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© 2009 IBM Corporation© 2010 IBM Corporation
After the Crisis: What now? The New Economic Environment Agenda for 2011Dr Mary KeelingManager, Global Centre for Economic DevelopmentIBM Institute for Business Value
November, 2010
© 2010 IBM Corporation2
Contents
� The New Economic Environment for Business
� How to respond?
© 2010 IBM Corporation3
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Ireland, is experiencing the deepest recession ever recorded in the history of the Euro area member states since the Great Depression
New economic environment for business
Source: Data from CSO, Quarterly National Accounts
Gross Domestic Product, €m
© 2010 IBM Corporation4
And consumer spending and confidence - major driving forces for growth – are suffering
Source: Data from CSO, Quarterly National Accounts and ESRI
Retail Sales and Consumer Confidence
30
40
50
60
70
80
90
100
110
120
2005
M01
2005
M04
2005
M07
2005
M10
2006
M01
2006
M04
2006
M07
2006
M10
2007
M01
2007
M04
2007
M07
2007
M10
2008
M01
2008
M04
2008
M07
2008
M10
2009
M01
2009
M04
2009
M07
2009
M10
2010
M01
2010
M04
2010
M07
Retail sales value Index
Consumer confidence Index
New economic environment for business
© 2010 IBM Corporation5
0
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20,000
30,000
40,000
50,000
60,000
2006 2007 2008 2009
The fall in investment by businesses reflects lack of confidence in long term prospects for recovery, credit conditions and poor growth domestically and internationally
Source: CSO
Gross Domestic Fixed Capital Formation, €m
New economic environment for business
-50%
© 2010 IBM Corporation6
Uncertainty, risk and complexity are increasing – not decreasing
Uncertainty
Co
mp
lexity
Black Swans
• Government hand in business
• Networked economy• Complex interdependencies
• Price instability
Exchange rates;
Commodity prices
InflationPre-Crisis
Business Environment
• Data overload
• End-to-Stimulus
• Demographic Shifts
“We don’t’ know what we don’t know”
- Nicholas Taleb
• Debt Overload
• Credit Constraints
• Protectionism
• Industry Restructuring
Sources: IBM Analysis, The Black Swan, Nassim Nicholas Taleb, Random House 2007
• Sovereign Defaults
New economic environment for business
© 2010 IBM Corporation7
Strategy and operations will continue to become more global and complex
Going Global
Between 1995 and 2007, foreign subsidiaries tripled from 265,000 to nearly 790,000
Increased Network Complexities
3X
Transnational companies more than doubled from 38,000 to 79,000
12X
Nearly 80% of executives expect collaborative relationshipswith third parties to increase
80%
Between 2007 and 2010, R&D outsourcing is estimated to have increased by 65%
65%
•
Businesses and supply chains are becoming more global
Supply chains are involving more companies
New economic environment for business
© 2010 IBM Corporation8
More than 80% of CEOs
expect some form of climate
change regulation in their
home country within 5
years.
8 in 10
Businesses are facing growing pressures and challenges to becomegreener
New economic environment for business
IT energy expense is
expected to increase 35%
in the next four years.
35%
© 2010 IBM Corporation9
22% of the world’s population,
1.46 billion people, are online
and this number is estimated to
reach 2.2 billion by 2013 – an increase of 50%
Store POS
Web
Mobile
Immersive
Source: IBM Global Retail Industry
Between 2000-2010 the number
of internet user in Ireland
increased by 288.1% with 65.8% of the population now online
Technology is changing the way consumers interact, obtain information, and purchase goods and services
63% of adults research
through social networks and
blogs, and 47% of the time
they are influenced by what is read
There are 9 times
more mobile phone
accounts than cars in
the emerging world.
