winners don't play dead: doing more with less in an uncertain future

Winners don’t play deadDoing more with less in an uncertain futureAn Economist Intelligence Unit research programme

Sponsored by AlixPartners

Winners don’t play deadDoing more with less in an uncertain future

© Economist Intelligence Unit Limited 20121

Preface 2

Interviewees 3

Introduction 6

The motive and the means to invest for growth 7

Investing in innovation 9

Barriers to investment 16

Keeping focus and growing smartly 18

Next steps: What is needed? 19

Conclusion 21

Appendix: survey results 22

Contents



2

Winners don’t play dead: Doing more with less in an uncertain future explores how companies are reshaping their business to succeed in the challenging environment that has emerged from the great recession. It also looks at the factors holding back companies from making major capital investments. What is hindering them and what are they doing to help remove the constraints? The Economist Intelligence Unit conducted the survey and analysis and wrote the report. The fi ndings and views expressed in this report do not necessarily refl ect the views of the sponsor. The author was Shawn Young. Michael Singer edited the report and Mike Kenny was responsible for layout. Additional interviews were conducted by Andrew Cartwright and James Rubin. We would like to thank all of the executives who participated in the survey and interviews for their valuable time and insight.

January 2012

Preface



Chris Boyle, managing director, Black Diamond Capital Management

David Burns, general manager, IBM Global Technology Services

Sabri Challah, vice-chairman and senior partner, Human Capital, Deloitte

Pete Cittadini, president and chief executive offi cer, Actuate

Harris Diamond, chief executive offi cer, Constituency Management Group, Weber Shandwick, Interpublic Group

Stuart Fenton, president, EMEA & APAC, Insight Enterprises

Ian Foottit, partner in fi nancial services, Deloitte

Vikram Gulati, chief executive offi cer, Happiest Minds

Buddy Gumina, senior partner and co-head of healthcare group, Apax Partners

Chris Morgan, senior vice-president, graphics solutions business imaging & printing division, Hewlett-Packard

Krishnakumar Natarajan, chief executive offi cer, MindTree

Ravi Pandit, chairman and group chief executive offi cer, KPIT Cummins

John Pearson, chief executive offi cer Europe, DHL Express

Charlie Peters, senior executive vice-president, Emerson Electric

Gil Priver, executive vice-president, Retalix

Doug Shaw, chief executive offi cer, Monotype Imaging Holdings

Mahmut Sinoplu, managing director, Sabanci Group

Eivind Slaaen, senior vice-president, Hilti

Patrick Spence, vice-president and manager of global sales & regional marketing, Research In Motion (RIM)

B.G. Srinivas, senior vice-president and member of the board of directors, Infosys

Thomas Waechter, president and chief executive, JDS Uniphase Corp.

Matt Williams, partner and group planning director, The Martin Agency

Interviewees



4

As developed economies shudder in response to Europe’s debt crisis, political unrest in the Middle East, a languishing US economy and an apparent dearth of effective economic leadership, corporate

decision makers in the Organisation for Economic Co-Operation and Development (OECD) are braced for the possibility of a double-dip recession. In September 2011, the Economist Intelligence Unit conducted a global survey of 536 senior executives, sponsored by AlixPartners. More than 60% of respondents view default within the euro zone and a renewed global recession as likely or very likely. The respondents generally view a defl ationary cycle in developed markets as a real possibility, but this does not mean they are giving up on growth.

The principal fi ndings of the survey and a series of interviews with senior experts are as follows:

l Despite considerable gloom in parts of the global economy, corporate leaders are guardedly optimistic. A large proportion of respondents in OECD countries say they are confi dent that they can strike the delicate balance between cutting back in response to short-term setbacks and investing for long-term growth. They believe in their products and services, and many took steps and learned lessons during the recession that have left them, in some ways, stronger now than they were three years ago. They cut where they had to, but focused on their top priorities and most promising initiatives, often investing in one area while enduring painful cuts in another.

Executive summary

Who took the survey

The survey that underlies this report is based on answers from respondents, of which 49% were C-level executives. The head offi ces of their organisations are based in around 70 different nations. Around 33% of them have company headquarters in North America; 27% in Western Europe; 17% in the Asia-Pacifi c region; 11% in the Middle East; 6% in Latin America; 4% in Africa; and 2% in Eastern Europe. Companies with annual revenue of US$500m or less compose 46% of

the respondents and 19% of the responses came from companies with annual revenue of US$10bn or more. The fi nancial services industry is the most strongly represented, with 16% saying it is their organisation’s “primary industry”. The survey also covers nearly all other industries, including professional services (15%), manufacturing (9%) and information technology (IT) and communications (8%).

Many of the organisations in the survey are multinational. Of the 83% of respondents that say they do not have a head offi ce in the Asia-Pacifi c region, around 60% have “signifi cant operations” in that region.



l Many fi rms have amassed vast amounts of cash. Despite their fears for the global economy, companies with annual revenue in excess of US$500m say they expect generating revenue growth to become more important than retrenchment over the next few years. While it is expected that a certain amount of reserves will be set aside for short-term and emergency funding, many companies are setting priorities for spending.

l Organisations outside of Western Europe are making it a priority to diversify their products and services. Investing in new technology, expanding into new markets and making acquisitions are also on the “To-Do” list, although there is a meaningful minority of 20%-25% of respondents that are determined to hold onto their cash for the time being. Those willing to spend are likely to invest in Internet-based software and services, business-process-management tools, mobile communications, data analytics and cloud computing.

l When it comes to new markets, the Asia-Pacifi c region is the future, but other markets are still attractive. There is no question that most companies view emerging markets as the engine of future growth. Nearly 40% of our survey participants have been expanding in the Asia-Pacifi c region for at least the past three years, and roughly one-half expect to expand there over the next three years. Other emerging markets, in Latin America and the Middle East, will also attract a growing share of corporate investment, with around one-quarter of respondents expecting to invest in these regions within three years, although political upheaval in the Middle East may act as a deterrent in the short term.

l Technology was critical in helping companies to operate on tighter budgets during the recession, and continues to be a tool for growth. Financial companies, in particular, cited effi ciency as one of the most important elements of their success, and they plan to build on that by using more Internet-based software, analytical tools, and mobile technology. At the same time, technologies from the consumer market are transforming the workplace, and companies that integrate phenomena like tablets, smartphones and social media are fi nding important new ways to attract customers and employees.



