Irving Wladawsky-Berger

The 2008 IBM Global CEO Study

IBM just released the 2008 Global CEO Study.  IBM has been conducting such studies every two yeas for the last several years by interviewing hundreds of CEO's around the world.

Four years ago, the 2004 study found that CEOs were emerging from the depressed business environment caused by the bursting of the dot com bubble, and were beginning to shift their priorities from cost cutting to driving profitable growth and strengthening overall financial performance. 

The overriding theme of the 2006 Global CEO Study was innovation.  CEOs were starting to recognize that innovation cannot be treated as just a marketing initiative and delegated down in the organization.  They realized that their organizations had to make fundamental changes to respond to the significant external forces all around them.  They were learning how difficult it was to drive change in the organization.  Therefore, to be successful, innovation had to be orchestrated from the top, with the CEO personally leading the charge.

The Enterprise of the Future is the key theme of the 2008 CEO Study.  The study is based on face-to-face interviews with 1130 CEOs in 40 countries across 32 industries.  They are distributed fairly evenly around the world, with roughly one third each from the Americas, EMEA and AP.

There were no major surprises or unexpected findings in the study.  I think that it is the best so far because the points made are very sharp, clear and written in simple language. 

The CEO interviews identified five core traits for the enterprise of the future: 

• Coping with change: Organizations are bombarded by change, and many are struggling to keep up
• Surpassing customer expectations: CEOs view increasingly demanding customers not as a threat, but as an opportunity to differentiate
• Global integrated business designs: Nearly all CEOs are adapting their business models, with two-thirds implementing extensive innovations
• Disruptive, innovative enterprise and industry models: CEOs are moving aggressively toward global business designs, deeply changing capabilities and partnering more extensively
• Corporate social responsibility: The next generation of socially minded customers, workers and investors are carefully watching a company’s every move

These themes have been appearing over the last few years as companies and nations around the world have embraced innovation.  While the findings are not new, it is good to see quantitative evidence of that we have all been hearing anecdotally.  The full report includes a lot of information, and additional conclusions.

For example, almost half of the CEOs rated market factors and people skills as the top external forces with the greatest impact on their organizations.  Next comes technological changes, which about one third of CEOs identified as a major force they have to deal with. 

83% of CEOs said that change was needed in their organization, and 61% felt comfortable managing these changes based on past successes.  The equivalent numbers for the 2006 study were 65% and 57% respectively.  Thus, the number of CEOs who feel change is critical to their companies has gone from 65% to 83% in two year, and the gap between their capability and the challenge ahead, that is, their level of discomfort, is widening - 22% now versus 8% in 2006.  This is not surprising, given that CEOs are increasingly bombarded by faster, broader and more uncertain change.

Two thirds of CEOs see major opportunities in the rising prosperity and purchasing power around the world.  They plan to increase their investments to benefit from this trend, especially in the growing markets in emerging economies.

Over three quarters of CEOs see the rise of increasingly informed and collaborative customers as a chance to differentiate their products and services.  It gives their companies an opportunity to better reach out to these customers, learn about them, and target their offerings to address, - and hopefully surpass, - their expectations.  The best companies are leveraging the rise of better informed and collaborative customers to identify new markets, new business relationships, and new products and services.

A large majority of CEOs are planning major changes to their business to capitalize on the rising levels of globalization.  The study revealed that CEOs are planning deep changes in their organizational capabilities and skill mix, as well as extensive partnering to help them quickly reach new markets and customers.  They are implementing new business design, including globalizing their brands and offerings, optimizing their operations around the world, and driving a company culture that views diversity as a key competitive advantage in a rapidly globalizing world.

Without a doubt, CEOs have generally become more sophisticated in dealing with innovation since the 2006 study.  Two thirds said that they are implementing extensive innovations in their companies, especially around their business models.  They are rethinking their basic enterprise model, including a strong focus on collaboration, both with outside partners as well within their own companies.  They are becoming more focused, looking hard at which processes are best done in-house, and which should be done with partners.  The better performing companies are also driving innovation in industry models, aiming to redefine existing markets, move into new industries, and perhaps create entirely new industries which they can shape and lead.

The newest finding uncovered by the 2008 study is the rise of corporate social responsibility.  Eighteen percent of CEOs are now focusing on environmental issues, double the number from two years ago.  This percentage will surely increase over the next several years.  The number is lowest in the Americas, where only 12% of CEOs cited environmental issues as an area of focus, compared with 21% in both EMEA and AP.  The majority of CEOs see the rise of corporate social responsibility as an opportunity, not a threat.  They view it as a way to become better aligned with the concerns of society, and thus help attract top talent to the company, enhance its brand around the world and break into new markets.

