP

EXPECT SUBSTANTIAL CHANGE 83%

2008 CHANGED SUCCESSFULLY IN THE PAST

61%
22% CHANGE
GAP
hungry for change 15

faster, broader, more uncertain change

So what’s causing this growing gap? Constant change is certainly
not new. But companies are struggling with its accelerating pace.
Everything around them seems to be changing faster than they can.
As one U.S. CEO told us, “We are successful, but slow.”

CEOs are also wrestling with a broader set of challenges, which

introduces even greater risk and uncertainty. In 2004, market fac-
tors, such as customer trends, market shifts and competitors’ actions,
dominated the CEO agenda. Other external factors— socioeconomic,
geopolitical and environmental issues — were seen as less critical,
and rarely made it to the CEO’s desk.

But in 2008, CEOs are no longer focused on a narrow priority list.

People skills are now just as much in focus as market factors, and
environmental issues demand twice as much attention as they did in
the past. Suddenly everything is important. And change can come
from anywhere. 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 (see Figure 3). Customer
expectation shifts, competitive threats and industry consolidation
continue to weigh on their minds. CEOs are also searching for
16 hungry for change

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. CEOs also described how technological advances are
reshaping value chains, influencing products and services and
changing how their companies interact with customers.

FIGURE 3 top three change drivers

In 2008, CEOs rated market factors, people skills and technological factors as the three external forces
3
with the greatest impact on their organizations.

48% Market factors 48%

say 84% 67%
market
factors People skills 48%
42% 44%

48%
Macroeconomic factors 35%
say 41%
people
skills Globalization

35%
Regulatory concerns
say
technological Technological factors
factors 33%
Socioeconomic factors

Environmental issues

Geopolitical issues

2004 2006 2008

“The market is so dynamic. Visibility is very low.”

Electronics CEO
“We’re making acquisitions for the people, not the assets.”
Financial markets CEO
“Technology is driving huge changes in our industry landscape.”
Government health agency leader
 hungry for change 17

Outperformers managE change better

When we looked at the financial outperformers in our sample, it was
apparent that their change gap was much smaller than that of “The key to successful
transformation is changing
underperformers.4 The smaller change gap is not because they face our mind-set. For large
fewer challenges or expect less change: outperformers actually companies, it is easy to be
anticipate more change. Outperformers are simply more successful complacent — we have to
change this. Our company
at managing change. culture must have a built-in
change mechanism.”
FIGURE 4 gap is smaller for oUTPERFORMERS
Because outperformers manage change well, they can get ahead of — and even Masao Yamazaki, President and CEO,
be the drivers of — change. West Japan Railway Company

85%

66%

19% CHANGE
GAP

OUTPERFORMERS
EXPECT SUBSTANTIAL CHANGED SUCCESSFULLY
CHANGE IN THE PAST

UNDERPERFORMERS

54%
29% CHANGE
GAP

83%
18

Implications
Clearly, the ability to change quickly and
CHAPTER successfully is becoming more critical than
ONE
HUNGRY ever. Here are a few thoughts about how the
FOR
CHANGE Enterprise of the Future approaches change.

Accepts change as a state of being

The Enterprise of the Future sees change within the organization as
a permanent state. Because of the company’s culture, employees
are comfortable with unpredictability. In an environment in which
products, markets, operations and business models are always in
flux, values and goals provide alignment and cohesion.

Hires, positions and rewards innovators

and change leaders
The Enterprise of the Future is home to visionary challengers — peo-
ple who question assumptions and suggest radical, and what some
might initially consider impractical, alternatives. It also strategically
places charismatic leaders who set direction, inspire and move the
organization forward. High performers earn differentiated rewards,
such as a stake in the business they helped create.
 19

Focuses on delivering business outcomes

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.5 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.”

Operates 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.
Case study
ABB: Engineering enterprise-wide change
Switzerland-based ABB launched its Step Change Program in 2003 to
improve productivity and cut costs. Hundreds of measures were identified
and executed on schedule, resulting in annual savings of more than
US$900 million. Launched in 2005 and still underway, the One Simple
ABB Program is reducing organizational complexity and establishing
common, global processes for Finance, Human Resources and Infor­
mation Services.

The impetus for these programs was a decision in late 2002 to focus on
the company’s core expertise in power and automation. This meant sell-
ing noncore businesses — such as upstream oil, gas and petrochemicals
units — and outsourcing nondifferentiating functions.

ABB’s change programs today consist of a broad portfolio of initiatives

with specific business and financial objectives. With members repre-
senting five global divisions, group functions and geographic markets,
the ABB Exec­utive Committee tracks progress and provides regional
accountability. With its proven change-management capabilities, ABB is
well-positioned for the future — an organization engineered for change.

The results? ABB’s successful focus on its strengths as a global leader in

power and automation technology, and its improved productivity and
cost structure, were driven largely by these enterprise-wide change
programs. In 2007, ABB’s net income increased to a record US$3.8 billion.6
 21

Are you ready?

Does your organization have a healthy appetite

for change?

Have you seeded your organization with visionary

challengers and provided them with the freedom
to effect meaningful change?

Do you manage change as a structured program

and measure change management effectiveness?

Do you have robust processes in place to

incubate new product, service and business
model concepts — and redirect investment
when required?
CHAPTER
ONE
TWO
 23

innovative
Beyond
customer
imagination
CEOs are investing heavily to capture
rising prosperity opportunities worldwide.
They are also investing more to serve
increasingly sophisticated and demanding
customers. But what will it take to convert
these investments into greater market share?
 24 innovative beyond customer imagination

Heavy investment in new markets

In rapidly developing economies worldwide, the middle class is grow-
“In a growing market, strong ing and becoming progressively more prosperous. Greater disposable
product functionality is
most important to custom- income brings new demand for more sophisticated, higher-value
ers. However, in a mature products and services. As one real estate CEO from India highlights,
market, we must also appeal “In India, 400 million consumers will demand new housing in the next
to customers’ feelings and
emotions. It’s critical to find 20 years — that’s more real estate than the United States has built
the ideal balance of both.” since the Second World War.”
Motoki Ozaki, President and CEO,
Kao Corporation Meanwhile, in established economies, significant wealth accumula-
tion among aging baby boomers and a corresponding increase in
young, affluent inheritors are boosting prosperity in what some
might otherwise consider flat-growth markets.

