CEOs: Innovate Or Die

The adage that innovation is a business' lifeblood may never be truer than it is in today's corporate climate. Globalization, fierce competition and the rapid pace of technological change have end-user CEOs scrambling to reinvent their businesses--and fast.

Understanding the CEO agenda--its pain and strategic plotlines--is critical for solution providers when tailoring the course of their businesses. Recognizing this, IBM's Business Consulting Services (BCS) recently wrapped up a massive study that dove into the critical issues on CEOs' minds. In all, 765 CEOs participated worldwide in hour-long, face-to-face interviews with IBM.

The survey results are startling, underscoring just how anxious top executives are about the need to innovate, reinvent their business models and, notably, collaborate with third-party partners on everything from technology needs to strategic planning.

Consider this statistic: Two-thirds of CEOs said competitive pressures and market forces will compel them to radically change their companies over the next two years. More interesting, only 20 percent of those CEOs said they felt they have a proven track record to undertake this kind of transformation. That leaves plenty of room for solution providers to lend their own consultative services when it comes to the technology elements that drive change and innovation.

"For CEOs today, it's all about achieving growth and efficiency through innovation," says Ginni Rometty, senior vice president of IBM's enterprise business services, who led the CEO survey. "It's not about product innovation so much anymore as about innovating business models, process, culture and management."

Partners Provide Inspiration

One of the survey's most significant findings speaks to the importance of partners with respect to innovation. More than three-quarters ranked business partnerships and collaboration with both partners and customers as a top source of new ideas. Yet only half felt they were collaborating beyond a moderate level, again revealing an unfulfilled opportunity. External collaboration was considered indispensable by 60 percent of the CEOs, while 20 percent said that internal R&D accounted for a large portion of their companies' innovative ideas.

The IBM study also found a correlation between leveraging partner collaboration and a company's financial performance. Companies with higher revenue growth reported using external sources--partners and customers-- significantly more than slower-growing companies.

In fact, many of the participating CEOs said that they are beginning to shed their fear of collaborating with partners--especially the fear of sharing too much of their corporate information. Failing to collaborate, they say, portends a worse fate. The same goes with changing their business models to fit new competitive realities. While many are apprehensive about the journey, they also view such shifts as an opportunity.

Survival of the Smartest

As part of last month's unveiling of the study results, five CEOs joined IBM to discuss their thoughts on today's market forces, the need to innovate and "survive," and the importance of revamping corporate cultures across organizational boundaries and evolving business models to future success.

"We, as CEOs, are not going to innovate ourselves. Frankly, that's not our role," says Ken Denman, president and CEO of iPass, a Redwood Shores, Calif.-based software maker. Instead, CEOs must foster an environment and business model where partners and customers, along with internal staff, boil up innovative ideas, he says.

IPass took a chance a few years ago that has paid off. During the infancy of Wi-Fi--before anyone had it--iPass decided to make its internally developed wireless-authentication technology available to any entity that wanted to use it--provided they agreed not to sue iPass over anything down the road, Denman says. By the time Wi-Fi began to take off, iPass' technology was an entrenched standard, achieving that status far faster than if the company had decided to work the technology through the glacially slow standards process in today's IT industry.

It was iPass' way of also changing its internal culture, which is another one of the imperatives borne out in the IBM survey. Whereas iPass sales reps in the past had been reluctant to talk up Wi-Fi before it came of age--clearly more comfortable selling more established technology--now customers were demanding that they talk about Wi-Fi.

"When we talk about culture, what we want to see is the value of change," Denman says.

At insurance giant Aetna, technology is considered fundamental to the innovation process and not simply a way to gain operational efficiencies inside the organization, says president and CEO Ron Williams. With respect to picking technology partners, he assesses a company's skills and capabilities and looks for companies that are interested in undertaking joint ventures.

Insightful Intelligence

The results of the study, which IBM conducted over the last three months of 2005, are markedly different than those of the first such CEO survey done by IBM in 2004. At that time, CEOs' main priority coming out of the dot-com doldrums was to begin putting growth back on the agenda. And many respondents at that time talked about developing new products to help jump-start that growth, Rometty says.

But today, she adds, the talk is all about transforming business models to better compete against a plethora of disruptive forces in a host of industries, including the upheavals in the music and entertainment businesses, publishing, high-tech, telecommunications and the airlines.

"Is the issue today whether airlines have the newest planes or whether they are, as a company, operating under fixed or variable costs?" she asks.

Conducting a study of this magnitude illustrates IBM's strategy today: business consulting and IT services. Rometty says IBM is wrapping up other studies, too, such as the "Future of the Enterprise" and the "Future of Health Care." The results and analyses will provide fodder for IBM's army of BCS consultants, whose primary mission is to work with customers on business-process transformation.

Some of the data was expected to be unveiled at IBM's mid-March PartnerWorld conference in Las Vegas, Rometty says. The information is expected to help guide solution providers, integrators and other IT consultants in matching technology and services to solve customer pain points, according to IBM.

For CEOs, the pace of technological change and globalization is driving much of the frenzy around business-model and organizational change within companies. The requirements to change on a dime are pushing companies to use technology as a strategic part of the innovation process. Whereas in the past an idea could percolate over a few years, now it has got to be implemented in mere months.

And that means change or die.

"This global world has forever changed market and social conditions," says Brian Gallagher, president and CEO of the United Way of America. "I think our survival is at stake."