IBM Global CEO Study on Innovation

The IBM Global CEO Study: Expanding the Innovation Horizon has just been published. It is 56 pages of data and analysis of interviews of 765 worldwide CEOs on the topic of innovation within their own companies. The report organizes its analysis around three key findings.

Innovation starts at the top
It’s not surprising that this group of high-powered CEOs would name themselves as being the ones resposible for driving innovation within their companies. More surprising is that less than 3% of CEOs said that their heads of R&D were responsible for innovation, suggesting that a significant portion of innovation is being applied to corporate areas other than product development (more on what those areas are later in this post).

Innovation generation is difficult without support and guidance from the top. It's a process that requires commitment and interdisciplinary involvement, a point clearly made in Gordon Graham’s recent outline on the activities necessary for the innovation process. Many of the CEOs in the IBM study said that they knew they wanted to engender innovation within their companies but were unsure how to go about it. The report suggests two areas that CEOs should focus on to improve their innovation creation:

• A culture that is collegial and team-oriented, but still rewards individual contributions
• More consistent integration of business and technology

Team-oriented work that involves cross-group collaborations is a theme throughout the report, and it comes up in the other two key findings.

Innovations in Business Models are becoming increasingly important
The study found that companies are increasingly directing their innovation efforts towards their business models and not focusing innovation solely on products/services/markets. Nearly half the of the CEOs who were developing business innovations were doing so because they feared that their competitors would innovate in this area and drastically change the competitive landscape (as Andy Grove would say, “Only the paranoid survive”). Companies are seeing financial benefits from these moves:

Companies that have grown their operating margins faster than their competitors were putting twice as much emphasis on business model innovation as under-performers.

The report highlights the surprising finding that the second most common type of business model innovation is strategic alliances (see the figure to the right). A quote from one of the interviewed CEOs succinctly explains why this is:

“We need to develop a business model based on strategic partnerships that creates value not just for our company , but also for the industry as a whole. We cannot do everything in this era of specialization.” — unnamed CEO

Companies, of course, have many tools with which they can compete, and it is perhaps not surprising that they are choosing to innovate across different disciplines. Corporate innovation is not confined to product development, as discussed many places (Doblin, niblettes, Dave Pollard).

External collaboration is key
One of the most interesting findings is that companies are placing a high priority on external alliances to develop innovation. External business partners, customers, and competitors placed highly in the CEOs' ranking of sources for innovative ideas.

The report saw a correlation between willingness to use ideas from external sources and company performance. Collaborative activities with external sources were positively correlated with revenue growth and average operating margin. Also:

Companies with higher revenue growth reported using external sources significantly more than slower growers. One CEO declared bluntly: “If you think you have all the answers internally, you are wrong.”

The report relayed the frustration of several CEOs with the difficulty of being able to execute on external collaborations. Talking about collaboration is easy, doing so is hard. This relates to a constant theme in innovation: it requires a well defined and rigorous internal process. Collaboration with external companies—possibly even competitors—is an even more difficult process to execute for many obvious reasons.

I often find myself talking to colleagues at other companies about collaborative opportunities that could result in industry innovations. Inventing interesting projects that different companies can work on together is, quite frankly, easy. Developing a business plan that proposes value for both companies and describes a strategy that fits both companies’ needs is difficult, and is a gating item to external collaboration.

Unless each company in a proposed collaboration can determine what the resulting benefits to their individual businesses would be, the necessary resources will never be made available to the project. Even if the project can be conducted off of the corporate radar, the outcome of the project will not succeed unless all of the corporate components can be aligned behind its implementation, which again requires a justification and alignment with corporate goals. The report quotes CEOs as saying:

partnering is “theoretically easy” but “practically hard to do.”…”having a few beers together is not collaboration. Collaboration is a discipline.”

If companies are able to work through all of the difficulties involved in such partnerships, the resulting benefits are tangible, such as shared risk, cost, resources.

Here are a few interesting quotes from CEOs in the report:

“Big will not beat small anymore. It will be the fast beating the slow.” — Rupert Murdoch, Chairman and CEO, News Corporation

“Constant reinvention is the central necessity at GE…We’re all just moments away from commodity hell.” — Jeffrey Immelt, Chairman and CEO, GE

“Partnering is the only way to extract maximum value and avoid reinventing the wheel.” — unnamed CEO

“The nature of innovation — the inherent definition of innovation — has changed today from what it was in the past. It’s no longer individuals toiling in a laboratory, coming up with some great invention. It’s not an individual. It’s individuals. It’s multidisciplinary. It’s global. It’s collaborative.” — Sam Palmisano, Chairman, President and CEO, IBM

You can get a summary of the report by registering at the link provided on this page, after which you can request the full report.

Comments

[Bill Mortimer]

The link on http://brentblog.typepad.com/brentblog/2006/05/ibm_global_ceo_.htmlto the IBM Global CEO Study is broken.

Please provide new link.

Thanks.

[bwedwards]

Done. Thanks for letting me know about the broken link.