e&u ceo study perspective final 0515ss
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© 2010 IBM Corporation
Energy and Utilities Industry Perspective
May 2010
IBM Institute for Business Value
© 2010 IBM Corporation2
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
The Global CEO Study 2010 is the fourth biennial CEO study, building on our insights and findings over the last 6 years
1,541 CEO interviews
2010Capitalizing on Complexity
Key Findings Rapid escalation of
complexity creates need to: Embody creative
leadership Reinvent customer
relationships Build operating dexterity
2008 Enterprise of the Future
1,130 CEO interviews
Key Findings Hungry for change Demanding customers as
opportunity to differentiate Extensive business model
innovations Moving towards global
business designs
2006Innovation
765 CEO interviews
Key Findings Business model innovation
matters External collaboration is
indispensable Innovation must be
orchestrated from the top
2004Your turn!
456 CEO interviews
Key Findings Revenue growth is the
number one priority Responsiveness is a new
key competence Improving internal
capabilities is a first step toward growth
© 2010 IBM Corporation3
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
In this largest known sample of face-to-face CEO interviews, we spoke with over 1,500 CEOs and public sector leaders, 60 in E&U
The study represents organizations in 60 countries and 33 industries
Note: The CEO response sample has been weighted based on 2008 Actual Regional GDP of the IMF World Economic Outlook, October 2009; Growth Markets include Latin America, Asia Pacific (excluding Japan), Middle East and Africa
13%Communications
25%Distribution
18%Financial Services
24%Industrial
20%Public 25%
Growth markets*
21%North America
42%Europe
12%Japan
Sectors Regions
© 2010 IBM Corporation4
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
We spoke with CEOs to define leadership in the New Economic Environment
Leadership in the New Economic Environment:
Reality of the new complex and uncertain world
Creating advantage out of complexity
Leading and executing through uncertainty
Sample consists of private sector CEOs (80%) and public sector leaders (20%)
Representative sample across 60 nations and 33 industries
Private sector organizations with revenue over US$ 500 Mn in mature and over US$ 250 Mn in rapidly developing markets; public sector organizations with over 1,000 employees
Scope
Face-to-face interviews with 1,541 CEOs using a structured questionnaire
The CEO response sample has been weighted based on IMF 2008 actual Regional GDP
Approach
Statistical analysis of 23 questions and the related 66 discrete factors
In-depth financial analysis based on short-term and long-term revenue and operating margin growth where available
Comprehensive review and analysis of some 10,000 interview quotes
Analysis
© 2010 IBM Corporation5
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2010 IBM Corporation6
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
E&U is strongly differentiated from most other industries on many of the CEO Study factors...
Identified environmental issues as a top external factor in the next three years
View sustainability as a top factor impacting the business in the next 5 years
Expect bigger government and heavier regulation in the next five years
Focusing on increasing the share of variable cost in the business
Placing emphasis on simplifying products and operations
Focusing on quick decisions vs. thorough decision processes
Identified globalization as a top external factor in the next three years
Views on the future: E&U CEOs vs. All Participants
92%70%
48%29%
32%18%
21%68%
59%95%
23%3%
All Participants E&U
E&U Rank*
1
1
1
19
19
20
20
* of 20 major industries in 2010 CEO Study
62%
34%
© 2010 IBM Corporation7
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
... but in 2010, we have begun to see some convergence toward more common cross-industry expectations
Believe that people skills and talent shortages will need focus in the next five years
View increases in complexity and uncertainty as likely
See industry transformation as a driving factor in shaping the business over the next five years
Expect an “information explosion” to transform the industry
Believe technological change will be a top external factor in the next three years