In both developed and rapidly developing economies, rising pros-

perity is creating growth opportunities for many companies — and
CEOs are upbeat about this trend. However, CEOs cautioned that
using the same go-to-market strategies, products and services
seldom works: tapping into these new geographic and demographic
segments will require a deeper understanding of these customers
and a more tailored approach.
 innovative beyond customer imagination 25

FIGURE 5 Two-thirds of CEOs see opportunity and are investing

CEOs will devote more than one-quarter of their total annual investments to capture rising
7
prosperity opportunities.

NEGATIVE IMPACT
14%

27.5% INVESTMENT NEXT 3 YEARS

19
NO IMPACT
19%
INVESTMENT PAST 3 YEARS
%
INVESTMENT
INCREASE
23.2%

POSITIVE
IMPACT
67%

Informed and collaborative customers:

“In the future, we will be
A chance to differentiate talking more and more
about the ‘prosumer’— a
In addition to the diverse needs of new markets, CEOs face rising consumer/producer who
expectations from increasingly informed and collaborative customers. is even more extensively
integrated into the value
chain. As a consequence,
Customers now have far more sources of information, and the enter-
production processes will be
prise is no longer the definitive authority. In a recent survey of 1,000 customized more precisely
retail consumers, 53 percent said they used the Internet to compare and individually.”
product features and prices — 25 percent did so from a mobile device Hartmut Jenner, CEO,
Alfred Kärcher GmbH
while in a store. And one in ten sent text messages to friends and family
during shopping trips to get input or share information on products.8
26 innovative beyond customer imagination

With the billion-user Internet, customers can broadcast expectations

and share views worldwide — and publicly grade a company’s perfor-
mance against them. Like-minded customers can network socially and
pool their influence. And 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.

This informed and collaborative customer “can be both a threat and

an opportunity,” as one media CEO from Belgium pointed out.
Despite the potential downside, CEOs on the whole are optimistic.

Many CEOs consider serving the informed and collaborative cus-

tomer as an opportunity to distinguish their organizations — a chance
to justify premium positioning and price. “The more informed our
customers are and the higher their expectation levels, the better
we will be positioned to demonstrate our differentiation,” one U.S.
CEO told us.

FIGURE 6 CEOs are upbeat about informed and collaborative customers

9
CEOs are focused on the opportunity, not the threat—and are investing accordingly.

NEGATIVE IMPACT
10%

NO IMPACT
14% 20.4% INVESTMENT NEXT 3 YEARS

16.7%
INVESTMENT PAST 3 YEARS
22% INVESTMENT
INCREASE

POSITIVE
IMPACT
76%
 innovative beyond customer imagination 27

Outperformers investing more

Financial outperformers are currently devoting more than 30 percent
of their total annual investments to capture opportunities from rising “We must redefine our value
10 proposition to customers.
prosperity worldwide. Over the next three years, these new market Information and advisory
investments will increase — but not as quickly as those targeting content are becoming
informed and collaborative customers. Outperformers plan to spend even more valuable than
traditional drivers.”
36 percent more to serve these increasingly sophisticated customers.11
H. Edward Hanway, Chairman
FIGURE 7 Outperformers are increasing their customer-related investments and CEO, CIGNA Corporation
Outperformers are already investing heavily in rising prosperity worldwide, and are rapidly increasing
their investment in informed and collaborative customers.

RISING INFORMED AND

PROSPERITY COLLABORATIVE
CUSTOMERS
34%
30%

14%
19%
36% INVESTMENT
INCREASE

OUTPERFORMERS
PAST FUTURE PAST FUTURE
INVESTMENT INVESTMENT INVESTMENT INVESTMENT

UNDERPERFORMERS

24%
30%
21%
24%
14% INVESTMENT
INCREASE
28

Implications
The Enterprise of the Future aims beyond
articulated needs and wants, creating first-of-
a-kind products, services and experiences that
CHAPTER
two were never asked for — but are precisely what
innovative
BEYOND customers desire. Here are some thoughts about
CUSTOMER
IMAGINATION how it accomplishes this.

Finds ways to make offerings relevant to new markets

and increasingly prosperous consumers
Global brands, products and services deliver economies of scale,
yet each market has its own culture, needs and aspirations. The
Enterprise of the Future constantly experiments and learns how to
optimize the balance. It analyzes potential markets to find niches,
white space and complacent competitors where it can capitalize on
its core strengths.

Understands timing and network effects

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.
 29

Connects everyone to the customer

Employees at all levels — from designers to warehouse employ-
ees — connect with customers through realtime information, online
interaction or, where possible, in person. The Enterprise of the Future
also develops deep relationships with leading-edge customers and
employees — those early adopters who determine market success or
failure. It test markets in these communities and collaborates with
them to develop products. In the business-to-business space, the
Enterprise of the Future invests to integrate its systems with those of
its key customers. This allows it to be a more proactive partner and
an integral part of its customers’ businesses.

Uses technology to anticipate shifts

faster than the competition
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, such as
virtual worlds, to gain insights in new ways. It also puts systems in
place that allow very fast feedback cycles. When customer prefer-
ences and demand start to shift, it knows before the competition.
Case study
Nintendo: Building market share
through customer collaboration
In the early 1990s, Nintendo’s share of the game console market was
61 percent, but by the mid-2000s, it had fallen to 22 percent.12 To regain
its leadership position, Nintendo needed to find new ways to delight
gamers — and to bring gaming to new audiences.

To do that, Nintendo went straight to the source — gamers themselves.

