Midmarket CEOs Energized by Change

Dec. 1, 2008
Three of every four CEOs plan to substantially evolve their business models over the next three years to distinguish themselves and expand to new markets.

It seems the only certainty in today's business environment is change. Market volatility, new competitive threats, energy costs, skills, the credit crunch, regulatory compliance and the steady march of globalization combine to put enormous pressure on today's CEO. This is particularly the case for midsize companies.

In a recent IBM global survey of 1,130 CEOs, almost 90% of midsize companies (typically between 100 and 1,000 employees) expect radical change in the next three years. The same survey shows that despite the challenges posed by the accelerating pace of change, most are energized by the turbulence and planning for transformational change to improve their competitive position. In fact, a surprising three of every four CEOs plan to substantially evolve their business models over the next three years to distinguish themselves and expand to new markets.

This is partly because it's increasingly difficult for midsize companies to grow by focusing solely on their core offerings and markets, and partly because technological advances and global partnerships are providing many more options. Thanks to the Internet and globalization the world has become smaller and flatter, enabling smaller businesses to play on the global stage. But something is happening that holds even greater potential.

Our world and the systems we use are becoming more instrumented, interconnected, and intelligent. Essentially, the world's digital and physical infrastructures are converging, making our systems more efficient, productive and responsive. In a word, our planet is becoming smarter.

In response, midsize companies are making bold moves to reshape their business designs and infuse intelligence into their systems. These organizations have the DNA to quickly seize new opportunities, transform their businesses for competitive advantage and be the disrupters in their industries. In boxing terms, smart midsize companies can now 'punch above their weight class.'

We see this appetite for change and innovation reflected among our own clients.

For example, Gewandhaus Gruber, a successful clothing merchant in Germany, wanted to better understand and reward its existing customers, while attracting new ones. To do that, the company developed an innovative customer loyalty program that would help it increase revenue and improve its competitive position. The solution was the first fingerprint identification-based loyalty program and payment method in Germany. This new program is giving the company greater insight into customer buying behavior, enabling them to make smarter decisions about their marketing and sales strategy.

Another company that's embracing change is Nutra-Flo, an Iowa-based company that manufactures and distributes agricultural fertilizer and livestock nutrients. As relationships with overseas distributors expanded, it became obvious that global communications and collaboration posed major obstacles to growth. Nutra-Flo solved the problem by embracing the Web 2.0 world. The company switched to Web-based document management and plunged into instant messaging, blogs and RSS feeds. This enabled them to quickly adopt new technologies and processes to enter new markets, demonstrating how web-based collaboration is making our world smarter.

Yulon Motors, a Taiwan-based automaker that values their customers' safety as much as their driving experience, is another example of a company embracing innovation to stay competitive. When customers requested in-car access to information, products and services, Yulon Motors developed TOBE, a system that delivers maps, traffic reports, entertainment and more to Taiwanese travelers through an on-board wireless portal. And through its latest enhancement -- the iMove Travel Network -- travelers can access a real-time interactive community that gives members a forum to share, promote and rate destinations.

These are just a few examples of companies with the vision to see opportunity in this period of enormous change. In many cases, these companies are changing the face of their industries through technology-fueled innovations. But theirs aren't the only ways to capitalize on today's evolving global marketplace. Our survey identified several characteristics that define the successful midsize company of the future.

  • Greater Customer Insight
    CEOs are investing a healthy 22% of their budgets to reach today's increasingly informed, connected and collaborative consumer who can shop from virtually any part of the world. New intelligence gleaned from sophisticated CRM strategies, real-time analytics and social networking are helping businesses around the world generate new insights and build loyalty.
  • Rise of Emerging Economies
    Midsize firms plan to increase their investment by 20% over the next three years to reach customers in emerging economies. These CEOs are pursuing new partnerships, building skills and bolstering operational capabilities to adapt their business for growth in emerging economies.
  • Spotlight on Corporate Reputation
    Research shows that consumers will switch brands for a product or service if provided with a more socially responsible alternative, a trend that is on the rise in many countries. In response, midsize CEOs plan to increase their corporate social responsibility investments by a sizeable 34% over the next three years. Key strategies include greening the supply chain and developing more eco-friendly processes and packaging.
  • Partnering for Global Markets
    85% of CEOs are making partnering a top priority -- not just for the usual reasons like supply chain optimization and operational efficiency, but to gain access to critical skills and capabilities needed for global expansion. The ability to mobilize partners from across the value chain -- and the world -- allows midsize firms to reap the benefits of globalization through co-development and open innovation.
  • Business Flexibility
    It pays to be nimble, especially in today's uncertain times. That's why most midmaket CEOs are considering extensive business model innovation. Staying agile means keeping on top of business challenges and having a dynamic infrastructure to quickly capitalize on new opportunities for growth.

Clearly, there are many paths open to midsize firms as they chart the best course for success in today's highly dynamic global marketplace. Even organizations without immediate transformation plans can assess their options by asking some critical questions. How can we reconfigure our business to deliver greater customer value? What is our strategy for regional or global expansion? How can we redefine our industry or create an entirely new one? The answers will determine your readiness for change.

One thing is certain, forward-thinking firms thrive on the turbulence, embrace change and can quickly sense and respond to new opportunities. In the words of one CEO who participated in the survey, "The key to successful transformation is changing our mind-set. Our company culture must have a built-in change mechanism."

Steve Solazzo is the general manager for IBM General Business.

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