Balance top-down communication with viral communication in the organization
All Participants E&U
79%74%
62%66%
61%59%
Views on the future: Energy and Utilities CEOs vs. All Participants
39%38%
39%33%
81%88%
© 2010 IBM Corporation8
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Market, technological, and macroeconomic forces are the key external factor for CEOs across all industries…
Three most important ‘external’ forces over the next three years for all CEOs
© 2010 IBM Corporation9
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
… but E&U CEOs see the world in a markedly different way, with environmental and regulatory concerns far outdistancing the others
Three most important ‘external’ forces over the next three years
All Participants E&U
56%28%
39%38%38%38%
37%25%
35%63%
23%3%
21%68%
19%12%
9%8%
© 2010 IBM Corporation10
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
There are differences in this year’s E&U CEO responses across regions, but “regulatory concerns” appears in the top four everywhere
Top four “external” factors for E&U CEOs over the next three years
North America
• Regulatory Concerns
• Environmental Issues
• Macroeconomic Factors
• Technological Factors
Central/South America
• Regulatory Concerns
• Macroeconomic Factors
• Technological Factors
• Market Factors
• Environmental Issues
Europe
• Environmental Issues
• Regulatory Concerns
• Macroeconomic Factors
• Market Factors
Asia-Pacific
• Environmental Issues
• People Skills
• Technological Factors
• Regulatory Concerns
© 2010 IBM Corporation11
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
The vast majority of CEOs, including those in E&U, perceive the New Economic Environment as distinctly different
More volatileDeeper/faster cycles, more risk
More uncertainLess predictable
More complexMulti-faceted, interconnected
Structurally differentSustained change
18%13 69%
21%14% 65%
22%18% 60%
21%26% 53%
The New Economic EnvironmentAll Participants
22%12 66%
17%17% 66%
22%13% 65%
20%28% 52%
Energy and Utilities
Not at all/to a limited extent To a large/very large extentTo some extent
““We are entering an era of ten to twenty years of new significant investment. There is opportunity and uncertainty that we have not seen before.”
Utility President, United States
© 2010 IBM Corporation12
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Sustainability concerns will affect almost all E&U companies; two-thirds of E&U CEOs also expect substantial industry transformation
62%
61%
59%
Industry transformation
58%
Information explosion
Sustainability
Shorter time cycles
Talent shortages
Factors impacting your organization to a large extent over the next five years
Insights from the IBM Global CEO Study 2010
58%
Shifts between mature and rapidly developing
markets
Shift between public and private boundaries
Shift between global and local markets
Scarcity of natural resources
50%
38%
36%
29%
66%
59%
95%
44%
47%
25%
47%
16%
57%
All Participants E&U
© 2010 IBM Corporation13
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
A strong majority of CEOs are working with high complexity – and that complexity is expected to become even more pronounced
79%Expect high/very high level of complexity over the next 5 years
60%Currently experiencing high/very high level of complexity
Experienced and expected level of complexity
74%Expect high/very high level of complexity over the next 5 years
65%Currently experiencing high/very high level of complexity 14%
more
All Participants
Energy and Utilities
32%more
© 2010 IBM Corporation14
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
CEOs are now challenged to close the complexity gap and use complexity to their advantage
79%
49%
Expect high/very high level of complexity over 5 years
Feel prepared for expected complexity
30%Complexity gap*
Expected level of complexity and preparedness to handle
All Participants
74%
50%
Expect high/very high level of complexity over 5 years
Feel prepared for expected complexity
24%Complexity gap*
Energy and Utilities
* Complexity gap = difference between expected complexity and the extent to which CEOs feel prepared to manage complexity
“Ten years ago it was easier to predict what the next ten years would be like...the rules have changed. The rate of change adds to the complexity -- we have a harder time seeing the future..”
