Last year, IBM’s Institute for Business Value conducted a C-suite study aimed at identifying the key disruptive trends that will likely impact companies around the world over the next three to five years, as well as what their senior executives are doing to better prepare their organizations for the expected disruptions. The study surveyed over 5,200 CEOs, CFOs, CIOs, CMOs and other C-suite executives across 21 industries in over 70 countries, - most of them in face-to-face interviews. After analyzing the survey data, - including the use of Watson Analytics to extract inferences from open-ended responses, - IBM published its findings in Redefining Boundaries: Insights from the Global C-suite Study.
To better understand the traits of the most successful enterprises, the IBM study also asked CxOs to rank their companies based on their innovation reputation and their financial performance over the previous three years. After analyzing their responses, it identified 5% of companies as Torchbearers, the name given to those companies enjoying both a strong innovation reputation and an excellent financial track record. At the other end of the spectrum, 34% of enterprises were identified as Market Followers or laggards in both innovation and financial performance.
The report organized its findings and recommendations into three main areas: Preparing for digital invaders; Creating a panoramic perspective; and Be first, be best or be nowhere. Let me briefly discuss each.
Industry convergence was found to be the overriding concern of most senior executives. As boundaries continue to erode, previously separate industries are being brought closer to each other. “A few years ago, CxOs could see the competition coming…” They could generally fend off competitive threats “by improving or expanding the range of products and services you offered, or getting to market more efficiently and imaginatively. Today, the competition’s often invisible until it’s too late.”
Competition can now come from different directions, including newly formed or adjacent industries and so called digital invaders with totally different business models. Digital invaders can be giants with highly sophisticated platforms, - like Google, Amazon and Alibaba, - or focused, agile startups unencumbered by legacy infrastructures. These invaders typically target profitable areas of the value chain, often looking to seize control of the customer relationship and relegate incumbents to less profitable back-end support services.
This competitive shift is caused primarily by rapidly changing technologies and markets. CxOs recognize that greater efficiency alone is not sufficient to fend off digital invaders; - much bolder approaches are required. Most anticipate that they must transform the way they engage with customers, including more digital and personalized interactions. More than half agree that innovation increasingly comes through collaborations with external ecosystem partners.
While nearly two thirds of CxOs plan to enter new markets, they will largely do so by sticking to their areas of experience and expanding into new demographic segments and geographies. But, the best performing companies, the so-called Torchbearers, are bolder and more likely to enter both adjacent and totally new markets.
The report offers three recommendations to help fend off digital invaders: listen to the people closest to your customers and rely on them for all but the most important decisions; form new partnerships and share key resources with allies; and develop online platforms forums where buyers and sellers can trade and share information.
Create a panoramic perspective
“The more nebulous your enemies and the faster the pace of change, the wider - and further - you need to look. Yet it’s extremely difficult to glimpse beyond the immediate future… It’s also, arguably, becoming even more unpredictable, as knowledge becomes increasingly specialized and fragmented.”
CxOs generally agree that cloud computing, mobile solutions and the Internet of Things (IoT) will be particularly important technologies over the next few years. Cognitive technologies hold great promise but are a bit further over the horizon. Overall, “it’s the confluence of different technologies that holds the greatest promise,” such as the combination of AI-based smart products and advances in bioengineering to improve healthcare, or new cloud-based business models combining mobility and data sharing.
There are also serious downsides. “In 2013, when we conducted our previous C-suite study, security concerns made just a blip on their radar screens. Today, the majority of CxOs, irrespective of role, think IT security is the top risk.” As more things are connected, security is rising to the top of the agenda. Another major issue, - that surprisingly few CxOs brought up, - is that technologies like cloud computing are leading to even more digital disruption. “It’s not just helping large enterprises become more efficient; it’s also opening the doors to the ankle-biters nipping at their heels.”
The study found that CxOs rely primarily on traditional techniques to help identify new trends, such as brainstorming and predictive analytics. So far, less than 15% use advanced cognitive computing methods. It also found that CxOs draw insights from fairly limited external resources. Around half rely on thought leaders, customer feedback, market research firms and competitive intelligence. But a smaller number look to companies in adjacent industries who might become potential competitors or to social media to better understand market trends.
To help create a panoramic perspective, the report recommends: using advanced analytics methods like cognitive computing to extract insights about future trends from the vast amounts of data now available; setting up a small forecasting team equipped with the right skills and technologies; and leveraging the contacts, skills and assets of ecosystem partners.
Be first, be best, or be nowhere
“CxOs see technology primarily as a means of adding value rather than subtracting costs.” Develop better products/services was brought up by over 80% of CxOs, followed closely by Develop stronger customer/relationships and Improve effectiveness of marketing and sales. Many are experimenting with alternative business models, primarily open initiatives and platform models which are particularly conducive to collaborating within and across industries.
As would be expected, the more aggressive Torchbearers lead in using open and platform business models to help them reach markets faster. “The speed at which technology evolves is accelerating… The CxOs running our Torchbearers are clearly aware of the implications. Almost all of them know coming to market second or third is a luxury they can’t afford. And thanks to their panoramic perspective, they’re more comfortable than Market Followers about taking the risks associated with being a pioneer… Torchbearers are focusing on satisfying the desires of their most discerning customers - those who demand the very best. And they’re seeking alliances to help them fulfill the expectations of such customers.”
What has enabled the Torchbearers in the study to forge ahead of the rest? The report concludes by summarizing their key attributes:
- Scope: “Torchbearers are more forward-looking and bolder about exploring the opportunities in related industries… They also understand that they compete as part of a bigger ecosystem of interdependent entities, which greatly enhances their potential impact on the market.”
- Scale: “Torchbearers are braver about investing in emerging technologies with high risks and returns, and more aware of the need to preserve their competitive advantage and scale their expertise.”
- Speed: “Torchbearers are more agile, more willing to experiment and more confident about taking the lead. Once they’ve developed a new product, service or business model, they race for the finishing line, recognizing the pace at which technology is evolving and the importance of dominating the market before their competitors do.”