The company established an online community by offering incentives in
return for customer information. The company also selected a group
of experienced gamers based on the value and frequency of their
community contributions. These “Sages” were given exclusive rewards,
like previews of new games, in exchange for helping new users and pro-
viding community support.13

Through this community, Nintendo has gained valuable insights into

market needs and preferences. This has influenced everything from
game offerings — like an online library of “nostalgic” games that appeal
to older gamers — to new product design — for example, the intuitive
controls of the popular Nintendo Wii system, which have helped attract
new, casual gamers.14

By leveraging the loyalty and expertise of its core customer segment,

Nintendo has successfully connected with two new ones — women and
older men. This collaboration seems to have paid off: Nintendo is once
again ahead of its competitors, with 44 percent market share.15
 31

Are you ready?

Which of your offerings are breaking new ground,

opening entirely new segments or markets?
What can you learn from them?

Are you systematically evaluating potential

geographic markets? How do you achieve the
efficiencies of global brands, products and services
while remaining locally relevant?

When customer preferences shift, are you the first

to understand and act on this or do your competitors
react more quickly?

Are you effectively integrating disparate data

and systems to gain new customer insights?
CHAPTER
ONE
THREE
 33

Globally
Integrated
CEOs face many choices when responding
to global integration. How should they
design their businesses to take advantage
of capabilities located in other parts of
the world? When should they partner,
merge or acquire? Which markets should
they enter? In all this complexity, which
strategies work best?
 34 globally integrated

Radical changes in business design

to capitalize on global integration
As the world becomes more connected and more accessible, CEOs
“We must move to global see tremendous opportunities to expand their global reach, tapping
coordination, but with local
sensitivity. Even the back into new sources of expertise and new markets. Traditional views of
office requires balance.” globalization — labor arbitrage and riding the wave of economic
Martin Sorrell, CEO, WPP growth in China and India — are being replaced by a new focus:
global integration. By this, they mean new business designs that
facilitate faster and more extensive collaboration on a worldwide
scale and rapid reconfiguration when new opportunities appear.

In our interviews, we explored how CEOs are recalibrating their

business designs to take advantage of increasing global integration.
Their responses are outlined in Figure 8.

CEOs often had ready answers for this series of potentially complex
questions and options. Clearly, they had been thinking through these
issues for some time because they are critical levers to exploit the
opportunities of global integration. It was striking that CEOs of com-
panies of all different sizes and geographic coverage were engaged
and enthusiastic about these topics, which suggests optimization is
crucial whatever the current geographic scale.
 globally integrated 35

FIGURE 8 CEOs are embarking on major changes to their business designs

We asked CEOs to score their global integration plans along seven continuums.
Most of their answers lean toward more global optimization.

Globally oriented Equally important Locally focused

Deeply change the mix of capabilities, Maintain current mix

knowledge and assets 57% 32% 11%

Partner extensively Do everything in-house

55% 35% 10%

Actively enter new markets Defend your core

43% 37% 20%

Globalize brands/products Localize brands/products

40% 33% 27%

Optimize operations globally Optimize operations locally

39% 32% 29%

Grow through mergers and acquisitions Grow organically

24% 50% 26%

Drive multiple cultures Strive for one culture

30% 34% 36%
36 globally integrated

Deep changes in capability and asset mix

Across the entire CEO sample, more than half plan to deeply change
their organizations’ capabilities, knowledge and assets. New cus-
tomer expectations are driving some of these shifts. “We need to
move away from an operational focus to a client interface focus,”
one U.S. CEO said. “This requires new skills and a new skill mix for
the corporation.”

Operating in new geographies was another reason for updating the

mix. “We made the same mistake as everyone else — simply using our
existing domestic team to drive our international business,” explained
the CEO of an Asian utility company. “Then we realized this does not
work. We have now built a team with the right mix of business and
capital development skills.”

Though CEOs had various reasons for changing the mix, they agreed
on one point: it is difficult to do. One CEO from France saw this as his
“most important shift,” but also “the space with the most change
and difficulties.”
globally integrated 37

Partnering is pervasive —
especially among outperformers
Eighty-five percent of CEOs plan to partner to capitalize on global
integration opportunities — more than half plan to do so extensively. “A few years ago, we were
a national company; now
We also found that outperformers are 20 percent more likely to we’re a global company.
partner extensively than underperformers.16 This reinforces what we Our integrated supply
discovered in our last CEO Study: extensive collaborators outper- chain must adapt to meet
demand in 50 countries.
form their competitive peers.17 We’re going to have to
bring people in from the
CEOs see partners as a source of valuable talent — an ingredient in outside.”
short supply. “Partnering has shifted from tactical ‘Enter a new Jim Guyette, President and CEO,
Rolls-Royce North America
market’ to strategic ‘Access to capabilities’,” explained one CEO from
Hong Kong.

Majority entering new markets

With economic development and consumer purchasing power rising
in many countries, new markets are an important source of growth.
Three out of four CEOs told us they intend to actively enter new mar-
kets. This intent holds true for CEOs in emerging (72 percent) and
established (76 percent) economies and for companies of all sizes.
38 globally integrated

Global integration through M&A,

particularly among outperformers
Sixty-six percent of CEOs plan to use mergers and acquisitions (M&A)
as part of their global integration strategies. They described M&A as
a key way to rapidly expand global reach— integrating new capabili-
ties, knowledge and assets and gaining access to new customers.

Interestingly, 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.18 Prior research suggests that
frequent acquirers often become extremely effective at M&A and
can use it more successfully.19

Business designs with more global focus

As we discussed individual optimization choices with CEOs, we
found that decisions and plans in one area were often related to
those in other areas. Their responses formed an interlinked pattern
or design, not a series of independent judgments.
 globally integrated 39

Using data clustering techniques, we found four common approaches

to global integration, as described in Figure 9. More than 60 percent
of CEOs are implementing a globally oriented strategy; the remain-
der are using either a local or blended approach.

FIGURE 9 CEOs’ responses fall into four distinct clusters

The two most common approaches are more global. One focuses locally. And the fourth falls in the
middle between both extremes.