Utility CEO, United States
© 2010 IBM Corporation15
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Complexity challenges are compounded by regional differences
CEOs in North America expect “big government” and more regulation
North America
EU
China
Japan
87%
70%
53%
50%
61%China
Japan
EU
North America
42%
33%
33%
CEOs in China see “global thinking” as a top leadership quality
Japan
North America
China
EU
74%
49%
48%
43%
CEOs in Japan are most impacted by the shift in economic power to growth markets
EU
North America
Japan
China
45%
58%
71%
78%
CEOs in the European Union are least impacted by talent shortage
© 2010 IBM Corporation16
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Complexity challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2010 IBM Corporation17
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
We identified Standout organizations that delivered superior performance over both the long term and recent short term
Lo
ng
-te
rm,
stea
dy-
sta
te
per
form
anc
e
Short-term,crisis performance
Performance Analysis Framework
Top 50 percent
Long-term Performance4 Year Operating margin CAGR (2H03/1H04 – 2H07/1H08)
Short-term Performance1 Year Operating Margin Growth Rate (2H07/1H08 - 2H08/1H09)
Standouts
Top
50
perc
ent
© 2010 IBM Corporation18
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Even in the challenging 2008-2009 period, Standouts grew revenue as well as operating margin
5%
0%
-5%
-10%
-15%
5% 10%
Others
Overall Standouts
RevenueCAGR
OperatingMargin CAGR
5%
0%
-5%
-10%
-15%
5% 10%
Others
Overall Standouts
RevenueGrowth
OperatingMargin Growth
10% 10%
Long term performance(4 year: 2H’03/1H’04 – 2H’07/1H’08)
Short term performance(1 Year: 2H’07/1H’08 - 2H’08/1H’09)
15% 15%
Note: Long-term Performance: 4 year operating margin and revenue CAGR (2H03/1H04 – 2H07/1H08); Short-term performance: 1 year operating margin and revenue growth rate (2H07/1H08 - 2H08/1H09);
© 2010 IBM Corporation19
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Standouts are also better prepared to manage the expected complexity
Complexity gap*
Note: Long-term performance: 4 year operating margin CAGR (2H03/1H04 – 2H07/1H08); Short-term performance: 1 year operating margin growth rate (2H07/1H08 - 2H08/1H09)
“Climate change and renewable energy are complex issues that we will have to manage.”
Utility CEO, United States
* Complexity gap = difference between expected complexity and the extent to which CEOs feel prepared to manage complexity
Lo
ng
-te
rm,
stea
dy-
sta
te
per
form
anc
e
Short-term,crisis performance
Top 50 percent
Standouts
22% Gap 6%
Gap
52% Gap 35%
Gap
Top
50
perc
ent
© 2010 IBM Corporation20
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Standouts capitalize on complexity in three ways
• Creativity is a critical leadership quality• Drive change in the organization to
stay ahead of markets and use of wide range of communication styles and tools
• Break with status quo of industry, enterprise and revenue models
• “Getting closer to customers” is the single most important theme
• Better understand customer needs through collaboration and info sharing
• Exploit the information explosion to deliver unprecedented customer service
• Simplify operations and products to better manage complexity
• Use iterative strategies, make quick decisions and execute with speed
• Exploit partnering to increase agility; increase cost variability and integrate globally where possible
© 2010 IBM Corporation21
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
• Creativity is a critical leadership quality• Drive change in the organization to
stay ahead of markets and use of wide range of communication styles and tools
• Break with status quo of industry, enterprise and revenue models
Standouts capitalize on complexity in three ways
© 2010 IBM Corporation22
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
CEOs stress the importance of integrity, change, and creativity
Which are the most important leadership qualitiesover the next three years?
Change
Creativity
Integrity
“So many other things fail when integrity gets out of whack.”
Utility CEO, United States
“Technology, especially with the implementation of Smart Meter and Smart Grid components will radically change how we operate, generate significantly more information, and change the way customers use and consume electricity.”
Utility CEO, United States
“We need to be flexible, not sticking to traditional ways of thinking. Creativity and proactive discussion are required.”
Utility Executive Director, Japan
© 2010 IBM Corporation23
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
E&U CEOs see creativity and influence as critical leadership qualities that must be guided by strong ethical principles to ensure success
60%
52%
35%
Creativity
Integrity
Global thinking
Top three leadership qualities over the next five years
All Participants
Energy and Utilities
47%
63%
43%
Creativity
Integrity
Influence
“Authority has to be earned through trust and trust comes from integrity and openness.”
Utility CEO, United States
“We need to be flexible, not sticking to traditional ways of thinking. Creativity and proactive discussion are required.”
Utility Executive Director, Japan
“Influence is critical in a regulated environment with a heavy national/political agenda.”
Utility CEO, Europe
© 2010 IBM Corporation24
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
However, the most valued leadership skills differ widely across regions
North America
• Integrity
• Creativity
• Influence
• Dedication/Openness
Central/South America
• Integrity
• Influence
• Global Thinking
Europe
• Influence
• Creativity
• Focus on Sustainability
• Integrity
Asia-Pacific
• Focus on Sustainability
• Integrity
• Creativity
• Fairness
Top leadership qualities over the next five years by region
© 2010 IBM Corporation25
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Creative leaders are more prepared to break with the status quo of industry, enterprise, and revenue models
Deep dive analysis: CEOs that selected ‘creativity’ as a crucial leadership quality
Innovation ascrucial capability
81%more
... And they are more likely to pursue all types of business model change
Creative leaders rate innovation more highly as crucial capability...