6

For companies trying to plan for the next few years, the second half of 2011 bore a worrying resemblance to the end of 2008. Economic confi dence crumpled as a series of economic and political

crises, improbable just months earlier, jolted the fi nancial world. The debt crisis in the euro zone escalated, sending economic-growth forecasts and capital markets tumbling. At the same time, fresh political upheaval swept the Middle East, economic policy in the US and the euro zone was hobbled by political dysfunction and Japan continued to grapple with the aftermath of a devastating earthquake and tsunami. The developed world confronted the harsh possibility of a double-dip recession, scarcely two years into the fragile recovery from the debacle of 2008 and 2009. The turmoil and uncertainty have forced businesses to evaluate continually the delicate balance between retrenchment and expansion.

“Unfortunately, over the last year, year and a half, there has [always] been something or other on the horizon that has prompted people to look at what they are doing,” says Vikram Gulati, chief executive of Happiest Minds, an IT fi rm based in India. “If it was not the euro, it was the debt crisis in the US. If it was not that, it was the earthquake and tsunami in Japan. So, every three months there has been some political or social or economic crisis that has made people question what they are doing.”

The positive result was that, by focusing on their ability to control spending and conserve cash, many companies survived the 2008 recession and the ensuing years in remarkably good shape. Many have improved their processes, streamlined their workforces and amassed enormous cash war chests.

The executives in our survey voiced considerable confi dence about the things they can control: their products and services, technology, processes and spending. But they are very worried about the world outside their doors and the future looks worse in the developed markets that are home to most of our survey respondents. Sixty-three percent see a double-dip recession as likely or very likely and roughly the same percentage expect default within the euro zone. Nearly one-third see a defl ationary cycle in developed markets as likely and 38% give it 50-50 odds. By comparison, only 10% expect China’s economy to crash.

Introduction



Businesses know they can’t shrink their way to growth. According to our survey, companies expect revenue growth to be a higher priority than cost cutting over the next 12-36 months, although it

remains a very close contest. Survey respondents expect the Asia-Pacifi c region to be the focus of their expansion plans, acquisitions and revenue growth. They also expect companies headquartered in Asia-Pacifi c countries to be their main source of competition in the coming years.

Despite the challenges they have faced in recent years, many companies are stronger now than they were at the start of the recession. And they have the cash to invest in future growth. US corporate profi tability is at a 40-year high and businesses are sitting on stunning sums of money. By the third quarter of 2011, US corporate cash balances reached $2.1trn, a $716bn increase since early 2009, according to the US Federal Reserve and Treasury Strategies, a Treasury consulting fi rm. Almost one-half of the companies in our survey say they have more cash now than they did three years ago.

The decision to stockpile cash is all the more striking, given that low interest rates usually make holding cash unattractive and rates globally have been at historic lows in recent years. In addition to hoarding cash, companies have been bolstering their earnings with stock buybacks. By mid-November 2011, around US$450bn in buybacks had been authorized, the most since 2007. When made by fi nancially sound companies, these defensive moves have been harshly criticized for doing nothing to save jobs, create new products or position companies for future growth. And it is clear to many business leaders that being good at surviving an economic downturn does not necessarily mean that a company will thrive

The motive and the means to invest for growth

Significantly higher (eg, over 10% increase)

Slightly higher (eg, around 5% increase)

Around the same

Slightly lower (eg, around 5% decrease)

Significantly lower (eg, over 10% decrease)

Don’t know

Companies report financial strength despite the recessionWhat are your organisation’s cash reserves compared to 3 years ago?(% respondents)

Source: Economist Intelligence Unit survey, September 2011.

27

22

20

11

16

4



8

during a more propitious period. Surviving the recovery is likely to require investment. “That cash is going to be a very powerful weapon

over the next few years,” says Buddy Gumina, co-head of the healthcare group at Apax Partners, a global private equity fi rm based in London. Indeed, some fi nancially strong companies are holding onto cash, not out of fear, but out of expectation that a weakening economy could create exceptionally favourable terms for expansions and acquisitions, says Chris Boyle, a managing director at Black Diamond Capital Management, an asset management and private equity fi rm. “We’ve tried to make sure we have dry powder,” he says.

A question of timingAlthough they see the need, corporate offi cers seem less confi dent that the moment has come to shift priorities from cutting to investing. At the time of our survey, 47% say their emphasis remains on controlling costs, compared with 38% who put the priority on investing in the business. Fifteen percent see the two as equally important at the moment.

Major capital undertakings are on the corporate horizon, but still seem daunting. Only 16% of respondents have fi rm plans for the next 12 months, while 65% expect to launch major capital projects, but will wait at least a year. Certainly not all the cash in corporate coffers is immediately available to spend. Holding onto cash and stock can be prudent when customers are reluctant, shareholders are risk averse and lenders are tight-fi sted. Companies with high debt levels and weak credit ratings need to be particularly conservative, given that tougher lending standards could make refi nancing diffi cult at best.

Even in a vigorous recovery, companies would be likely to stick with many of the cost-conscious strategies they used to cope with the recession. In manufacturing, where demand has already begun to rebound in many areas, companies are fi nding that they need to add back far less than they cut, says Mr Boyle. “They have re-learned how to run their businesses,” he says, which means that margins are recovering quickly as leaner businesses meet growing demand. Many businesses, he says, would still rather be a little underprepared for a rally than overextended in a downturn.