Americans alone have
access to 65,000 iPhone
apps
New economic environment for business
© 2010 IBM Corporation10
Businesses are experiencing significant upheaval and bold and breakthrough thinking is the most important leadership quality going forward
Source: Q19 Which of the following leadership qualities do you think are most important in the next five years? n=1,538
60%
52%
35%
28%
26%
26%
12%
12%
Creativity
30%
Integrity
Global thinking
Influence
Openness
Dedication
Focus on sustainability
Humility
Fairness
“Creativity is vital in a complex
environment.”Government Official,
Hong Kong
Most important leadership qualities over the next five years
“Only leaders who act with integrity
shall and will survive.”CEO, Electronics Industry,
Switzerland
New economic environment for business
© 2010 IBM Corporation11
Contents
� The New Economic Environment for Business
� How to respond?
© 2010 IBM Corporation12
Businesses can identify three immediate priorities to respond to this new economic environment
Get ahead of scarcity – before
values fully recover
Drive cost efficiency
through productivityand agility
Find targeted approaches to grow
revenue21 3
How to respond
© 2010 IBM Corporation13
1. Find new approaches to grow revenue
�Financial pressures and tightened credit have driven changes in the priorities of business and consumer buyers.
�Enterprises can no longer look to market growth to drive revenue expansion.
�They need to generate growth by generating new demand in mature markets, while shifting focus to developing economies
Key Moves:
• Engage customers through digital
channels
• Promote value-conscious offerings
"It used to be about price and want. Now it's
about value and need." Guy Blissett, consumer
products leader for IBM Institute for Business Value
How to respond
© 2010 IBM Corporation14
Engage customers through digital channels that reveal unmet needs, generate new demand and facilitate collaboration
Converse
through
social media
Uses social networks Twitter and Facebook to reach
customers -1300 followers on Twitter
Sources: IBM Client References, ; “In a Downturn, Provoke Your Customers” Lay, Moore Hewlin, Harvard Business Review, March 2009, “Geeks in Toyland” Wired Magazine, 2/06
How to respond
Developed a new marketing strategy by analyzing user
generated content in blogs, message boards and social
sites
© 2010 IBM Corporation15
While customers continue to have aggressive demands for differentiated products & services, suppliers are failing to tap into consumers for knowledge on how to satisfy this demand
What are your planning processes for synchronizing supply
& demand?
Formal meetings with sales, marketing and supply chain
operations
Demand and supply plans are formally aligned and agreed upon
cross business functions
Supported by integrated demand and supply planning applications
External supply planning collaboration with suppliers
External demand collaboration with customers
79%
78%
58%
63%
53%
To a very great extent To a significant extent Some extent
No extent
19%
Very great extent
5%Significant extent
15%
Moderate extent
33%
Little extent
28%
And customers are the last on the list for collaboration overall
Extent of external demand collaboration with customers
10%Top supply chains claim to collaborate with customers more
Almost Half (47%) FAIL to Collaborate with Customers!
How to respond
© 2010 IBM Corporation16
78% of consumers are willing to co-create -- help retailers determine product variety, store layouts, and service ideas
2%
3%
17%
38%
40%
0% 10% 20% 30% 40% 50%
Very likely
Somewhat likely
Neither likely nor
unlikely
Somewhat unlikely
Very unlikely
Lik
elih
ood
Percent selected
Likelihood to co-create
Source: IBM Institute for Business Value Analysis, Retail 2010, total population=32,087; Instrumented likely to co-create n=9976; Advocates likely to co-create n=8745
78% =‘Likely to co-create’
How to respond
© 2010 IBM Corporation17
To what extent do the following statements describe your
planning process?
* Leaders determined based on respondents found in AMR Research Supply Chain Top 25 for 2008
Sales &Operations Planning
External Demand Collaboration with
Customers
External Supply Collaboration with
Suppliers
Integrated Demand and Supply Planning
Applications
Very great extent Significant extentLeaders:
Very great extent Significant extentOthers:
19%
24%
10%
10%
96%
81%
73%
63%
Gaps
63%
53%57%
77%
30% 18% 19% 11% 12% 5%7%
Some extent
Some extent
4%
This trend will intensify – we expect further integration of customer demands from inception to delivery – the entire global network focused on the end consumer
How to respond
Top supply chains
claim to collaborate
with customers
10% more
81% of top supply
chains are planning
further integration of
demand and supply
applications
© 2010 IBM Corporation18
Value-conscious buying patterns require organisations to continue to reduce costs and improve efficiency
Source: IBM Client References, Business Week 50, 2009; http://online.wsj.com/article/SB124933474023402611.html ;
“Latest Starbucks Buzzword: 'Lean' Japanese Techniques” WSJ, August 4, 2009
Reduce your
customer’s
costs
Ryanair is to offer self-service payment terminals equipped
with chip-and-PIN readers to allow customers to purchase
services at the airport.