60%
52%15%
more
Enterprise model
57%
52%10%
more
Industry model
54%
45%20%
more
Revenue model
38%
21%Creatives
“In the next five years, innovation will radically change how we run our business more than anything else.”
Utility General Manager, United States
Others
Creatives
Others
Creatives
Others
Creatives
Others
© 2010 IBM Corporation26
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
E&U leaders are moving forward with leadership styles and balanced communication approaches embraced by Standouts
13%8% 79%
25%17% 58%
Continuouschange
Ad-hocinitiatives
Persuade andinfluence
Commandand control
28%33% 38%(Managed) viralcommunication
Top-downcommunication
Standouts realizing rapid change over the next five years
13%5% 82%Continuouschange
Ad-hocinitiatives
18%12% 70%Persuade andinfluence
Commandand control
38%28% 34%(Managed) viralcommunication
Top-downcommunication
Standouts
E&U
Standouts
Standouts
E&U
E&U
© 2010 IBM Corporation27
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
“While timely and thorough decision making is important, optionality is a key to success for us in the past. This strategy may be slower paced, but it is a winning strategy for us.”
Utility General Manager, United States
E&U CEOs rely more on thorough decisions than quick decisions, unlike CEOs in many other industries…
Ways to achieve rapid change over next five years: Decision Making
42%25% 33%
Total Sample
45%37% 18%
E&U
Thorough decisions Quick DecisionsBoth
© 2010 IBM Corporation28
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
...but those who value creativity as a top leadership trait are as likely to favor thorough decisions as those who do not
Preference for thorough decisions among Energy and Utilities CEOs
36%
E&U CEOs valuing creativity more highly*
38%
E&U CEOs valuing creativity less highly
* More highly = in top three of leadership qualities important for the next five years
© 2010 IBM Corporation29
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
So what builds creative leadership?
Embrace ambiguity: Reach beyond silos, exemplify breakthrough thinking, act despite uncertainty.
Take risks that disrupt legacy business models: Pilot radical innovations, continually tweak your models, borrow from other industries’ successes.
Leapfrog beyond “tried-and-true” management styles: Strengthen your ability to persuade and influence, coach other leaders, use a wide range of communication approaches.
Recommendations
How will you develop the critical capabilities to enhance creativity among your leadership?
In what ways can you explore, reward and integrate diverse and unconventional points of view?
What is your approach to evaluating every element of your business model to get the most from currently untapped opportunities?
How will you leverage new communication styles, technologies and tools, both to lead a new generation of talent and to encourage breakthrough thinking?
Tough questions to consider
© 2010 IBM Corporation30
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Standouts capitalize on complexity in three ways
• “Getting closer to customers” is the single most important theme
• Better understand customer needs through collaboration and info sharing
• Exploit the information explosion to deliver unprecedented customer service
© 2010 IBM Corporation31
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
‘Getting closer to the customer’ is a priority for firms across all industries – and even more important for Standouts
83%
Others
Overall Others and E&U vs. Overall Standouts
Getting closer to the customer
72%
E&U
95%
Standouts
“Our customers have an unusually high technology adoption rate; we are sharing more power and heating information directly to clients using Facebook and Twitter.”
Utility CEO, United States
“To surprise customers requires unexpected ideas through interactions of people with diverse perspectives.”
Shukuo IshikawaPresident and CEO, Representative Director, NAMCO
BANDAI Holdings, Inc., Japan
© 2010 IBM Corporation32
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
This will become critical for E&U companies as the nature of value exchanged between providers and customers becomes more complex
Traditional Industry Value Model
Sources: Valocchi, Michael, John Juliano and Allan Schurr. “Switching perspectives: Creating new business models for a changing world of energy.” IBM Institute for Business Value. 2010; Jansen, W., W. Steenbakkers, and H. Jagers, New Business Models for the Knowledge Economy, Gower Publishing, 2007.
