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© 2011 IBM Corporation Leadership in a global reality 6th December 2011 Preben Thalund Madsen, Partner IBM Global Business Services.

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Presentation on theme: "© 2011 IBM Corporation Leadership in a global reality 6th December 2011 Preben Thalund Madsen, Partner IBM Global Business Services."— Presentation transcript:

1 © 2011 IBM Corporation Leadership in a global reality 6th December 2011 Preben Thalund Madsen, Partner IBM Global Business Services

2 © 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 1,541 CEO interviews 2010 Capitalizing on Complexity Key Findings  Rapid escalation of complexity creates need to:  Embody creative leadership  Reinvent customer relationships  Build operating dexterity 2008 Enterprise of the Future 1,130 CEO interviews Key Findings  Hungry for change  Demanding customers as opportunity to differentiate  Extensive business model innovations  Moving towards global business designs 2006 Innovation 765 CEO interviews Key Findings  Business model innovation matters  External collaboration is indispensable  Innovation must be orchestrated from the top 2004 Your turn! 456 CEO interviews Key Findings  Revenue growth is the number one priority  Responsiveness is a new key competence  Improving internal capabilities is a first step toward growth

3 © 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 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 13% Communications 25% Distribution 18% Financial Services 24% Industrial 20% Public 25% Growth markets* 21% North America 42% Europe 12% Japan Sectors Regions

4 © 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

5 © 2011 IBM Corporation 16%17% 14% 10 14%16% CEOs are confronted with massive global shifts in the New Economic Environment Slow down or reversal of globalization Increased protectionism, dominance of local interests and local requirements Continued globalization Global capital flows, trade, access to markets, skills and knowledge Mature markets retain economic power Consumer demand, economic power and innovation skewed towards mature markets Rapidly developing markets gain economic power Consumer demand, economic power and innovation shifting to rapidly developing markets Small government, light regulation Move or return to unrestrained markets with limited state ownership or regulatory reform Big government, heavier regulation Greater government involvement, more regulation and government as a stakeholder in strategic businesses 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 67% 76% 70% Not at all/to a limited extentTo a large/very large extentTo some extent

6 © 2011 IBM Corporation Continued rise of technology as key external factor for CEOs Source:Q1 What are the 3 most important “external” forces that will impact your organization over the next 3 years? n=1,538 Three most important “external” forces over the next three years

7 © 2011 IBM Corporation Vast majority of CEOs experience the New Economic Environment as distinctly different More volatile Deeper/faster cycles, more risk More uncertain Less predictable More complex Multi-faceted, interconnected Structurally different Sustained change Not at all/to a limited extentTo a large/very large extentTo some extent “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 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, 18%13%69% 21%14%65% 22%18%60% 21%26%53% The New Economic Environment

8 © 2011 IBM Corporation CEOs are now challenged to close the complexity gap and use complexity to their advantage 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” Expect high/very high level of complexity over 5 years Feel prepared for expected complexity 30 % Complexity gap* “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 Expected level of complexity and preparedness to handle * Complexity gap = difference between expected complexity and the extent to which CEOs feel prepared to manage complexity 49% 79%

9 © 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

10 © 2011 IBM Corporation We identified Standout organizations that delivered superior performance during both the long term and recent short term Long-term, steady-state performance Short-term, crisis performance Performance Analysis Framework Top 50 percent Long-term Performance 4 year operating margin CAGR (2H03/1H04 – 2H07/1H08) Short-term Performance 1 Year operating margin growth (2H07/1H08 - 2H08/1H09) Standouts Top 50 percent

11 © 2011 IBM Corporation Standouts are also better prepared to manage the expected complexity Complexity gap* 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 “Really, I am not afraid of complexity at all. On the contrary, this just motivates me.” Jacques Pellas Secrètaire Général, Dassault Aviation, France * Complexity gap = Difference between expected complexity and the extent to which CEOs feel prepared to manage it Long-term, steady-state performance Short-term, crisis performance Top 50 percent Standouts 22 % Gap 6%6% 52 % Gap 35 % Gap Top 50 percent

12 © 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

13 © 2011 IBM Corporation Creativity is the #1 leadership quality Source:Q19 Which of the following leadership qualities do you think are most important in the next five years? n=1,538 60% 52% 35% 28% 26% 12% Creativity 30% Integrity Global thinking Influence Openness Dedication Focus on sustainability Humility Fairness “Creativity is vital in a complex environment.” Government Official, Hong Kong Most important leadership qualities over the next five years “Only leaders who act with integrity shall and will survive.” CEO, Electronics Industry, Switzerland