Having already cut the obvious fat from their businesses, companies still anticipate fi nding new ways to become more effi cient. Despite the uncertain economy—or perhaps because of it—many plan to keep looking for opportunities to outsource various administrative and technological functions.



Cost control is enormously important, but, at some point, companies that don’t directly invest in expanding their markets and developing innovative products and services will risk atrophy and lasting

competitive disadvantage. The companies in our survey are starting to sense a fairly urgent need to act. Despite their misgivings

about the present, they rate investing for revenue growth as their top priority over the next 12-36 months, with reducing costs ranked second. “We believe that standing still is going backward, so we’re pushing forward and we need to be innovative all the time” says Gil Priver, an executive vice-president at Retalix, an Israeli provider of transaction processing and supply-chain-management software for retailers. “We need to be very clear about making sure we invest heavily in the areas that we believe in, making sure that we know how to say no and not get derailed or de-focused.”

Many companies have fought to push forward in crucial areas while facing searing retrenchment. “It’s nothing you’d ever recommend to anyone, but 2008 gave us the opportunity to re-evaluate some of our businesses and make them more resilient and more relevant,” says Harris Diamond, chief executive of the Constituency Management Group at Interpublic, a marketing and advertising group.

Revenue in Mr Diamond’s unit contracted by 16% in 2009 and things were far worse in some of the unit’s divisions. Amid the inevitable cutbacks, Mr Diamond, who is also chief executive of the fi rm’s Weber Shandwick public-relations business, committed signifi cant cash to modernizing technology. While some functions were outsourced, the fi rm overhauled its infrastructure to fully integrate tablets, software applications (“apps”) and other portable technologies that have become central to a modern communications business.

The payoff was strategic, as well as fi nancial. “We are much more digitally involved,” says Mr Diamond. That makes the company more attuned to its clients and audiences—and more attractive to talented workers, who increasingly judge prospective employers by how enthusiastically they embrace key technologies, he adds.

How to spend itAs businesses map out strategies for the next few years, they will have differing priorities, depending on whether the spending is domestic or foreign. A substantial minority remain determined not to spend at all.

When assessing opportunities in their home region, 41% foresee diversifying products and services,

Investing in innovation

“[The past few years] gave us the opportunity to re-evaluate some of our businesses and make them more resilient and more relevant.” Harris Diamond, Interpublic



10

CASE STUDY 1 Actuate: Investing in innovation

The fi nancial-sector debacle that began the US recession in 2008 posed a particularly gruesome threat to US software provider, Actuate, a company with around 600 employees that derives more than 60% of its US$135m annual revenue from global fi nancial-services clients, such as Citigroup. The fi rm’s tale of survival refl ects several of the key themes that other corporate leaders have raised in discussions of how the recession and its aftermath have affected their businesses.

The fi rm made cuts where it needed to, sought effi ciencies, outsourced in a way that helped it strategically as well as fi nancially, and made sure to continue generating cash fl ow and profi ts. At the same time, it held the line against cutting its vital engineering staff and it continued to develop its key product. That product, ActuateOne, is based around on BIRT (Business Intelligence and Reporting Tools) which is an open-source software platform for developers. Having regained almost all the revenue it lost in the recession, Actuate is now hiring sales people and eyeing expansion abroad.

“There is a way to make a profi t, regardless of what the macro-level climate is, if indeed you’ve laid a good foundation to a good business,” says chief executive, Pete Cittadini. “The only way you really stay relevant is to continue investment in moving the vision forward, regardless of how dire the times get,” he says. “The strategy here, quite frankly, is that, if no one is buying anything, you don’t need salespeople, but you certainly need engineers, because the lack of innovation just completely puts a full stop on

any progression. We feel that it would have been extremely, extremely dangerous if we took our eye off the ball or throttled back the lever in investing in the reality behind BIRT.”

So the engineers stayed, some sales agents left and the research and development (R&D) budget remained fairly steady at 16%-19% of revenue. At the same time, earnings per share continued to rise as the company trimmed costs.

The company changed auditors, saving US$1.5m over three years. It renegotiated leases for a saving of US$20m over ten years. And it turned to outside vendors for some administrative functions. The year before the fi nancial crash, it had switched to a sales pipeline management and communication

system from Salesforce.com that allowed sales representatives to access information from their tablets, rather than having to log onto a clunky home-offi ce system. “That has saved us money over the years and has given us competitive advantage, because information is at people’s fi ngertips,” says Mr Cittadini.

These seemingly mundane steps allowed the company to focus on its core products, which helped its customers customize and maximize BIRT open-source software. That focus was fortuitous in 2008 and 2009, since the open-source software code is accessible to anyone for free over the Internet.

“Throughout 2008 and 2009, we saw increasing numbers of downloads, and increasing numbers of developers using BIRT,” says Mr Cittadini. “Being free is good in a recession. You have lots of people that understand your product, because they

were able to get it easily and frictionlessly download it, and get the real deal, so they can do some powerful stuff with freeware at their enterprise.”

Looking ahead, even if there is economic hardship, Mr Cittadini sees promise. “Regardless of macro [changes], people really don’t just stop doing things,” he notes. “Typically, when we do the analysis of how well penetrated Actuate is with Citigroup, for example, versus the theoretical opportunity for Actuate at Citigroup, we’re not even penetrated at 5%—this is just the tip of the iceberg” he observes.

Although such immediate opportunities are the focus, the company is also expanding overseas. It is expanding in Japan and even

hiring back sales people, including in Europe. The company is expanding in China and India, but emerging-markets growth will for some time be “exciting large percentages off of small numbers,” according to Mr Cittadini.

The fi rm wants to stay focused on its key product and its clients, rather than worry too much about external conditions. “It’s a poor existence to live your life and your emotions every day based on speculation associated with macroeconomics,” notes Mr Cittadini.