Deeply change the mix

of capabilities, knowledge Maintain current mix Extensive globalizers
and assets
Globalizers
Partner extensively Do everything in-house
Blended thinkers

Localizers
Actively enter new markets Defend your core

Globalize brands/products Localize brands/products

Optimize operations globally Optimize operations locally

Grow through mergers

Grow organically
and acquisitions

Drive multiple cultures Strive for one culture

GLOBALLY EQUALLY LOCALLY

ORIENTED IMPORTANT FOCUSED
40 globally integrated

Global clusters include

more outperformers
Examining the clusters more closely, we found a higher percentage
of outperformers in the two globally oriented ones.20 The similarity of
the two outperforming clusters implies that CEOs of more financially
successful companies have a particular business design target in
mind. They are partnering extensively to leverage global expertise,
actively entering new markets, globally optimizing their brands,
products and operations, and using mergers and acquisitions to
grow their businesses and expand their capabilities globally.

FIGURE 10 outperformers gravitate toward global business designs

More outperformers are found in the two globally oriented clusters.

39%

71
32%
%
ARE
17% GLOBALIZERS
12%
OUTPERFORMERS
EXTENSIVE BLENDED
GLOBALIZERS LOCALIZERS
GLOBALIZERS THINKERS

UNDERPERFORMERS

29%
33%
17%
21%
62% ARE
GLOBALIZERS
globally integrated 41

Need for carefully calibrated

business design
From our discussions, it is also clear that CEOs’ approaches to global
integration and optimization are carefully tailored to their businesses. “Products have to be local
with a global brand. I see
For example, global brands and products must have local relevance. us as a globally integrated
As one telecommunications CEO put it, “We need to build and main- organization with a local
tain global product platforms to preserve economies of scale — but presence and localized
products.”
we need to localize features to suit local tastes.”
Georg Bauer, CEO, BMW
Financial Services
CEOs told us the case for global optimization of back-office functions
like Finance and HR is clear cut. But optimization of core production
processes varies. For example, manufacturing of products that are
heavy, bulky or impossible to ship may need to be optimized locally.
Sales and go-to-market processes may require local knowledge and
expertise. One CEO from Italy explained, “Our business model is
based upon consolidation and globalization of back-office opera-
tions to reach critical mass and localization on business-specific
components closely related to local markets.”

CEOs also stressed the importance of having a common corporate

culture, while sustaining the diversity of local geographic cultures.
“The key for doing business abroad is not to seek homogeneity,” one
CEO from Japan observed. “Instead, we must be able to work effec-
tively with people of different cultures and from different countries.
We can learn this by working collaboratively with them.”
42

Implications
Even if an Enterprise of the Future never
“goes global,” it still understands the capabilities
available — and the competitors emerging —
CHAPTER
thREE worldwide. Here are some ways it capitalizes
globally
integrated on global integration opportunities.

Integrates capabilities globally to differentiate

The Enterprise of the Future searches worldwide for sources of exper-
tise, resources and assets that can help it differentiate. Finding the
right capabilities is much more important than finding the cheapest.
These centers of excellence are integrated globally so that the best
capabilities, knowledge and assets can be used wherever required.

Builds a carefully calibrated global business design

The Enterprise of the Future crafts its globally integrated and opti-
mized business design based on its particular mix of capabilities,
industries and geographies. It has a strategic plan for which
capabilities to keep in-house and where it will partner or acquire.
And when it does acquire, it knows how to manage the acquisition
so that anticipated benefits are fully realized.
 43

Finds and eliminates integration barriers

Flexible assets allow the Enterprise of the Future to be more agile in
the marketplace. Location decisions are made based on market and
operational needs, not dictated by property deeds or restrictive
leasing arrangements. Modular information technology, such as ser-
vice-oriented architectures, enables rapid responses to new products
and services opportunities and faster integration of new partners.

Grooms global leaders

In the Enterprise of the Future, global management development
programs identify high-potential candidates throughout the com-
pany, not just from headquarters. These programs step future leaders
through multiple global experiences, exposing them to a variety of
cultures and markets.

Recognizes the importance of social connections within

and across organizations
Social networking and realtime collaboration tools improve commu-
nication and close the distance between people in different
locations. Good ideas develop and spread quicker, and problems are
solved faster.
Case study
Li & Fung LIMITED: Growth through
global integration
With a network of 10,000 suppliers and staff in 40 different countries,
Hong Kong-based Li & Fung Limited can source from virtually anywhere
in the world and build customized solutions for its retail customers.21
Cotton can be purchased from America, knit and dyed in Pakistan and
sewn into garments in Cambodia — whatever configuration yields the
best end result. Interes­tingly, the company orchestrates the supply
chain for each of its customers without owning any piece of it.

Li & Fung has steadily moved up the value chain, changing its capability
and asset mix to provide more sophisticated— and more profitable— ser-
vices. To provide product design and brand development services in its
largest market, the United States, the company has established a
significant onshore presence. This move is just one more example of
Li & Fung’s ability to be both locally relevant and globally optimized.

Acquisitions—more than 20 in less than ten years—are a key way Li & Fung
grows market share in target geographic markets.22 Typically, it pre-
serves the front-end customer interface, which is often the reason for
the acquisition, but merges the back end with its own operation within
100 days of deal close.23

Li & Fung Limited’s global integration formula certainly seems to work:

between 1992 and 2006, revenues grew at a compound annual growth
rate of more than 22 percent.24
 45

Are you ready?

Are you effectively integrating differentiating

capabilities, knowledge and assets from around
the world into networked centers of excellence?

Does your organization have a globally

integrated business design (even if it does
not have a global footprint)?

Do you have a detailed plan for global

partnering and M&A?

Are you developing leaders that think and

act globally?

Do you nurture and support social connections

to improve integration and innovation?
CHAPTER
ONE
FOUR
 47

DISRUPTIVE
BY
NATURE
Most CEOs are embarking on extensive
business model innovation. And outperformers
are pursuing even more disruptive business
model innovations than their underperforming
peers. But will these bold moves pay off?
What will it take to truly differentiate?
48 disruptive by nature

Technology enables broader

business model possibilities
CEOs told us they are changing their business models because it is
increasingly difficult to differentiate based on products and services
alone. But they also stressed another reason: they simply have more
options now.

