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The Way Business Is Moving

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Issue Date: June 2008

CEOs battle change

1 June 2008

CEOs will need to make significant investments to meet changing customer expectations.
The IBM Global CEO Study, the largest study of chief executives ever conducted, reveals a dramatic increase in the number of global business leaders who see important change ahead, and also highlights how the ability to absorb and manage change is widening the gap between winners and losers in the global economy.
Mark Harris, the managing director of IBM Sub Saharan Africa
Mark Harris, the managing director of IBM Sub Saharan Africa
CEOs reported a surprising level of optimism about change as an opportunity to build new competitive advantage. Overall, 83% of surveyed CEOs expect substantial change in the future, an increase of 28% in just two years. However, CEOs report their ability to effectively manage change is increasing at a far slower pace. Collectively, CEOs set their organisation's ability to manage change 22 percentage points lower than their expectations for the level of change they will have to manage - a change gap that is widening.
CEOs point specifically to their own customer base as the source of the most important changes they will have to address, as two new and more demanding classes of customers emerged: the information omnivore, and the socially-minded customer. Of all the trends identified in the study, surveyed CEOs plan their most substantial increases in investment in response to these customer sets.
The IBM Global CEO Study, based on face-to-face interviews with 1130 CEOs from 40 countries including African countries, across 32 industries, is designed to capture insights on how the challenges CEOs face today will impact the future of business. The study, titled 'The Enterprise of the Future', was conducted by IBM Global Business Services in conjunction with the Economist Intelligence Unit.
"The enterprise of the future accepts change as a permanent state in an organisation. Those CEOs who demonstrate the capacity to manage major change know they can beat the competition by reaching new classes of customers, and making bold moves to shift business design around principles of global integration," said Mark Harris, the managing director of IBM Sub Saharan Africa. "And it is clear that out-performers are distancing their enterprises from the competition based on their organisational capacity to take advantage of change."
The information omnivore
The information omnivore craves all types of information and often broadcasts its views and expectations worldwide via the Internet. These customers are swapping passive roles for much deeper involvement. Consumers are becoming producers, often creating entertainment and advertising content for their peers, while demanding flexibility and responsiveness from companies with whom they choose to do business. Although these customers are more demanding, the majority of CEOs do not see them as a threat, but as an opportunity for differentiation based on meeting the heightened expectations of this group, and capitalising on new market opportunities that will emerge.
Overall, CEOs are planning a 22% increase in investments in the next three years to serve these more sophisticated and demanding customers.
The investment is even more pronounced among financial out-performers. CEOs of firms with higher net profit margin growth indicate that investments targeted at information omnivores will increase 36% over the next three years. The majority of these new investments will be dedicated to new operational capabilities that improve collaboration and product innovation, and that are more oriented to transparency and tailored to specific market segments.
The socially-minded customer
CEOs agreed that customer expectations around corporate social responsibility (CSR) are increasing, and that CSR will play an important role in differentiating an enterprise in the future. Customers are coalescing around organisations' CSR profile, including, but not limited to green initiatives, and are increasingly demanding socially-minded products, services and even supply chains.
CEOs indicated that while customers have always cared about societal issues, those concerns are now more frequently turning into action as the more socially aware customer evaluates an enterprise's CSR profile before making purchasing decisions. To better understand and reach the new socially-minded customer, CEOs plan to increase their investments by 25% over the next three years, the largest percentage increase of any trend identified in the study.
The study shows that while increasing CEO concern about environmental issues has doubled over the past four years globally, this concern is not evenly distributed worldwide. Asia Pacific and European CEOs lead the world in focusing on environmental issues, followed by the Americas. CEOs also revealed that CSR reputations are also an important tool to attract and retain employees. They are also recognising that their organisations are being held mutually accountable, along with the public sector, for the socio-economic well-being of the regions in which they operate.
Overall, the CEOs see opportunities in CSR and are using it for their competitive advantage. They indicated that CSR is critical to maintaining current market share.
Global integration
The study revealed that fundamental shifts in expectations from these more demanding customers and the increased purchasing power in emerging markets are driving major changes in the business models of organisations worldwide. CEOs plan bold moves around business designs that facilitate faster and more extensive collaboration on a worldwide scale, and rapid reconfiguration when new opportunities appear.
86% of the CEOs surveyed plan substantial changes in the capabilities that distinguish leading organisations, their knowledge and asset mix. CEOs expect to carefully calibrate business model designs based on principles of global integration, which includes global searches for sources of expertise, resources and assets that can help it differentiate. In addition, to take advantage of global integration opportunities, 75% of the CEOs intend to actively enter new markets and 85% of the CEOs intend to partner to capitalise on global integration opportunities.
For more information contact Charles Phahlane, IBM Communications, +27 (0)11 302 9077, charlesp@za.ibm.com


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