Having survived the bursting of the dot.com bubble in 2001 and the recession of 2009, “We’ve been through two turbulent down cycles within the confi nes of one decade,” he notes. “If there is another down cycle in this new decade that was kicked off in 2011, I think we’re probably very prepared for it, since we’ve made a lot of moves that show us that we can adequately run a business during down times.“

“It’s a poor existence to live your life and your emotions every day based on speculation associated with macroeconomics.” Pete Cittadini, Actuate



39% plan to invest in new information technology and 36% would like to spend on new equipment and facilities. Around 30% cite expanding into new markets and making acquisitions. Holdouts determined to save their cash for now make up 24%.

Companies that put a premium on diversifi cation of products and services expect this approach to provide a measure of cushioning and bring new sources of revenue. Companies may invest in providing services that are in demand in different parts of the economic cycle, or they may look to invent entirely new products. In manufacturing, some stronger companies are aggressively adding capacity to seize the customers and markets of rivals who were weakened or destroyed by the recession, says Mr Boyle. “We are not holding back,” he adds.

For US computer and printer maker, Hewlett-Packard, diversifi cation sometimes means boosting sales by applying existing know-how in new ways, says Chris Morgan, a senior vice-president in the company’s imaging and printing division. He cites the example of using the basic technology behind inkjet printing in pharmaceutical testing to accelerate drug discovery. Conventional drug-dosage tests can be streamlined by using inkjet technology instead of pipettes to test a broad range of dosages much faster and more accurately. “It’s the same set of printing technologies, but we are able to adapt it for a different use so that it has opened up a new market,” says Mr Morgan.

Companies expect to invest in several major trends in technology. Chief among them are Internet-based software and services, which can dramatically reduce the costs of installing, maintaining and updating programmes that companies use in daily operations. Around one-third of companies plan to invest in data-analytics software, collaborative tools and mobile communications. Cloud computing is a priority for more than 40% and it is creating direct opportunities for some. A 2011 study of IT industry competitiveness by the Economist Intelligence Unit found cloud computing to be one of the leading investment opportunities for governments and private enterprises, as the technology invites improved telecommunications network-sharing between countries and regions.

“It is not about doing the old things more effi ciently, it is about doing new things more effectively.” Vikram Gulati, Happiest Minds

Internet-based software/services

Business-process-management tools [including customer relationship management (CRM), enterprise resource planning (ERP)]

Mobile communications

Data-analytics software

Cloud computing

Collaboration tools

Social media

Internet-based software and services top list of company IT investmentsWhat kinds of information technology will you be investing in at…Select all that apply.(% respondents)

…domestic operations…overseas operations

59 43

56 33

52 31

48 33

40 26

38 28

34 24




12

Social media has made its way onto a technological priority list dominated by more hard-nosed projects. Almost one-quarter of companies plan to invest in their social-media presence, as customers, prospective employees and other constituencies increasingly expect to interact with them in this way.

“What I’m seeing happening more and more is people are investing in the consumerisation of IT,” says Mr Gulati of Happiest Minds. Over the past three or four years, consumer technologies, such as mobility, tablets, apps and social media have led to tremendous changes in enterprise technology. “So, it is not about doing the old things more effi ciently, it is about doing new things more effectively,” he says.

More than 25% of survey respondents cited innovative technology as an essential competitive tool and expect their IT departments to be far more than order-takers and mechanics. “The CIO of the future is the one that focuses the entire senior leadership on how to differentiate the business they’re in, rather than managing commodity IT,” says Stuart Fenton, chief executive of Insight Enterprises, an IT provider.

While investing in technology is a priority in most industries, it is particularly urgent in healthcare, says Mr Gumina of Apax Partners. Although healthcare has traditionally been seen as non-cyclical, the recession demonstrated otherwise as people delayed profi table elective procedures at the same time that governments and insurers cut payments and pressed for lower costs Seeking out better technology is one of the key steps the industry must take to adapt to the fact that healthcare isn’t recession-proof, says Mr Gumina.

“IT has a massive role to play, and healthcare is woefully behind other sectors in technological investment,” he says. Many medical practices have yet to computerize patient records or optimize billing through software or outsourcing. Larger organizations, such as hospitals and insurers, haven’t taken full advantage of enterprise software and technologies for cutting the cost of managing chronic health problems, such as diabetes. Like many technology projects, these steps would result not only in lower costs, but also in better, more customized services for patients and competitive advantages for companies. As stronger healthcare companies look to deploy cash, horizontal acquisitions should remain a trend in the sector, as insurers buy clinics and hospitals buy or partner with medical practices, Mr Gumina adds.

Acquisitions may seem less urgent overall according to the survey results, because they have already rebounded solidly in the past two years. Throughout the US recession and recovery, stronger companies mopped up fallen rivals and established companies absorbed upstarts that often had bleak prospects for loans or public offerings. By the last week of December 2011, global merger-and-acquisition (M&A) activity was US$2.26trn, compared with US$1.6trn for all of 2009, according to Bloomberg.

As companies look abroad, it’s not surprising that expanding into new markets is the top priority, followed by diversifying products and services. Acquisitions are a higher priority than equipment and facilities, suggesting that buying whole businesses that already have operations overseas looks more appealing than building an operation or buying pieces of an operation. The percentage of respondents reluctant to spend abroad is only 20%.



Where to spend itCompanies that plan to spend in the foreseeable future are looking well beyond their own borders, as they have been for some years. With economic growth fl agging in developed nations and many corporate leaders bracing themselves for a double-dip recession, the appeal of emerging markets is obvious.