FIGURE 11 CEOs are making major business model changes

Virtually all CEOs are adapting their business models — two-thirds are implementing
extensive innovations.

EXTENSIVE

69%
BUSINESS MODEL MODERATE
INNOVATION OVER
THE NEXT 3 YEARS
29%
LIMITED/NONE

2%

As one U.S. CEO explained, “We’re starting to think about things we

couldn’t do before.” 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 tra-
ditional industry conventions. And these advances are not just
changing the way individual companies work — they’re creating
entirely new industries.
 disruptive by nature 49

Enterprise model innovation

most common
We also explored the different types of business model innovation
Types of business model
CEOs are implementing. In particular, we asked about enterprise innovation considered

model, revenue model and industry model innovation.

Enterprise model
Specializing and recon­
Among those making extensive changes to their business models, figuring the business to
deliver greater value by
enterprise model innovation is the dominant choice. Forty-four per- rethinking what is done
cent of CEOs are focused solely on enterprise model innovation or in-house and through
collaboration (as Cisco
are implementing it in combination with other forms of business has done by focusing on
brand and design while
model innovation. This trend toward enterprise model innovation is
relying on partners for
even more pronounced in emerging economies (53 percent). manufacturing, distribu­
tion and more).
FIGURE 12 Enterprise model innovation is most prevalent
CEOs are largely focused on reconfiguring their businesses to specialize and collaborate. Revenue model
Changing how revenue is
generated through new
MULTIPLE value propositions and new
TYPES
20% pricing models (as Gillette
did by switching the
primary revenue stream
ENTERPRISE MODEL
INNOVATION
from razors to blades).
39%
Industry model
Redefining an existing
INDUSTRY MODEL industry, moving into a
INNOVATION new industry, or creating
18%
an entirely new one (think
music industry and the
25
Apple iPod and iTunes).
REVENUE MODEL
INNOVATION
23%
50 disruptive by nature

collaboration imperative drives

enterprise model innovation
The main message we heard from proponents of enterprise model
“For us, enterprise model innovation is that going solo is increasingly difficult. “We’re very ver-
innovation is primarily
about having the right tically challenged,” one electronics CEO said when describing the
business model to enter difficulty of owning the entire value chain.
other markets and secure
new capabilities.”
CEOs can no longer afford to invest money and scarce management
Andrew Brandler, CEO, resources in activities that are not differentiating: they intend to spe-
CLP Holding Limited
cialize. One U.S. CEO explained, “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.”

While 38 percent of CEOs plan to keep work within their organiza-

tions, 71 percent — nearly twice as many— plan to focus on collabora-
tion and partnerships. CEOs told us they are pursuing more
collaborative models to gain efficiencies, fend off competitive threats
and avoid commoditization. Their end goal is to offer customers a
differentiated value proposition. “The notion of what comprises an
‘enterprise’ is critical. It must be a loosely coupled system,” said one
public sector leader from Australia. “It’s about deciding when to
collaborate, whom to involve, how to lessen the destructive force
of competition.”
disruptive by nature 51

Revenue model innovators

shift the value mix
Among those pursuing revenue model innovations, nine out of ten
are reconfiguring the product, service and value mix. Half are work- “We have become much
smarter in how we do
ing on new pricing structures. our pricing. Our pricing
model is now based on
CEOs are incorporating more services into their offering portfolios customer segmentation
and value created for
and changing one-time payment models to ones centered on
those customers.”
recurring charges. More are starting to price based on value to the
Steffen Schiottz-Christensen,
customer, rather than on cost plus. Depending on the particular Managing Director, Maersk Logistics
needs of their respective industries, some companies are bundling North Asia

to create more valuable solutions, while others are unbundling to

offer customers a menu of choices. At the same time, “customers
are getting better educated on global pricing, driving a need for
more transparency,” one CEO from Sweden explained. “Product
pricing is moving from reactive to proactive as a result.”

Interestingly, CEOs are also using revenue model innovation as part

of their geographic expansion strategies. Having the right pricing
structure, they told us, is critical when entering markets like China
and India where consumers have a wide range of incomes.
52 disruptive by nature

Industry model innovation remains rare

CEOs mentioned several reasons for not pursuing industry model
innovation. But most can be summed up with: it’s tough to do. For
similar reasons, industry model innovators are more focused on
redefining their existing industries (73 percent) than on entering or
creating entirely new ones (36 percent).

Extremely risk-averse industries present even more obstacles. As

one pharmaceutical CEO explained, “Our industry has an ‘innova-
tion 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.”

Some CEOs do not believe their companies have the appropriate

position in their industries or within their own value chains to drive
this kind of significant change. But a few do. They are the industry
leaders who ask — if not us, then who?
 disruptive by nature 53

Outperformers take on the industry

model challenge
Consistent with the overall sample, outperformers are very interested
in enterprise model innovation. But they are also planning 40 percent “When the business model
is innovative, operations
more industry model innovation than underperformers.26 The question and the product will follow
is: Are these outperformers pursuing more industry model innovation automatically.”
because they have the clout to do so? Or are they outperformers Ronald de Jong, CEO Philips CL,
because of their insight and inclination to continuously question Germany

industry norms? From our CEO conversations, we’re convinced 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.

FIGURE 13 Outperformers are more likely to pursue industry model innovation

In general, outperformers seem more willing to attempt the most difficult type of business model
change — industry model innovation.

49%

28%

28
22%
%
OF
OUTPERFORMERS

INDUSTRY MODEL ENTERPRISE MODEL REVENUE MODEL

INNOVATION INNOVATION INNOVATION

20% 20% OF
UNDERPERFORMERS

36%
44%
54

Implications

CHAPTER The Enterprise of the Future constantly searches

FOUR
disruptive for new ways to compete. Here are some ideas on
by
nature how it develops a disruptive mind-set.

