The IBM Global CEO Study 2006

Over the last ten years I have been the "leader" in IBM of a number of important initiatives like the Internet, Linux and On Demand – initiatives that spanned the whole company and proved to be transformative in nature.  I put quotes around "leader" not out of false modesty -- frankly I am very proud of what we have accomplished and of my own contributions to these efforts.  I use quotation marks because in all honesty I could not possibly have done these jobs at all, let alone have achieved any kind of positive results, if these initiatives had not been personally driven by our CEOs during that period, first Lou Gerstner then Sam Palmisano. 

While innovative ideas almost always emerge "bottoms up," from people within the business or from external communities in the wider marketplace, it has been my experience that their successful implementation requires top-down support, and the more disruptive and transformative the ideas, as was the case with the Internet, Linux and On Demand, the higher up in the organization must the support originate – up to and including the CEO.

I was thus happy to see that a key finding of the IBM Global CEO Study 2006, released last month by our Business Consulting Services organization, was that CEOs increasingly recognize that innovation cannot be treated as a marketing initiative and delegated down in the organization. To be successful, innovation requires orchestration from the top.   

The CEO study is based on in-person interviews with more than 750 CEOs, business executives and public sector leaders from 20 different industries and 11 geographic regions, including both mature and developing markets.  An online summary of the findings as well as a copy of the final report can be obtained here.  They are free, but registration is required.    

One of the major findings of the study is that 65% of the CEOs interviewed see that their organizations must make fundamental changes to respond to significant external forces over the next two years and are thus under intense pressure to innovate. But less than half feel they have been successful in driving such change in the past.  While the innovation focus is highest for new products, services and markets, as well as for operational efficiency, competitive pressures are pushing business-model innovation – e.g., structural organization changes and the building of strategic partnerships - higher on their priority list. 

CEOs are beginning to recognize how difficult it is to drive change in an organization, and that therefore they have the primary responsibility for driving the innovation agenda in their business.  The study found that more than one third of the CEOs are now personally leading the innovation charge. We fully expect that figure to increase in the future as innovation agendas become bolder and wider to cope with the increasing pace of change, as well as with a more global and competitive marketplace environment. 

Another key finding is the link between external collaboration and innovation.  An increasing number of CEOs stressed the importance of collaborating beyond company walls, with business partners and clients as top sources of innovative ideas.  This is very different from previous organizational models that assumed innovation was too critical to involve outsiders.  In today's fast-moving, highly competitive and complex environment, more and more CEOs recognize that there exist a lot more capabilities for innovation in the marketplace than they could try to create on their own, no matter how big and powerful the company.

Surprisingly, only one sixth of the CEOs mentioned their own R&D as a top source of innovative ideas, perhaps because most companies view R&D as confined to labs and focusing primarily on technology and product innovation.  One of the main lessons we have learned in IBM over the last few years is that innovation increasingly is occurring in the marketplace not just in the labs.  As the problems we are now tackling are much broader and more complex, R&D people can play a huge role if they get out of the labs and work with clients, business partners and others to learn about and help them solve those problems -- and then bring back their knowledge to the labs to  develop tools, processes and analytical capabilities that will significantly improve how we solve similar problems in the future.   

Innovation is clearly an increasingly crucial issue everywhere, because, as two thirds of the CEOs interviewed in the study told us, driving fundamental change in their organizations has become a top priority for business leaders.  This is really hard work, and for it to bear fruit CEOs and other top executives will have to exert leadership of a profound and compelling nature.

Comments

[Alex Osterwalder]

It is extremely interesting to read about this CEO focus on business model innovation. In fact, I have been thinking for quite a while how my own research on business model concepts would allow to build a software tool to foster business model design and innovation...

Who at IBM would I have to contact to present my ideas and work about a Computer Aided Design (CAD) tool for business model innovation? Some ideas about this on my blog at:

http://business-model-design.blogspot.com/2006/01/where-heck-is-computer-aided-design.html

With warm regards from Lausanne, Switzerland, Alex

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