AIncumbents Strike BackInsights from the Global C-suite StudyIBM Institute for Business ValueBCIBM Institute for Business ValueOur latest study draws on input from 12,854 respondents across 6 C-suite roles, from 112 countriesChief Executive Officer2,148Chief Financial Officer 2,102Chief Human Resources Officer2,139Chief Information Officer2,258Chief Marketing Officer2,091Chief Operations Officer2,116China1,709Asia Pacific1,327North America3,144South America1,032Europe3,457Middle East and Africa 1,014Japan1,171Global C-suite Study 19th editionDThis report is IBMs third cross-C-suite Study and the 19th edition in the ongoing series of CxO studies developed by the IBM Institute for Business Value (IBV). We now have collected data and insights from more than 40,000 interviews dating back to 2003. We reinvented the program to collect data and publish findings throughout the year. This report was authored in collaboration with leading academics. Here, we present the culmination of our key findings of CxO insights, experiences and sentiments.1Perpetual reinventionTwo decades after the Internet became a platform for transformation, were still wondering how it all might turn out. The signals arent always clear. Today, winner-take-all organizations are on the rise, but collaborative ecosystems are flourishing as well. Even in industries where competitive concentration is increasing, innovation hasnt as would be expected flatlined. Which way to the future? The organizations that are prospering arent lying in wait to time the next inflection point the moment when a new technology, business model or means of production really takes off. Remaking the enterprise, they recognize, isnt a matter of timing but of continuity. Whats required, now more than ever, is the fortitude for perpetual reinvention. Its a matter of seeking and championing change even when the status quo happens to be working quite well.2Economists and strategists are debating both the causes and consequences of markets that are growing less competitive. Some attribute the consolidation of power into the hands of a few to digital technologies; others point to structural factors. C-suite executives may be just as uncertain about the changes happening around them. Certainly, their expectations about how the business landscape will change in the next few years are mixed.The C-suite is evenly divided on whether the focus in the future will shift from established markets to new ones. After years of predicting a move to open innovation sourced externally a growing number of C-suite executives are now predicting a retreat to proprietary innovation. And yet, a significant number also cite new capabilities and intentions for collaborative innovation. In two areas, however, C-suite executives stand in close agreement: how they will change their value propositions and scale their value chains. Two-thirds, 68 percent, of C-suite executives expect organizations to emphasize customer experience over products. And 63 percent believe that most organizations will continue to expand their networks of business partners. Introduction3In the 14 years IBM has surveyed C-suite executives, weve asked them which external forces will impact them most in the next two to three years. This year, market factors, which includes things like increased competition and changing customer preferences, returned to the top position, while technology slipped to second place. People skills rose sharply to third place, recognition perhaps of the rise in value of intangible assets like talent and ideas (see Figure 1). To better understand the forces at play, we applied cluster analysis to identify distinct segments of organizations among the more than 12,500 participants in this study. Three archetypes emerged, which weve named the Reinventors, the Practitioners and the Aspirationals. The organizations clustered in these archetypes are at different stages of Digital Reinvention and are eyeing the opportunities ahead from that vantage point.Figure 1Back to the futureMarket factors and people skills are on the rise Market factorsTechnological factorsPeople skillsRegulatory concernsMacro-economic factorsSocio-economic factorsEnvironmental issuesGlobalizationGeopolitical factors2004 2006 2008 2010 2012 2013 2015 201769%63%61%Q: What are the most important external forces that will impact your enterprise in 23 years? (select up to five).4The Reinventors, making up 27 percent of the total, are the standouts. They report that they outperformed their peers in both revenue growth and profitability over the past three years, and led as well in innovation. Their organizations are exceptionally well aligned. They say that their IT strategy is in sync with their business strategy and theyve optimized their business processes to support their strategic intentions. Their organizations arent locked in place. Having managed change successfully in the past, theyre confident in their capacity to continuously adapt. Moreover, they have a well-defined strategy to manage disruption. The Reinventors have redirected their resources to achieve new sources of scale broad networks of partners and extract new value from ecosystems. They pay close attention to people skills