Thinks 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.

draws 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 be
applied to its own industry and business model.

empowers entrepreneurs
The Enterprise of the Future understands the challenges of achieving
business model innovation from within. It empowers its entrepreneurs
with support, funding and freedom to drive disruptive change, which
may threaten competitors’ current models — and even its own.
 55

Experiments creatively in the market, not just the lab

The Enterprise of the Future often pilots models in the marketplace,
obtaining realtime feedback and making iterative adjustments. It
even uses virtual worlds — such as Second Life — to “test” models and
apply what it learns to its “real life” business.

Manages today’s business while experimenting

with tomorrow’s model
New business models are often at odds with established ones, cre-
ating inherent tension within the organization. Even if the models
are not directed at the same customers, they are still competing for
resources and attention. The Enterprise of the Future actively
manages these potential conflicts so it can try out bold business
model innovations, while ensuring business as usual delivers results.
Case study
Eli Lilly and Company: Building pipeline
through collaborative business models
To bring new medicines to market faster, U.S. pharmaceutical maker Eli
Lilly and Company integrates an extensive network of external partners
through its constantly evolving collaborative business models. In 2001,
for example, Lilly launched InnoCentive, an open marketplace for inno-
vation. On this Web site, “seeker” organizations anonymously submit
scientific challenges to a diverse crowd of more than 140,000 “solvers”
from 175 countries.27 The best solutions can earn financial awards of up
to US$1 million. Lilly has since spun off InnoCentive, and still retains par-
tial ownership in the venture.

More recently, Lilly has embarked on another business model innova-

tion — establishing itself as a Fully Integrated Pharmaceutical Network
(FIPNet). The FIPNet model is based on pioneering risk-sharing relation-
ships, such as its 2007 agreement with Nicholas Piramal India Limited
(NPIL).28 Under this contract, NPIL will develop one of Lilly’s molecules at
its own expense, from preclinical work to early clinical trials. If NPIL is
successful and the compound reaches the second stage of human test-
ing, Lilly can reacquire it in exchange for certain milestone payments
and royalties.

These collaborative business models offer several benefits: reducing

costs, increasing development capacity, accelerating the drug devel-
opment process and better leveraging not only Lilly’s assets, but also
those of its external partners. Lilly’s results speak for themselves: from
2002 to 2007, sales have increased at a compound annual growth rate
of 11 percent.29
 57

Are you ready?

Is a disruptive business model about to transform

your industry? Is it more likely to come from you
or your competitors?

Do you spend time thinking about where the

next disruption will come from?

Are you watching other industries for concepts

and business models that could transform
your market?

Are you able to create space for entrepreneurs

and innovative business models while continuing
to drive performance today?
CHAPTER
ONE
FIVE
 59

Genuine,
not just
Generous
An emerging generation of socially
minded customers, workers, partners,
activists and investors is watching
virtually every move companies make.
Recognizing this, CEOs are investing
rapidly in corporate social responsibility.
But how far will they go?
 60 genuine, not just generous

CEOs struggle to meet rapidly increasing

CSR expectations
CEOs generally agree that customer expectations of corporate social
“I see corporate responsibility responsibility (CSR) are increasing. The environment is one obvious
going through three phases.
People start to consider touchstone: climate change has become an urgent call to action for
issues like the environment citizens and companies around the world. And it has sensitized both
because they are compelled citizens and corporations to the wide array of environmental and
to do so. Then they
realize that it actually makes social issues — from child labor to recycling to product safety— that
business sense. Eventually they can do something about.
they move beyond compul-
sion and selfish motives to
become passionate because
While customers have always cared about societal issues, their con-
it is the right thing to do.” cerns are now more frequently turning into action and influencing
Vinod Mittal, Managing Director, purchasing decisions. According to a recent CSR study, 75 percent
ISPAT Industries of the companies surveyed say that the number of advocacy groups
collecting and reporting CSR-related information on them has
increased over the past three years.30

Meanwhile, many CEOs are struggling to put CSR into practice. “We
talk too much, and don’t do anything about increasing customer
expectations of corporate social responsibility,” admitted one finan-
cial services CEO.

CSR-related Factors Rising On CEO Agenda

Across our previous CEO studies, only three external forces have con-
sistently ranked higher in each consecutive survey: socioeconomic
factors, environmental issues and people skills. Interestingly, all three
are linked to CSR.
 genuine, not just generous 61

FIGURE 14 Coincidence or foreshadowing?

Of the nine change drivers we discuss with CEOs in each survey, only three continue to rise
in importance.

Percentage of CEOs selecting as a top change driver

2004 2006 2008

48%
44%
42%

18% 17%
15%
12% 12%
9%

ENVIRONMENTAL SOCIOECONOMIC PEOPLE

ISSUES FACTORS SKILLS

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 the
regions in which they operate.

CEO concern about environmental issues has doubled over the past
four years globally. However, this concern is not evenly distributed
worldwide. CEOs in the Americas are beginning to show more inter-
est, but focus is increasing faster among European CEOs. Asia Pacific
actually showed the most dramatic increase, with attention nearly
tripling since 2004.
 62 genuine, not just generous

Regulatory compliance, however, is not CEOs’ chief concern. As one

public sector leader from France points out, “Environmental legisla-
tion 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.”

FIGURE 15 the ceo agenda is going green

Concern about the environment has grown significantly over the past four years — especially
in Asia Pacific.

PERCENT OF CEOs RATING ENVIRONMENTAL FACTORS AS A TOP CHANGE DRIVER GLOBALLY

8 21
2004
9%
ASIA PACIFIC % % 2006
2004 2008
12%

15% 21%
2008
18%
EMEA
2004 2008

AMERICAS

8% 12%2004 2008
CEOs see opportunities not threats
CEOs are clearly conscious of their obligation to “do no harm” and
are painfully aware of the regulators and nongovernmental organ­
izations (NGOs) monitoring their every step. But they also see
opportunity in CSR.

CEOs talked about how CSR affects their brands— both at home and
in new markets. “Corporate identity and CSR will play an important
role in differentiating a company in the future,” one electronics CEO
said. “This will make a big difference in new markets such as Russia
and other Eastern European markets.”
 genuine, not just generous 63

FIGURE 16 CSR: obligation or opportunity?