14 © 2011 IBM Corporation Standouts focus on quick decisions despite uncertainty 42%15%43% 41%31%28% Ways in which to achieve rapid change over next five years: Decision Making 54 % more Source:Q21 How will you realize rapid change over the next 5 years? Quick decision vs thorough decision n=299 Thorough decisionsQuick decisionsBoth Standouts Others “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

15 © 2011 IBM Corporation Standouts leap ahead with new management and leadership styles and balanced communication approaches 13% 8% 79% 25%17%58% Continuous change Ad-hoc initiatives Persuade and influence Command and control “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 Source:Q21 How will you realize rapid change over the next five years? n=300 28%33%39% (Managed) viral communication Top-down communication Standouts realizing rapid change over the next five years: Management Style Both

16 © 2011 IBM Corporation So what builds creative leadership?  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. Recommendations  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? Tough questions to consider

17 © 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

18 © 2011 IBM Corporation “Getting closer to the customer” is THE top priority for Standouts 83% Others 95% Standouts Getting closer to customers 14 % more Getting closer to customer People skills Insight and intelligence Enterprise model changes Risk management Industry model changes Revenue model changes 88% 81% 76% 57% 55% 54% 51% Dimensions to focus on over the next 5 years “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 “ 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

19 © 2011 IBM Corporation CEOs want to better understand customer needs and actively work with them Source:Q15 To what extent will your customers’ expectations of you change over the next five years? n=1,518 12%82%6% Better understanding of needs 20%70%10% New or different services 20%69%11% More collaboration, information sharing 22% 61%17% New or different products 25% 51%24% New or different channels 24%45%31% Stronger focus on price-value equation 30% 46% 24% Increased focus on social responsibility Not at all/to a limited extentTo a large/very large extentTo some extent CEOs’ view of “How customer expectations will change over the next 5 years” All participants:

20 © 2011 IBM Corporation Customer-centric CEOs exploit the information explosion to better understand and serve customers 49% Other CEOs 63% Customer focused CEOs Impact on organization of information explosion 29 % more 66% Other CEOs 78% More focus on insight and intelligence to realize strategy 18 % more Customer focused CEOs Deep dive analysis: CEOs that scored high or very high on “getting closer to the customer”... to generate insight and intelligenceCustomer focused CEOs use data... 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 “to a large/very large extent” “ Insight and foresight are linked with leadership. It's insight that helps to capture opportunity. ” Zhou Ming, Executive Vice President and Secretary General, China Council for Int’l Investment Promotion China “ Information is not well validated. The problem is a ‘misinformation explosion.’ ” Dr. Paul Byrne, President, Grant MacEwan University Canada

21 © 2011 IBM Corporation So how do you reinvent customer relationships?  Honor your customers above all else: Unprecedented level of focus, heightened customer exposure for every employee, measure what customers value.  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.  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. Recommendations  How will you engage customers in new ways that increase interest and loyalty to generate new demand and revenue sources?  How can you involve customers more effectively and directly in product and service development?  Can you hear the voice of your customers through the vast amount of data? Can you understand and act upon the information? Tough questions to consider

22 © 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

23 © 2011 IBM Corporation Standouts simplify operations and products to better manage complexity Changes to operating strategy: Simplify “ Simplification and standardization are key strategies that we have been using for several years to reduce existing and future complexity. ” Brenda Barnes, Chairman and CEO, Sara Lee, United States “ When things look very simple, you need to look for a competitive edge. When things are complex, you simplify to get the competitive advantage ” Graeme Liebelt, Managing Director and CEO, Orica Limited, Australia Source:Q18 How will you change your operating strategy? Manage complexity versus simplify n=294 Others Standouts 30 % more 61% 47%

24 © 2011 IBM Corporation CEOs that prioritize speed and dexterity are increasing the share of variable cost 12% 76% 26%14%60% Source: Q18 How will you change your operating strategy? Fixed versus variable cost n=170 Changes to operating strategy of operational dexterity focused CEOs Deep dive analysis: CEOs that selected ‘iterative strategies, quick decisions and execute with speed’ 27 % more Increase share of fixed costIncrease share of variable costBoth Dexterous CEOs CEOs not prioritizing dexterity

25 © 2011 IBM Corporation Speed and dexterity enable revenue growth from new sources 30% 25% Next 5 years Revenue generated from new sources 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 “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 Deep dive analysis: CEOs that selected ‘iterative strategies, quick decisions and execute with speed’ 20 % more 20% 15% Last 5 years 33 % more Dexterous CEOs Others Dexterous CEOs Others