Emerging markets account for around 85% of the world’s population, their public- and private-debt levels are manageable and their economies are growing. In fact, The Economist newspaper and WTO expect emerging markets to import more goods and services than those of the combined richer economies in 2012. Forecasters expect this growth to continue, despite the impact of further blows from tottering developed economies, at least assuming there isn’t an outright collapse of the euro zone. Our central forecast for 2012-16, which assumes the euro zone will muddle through, is for 6.3% annual average growth in countries outside the OECD, compared with just 1.9% for OECD countries.

Our survey respondents clearly see the sun rising in the East. While acquisitions were concentrated in North America over the past three years, the expected focus shifts decisively to Asia-Pacifi c countries over the next one to three years. In many cases, the buyers will be companies that already have signifi cant market presence in the developing world. Around 40% of revenue for companies in the S&P 500 now comes from developing nations and 38% of our survey participants have been favouring the Asia-Pacifi c region for at least the past three years. Nearly one-half expect to expand there over the next three years. As they do, they expect to encounter increasingly effective competition from fi rms in those regions.

Shipping and delivery service, Deutsche Post DHL, has built a brand around its global reach, and John Pearson, chief executive of DHL Express in Europe, calls Asia “The growth engine of the world economy.” The company is also expanding in Latin America. “The Middle East, owing to its political volatility, is less certain right now,” he says, although the company does have operations there.

Hilti, a privately held multi-billion-dollar company, based in Liechtenstein, which makes power tools, is another company looking beyond its country’s borders for growth. The company has already recorded particularly strong growth in the Middle East and Latin America, where its distinctive red-coloured tools are dotted around construction sites and mining operations. It is offsetting sales declines stemming from areas like Spain’s ravaged housing market with growth in places like Brazil and Colombia, where

Diversify our range of products/services

Invest in new information technology

Invest in new equipment/facilities

Expand into new markets

Make acquisitions

None of the above. We are holding onto our cash at the present time

Diversifying products and services a top priority for companies‘My organisation’s current cash position will enable domestic operations to…’ Select all that apply.(% respondents)


41

39

36

29

29

24



14

Asia-Pacific

Middle East

Latin America

North America

Europe

Other markets

All markets

Middle East and Latin America gain on Asia-Pacific market growthIn which geographical regions will the market expansions predominantly take place in the next 3 years?Select all that apply.(% respondents)


48

28

26

18

18

18

5

construction is booming. “We try to avoid countries where the engine is stopping,” says Eivind Slaaen, a senior vice-president at Hilti.

Monotype Imaging Holding is a US company with around 250 employees that makes typefaces and related images for print, the Internet, Amazon.com’s Kindle and other e-books and displays on machines like automobile dashboards. It wants its fonts to look as good on a Korean computer monitor as they do on a German smartphone. The company, which had revenue of US$106.7m in 2010, has bought a small company in Hong Kong that works with a sister company in Mainland China. In the worst days of the recession in early 2009, Monotype Imaging opened an offi ce in South Korea to better serve customers like Samsung and LG, even though its revenue dropped by around 15% that year. And it has plans to expand into India. “That was done solely to make sure that not only do we have the best solutions for those Asian markets, but we also have feet on the street,” says chief executive, Doug Shaw.

To date, Latin America and the Middle East have been a target for only around 10% of our survey participants. Financial-services companies appear to have been the most proactive in the Middle East so far, while professional-services companies have advanced in Latin America. Overall, around 20% of companies expect to be in the Middle East and Latin America within three years, although political unrest may dampen aspirations in the Middle East for the moment.



CASE STUDY 2 Emerson Electronics: Finding growth

Emerson Electric is one of America’s unsung corporate heroes. Based in St Louis, Missouri, it makes products that nobody really sees; its brand names can go unnoticed by the casual passer-by. Yet, over the years, it has produced a series of excellent corporate performances. For 54 years in a row, it has increased its dividend every year. Between 2005 and 2010 its sales grew at a compound annual rate of almost 6%, and its net earnings per share grew at well over 10%. It lived through the recession with scarcely a blip. The company survived the global fi nancial downturn, in part by restructuring its workforce, reducing inventory levels and managing its materials costs.

Emerson is currently in the process of transforming itself from a 20th-century company that made mainly electro-mechanical products, to a 21st-century company that provides support services for infrastructure, alternative energy and computer-data centres. For example, in 2010 Emerson made two acquisitions. The company purchased the UK-based Chloride Group for US$1.5bn to add emergency power

back-up systems to its product line. It also acquired Avocent Corp. for US$1.2bn, to enhance its existing heating and cooling products for industrial customers.

Emerson is also encouraging growth by developing its overseas presence. In the company’s most recent fi nancial year, sales outside the US accounted for almost 60% of the company’s total receipts. And while sales in the US grew by a pallid 3% in the year, sales in Latin America were up by 22%. In anticipation of this new business, Emerson had expanded its manufacturing plant and operations facility in São Paulo, Brazil in 2009. This included construction of a new 48,000-sq-ft manufacturing facility and regional offi ce.

Specifi c industries are also opportunities for Emerson’s expansion plans. New construction typically means new air-conditioning and heating systems, two product lines where Emerson has seen growth in the US and Europe. The US market may be particularly positive in 2012, as forecasters suggest new residential construction may add one- or two-tenths of a percentage point to GDP growth.

The third dimension of Emerson’s growth strategy is the most intriguing. At its centre is the idea of moving from being a company that makes things to becoming a company

that provides business services. This is what senior executive vice-president, Charlie Peters, calls Emerson’s “enriched business model”. Under the model, the aim is to make Emerson’s products more “intelligent”. For example, Emerson adds sensors to some of its compressors for refrigeration systems for supermarkets. The sensors read the contents and temperature of the cold cases, and the data they gather are then used to reduce energy costs and improve maintenance.