CEOs are generally positive about the impact of rising CSR expectations and are increasing their
31
investment in this area rapidly.

NEGATIVE IMPACT
11%

13.4% INVESTMENT NEXT 3 YEARS

25 %
NO IMPACT
20% INVESTMENT PAST 3 YEARS
INVESTMENT
INCREASE
10.7%

POSITIVE
IMPACT
69%

They also described how CSR is impacting their top and bottom
lines. “Our organization is responding aggressively to green issues in “Our strong commitment to
corporate sustainability
the marketplace, which have become the focus of several of our key will be a clear differentiator
customer segments,” one U.S. CEO told us. “We are introducing new for us with all stakeholders.”
green-based insurance products into the market.” Tom Johnstone, CEO, SKF

CEOs were also quick to point out that CSR is critical to maintaining
current market share. “Consumers will increasingly make choices
based on the sources of the products they buy, even the ingredients
and processes used in making these products,” said one consumer
products CEO.
64 genuine, not just generous

New products and services top of mind

for CSR-focused CEOs
For the moment, it seems that CEOs who focus on CSR issues invest
more in new products and services than other CEOs do. This is per-
haps a sign that the initial market and consumer focus is on “socially
responsible” and “green” products and services. Over time, we
believe companies’ CSR focus will expand beyond new products
and services to a broader enterprise “footprint”— the impact they
have on the societies in which they operate.

FIGURE 17 CSR-focused CEOs are enthusiastic about new product possibilities

The focus areas of these CEOs hold a couple of surprises. They’re very interested
in new product and service opportunities for socially aware customers, however,
transparency is not currently a top priority.

Difference between the response of CSR-focused CEOs and the entire sample
Lower focus Higher focus

New Products/Services 9%

Environmental Initiatives 6%

New Operations 1%

1% New Segments

3% New Channels

3% New Markets

8% New Business Relationships

9% Transparency
genuine, not just generous 65

largest investment increase in CSR

Although current CSR investment levels are modest compared to the
other customer trends we asked about, CEOs plan to spend more “Our company is investing
extensively in corporate
over the next three years. Their CSR investments will grow by 25 per- social responsibility. We
cent, which is faster than the other trends we discussed — rising need to be a reference in
prosperity in rapidly developing and developed economies, and this domain. As the leader
of the luxury industry,
informed and collaborative customers. Interestingly, this pattern we have to stay ahead.”
holds true even among emerging market CEOs (with a 22 percent
Yves Carcelle, Chairman and CEO,
increase). One CEO from China told us, “Over the last three years, Louis Vuitton

we have invested twice as much in CSR and environment initiatives

as we have in the previous 30 years combined.”
66

Implications
Many CEOs are already moving beyond doing
good and are growing their businesses by being
CHAPTER more socially responsible. Here are some ways the
five
genuine, Enterprise of the Future approaches CSR even
not just
generous more holistically.

Understands CSR expectations

Too many companies find themselves relying on assumptions about
what CSR means to their customers. Only one-quarter of the compa-
nies surveyed in a recent CSR study said they understood customers’
concerns well.32 But the Enterprise of the Future knows what its
customers expect. It uses facts and direct customer input as the basis
for its decisions.

Informs but does not overwhelm

The Enterprise of the Future is transparent, but unobtrusive. It finds
creative ways to provide relevant information, such as codes on
packaging that allow interested customers to look up details— sourc-
ing information, potential environmental impact and recycling
instructions — while in the store or later at home.

Starts with green

Given the price of oil and rising concern over carbon emissions,
energy efficiency is critical for businesses as well as our planet. The
Enterprise of the Future often begins its CSR changes with environ-
mental initiatives. Through these efforts, it learns more about how to
effectively collaborate on issues that affect us all.
 67

Involves NGOs as part of the solution

Instead of being wary of activist groups— or simply reporting data to
them — the Enterprise of the Future collaborates with them. For
instance, it might enlist NGOs to help monitor and inspect facilities
or to assist in establishing industry standards.

Makes work part of making the world a better place

Prospective and existing employees want to work for ethical, socially
responsible organizations. But the Enterprise of the Future under-
stands that workers also want to be actively involved in solving CSR
issues. Its initiatives rally employees together in a cause that literally
makes the world a better place.
Case study
Marks & Spencer: Serious about
social responsibility

To meet growing corporate social responsibility expectations, British

retailer Marks & Spencer (M&S) has embarked on a £200-million,
five-year plan that impacts almost every aspect of its operations.

When this effort launched in 2006, the retailer knew it needed to

engage customers in solving issues, not simply provide them with
information. As one example, it gave shoppers bags “for life.” If one
wore out, its replacement was free. After four weeks, the retailer
began charging for plastic bags, donating the proceeds to environ-
mental charities. Very quickly, customers began reevaluating whether
they really needed a plastic bag. Even though the few cents didn’t
matter much financially, the fee made people stop and think.

Behind M&S’s 35,000 products sit 2,000 factories, more than 20,000
farms, fisheries and forests, and an estimated 500,000 workers in the
developing world. Through its recently established online supplier
exchange, the company strives to simultaneously improve efficiency
and sustainability. For instance, farmers who create biogases from
farm waste are now selling green electricity to M&S — along with
their beef.

M&S has proven it’s possible to do well while doing good: the com-
pany’s operating profit has increased at a compound annual growth
rate of more than 14 percent over the past five years.33
 69

Are you ready?

Do you understand your customers’ CSR

expectations? How are you involving them
in solutions?

Do you know which NGOs your customers listen

to and are you collaborating with those groups?

Have you gained insights from current green

initiatives that can be applied to your broader
corporate social responsibility strategy?

Are you offering employees the opportunity to

personally make a difference?