Emerging Industry Value Model
At the same time customers are becoming more demanding, they actually have much more to offer in reciprocal value to energy and other product/service providers.
© 2010 IBM Corporation33
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
CEOs want to better understand customer needs, offer new services, and collaborate more; those in E&U also focus strongly on social responsibility
82%Better understanding of needs
70%New or different services
69%More collaboration, info sharing
61%New or different products
51%New or different channels
46%Increased focus on social responsibility
All Participants E&U
CEOs’ view of where customer expectations will change to a large extent
81%
63%
64%
39%
39%
58%
“Customers will be more and more concerned and demanding about the whole product value chain, especially regarding environmental impact.”
Utility CEO, Europe
© 2010 IBM Corporation34
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
To stay in lockstep with customers, Standouts maintain a better understanding of preferred channels and price-value trade offs
42%
Others
58%
Standouts
Focus on price-value equation
38%
45%
Others
51%
Standouts
Use of new or different channels
13%
39%
E&U
51%
Standouts
31%
Overall Others vs. Standouts
E&U vs. Overall Standouts
Overall Others vs. Standouts
E&U vs. Overall Standouts
42%
E&U
58%
Standouts
38%more more more more
© 2010 IBM Corporation35
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Customer-centric CEOs intend to exploit the information explosion to better understand and serve customers
49%
OtherCEOs
63%
Customer focusedCEOs
Impact on organization ofinformation explosion
29%more
66%
OtherCEOs
78%
More focus on insight and intelligence
to realize strategy
18%more
Customer focusedCEOs
Deep dive analysis: CEOs that scored high or very high on ‘getting closer to the customer’
... to generate insight and intelligenceCustomer focused CEOs use data...
“… but those efforts are limited yet, and we need further action for this to generate needs from seeds.”
Utility Executive Director, Japan
“We analyze Voice of the Customer data collected at customer centers in order to properly understand consumer needs…”
© 2010 IBM Corporation36
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
So how do you reinvent customer relationships?
Honor your customers above all else: Focus as never before, make it easy for customers to connect with the right employee and measure what customers value
Use two-way collaboration to sync with customers: Make customers part of your team, solicit customer wants, co-innovate and interact with customers in new ways, deliver true process transparency.
Profit from the information explosion: Tap the value of limitless data, use analytics to translate data into insight into action that creates business results, share information freely to build trust and improve customer relationships.
Recommendations
How will you engage customers in new ways that increase interest and loyalty to generate new demand and revenue sources?
How can you involve customers more effectively and directly in product and service development?
Can you hear the voice of your customers through the vast amount of data? Can you understand and act upon the information?
Tough questions to consider
© 2010 IBM Corporation37
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Standouts capitalize on complexity in three ways
• Simplify operations and products to better manage complexity
• Use iterative strategies, make quick decisions and execute with speed
• Exploit partnering to increase agility; increase cost variability and integrate globally where possible
© 2010 IBM Corporation38
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Revenue from new sources will emerge from new business models; three elements of dexterity will be required to leverage them
30%
25%
Next 5 years
Revenue generated from new sources
“For new sources of revenue and value… be inspired, viral, and decentralized.”Utility CEO, Europe
Deep dive analysis: CEOs that selected ‘iterative strategies, quick decisions and execute with speed’
20%more
20%
15%
Last 5 years 33%more
Dexterous CEOs
Others
Dexterous CEOs
Others
© 2010 IBM Corporation39
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
E&U CEOs already are near Standout levels of performance in their reliance on an iterative approach to strategy...
Ways to achieve rapid change over next five years: Iterative Strategy Processes
64%
Others
74%
Standouts
16%
Overall Others vs. Standouts Energy and Utilities vs. Overall Standouts
69%
E&U
74%
Standouts
7%more more
© 2010 IBM Corporation40
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
… and their speed of execution of these strategies
39%
Others
45%
Standouts
16%more
Most crucial capabilities for execution success over the next 5 years:Execution Speed
“The aim is adaptability, the tool is execution speed.”
Dr. Faruk YarmanGeneral Manager, Havelsan, Turkey
E&U Standouts
10%more
41%45%
“Leaders are seeing the changes - however, the personnel have not yet incorporated them. The speed of changes must still be increased.”
