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© Copyright IBM Corporation 2006
IBM Business Consulting ServicesIBM Business Consulting Services
Expanding the Innovation Horizon: The Global CEO Study 2006
Ginni RomettySVP, Enterprise Business Services, IBM
CEO Study 2006 – Global Launch – 3/1/20062
Business Consulting Services
© Copyright IBM Corporation 2006
CEO Panel
� James "Jay" R. Bertelli, Chairman, President and CEO, Mercury Computer
�Ken Denman, Chairman, President and CEO, iPass�Brian A. Gallagher, President and CEO, United Way of
America�Richard C. Kelly, Chairman of the Board, President and
CEO, Xcel Energy�Ronald A. Williams, CEO and President, Aetna Inc.
© Copyright IBM Corporation 2006
IBM Business Consulting ServicesIBM Business Consulting Services
Expanding the Innovation Horizon: The Global CEO Study 2006
Ginni RomettySVP, Enterprise Business Services, IBM
© Copyright IBM Corporation 2006
IBM Business Consulting ServicesIBM Business Consulting Services
Expanding the Innovation Horizon: The Global CEO Study 2006
Marc ChapmanGlobal Leader, Strategy and Change Services, IBM
CEO Study 2006 – Global Launch – 3/1/20065
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CEO Perspective
Myth: “Flat world” trends only affect a few firms
CEOs plan imminent and radical change
CEO Study 2006 – Global Launch – 3/1/20066
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Two-thirds of CEOs see significant change in next 2 years
Extent of Fundamental Change Needed Over the Next Two Years
Significant change
65%
Moderate change
22%
Little or no change
13%
Little to no success15%
Past Level of Success at ManagingFundamental Change
No change experience5%
Some success33%
Successful32%
Very successful
15%
CEO Study 2006 – Global Launch – 3/1/20067
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CEOs told us…
“The market imposes innovation.”
“Last year’s products are last year’s dollars.”
“We must innovate to justifyour existence.”
“no growth without changing ourselves and the industry itself.”
“Competitors are emerging from everywhere”
“Globalization, commoditization, higher cost structure, increasing specialization…”
“Business Model change is dramatic …40% sales now on the internet”
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CEO Perspective
Myth: Innovation is too critical and proprietary to involve outsiders
Collaborative innovation is indispensable
Myth: “Flat world” trends only affect a few firms
CEOs plan imminent and radical change
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Partners and customers edge out employees for ideas
“Today…more capability and innovation in the marketplace than we could try to create…”
Sources of New Ideas and Innovation
Academia
Associations, trade groups, conference boards
Competitors
Consultants
Customers
Business partners
0515253545% 45%3515 2550
Internet, blogs,bulletin boards
Other
R&D (internal)
Sales or service units
Employees(general population)
Think tanks
External Internal
CEO Study 2006 – Global Launch – 3/1/200610
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Out-performers source 30% more ideas from outside
“If you think you have all of the answers internally, you are wrong.”
10%
20%
30%
40%
50%
0%
Underperformers Outperformers
Quantity of New Ideas from External Sources
• 3 industries — Media & Entertainment, Telecommunications, and Chemicals/Petroleum —source >50% from outside
• 9 industries source more than 40%
(5 year revenue growth CAGR)
CEO Study 2006 – Global Launch – 3/1/200611
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Collaboration gap looms large in the mind of the CEO
20%
40%
60%
80%
Collaboration Gap
0%Collaboration
of great importance
Collaborate to a large
extent
Collaboration Importance versus Extent“Without collaboration innovation would be impossible.”
“It would be counterproductive to do everything yourself.”
“Partner…extract maximum value and avoid reinventing the wheel.”
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CEO Perspective
Myth: Innovation means inventing new products and services
Business model innovation matters
Myth: “Flat world” trends only affect a few firms
CEOs plan imminent and radical change
Myth: Innovation is too critical and proprietary to involve outsiders
Collaborative innovation is indispensable
CEO Study 2006 – Global Launch – 3/1/200613
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Business model innovation gains prominence
Products, Services, Markets
Operations Business Model
CEOs Innovation Focus50%
10%
20%
40%
Organization Structure Changes (66%)
Building Strategic Partnerships (53%)
“We need to develop a business model based on strategic partnerships that creates value for our company…and for the industry…in this era of specialization”
30%
CEO Study 2006 – Global Launch – 3/1/200614
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Outperformers double their focus on the business model
Innovation Priorities(operating margin growth CAGR)
Underperformers Outperformers% o
f res
pond
ents
by
inno
vatio
n pr
iorit
y
Products/services/markets
Operation
Business Model
0%
20%
40%
60%
80%
100%
“The business model we choose will determine the success or failure of our strategy.”
“Products and services can be copied, the business model is the differentiator.”
“Our greatest focus is on business model innovation, which is where the greatest benefits lie.”
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What stands in the way?
Obstacles to Innovation
0 10 20 30 4040 30 20 10 0
Government and otherlegal restrictions
Economic uncertainty
Inadequate enabling technologies
Insufficient accessto information
Unsupportive culture
Limited funding
Internal workforce issues
Process immaturity
Inflexible infrastructure
External workforce issues
External Internal
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Who is responsible?
Operations
CEOs Innovation Leadership
0%
10%
20%
30%
40%
50%
Product, Services, Markets
Business Model
Division Mgrs14%
Responsibility for Innovation Leadership
No Owner27%
Functional Mgrs24%
CEOs 35%
CEO Study 2006 – Global Launch – 3/1/200617
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CEO Perspective predicts dramatic innovative change
Myth: “Flat world” trends only affect a few firms
CEOs plan imminent and radical change
Myth: Innovation is too critical and proprietary to involve outsiders
Collaborative innovation is indispensable
Myth: Innovation means inventing new products and services
Business model innovation matters
CEO Study 2006 – Global Launch – 3/1/200618
Business Consulting Services
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CEO Panel
� James "Jay" R. Bertelli, Chairman, President and CEO, Mercury Computer
�Ken Denman, Chairman, President and CEO, iPass�Brian A. Gallagher, President and CEO, United Way of
America�Richard C. Kelly, Chairman of the Board, President and
CEO, Xcel Energy�Ronald A. Williams, CEO and President, Aetna Inc.
CEO Study 2006 – Global Launch – 3/1/200619
Business Consulting Services
© Copyright IBM Corporation 2006
Key Definitions
� Innovation� Using new ideas or applying current thinking in fundamentally different ways
that result in significant change
� Business Model Innovation� Significantly changing the structure and / or financial model of the business
� Operations Innovation� Improving the effectiveness and efficiency of core business processes and
functions
� Product/Services/Markets Innovation� Creating new or significantly differentiated products, services or go-to-market
activities
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