How do you ensure that actions taken throughout

the enterprise — and the extended value chain — are
consistent with your CSR values and stated policies?
building your
enterprise
of the
future
building your enterprise of the future 71

Thoughts and views on the future of

business — or the Enterprise of the Future,
as we call it — are evolving quickly. We feel
privileged to bring together the emerging
thinking of so many CEOs worldwide. Their
collective wisdom points to an Enterprise
of the Future that is: hungry for change,
innovative beyond customer imagination,
globally integrated, disruptive by nature
and genuine, not just generous.
But there is one more attribute evident in CEOs’ responses: despite the
challenges and issues it faces, the Enterprise of the Future is fundamen-
tally optimistic. The CEOs we spoke with are upbeat — not just about
opportunities for their organizations (important as that is), but also about
a bright future for business and society.

We would like to see this latest Global CEO Study not as the end, but
rather as a catalyst for ongoing discussions about where business and
enterprises are headed. We look forward to working with you as you build
your Enterprise of the Future.

Continue the conversation at: ibm.com/enterpriseofthefuture

72

Acknowledgments
We would like to thank the 1,130 CEOs, general
managers and senior public sector and business
leaders from around the world who generously
shared hours of time and years of experience
with us. Their compelling insights and enthusiasm
about the Enterprise of the Future were truly
invaluable and inspiring. In particular, we appre-
ciate the CEOs who allowed us to include quotes
from their interviews to highlight key thoughts
and messages throughout this report.

We would also like to acknowledge the contributions of the IBM

team that worked on this Global CEO Study:

Leadership Team: Peter Korsten (Study Executive Leader), Saul Berman,

Marc Chapman, Steven Davidson, Rainer Mehl and George Pohle

Project Team: Phaedra Kortekaas (Study Director), Denise Arnette,

Steve Ballou, Ragna Bell, Amy Blitz, Angie Casey, Sally Drayton, Christine
Kinser, Keith Landis, Kathleen Martin and Magesh Vaidheeswaran

And the hundreds of IBM Leaders worldwide who conducted the

in-person CEO interviews.
 73

About ibm global business services

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Notes and Sources

1. For readability, we refer to this collective group as “CEOs” throughout this report.

2. Based on availability of financial information, we were able to include 530 companies in our financial analysis.
For analytical and statistical reasons, 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.

3. Market factors typically include: market dynamics, competition and customer behavior.

4. Based on revenue CAGR 2003 to 2006.

5. This finding is from an IBM study called “Making Change Work,” which analyzes change management
practices based on input from more than 1,400 change managers from around the world.

6. “Strong 2007 results on continued growth and operational improvement.” ABB press release. February 14, 2008.
http://www.abb.com/cawp/seitp202/402891eccf6a8cdcc12573e20038dd15.aspx

7. In our survey, the term “total investments” was defined as: all asset investments plus investment in research
and development, marketing and sales.

8. “2007 Was the Year of the ‘Omni Consumer’ According to IBM Analysis.” IBM press release.
December 17, 2007.

9. In our survey, the term “total investments” was defined as: all asset investments plus investment in research
and development, marketing and sales.

10. Based on net profit margin CAGR 2003 to 2006.

11. Based on revenue CAGR 2003 to 2006.

12. IBM analysis.

13. “Nintendo Rewards Its Customers with New Loyalty Program.” Xbox Solution. December 11, 2003.
http://talk.xboxsolution.com/showthread.php?t=1088

14. “Casual Gamers Help Nintendo Wii Take Lead in 2008, says iSuppli.” Tekrati. February 14, 2008.
http://ce.tekrati.com/research/10080/

15. “Worldwide Hardware Shipments.” VGChartz.com, accessed March 27, 2008.

16. Based on net profit margin CAGR 2003 to 2006.

17. “Expanding the Innovation Horizon: The Global CEO Study 2006.” IBM Institute for Business Value.
March 2006. http://www.ibm.com/services/ceo2006
notes and sources 75

18. Based on net profit margin CAGR 2003 to 2006.

19. Kapur, Vivek, Jeffere Ferris and John Juliano. “The growth triathlon: Growth via course, capability and
conviction.” IBM Institute for Business Value. December 2004.

20. Based on absolute profit margin average for 2003 and 2006.

21. Li & Fung Group Web site. http://www.lifunggroup.com/front.html; “Global Reach, Local Presence.”
Li & Fung Limited. http://www.lifung.com/eng/network/map.php

22. Li & Fung Press Releases, 1999-2007.

23. Voxant FD Wire. “Li & Fung Limited–Acquisition of KarstadtQuelle Sourcing Arm–Conference Call—Final.”
October 2, 2006; IBM interview with Victor Fung, March 2008.

24. Li & Fung Limited 2006 Annual Report.

25. For more information about business model innovation, see: Giesen, Edward, Saul J. Berman, Ragna Bell and
Amy Blitz. “Paths to success: Three ways to innovate your business model.” IBM Institute for Business Value. June
2007.

26. Based on absolute profit margin average for 2003 and 2006.

27. The InnoCentive Web site. http://www.innocentive.com/

28. “Nicholas Piramal announces Drug Development Agreement with Eli Lilly and Company: Collaboration
Represents a New Clinical Development Model.” Nicholas Piramal India Limited press release. January 12, 2007.
http://www.nicholaspiramal.com/media_pr40.htm

29. Eli Lilly and Company 2002 and 2007 Annual Reports.

30. Pohle, George and Jeff Hittner. “Attaining sustainable growth through corporate social responsibility.”
IBM Institute for Business Value. February 2008.
31. In our survey, the term “total investments” was defined as: all asset investments plus investment in research
and development, marketing and sales.

32. Pohle, George and Jeff Hittner. “Attaining sustainable growth through corporate social responsibility.”
IBM Institute for Business Value. February 2008.

33. Marks & Spencer 2006 and 2007 Annual Reports.

76

For further information

To find out more about this study, please send an e-mail to the
IBM Institute for Business Value at [email protected] or contact
one of the Strategy & Change leaders below:

Americas Marc Chapman [email protected]

Asia Pacific (excluding Japan) Steven Davidson [email protected]

Japan Ryuichi Kanemaki [email protected]

Northeast Europe Rainer Mehl [email protected]

Southwest Europe John Papatheohari [email protected]

IBM Institute for Business Value Peter Korsten [email protected]

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