Utility CEO, Europe
Overall Others vs. Standouts Energy and Utilities vs. Standouts
© 2010 IBM Corporation41
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
“The consequences of making bad decisions last for a very long time. We have to be very risk averse -- but the world is speeding up, so we have to make faster, thorough decisions.”
Utility CEO, United States
However, a shift toward faster decision making – another trait of Standout organizations – will need to occur
Ways to achieve rapid change over next five years: Decision Making
28%
Others
43%
Standouts
54%
Overall Others vs. Standouts Energy and Utilities vs. Overall Standouts
18%
E&U
43%
Standouts
139%more more
© 2010 IBM Corporation42
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Standouts are also able to simplify operations and products to better manage complexity
47%
Others
61%
Standouts
Changes to operating strategy: Simplify
30%
Overall Others vs. Standouts Energy and Utilities vs. Standouts
29%
E&U
61%
Standouts
110%more more
“There is a duality – the ability to manage a more complex customer demand, but simplify operations (and associated costs) at the same time.”
Utility CEO, Europe
“Simplification and standardization are key strategies that we have been using for several years to reduce existing and future complexity.”
Brenda Barnes, Chairman and CEO, Sara Lee, United States
© 2010 IBM Corporation43
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
So what are the steps to build operating dexterity?
Simplify whenever possible: Simplify interactions with customers, simplify products and services by masking complexity, simplify for the organization and partners.
Manage systemic complexity: Put complexity to work for your stakeholders, take advantage of the benefits of analytics.
Promote a mindset of speed and flexibility: Act quickly, push execution speed, course-correct as needed.
Be “glocal”: Leverage the world through partners, constantly tune your operating model – global where possible, local where necessary.
Recommendations
In what ways can you simplify processes, without ignoring underlying complexity, and develop the agility required to execute rapidly?
How can your organization benefit from taking on more complexity on behalf of your clients or customers?
How will you integrate and analyze timely information to gain insight, make quick decisions and enable dynamic course correction?
Have you implemented asset and cost flexibility and defined partnering strategies to compete in your chosen markets?
Tough questions to consider
© 2010 IBM Corporation44
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Agenda
CEOs must navigate in a highly volatile, increasingly complex environment
- Massive global shifts increase uncertainty
- Continued rise of technology as key external factor
- Complexity challenges are compounded by regional differences
Standing out in a complex world
- Embody creative leadership
- Reinvent customer relationships
- Build operating dexterity
Seizing the upside of complexity
© 2010 IBM Corporation45
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Taking advantage in the New Economic Environment
HandleUncertainty
Deal withVolatility
Leverage Complexity
Be comfortable with ambiguity, act despite uncertainty, generate unexpected ideas
Use predictive analytics to anticipate customer needs, model customer scenarios
Develop flexible organizations and processes that are ready to constantly adapt and course correct
Break status quo to lead and benefit from industry transformation, convince and communicate with passion
Interact directly to tune into rapidly changing customer preferences
Leverage global capabilities to quickly adapt to shifts in local markets
Find non-linear solutions; create cross-silo teams, encourage interconnected thinking
Give customers direct access to everyone in your organization, and direct access for everyone to customers
Simplify operations, services and products for your customers, your organization and your partners
Reinventcustomer
relationships
Buildoperatingdexterity
Embodycreative
leadership
© 2010 IBM Corporation46
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
IBM has provided perspective on these themes in its last three Energy and Utilities IBV papers, including a new one in 2010
Embody creativeleadership
Embody creativeleadership
Reinvent customerrelationships
Reinvent customerrelationships
Build operatingdexterity
© 2010 IBM Corporation47
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
In the near future, E&U CEOs will be forced by dramatic industry change to increase their organizations’ dexterity
Sources: Valocchi, Michael, John Juliano and Allan Schurr. “Switching perspectives: Creating new business models for a changing world of energy.” IBM Institute for Business Value. 2010
This will be necessary to handle rapid regulatory, technical and customer change, and capture revenue growth from new business models.
© 2010 IBM Corporation48
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
To respond to this, industry model innovation will be a particularly strong area of focus for E&U CEOs over the next five years...
Impact of industry transformation over the next five years: E&U companies
32% 66%
Focus on industry model changes over the next five years: E&U companies
40% 60%
0%
The E&U executives surveyed expect that the percentage of revenue from new sources will double over the next five years.