26 © 2011 IBM Corporation So what are the steps to build operating dexterity?  Simplify whenever possible: Simplify interactions with customers, simplify products and services by masking complexity, simplify for the organization and partners.  Manage systemic complexity: Put complexity to work for your stakeholders, take advantage of the benefits of analytics.  Promote a mindset of speed and flexibility: Act quickly, push execution speed, course- correct as needed.  Be “glocal”: Leverage the world through partners, constantly tune your operating model – global where possible, local where necessary. Recommendations  In what ways can you simplify processes, without ignoring underlying complexity, and develop the agility required to execute rapidly?  How can your organization benefit from taking on more complexity on behalf of your clients or customers?  How will you integrate and analyze timely information to gain insight, make quick decisions and enable dynamic course correction?  Have you implemented asset and cost flexibility and defined partnering strategies to compete in your chosen markets? Tough questions to consider

27 © 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

28 © 2011 IBM Corporation Seizing the upside of complexity Honor your customers above all else Use two-way communications to sync with customers Profit from the information explosion Embrace ambiguity Take risks that disrupt legacy business models Leapfrog beyond “tried-and-true” management styles Simplify whenever possible Manage systemic complexity Promote a mindset of being fast and flexible 123 Be “glocal” Reinvent customer relationships Build operating dexterity Embody creative leadership

29 © 2011 IBM Corporation APPENDIX 1 Geographic differences IBM Institute for Business Value IBM Strategy & Change

30 © 2011 IBM Corporation Geographical divergence of perspectives and actions adds another layer of complexity North America (US, Canada)European Union Japan Market factors45% Regulatory concerns41% Technological factors40% Market factors57% Technological factors39% Macroeconomic factors36% Market factors78% Globalization41% Technological factors40% China Market factors54% Macroeconomic factors45% Technological factors45% Source: Q1 What are the 3 most important ‘external’ forces that will impact your organization over the next 3 years? n=1,538 Three most important external factors by geography “Globalization brings complexity. We must localize decision making to where the action is.” CEO, Retail Company, United States

31 © 2011 IBM Corporation North America: Concerned about the impact of regulation and government North America (U.S., Canada) Market factors45% Regulatory concerns41% Technological factors40% 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? 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 “Due to government regulations, cycle time to get our product to market is slowing down.” CEO, Medical Device Company, United States 3 Most important external factors NA CEOs expect “big government” and regulation North America EU China Japan 87% 70% 53% 50% NA CEOs are least focused on risk management to realize their strategic goals North America EU China Japan 45% 50% 64% 68% NA CEOs are least likely to change organization and governance 37% North America EU Japan China 49% 67% NA CEOs see integrity as top leadership quality 65% North America EU China Japan 48% 30% 29%

32 © 2011 IBM Corporation European Union: Using middle of the road strategies, balancing all European Union Market factors57% Technological factors39% Regulatory concerns35% 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 organization needs to be successful in executing in the next 5 years? Client connectivity n=1,538 “Technology is already impacting our clients’ behavior, currently clients are price checking over four continents using today's technology.” Managing Director, Retail, United Kingdom 3 Most important external factors EU CEOs are least likely to focus on enterprise model innovation EU CEOs least impacted by shift in economic power EU China North America Japan 43% 48% 49% 74% 47%EU North America China Japan 59% 69% 73% EU CEOs consider client connectivity as crucial to executing in the NEE 48%EU Japan North America China 35% 21% 11% EU CEOs least impacted by talent shortage EU North America Japan China 45% 58% 71% 78%

33 © 2011 IBM Corporation China: Increasing global impact but challenged to build capabilities China Market factors54% Macroeconomic factors45% Technological factors45% 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 leadership qualities do you think are most important in the next 5 years? n=1,538 “China is making leaps in economic development, 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 3 Most important external factors CEOs in China are less concerned about volatilityCEOs in China are most focused on industry model innovation CEOs in China are most focused on building new skills and capabilities CEOs in China see “global thinking” as a top leadership quality 61% China Japan EU North America 42% 33% 72%China Japan North America EU 56% 55% 49% 83% China Japan North America EU 82% 66% 51%China EU Japan North America 70% 71% 75%

34 © 2011 IBM Corporation Japan: Responding to shift in economic power by increasing execution speed and changes in operating style Japan Market factors78% Globalization41% Technological factors40% 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 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 3 Most important external factors “Rapidly developing markets will achieve growth. It is important that we develop a market for export. Our battlefield will be the world.” President, Banking, Japan CEOs in Japan see the New Economic Environment as structurally different CEOs in Japan are most likely to see execution speed as a crucial organizational capability The shift of economic power to rapidly developing markets is most acutely felt by CEOs in Japan CEOs in Japan are most focused on developing people skills to realize their strategy Japan China North America EU 82% 55% 53% 47% Japan EU North America China 44% 38% 34% 27% Japan China EU North America 92% 82% 77% 74% Japan North America China EU 74% 49% 48% 43%

35 © 2011 IBM Corporation APPENDIX 2 Backup IBM Institute for Business Value IBM Strategy & Change

36 © 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


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