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Majority of Global CEOs Plan Fundamental Change and Expect New Forms of Innovation to Drive Growth, According to IBM Study

CEOs Declare Collaboration and Partnerships Among Top Sources for New, Innovative Ideas

NEW YORK, NY - 01 Mar 2006: In a study unveiled today by IBM Business Consulting Services, 65% of the world's top corporate CEOs declared that due to pressures from competitive and market forces, they plan to radically change their companies in the next two years.

The IBM Global CEO Study 2006 is based on in-person interviews with more than 750 of the world's top CEOs and business leaders, and is the most comprehensive CEO-level study of its kind. This year's study follows The IBM Global CEO Study 2004, which revealed that CEOs had moved their agenda from cost-cutting to driving profitable growth.

As they contemplate this radical change, only 20% of CEOs recognize that they have been highly successful in such endeavors in the past. In driving this change, the study found that CEOs are looking beyond growth through new products and services. They are increasingly focused on innovation in their business models and operations as key mechanisms for driving change.

Indeed, CEOs stated that approximately two-thirds of their efforts are now targeted at business model and operational innovation. Furthermore, fully 61% of CEOs who have a primary focus on business model innovation fear that changes in the business model of a competitor could likely result in a radical change to the entire landscape of their industry.

"It's very clear that CEOs today are looking at new kinds of innovation to drive substantial organizational change and business growth," said Ginni Rometty, Senior Vice President, IBM Enterprise Business Services. "It's not just product innovation any more. It's about understanding how to innovate a business model, or an operational process, or management behavior -- such as real-time risk management, collaborative pharmaceutical development, or digital film distribution."

In making this point, one CEO commented that "The business model we choose will determine the success or failure of our strategy," while another stated that "Products and services can be copied, the business model is the differentiator."

In terms of how to drive innovation, the study found that 76% of CEOs ranked business partner and customer collaboration as top sources for new ideas. This greatly contrasts with internal R&D, which ranked eighth as a source for new ideas -- cited by only 14% of CEOs.

Despite the value they place on collaboration, many CEOs are still in the planning stage. While 76% of CEOs say that collaboration is critical, 51% say their organizations currently collaborate extensively. Interestingly, this is exaggerated in emerging markets, where 73% are collaborating, compared to 47% in mature markets.

The study also suggests a link between collaboration and financial performance. Companies with higher revenue growth report using external sources significantly more than slower growers do. Outperformers used external sources 30% more than underperformers. Additionally, CEOs stated that the top benefits from collaboration with partners are: reduced costs, higher quality and customer satisfaction, access to skills and products, increased revenue, and access to new markets and customers.

On collaboration, one CEO said "We have at our disposal today a lot more capability and innovation in the marketplace of competitive dynamic suppliers than if we were to try to create on our own." Another commented that, "We need third parties as benchmarks and sparring partners. This also helps our staff to broaden their view." While another stated simply "If you think you have all of the answers internally, you are wrong."

In terms of driving innovation, CEOs stated that internal inhibitors were more significant than external hurdles. However, only 35% of CEOs were willing to take on these inhibitors by making innovation a CEO responsibility. The study reveals stark contrasts in varying geographies in terms of the responsibility for innovation. For example, in Japan, China, Korea and Eastern Europe, 47% of CEOs take strong ownership of the innovation agenda, versus 20% in India and the United States, where innovation management is widely distributed within the organization and externally via business partners and others. In most mature markets, the COO plays a particularly strong role in managing innovation.

The IBM Global CEO Study 2006, the largest survey ever undertaken based on in-person CEO interviews, polled more than 750 top CEOs worldwide. The CEOs interviewed represent all major countries and industries. The survey is intended to provide a comprehensive view of the CEO planning agenda for the next 2-3 years.

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CEO's L-R Dick Kelly, Xcel Energy, Ken Denman, iPass, Brian Gallagher, United Way of America, Ron Williams, Aetna Inc. and Jay Bertelli of Mercury Computer discuss the findings of IBM's new survey of 750 of the world's top CEO's, March 1, 2006 in New York. According to the study, 65 percent of CEO's plan to radically change their companies over

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PDF version of the day's presentation about the IBM Global CEO Study 2006

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