To me, the key message that comes through loud and clear in the 2008 IBM CEO Global Study is that the key success factor for the enterprise of the future is talented people.  Successful companies must be able to attract and retain top talent, both at the top of the organization - starting with the CEO - and across the organization - where employees and partners around the world have to quickly deal with the requirements of rapidly changing markets. 

Technology, without a doubt, is indispensable.  It is necessary, but far from sufficient.  Above all, the study revealed the dramatic increase in the number of CEOs who see important change ahead.  It highlights how the organization's ability to absorb and manage change will be the key distinction between winning and losing companies in the global economy.

Funding of Research and Education in the 21st Century

For over sixty years, the Federal Government has assumed the major funding responsibilities for basic research and higher education to promote science and technology in the US.  The blueprint for government support of R&D was laid out in 1945 by presidential science advisor Vannevar Bush in his seminal report, Science The Endless Frontier.  In the report he wrote that "The Government should accept new responsibilities for promoting the flow of new scientific knowledge and the development of scientific talent in our youth."  His recommendations led to the creation of the National Science Foundation a few years later.

Ever since, we have looked to key Washington institutions - the National Science Foundation, as well as the Departments of Defense, Energy, Health and Human Services, Commerce and others, - as having the lead responsibility for funding advanced research.  This is particularly true when it comes to Grand Challenge problems, that is, problems that are both very important to the nation and very difficult, and thus require breakthroughs from multiple groups across multiple disciplines.

But, I wonder if something is changing in the funding model for fundamental research and higher education.  Over the last few months, I participated in a few meetings where similar questions keep coming up: can we continue to look to the federal government to help organize and fund major important national initiatives?  We are not so sure any more.  Even beyond the fact that research and education have not been high priorities in the present administration, perhaps something more profound is going on.

The post-World War II R&D blueprint advocated by Vannevar Bush, was generally focused on government support of science and engineering research aimed primarily at the defense sector.  While this research also resulted in huge benefits to the private sector, - e.g., the Internet, supercomputing, civilian airplanes, - the funding for these projects was originally justified by national security and cold war oriented considerations.

But, the Berlin Wall was dismantled in 1989, signaling the end of the cold war.  And as we know, a historical transition is underway towards a global, knowledge-based economy whose dynamics are very different from those of the past sixty years. 

The national problems in need of research and talent are very different as well.  So are the underlying technologies.  In the past, new technologies were generally developed to solve big problems in defense, science and engineering, and then trickled down and were embraced by the private sector and consumers.  Think of the transistor, computers and the Internet, for example.  The opposite is the case now.  The most advanced new technologies are usually now developed in the private sector and first commercialized in consumer products and services.  Subsequently, they trickle up to benefit the military, as well as big science and engineering projects.

There is general agreement that energy and the environment, and health care delivery are among the most important Grand Challenges  facing the US and the world in general over the next decades.  The federal government has been supporting energy research, largely because the Department of Energy has long been charged with that task.  But, while just about everyone agrees that health care issues are among the most important and complex facing the nation, little funding for research and education has been forthcoming from the Department of Health and Human Services.

How about jobs and the economy?  There is an ongoing debate whether the US can continue to create well paying jobs, or whether such jobs will largely be outsourced to countries with lower labor costs, or will be taken over by the influx of immigrants coming to the US who are willing to work for less pay.  Demagogues in politics and the media are busy blaming China and India one day, illegal Mexican immigrants the next.

On the other hand, many of us have been working hard to promote increased investments in innovation, - including education, infrastructure and research, - which will lead to many more good jobs, as has been the case throughout history.  The biggest opportunity for good, new jobs lies with higher end services and know-how, a very large segment of the US economy, and the one where new technologies and innovation can bring the highest payoffs in productivity.  This is why IBM has been strongly advocating the creation of new programs like Services Sciences which aim to significantly improve the productivity, skills and pay of services-based jobs.

In February of 2006 the White House announced the American Competitiveness Initiative to increase investments in research and development, strengthen education, foster innovation and encourage entrepreneurship.  But unfortunately, even though both the administration and Congress agreed on its importance, no funds were allocated to support its recommendations.  Washington had other more pressing priorities.

Perhaps many of the pressing issues in the 21st Century - health care delivery, economic competitiveness, innovation, jobs, education, - are presently beyond the federal government's ability to tackle seriously.  Other large countries are better able to address these issues at a national level - the UK, Brazil and China among others.  But our structure is somehow different.  We must continue to fight the good battle, especially given the ongoing presidential campaign, and hope that we can convince future administrations and members of Congress to evolve their priorities.  But while we do this, we must also look for alternative ways of addressing these pressing problems facing the country.

What are alternative sources of funding in the US for these important new areas, which are quite different from the pressing issues of 1945 that Vannevar Bush had in mind when he wrote Science The Endless Frontier?  Let's start with government.  Perhaps areas like health care, economic development and advances in education are more the province of state and local governments given the size of our country, where different regions compete with each other to attract private sector investments and jobs. 