2%
None Large to very largeMinor to moderate
© 2010 IBM Corporation49
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
A platform is a common structure and set of rules that provide a standard foundation for transactions among two or more parties
Platforms provide a means for providers and buyers of products and services to interact and create value that could not be created otherwise
The platform lowers the costs of providing services by offering some level of standardization for transactions and reducing duplication
Platforms can take different shapes– Physical (e.g., shopping malls, department stores)– Software/hardware (e.g., gaming systems, PC operating systems)– Consultative (e.g., financial advisors, home loan brokers)
A platform can be single-sided or multi-sided– In a single-sided platform, a merchant acts as the agent for one group of customers in negotiating
and procurement (e.g., Walmart, iTunes)– In a multi-sided platform, a common structure brings together two or more distinct parties, each of
whom is necessary to conduct a business transaction (e.g., shopping malls, eBay, Match.com)
The electricity network was one of the earliest technology platforms, providing a means for power generators to move their output to buyers, a means for buyers to accept delivery of the output, and a standardized technological specification.
Source: Evans, D., A. Hagiu, and R. Schmalensee, Invisible Engines, MIT Press, 2006; IBM Institute for Business Value analysis.
… and bring extraordinary change to the platforms on which energy providers operate
© 2010 IBM Corporation50
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Sid
e 1
Sid
e 2
1Growth in the number of potential customers on Side One for complementary products and services on Side Two occurs
2This then leads to an increase in the quantity and diversity of complements made available by Side Two
3Because Side One users are favorably inclined to a wider variety of products and services on the other side, more to join the platform
4The increased number of users makes it even more attractive for Side Two to develop new complements
Multi-sided businesses, which provide benefits by increasing and capturing indirect network externalities, will emerge in E&U
Sources: Valocchi, Michael, John Juliano and Allan Schurr. “Switching perspectives: Creating new business models for a changing world of energy.” IBM Institute for Business Value. 2010; Eisenmann, T. and A. Hagiu, “Staging Two-Sided Platforms”, HBS Publishing, 2007.
© 2010 IBM Corporation51
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
There are numerous examples of multi-sided platforms outside the Energy and Utilities industry
Sources: Valocchi, Michael, John Juliano and Allan Schurr. “Switching perspectives: Creating new business models for a changing world of energy.” IBM Institute for Business Value. 2010; Eisenmann, T., G. Parker, and M. Van Alstyne, “Strategies for Two-Sided Markets,” Harvard Business Review, 2006; Evans, D., A. Hagiu, and R. Schmalensee, Invisible Engines, MIT Press, 2006.
© 2010 IBM Corporation52
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
We expect a wide variety of multi-sided platforms to develop in the industry in the near future
Source: Valocchi, Michael, John Juliano and Allan Schurr. “Switching perspectives: Creating new business models for a changing world of energy.” IBM Institute for Business Value. 2010.
© 2010 IBM Corporation53
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Seizing the upside of complexity
Honor your customers above all else
Use two-way communications to sync with customers
Profit from the information explosion
Embrace ambiguity
Take risks that disrupt legacy business models
Leapfrog beyond “tried-and-true” management styles
Simplify whenever possible
Manage systemiccomplexity
Promote a mindset of being fast and flexible
1 2 3
Be “glocal”
Reinventcustomer
relationships
Buildoperatingdexterity
Embodycreative
leadership
© 2010 IBM Corporation54
Insights from the IBM Global CEO Study 2010 – Energy and Utilities Industry Perspective
Key contacts
John JulianoGlobal Lead, Energy and UtilitiesIBM Institute for Business [email protected] Tel. +1 240 361 8157
Michael ValocchiGlobal Lead Partner, Energy and UtilitiesIBM Global Business [email protected]. +1 610 212 9763
Ricardo KlatovskyE&U Industry Leader, Southern EuropeIBM Global Business [email protected]. +34 913 977 395
Visit the IBM Institute for Business Value (IBV) at: www.ibm.com/iibv/
Capitalizing on Complexity is available at:www.ibm.com/ceostudy
Switching perspectives is available at: www.ibm.com/services/gbs/switchingperspectives