But the process does not end there. Emerson has also set up what it calls a “Human Centered Design Institute”. Mr Peters says the purpose of the institute, which has a more or less virtual existence, is “To make products that are not only reliable, compatible and cost-effective, but that also bring about a signifi cant improvement in ease-of-use and workforce productivity.” The institute studies the company’s “end-user communities”—healthcare units, for instance, where its mobile workstations are in use, or supermarkets where its control systems operate. It then examines how workers in these locations carry out their jobs, minute by minute. With that information, it creates an interface with the fi nal consumer that is much easier to use. The interface then becomes part of the value that the product provides.



16

No one would accuse the corporate executives surveyed of taking too rosy a view of the world. A majority of the survey respondents view renewed recession and euro-zone defaults as likely and

nearly two-thirds say that a defl ationary spiral is at least possible in developed markets. These fears made some companies reluctant to invest in future growth. For those respondents that say their companies are uncertain or entirely unwilling to spend, the major stumbling blocks cited were weak consumer confi dence at home and geopolitical uncertainty abroad.

Their pessimism about the euro zone is widely shared. The Economist Intelligence Unit lowered its 2012 economic forecast for the region after the European Central Bank failed to intervene aggressively enough to stem market volatility in early December 2011. Our analysts now expect the 17-member single-currency bloc to see its economy shrink by 1.2% in 2012. This assumes that a solution to the euro sovereign debt crisis is eventually found. The manufacturing sector is expected to be hurt most by this contraction.

In fact, we continue to see a 40% probability of a break-up of the euro zone in the next two years. If a break-up happens, the chain reaction would be far worse than the 2008-09 recession. Fragile countries in the euro zone could see extremely high unemployment. Economic output among the euro-zone countries could lessen by as much as 25%. Access to capital would also be restricted, as banks in the region would undergo major restructuring, along with controls on capital lending and monetary exchanges. In response to a euro-zone breakup, economies in India, Indonesia and China would also suffer as exports to Western Europe would be stymied.

Weak consumer confi dence is another barrier to investment. In October 2011 the Conference Board, a business-research group, published its authoritative index of US consumer confi dence. The results showed low levels of confi dence not seen since the pit of the recession. At the same time, British consumer confi dence fl irted with an all-time low. In this context, revolutions in the Middle East and political fumbling in the US and the euro zone become even more unnerving. Not surprisingly, only a small fraction of survey respondents would expect these developments—or lesser crises, such as social unrest or a spike in oil prices—to be good for business.

More fi nancial leadership from government authorities would likely encourage companies to invest. Lower taxes and less red tape are perennials on corporate wish lists, but they seem even more attractive with developed economies walking a tightrope. Asked for the two most important things their government could do to help their business fulfi l its priorities, 46% of survey respondents thought investment incentives would be most helpful. Tax cuts came next, at 38%, with less regulation close behind, at 35%.

Barriers to investment



Not surprisingly, survey respondents in fi nancial services, where regulatory scrutiny has been intense, were most eager for a regulatory breather.

Reduced government involvement without a long-term fi nancial recovery plan, however, is not enough for executives. In the near term, it seems unlikely that random government actions or regulatory policies will be major catalysts for investment or recovery. Interest rates are already scraping the bottom, the US is heading into a presidential election year in 2012 and joint government efforts to contain the euro-zone crisis have not been reassuring so far. Businesses aren’t basing decisions on any possible upcoming government stimulus, says Black Diamond’s Mr Boyle. “Short-term tax incentives or government programmes just aren’t part of the boardroom talk,” he says, “It’s not even a topic of discussion.”

It seems more likely that much-needed catalysts for growth and job creation will be a cumulative effect of organic economic developments and the actions of businesses themselves.



18

Self-reliance may turn out to be a blessing for many companies that voiced striking confi dence in themselves. Forty-three percent say superior products and services are their key competitive

advantages, followed by operational effi ciency. Companies see effi ciency as peaking in importance now and becoming slightly less of a competitive weapon over the next three years. This makes sense in light of the shorter-term focus on cost cutting that has carried through from the recession.

Rather than devote too much energy to forecasting macroeconomic events they can’t control, many companies are doing their best to focus as tightly as possible on themselves, their markets and their customers. Staying relevant to customers is virtually a matter of life and death in tough economic times, executives say. “You need to be core to the business of the customer,” says Krishnakumar Natarajan, chief executive of Indian technology provider, MindTree. “During times of slowdown, clearly the peripheral services are the ones that fi rst tend to bear the brunt of the axing.”

Most businesses are trying to become indispensible by anticipating customer needs and spotting superfl uous costs better than customers do themselves, Mr Natarajan adds. “Many times, it’s not that the customers come in with that opportunity, but that we are able to articulate it to them. Maybe if you take an automotive customer who is spending 0.6% on his warranty costs, and we are able to go to them and say: ‘We have this level of expertise to help you reduce it from 0.6% to 0.4%.’ ”

Reaching that depth of understanding with customers may require that companies offer fewer services, to a higher standard. “Clearly, that need from the customer to be expertise-led certainly changed the way in which we looked at how we should be doing our business going forward,” says Mr Natarajan. “The obvious answer was, you can only be an expert if you’re in a few things—and be the expert in those.” As a consequence, the company has streamlined from seven divisions in “land-grab” mode, to two units, one of which serves a variety of industries and one of which focuses on helping other technology companies create products.

Cutting staff numbers may not be the easy solution that it sometimes appears to be, according to several company leaders. In sophisticated service-oriented businesses, it can take years to rebuild the expertise and relationships that are damaged by staff cuts, and in some European countries, severance costs can be the equivalent of keeping the employee on the payroll for 12-18 months.