The initial phase of the rollout will see 250 unmanned kiosks
installed in London Stansted airport
Ryanair claims the initiative is a world first and plans to
expand it to 450 kiosks at other airports
How to respond
Company rolled out an efficiency initiative - took a fresh look
at how its stores operate, aiming to accelerate retail transactions, lower service costs and reduce wait times.
Focuses on creating more value with less work, and has
resulted in changes ranging from where coffee beans are
stored and when they are ground to how the pastry counters
are stocked each day
Improve
service
efficiency
© 2010 IBM Corporation19
2. Focus on productivity and agility
�First reaction to the economic crisis was to cut costs to offset lower revenues
�Now it’s impossible to predict when and how demand and opportunity will recover
�Enterprises need to focus on building productive, scalable processes
– continue to do more with less– be capable of flexibly scaling up and
down with variation in demand, customer requirements, and new market opportunities.
Key Moves:
• Tap the power of information through
predictive analytics
• Improve collaboration
How to respond
© 2010 IBM Corporation
Source: Business Analytics and Optimization for the Intelligent Enterprise, April 2009. www.ibm.com/gbs/intelligent-enterprise
33%business leaders frequently make critical decisions without the information they need
50%don’t have access to the information across their organisation needed to do their jobs
80%business leaders see information as a source of competitive advantage
Businesses see the need to adopt new ways of working to improve speed to insight and speed to impact
How to respond
© 2010 IBM Corporation21
Tap the power of information through predictive analytics to increase efficiency and productivity of assets and investments
Major Irish Beverage
company
Customer
relationship
productivity
Process
efficiency
� Leading beverage company is able to break down
effectiveness of promotions and better analyze sales data
� Teal-time and easy-to-read sales information to better
understand the buying trends of customers before, during,
and after a promotion
� Improved process efficiency analysing sales data
� Improved ability to forecast revenue and costs
Predictive Analytics Examples
Sources: IBM client references; “If You Liked This, You’re Sure to Love That”, NY Times, November 21, 2008
How to respond
� Analytics engine Cinematch recommends movies based
on customer feedback, to match customer’s taste with
Netflix’ inventory
� Uses analytics to gain information advantage during DVD
distribution rights negotiations
© 2010 IBM Corporation22
Improve collaboration to make processes more efficient, and expose the enterprise to broader sources of innovation
• Connect & Develop program searches and co-develops with a
wide network of partners to create new products
• Result: Examples of blockbuster products include Swifter
cleaning products, motorized toothbrushes and Printed Pringles
• Connects first responders, specialists, and administrators with seamless collaboration
• Reduces patient processing time and making EMS efforts faster and more effective
• Result: a 10-15% improvement in productivity
Collaborate
internally
Collaborate
externally
Metropolitan Emergency
Services system
Collaborate for Productivity
Sources: IBM client references, BusinessWeek, Connect & Develop web site: success stories https://secure3.verticali.net/pg-connection-portal/ctx/noauth/0_0_1_4_83_4_6.do
How to respond
© 2010 IBM Corporation23
3. Get ahead of scarcity – before prices fully recover
• The economic crisis interrupted the escalating trend toward scarcity – in critical supplies, environment, talent, other factors.
• Prices for resources and assets - including the talent and skills - dropped precipitously, and in many cases far below fair value.
• But prices are already recovering, and the trend toward scarcity will return.
Key Moves
• Assure access to key supplies
• Secure the best global talent
• Embrace the financial case for green
How to respond
© 2010 IBM Corporation24
The post crisis period offers a window of opportunity to assure access to key supplies that can provide long term advantage
• Kingspan has agreed to acquire the European insulation
activities of CRH for €120m.