California, for example, is making its own investments to promote stem cell research and regenerative medicine to benefit the state.  New York state has been making major investments in nanotechnology.  And, North Carolina has established the Renaissance Computing Institute (RENCI) to address multidisciplinary problems that will spur innovation and economic growth in the state.  We can expect additional such state and local initiatives

The private sector is also doing more.  At MIT, the Deshpande Center, - established in 2002 to increase the impact of MIT technologies in the marketplace, - funds novel-early state research and connects MIT's innovators to the business community.  It was founded with an initial donation by Desh Deshpande, co-founder of Sycamore Networks, and his wife.  It depends on the financial and professional support of MIT alumni, entrepreneurs and investors.  Another example is BP, which pledged $500M to establish the Energy Biosciences Institute (EBI) to conduct research in clean, sustainable energy sources.  EBI is a partnership between BP, UC Berkeley, the University of Illinois, and the Lawrence Berkeley National Lab.  Finally, IBM has extensive University Relations programs around the world that support basic research, curriculum innovation and educational assistance in selected areas, such as services sciences, information-based medicine and advanced supercomputing.

Innovation and talent are the critical ingredients for leadership in the knowledge economy.  Any country that aims to attain a strong position in innovation and talent must seriously invest in research and education.  This is what the US did after 1945, and it is a major reason that we won the cold war and achieved such a leading economic position in the world. 

There are now many new opportunities amidst an intense, global competitive environment.  The stakes are high.  There is a lot to do and everyone must do their part.  Perhaps state and local governments, the private sector and academia cannot rely on the federal government to the extent that they did in the past.  But, given the highly important and complex challenges ahead, and the extensive resources required, US leadership in the knowledge economy will continue to require the serious contributions of the federal government.  Let's hope that this is a top priority for our new administration.

A Dialogue on Race

The other day, a memory from a long, long time ago suddenly popped into my head.

In 1962, I was a 17 year old senior finishing high school at the Laboratory Schools - the wonderful K-12 schools associated with the University of Chicago.  In those days, Hyde Park, the Chicago neighborhood where the U of C is located, was one of the most racially diverse neighborhoods in the country, and the Lab Schools’ student population reflected that diversity.  A significant portion of the students came from middle-class black families living in Hyde Park and nearby areas. 

As I remember, sometime toward the end of our senior year our class was invited to a party at a doorman building in the fancy section of Hyde Park near Lake Michigan.  I went in a car with some of my friends, and as we approached the entrance of the building, we saw that three of our fellow students that had gone ahead of us were talking to the doorman.  This group of three included a girl who happened to be black - as were so many of our classmates in the Lab Schools.  But the doorman would not let her go up to the party, because, he said, that blacks were not allowed in the building. 

This group of three did not argue with the doorman - they just turned around and left.  I wish I could now write that I also turned around and left with them, but I did not.  I don't know why.  I went up to the party along with the rest of the group I was with.  I knew the girl who was giving the party, Linda, fairly well, and recall that she was very upset.  She had tried to convince the doorman to let everyone up, but was unable to do so because this was the policy of the building.

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Some Thoughts on Global Companies in the 21st Century

Given my long association with IBM, the close relationships I have enjoyed with a number of our clients, and my recent involvement with Citigroup, it is not surprising that I am very interested in exploring what it takes for an organization to thrive in our increasingly global and highly diverse world.  Perhaps my personal multi-cultural background is also part of the reason I am so attracted to the subject.

Managing a large, global organization is indeed very difficult, especially in our unpredictable, emergent, fast changing and intensely competitive market environment.  While some might thus conclude that the answer is for a company to resist doing business around the world, the reality is that managing a business, any business, is a very tough job fraught with perils, as evidenced by the high mortality rates of companies from start-ups to those in the Fortune 500.

Are there any basic principles that might serve as guidelines in the management of globally integrated companies?  Based on my personal experiences, I think there are a few, that if carefully applied might prove useful.  Let me share my thoughts on the subject.

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Nurturing a Healthy Innovation Environment

I strongly believe that top talent is the most important asset for any business that aspires to a leadership position in the knowledge economy.  Talent enables a company to better cope with, adjust to and thrive in our fast changing, unpredictable world.

But while the presence of top talent is a necessary condition for leadership, it is not sufficient.  You need to put that talent to work, not only contributing to the operational excellence of the business, but focusing on innovation, so the company can survive the onslaught of new competitors and retain its leadership position into the future, as well as be able to evolve and become a leader in important new areas

Fostering a spirit of innovation among talented people is very difficult.  Why is that?  Lots of excellent management books have been written on the subject, but I would like to offer a more personal explanation.

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