Keeping focus and growing smartly



Based on the survey and interviews conducted for this report, companies looking to do more with less in an uncertain future will need to consider taking some or all of the following steps:

l Expanding into emerging markets. Even as developed-market economies struggle, emerging markets are likely to keep growing and keep nurturing their rising consumer economies. In this increasingly global marketplace, companies large and small should fi nd opportunities for both organic expansion and acquisitions. China is clearly one of the fi rst markets to consider, but looking at just one big market isn’t thinking globally. Survey respondents say they are considering at least one other destination. Smaller Asian countries, Latin America and the Middle East are worth considering for many businesses.

l Making acquisitions. Many companies took advantage of the recession to make strategic acquisitions. For stronger companies, continued economic distress may present more such opportunities. And even companies experiencing diffi culties should consider growing their way out of them, if possible, through meticulously researched purchases. Depending on their customers and what their competitors are doing throughout their supply chain, vertical acquisitions may make as much sense as horizontal ones. In some cases, partnerships with companies already based in emerging markets may bring similar benefi ts.

l Doing fewer things better. Many businesses emerged from the recession stronger because they focused intently on areas where they had or could create real competitive advantages. Some made hard choices to eliminate or de-emphasize areas where they were middling performers, so they could focus their resources most effectively. Survey respondents identifi ed streamlining business processes as well as maintaining operational effi ciency as their top competitive advantages.

l Investing in promising new product lines. A successful new product not only boosts the bottom line, it can burnish a company’s reputation for innovation, attract new customers and strengthen ties with existing ones. Asia-Pacifi c and North American regions are expected to host the most companies eager to invest in these new products.

Next steps: What is needed?



20

l Innovating with technology. Businesses have been quick to see the benefi t of using technology to cut costs, and many understand that it can also become a core competitive advantage. However, companies can do more to think about and use technology strategically. And they need to embrace new and more open technologies that are percolating through to the business world from consumer markets. Integrating cloud computing and data analytics into business processes can create opportunities. Using new channels, such as social media, can make a company more relevant to new generations of customers, investors and employees. Companies should be aware, however, that investing in new technologies for the sake of improving margins assumes a measure of risk.

Prioritising between cost control and investing for growth is rarely easy and almost always a question of emphasis, not of choosing one or the other. Understanding the risks, but being willing to spend where it counts, is an overriding theme among corporate decision makers. It counts when it helps to create a company’s future by leading to new products, new markets, new customers and new revenue.



Business leaders expect little relief from the uncertain and sometimes hostile economic conditions that have existed for the past three years, but they seem optimistic that they have the drive and

the competitive tools to prevail in diffi cult times. Businesses have made painful cuts and learned to do more with less, but they haven’t lost sight of the need to invest in future growth. Indeed, it is the highest priority.

As companies plan for the coming years, executives responding to this survey say they continually bear in mind that austerity, while necessary in some areas, is not suffi cient if they are to get beyond survival and succeed. Many fi rms have already summoned the vision and the courage to become less defensive and more proactive about investing in future growth. Others may want to consider making this strategic shift in the near future.

Conclusion

22 © Economist Intelligence Unit Limited 2012

AppendixSurvey results


Appendix: survey resultsPercentages may not add to 100% owing to rounding or the ability of respondents to choose multiple responses.

Asia-Pacific

Europe

North America

Middle East

Latin America

Other emerging markets

Outside of your home territory, where does your organisation have significant operations? Select all that apply. (% respondents)

48

45

41

28

25

9

1 - Positively impacted

2

3

4

5 - Negatively impacted

How has your organisation been affected in the period of global economic uncertainty since 2008? Rate on a scale of 1 to 5, where 1=Positively impacted and 5=Negatively impacted. (% respondents)

5

14

31

35

14

Reduced labour costs

Consolidated facilities

Reduced capital expenditure

Increased IT spending

Increased outsourcing spending

Increased labour costs

Reduced IT spending

Increased capital expenditure

Expanded facilities

Decreased outsourcing spending

Which of the following measures has your organisation taken in the past 3 years? Select all that apply. (% respondents)

46

38

38

34

30

29

28

26

23

18







Expanded facilities


Reduced IT spending


Which of the following measures do you expect your organisation to take in the next 12 months? Select all that apply. (% respondents)

38

37

33

33

29

29

27

21

20

16






Expanded facilities







Reduced IT spending

Which of the following measures do you expect your organisation to take in the next 3 years? Select all that apply.(% respondents)

34

33

30

29

27

26

26

17

13

12

North America

Europe

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions did the labour cost changes predominantly take place in the past 3 years? Select all that apply.(% respondents)

30

26

21

13

10

6

12

Asia-Pacific

Europe

North America

Middle East

Latin America

Other markets

All markets

In which geographical regions will the labour cost changes predominantly take place in the next 12 months? Select all that apply.(% respondents)

24

23

23

17

11

6

14

North America

Asia-Pacific

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the labour cost changes predominantly take place in the next 3 years? Select all that apply.(% respondents)

23

22

20

15

11

8

11

North America

Europe

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions did the IT cost changes predominantly take place in the past 3 years? Select all that apply.(% respondents)

30

24

15

8

6

4

13




North America

Europe

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions will the IT cost changes predominantly take place in the next 12 months? Select all that apply.(% respondents)

26

25

24

13

10

5

14

North America

Europe

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions will the IT cost changes predominantly take place in the next 3 years? Select all that apply.(% respondents)

25

21

20

13

9

7

13

North America

Europe

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions did the capital expenditure changes predominantly take place in the past 3 years?Select all that apply.(% respondents)

28

23

20

10

9

4

10

North America

Asia-Pacific

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the capital expenditure changes predominantly take place in the next 12 months?Select all that apply.(% respondents)

25

24

23

14

12

7

14

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the capital expenditure changes predominantly take place in the next 3 years?Select all that apply.(% respondents)

26

25

20

15

13

7

11

North America

Europe

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions did the outsourcing changes predominantly take place in the past 3 years?Select all that apply.(% respondents)

26

22

16

8

8

4

10




Europe

North America

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions will the outsourcing changes predominantly take place in the next 12 months?Select all that apply.(% respondents)