• This will bolster its position as Europe’s leading provider of
non-fibrous insulation throughout Europe, the company
said.
• Give a greatly enhanced portfolio of solutions at a time
when building regulations are becoming more rigorous in
encouraging energy efficient buildings across Europe
• Buys 5% stake in Smithfield Foods to access critical
technology and mgmt skills
• Seen as essential to meet China’s growing demand for
pork
Sources: www.reuters.com, July 1, 2008; Wall Street Journal, December 2005 “Pepsi Takes Up Potato Farming”; China Daily, July 2008, “Cofco buys into leading U.S. pork firm”; UN Food & Agriculture organisation
Critical resource varies by firm
Resources
Technology
Resource Scarcity Plays
How to respond
© 2010 IBM Corporation25
Move quickly to secure the best global talent
Sources: Wall Street Journal Online, March 3, 2009; Toray Corporate, Nikkei Business, Toyo Keizai, Chugoku Shinbun
Greater complexity in the business
environment raises the value of Talent
2.27x
1.85x
1.52x
Low Moderate High
Top 1 % Employee Productivity vs. Average
Source: IBM Analysis, Hunter, Schmidt, & Judiesch (1990), Journal of
Applied Psychology, vol 75 (1), pp. 28-42.
Job Complexity
The post-crisis environment has allowed
some firms to accelerate Talent advantages
Enhance
Redeploy
Instituted program to transfer under-utilized employees from mature geographies to emerging markets
Helped IBM’s accelerate growth in emerging markets, while maintaining a globally integrated operating model
Took advantage of reduced production schedule to cross-train 600 single-skill employees on multiple positions within work cell
Increased ability to adapt to uncertain demand and reduced contract worker use
How to respond
© 2010 IBM Corporation26
Before energy and environmental pressures return in full, position to embrace the financial case for green
Resource reduction potential
Supply Chain:
Fuel and ElectricityMaterials, eg. waterAsset management
Human Resources
Office spaceTravel expenseTalent retention
Marketing, Sales & Service
PaperReturns
Product Design
Information Technology
Data center reductionElectricity usage
Hardware disposition
Finance, Legal &
Operations
Regulatory impactConsumer litigation
Paper
Sources: IBM client references, BusinessWeek
Introducing “Trash Talk” sneakers made from recycled shoes
Green ROI
How to respond
Irish company, Barry Global Innovation (BGI), is creating what it says is “a new category for wines in travel retail” with the launch of multi-layered PET (MLP) wine bottles to the trade worldwide.
their long shelf life (at least twice the life of monolayer PET),
lightness (three MLP bottles weighs the same as two glass wine bottles)
unbreakability.
recyclable (both capsule and bottle).
reduce consumers’ carbon footprint (one can transport 46% more wine in MLP containers than in glass in a 40ft container).
© 2010 IBM Corporation27
Are you prepared?
• What resources are critical to your business?
• What impact would a return to higher costs for supply have on your business?
• How can you preemptively secure preferential access?
• Are there acquisition or investment opportunities you should move on quickly before prices rise and ahead of your competition?
• Can you hear what the market is saying through the huge volumes of data at your fingertips?
• Are you able to flexibly scale your production to quickly meet variable and uncertain demand?
• Are you getting the most from your existing assets, investments and talent?
• How do you accurately forecast demand and customer requirements and develop new revenue opportunities?
• How can you utilize digital channels to reach new customers and engage them in new and different ways
• How will you offset revenue challenges in mature markets?
Get ahead of scarcityFocus on productivity and agility
Find targeted approaches to grow revenue
1 2 3
Summary
© 2010 IBM Corporation2828 22-Nov-10
The IBV Global Centre for Economic Development has published a number of studies on topics relating to economic development and ICT
You can find more information on the IBV Global Centre for Economic Development at:
www.ibm.com/ie/ibvireland
For further information, please contact:
Dr. Mary Keeling ([email protected])