and have restructured their organizations, including their cultures, to encourage experimentation and bring new ideas to the fore. Theyre ahead of all others in co-creation and close collaboration with customers and partners. Moreover, they leverage the data and knowledge derived from close and continuous collaboration to orchestrate compelling customer experiences. ReinventorsPractitionersAspirationalsCluster analysis of survey data revealed three archetypes with distinct characteristics reflecting their Digital Reinvention capability. Organizations view opportunities based on the vantage point of their own cluster.The distinguishing variables used to drive the analysis are: Disrupt a new market or industry by changing the rules of the game Digital technologies deployed to transform interactions with customers Data and analytic insights used to inform business strategy Rapid prototyping to test and refine business strategy IT strategy closely aligned to business strategy Insights from data analysis used to constantly innovate products and services Short feedback and adaptation cycles to accelerate project execution27%37%36%5Practitioners 37 percent of the total havent yet developed the capabilities to match their ambitions. And they are ambitious. Over one-half of the Practitioners plan to launch new business models in the next few years. Some are ready to leap ahead by taking on more risk to “up their game” and disrupt their industry and others. More Practitioners than Reinventors are considering one of the most radical of the new business models the platform business model. The Aspirationals, as their name implies, have a ways to go in both their digital journey and their ability to move quickly to seize new opportunities. They make up 36 percent of the organizations surveyed. The biggest challenges for these organizations are to get the right vision, strategy, execution capabilities and resources in place, especially employee talent and partners.Through their intentions and actions, the Reinventors offer insights into how an enterprise can develop new capabilities and structure its organization to continuously create new value. The Practitioners are a reminder that in the digital era, new come-from-behind strategies remain available for those ready to take on more risk and execute on a new vision with agility. Drawing from the responses to this survey, IBMs engagement with clients and our work with academics, this 19th edition of the IBM Global C-suite Study covers four topics that stand out as important today: Dancing with disruption Incumbents hit their stride We explore the forces at play in shaping the current competitive environment, the opportunities emerging, and how a balance between stability and dynamism favors the Reinventors.Trust in the journey The path to personalizationHere we show how the Reinventors as design thinkers are testing their assumptions and re-orienting their organizations to engage their customers and create bonds based on trust.Orchestrating the future The pull of platform business modelsThis section reveals the step change in capability that occurs as organizations scale their partner networks in new ways. We chart how organizations will need to reconsider their value propositions and allocation of resources to own or participate in platforms.Innovation in motion Agility for the enterpriseWe delineate how leaders are liberating their employees to experiment and innovate, get up close to customers and thrive in an ever-evolving ecosystem of dynamic teams and partnerships.6Despite the headline-grabbing upheavals caused by major industry disruptions, executives surveyed for this study seem remarkably sanguine. For the most part, they report little concern about disruption having an immediate impact on their businesses. Moreover, its not the fearsome digital giants theyre most worried about, but the once lumbering, now innovative, industry incumbents. As innovative incumbents have become smarter about competing in a disruptive digital age, executives now say they represent more of a competitive threat than new entrants.Over one-third, 36 percent, of C-suite executives report little or no impact from disruption in their industries. Even more, 44 percent, say they dont see any urgency to transform their enterprises in response to disruption. In all, just 27 percent say theyre experiencing significant disruption, an unexpected finding given the deluge many predicted. What happened to the threats evoked by the “uberization of everything,” the triumph of the sharing economy and industry boundaries blurred beyond recognition? The surge of competition from other industries didnt happen at the anticipated scale. Just 23 percent of C-suite executives say that competitors from outside their industry are a significant source of disruption. Digital giants continue to concentrate their power in some industries, but according to the C-suite executives surveyed, they arent leading disruption. Startups were quiescent. Incumbents struck back. Dancing with disruptionIncumbents hit their strideRita Gunther McGrath Professor, Strategy, Innovation and Growth, Columbia Business School Philip Dalzell-Payne Partner, IBM Digital Strategy, IBM Services