26

25

24

12

9

7

13

Europe

North America

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions will the outsourcing changes predominantly take place in the next 3 years?Select all that apply.(% respondents)

26

24

24

12

10

8

11

North America

Europe

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions did the facilities changes predominantly take place in the past 3 years?Select all that apply.(% respondents)

24

22

16

12

8

5

10

Asia-Pacific

Europe

North America

Middle East

Latin America

Other markets

All markets

In which geographical regions will the facilities changes predominantly take place in the next 12 months?Select all that apply.(% respondents)

24

23

23

15

11

7

10

Asia-Pacific

Europe

North America

Middle East

Latin America

Other markets

All markets

In which geographical regions will the facilities changes predominantly take place in the next 3 years?Select all that apply.(% respondents)

22

21

21

16

12

8

11




IT services

Accounting

Logistics

Training and development

Manufacturing

Research and development (R&D)

Other

Which of the following functions benefited most from your organisation’s use of outsourcing in the past 3 years? Select all that apply.(% respondents)

60

37

36

28

18

18

18

Positive experience

Neither positive nor negative experience

Negative experience

Don’t know

How would you rate your organisation’s overall experience with outsourcing (domestically and/or overseas) as result of the period of global economic uncertainty since 2008?(% respondents)

32

45

12

11

Streamlining business processes

Cutting labour costs

Creating new products and/or services

Cutting capital expenditure

Finding new markets overseas

Shifting geography of production

Financial restructuring

Outsourcing

Other

Consider how your company has performed in the period of global economic uncertainty since 2008. Which strategies adopted by your organisation have been most helpful in its performance? Rank the top three, where 1 represents the most effective measure.

1.8

1.8

2.0

2.0

2.0

2.1

2.2

2.2

1.9

Significantly higher (eg, over 10% increase)

Slightly higher (eg, around 5% increase)

Around the same

Slightly lower (eg, around 5% decrease)

Significantly lower (eg, over 10% decrease)

Don’t know

What are your organisation’s cash reserves compared to 3 years ago?(% respondents)

27

22

20

11

16

4





Make acquisitions


‘My organisation’s current cash position will enable domestic operations to…’ Select all that apply.(% respondents)

41

39

36

29

29

24



Make acquisitions




‘My organisation’s current cash position will enable overseas operations to…’ Select all that apply.(% respondents)

41

29

26

25

24

21




North America

Asia-Pacific

Europe

Latin America

Middle East

Other markets

All markets

In which geographical regions did the acquisitions predominantly take place in the past 3 years? Select all that apply.(% respondents)

31

23

22

10

10

7

7

Asia-Pacific

North America

Europe

Latin America

Middle East

Other markets

All markets

In which geographical regions will the acquisitions predominantly take place in the next 12 months? Select all that apply.(% respondents)

32

27

23

16

10

9

5

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the acquisitions predominantly take place in the next 3 years? Select all that apply.(% respondents)

38

21

21

20

20

13

7

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions did the market expansions predominantly take place in the past 3 years? Select all that apply.(% respondents)

38

20

18

17

13

9

4

Asia-Pacific

Middle East

Latin America

Europe

North America

Other markets

All markets

In which geographical regions will the market expansions predominantly take place in the next 12 months? Select all that apply.(% respondents)

49

23

21

20

17

14

4

Asia-Pacific

Middle East

Latin America

North America

Europe

Other markets

All markets

In which geographical regions will the market expansions predominantly take place in the next 3 years?Select all that apply.(% respondents)

48

28

26

18

18

18

5




Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions did the diversification of products/services predominantly take place in the past 3 years?Select all that apply.(% respondents)

25

21

19

11

9

7

10

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the diversification of products/ services predominantly take place in the next 12 months?Select all that apply.(% respondents)

37

25

25

15

15

10

10

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the diversification of products/services predominantly take place in the next 3 years?Select all that apply.(% respondents)

35

24

20

18

17

13

11

Asia-Pacific

North America

Europe

Latin America

Middle East

Other markets

All markets

In which geographical regions did the investments in equipment/facilities predominantly take place in the past 3 years?Select all that apply.(% respondents)

27

26

23

14

14

5

5

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the investments in equipment/facilities predominantly take place in the next 12 months?Select all that apply.(% respondents)

38

22

22

18

16

7

6

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the investments in equipment/facilities predominantly take place in the next 3 years?Select all that apply.(% respondents)

40

22

20

19

18

10

8




North America

Europe

Asia-Pacific

Middle East

Latin America

Other markets

All markets

In which geographical regions did the new information technology investments predominantly take place in the past 3 years?Select all that apply.(% respondents)

26

22

19

13

10

5

10

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

All markets

In which geographical regions will the new information technology investments predominantly take place in the next 12 months?Select all that apply.(% respondents)

29

24

22

18

16

7

10

Asia-Pacific

North America

Middle East

Europe

Latin America

Other markets

All markets

In which geographical regions will the new information technology investments predominantly take place in the next 3 years?Select all that apply.(% respondents)

30

22

18

18

14

10

11





Cloud computing

Collaboration tools

Social media

None of the above

Don’t know

What kinds of information technology will you be investing in at domestic operations?Select all that apply.(% respondents)

59

56

52

48

40

38

34

2

4





Collaboration tools

Cloud computing

Social media

None of the above

Don't know

What kinds of information technology will you be investing in at overseas operations?Select all that apply.(% respondents)

43

33

33

31

28

26

24

2

4

In less than 12 months

Between 12 and 36 months

Between 36 and 60 months

In more than five years

We do not expect to begin increasing capital investment any time soon

When do you expect to begin investing in major capital projects again?(% respondents)

16

35

24

7

19




Geopolitical uncertainty

Consumer confidence

Tax/regulation uncertainty

Shortage of funds

Exchange rates

Shortage of skilled labour

Long-term interest rates

Commodity prices

Environmental issues

Transport costs

None of the above

Don’t know

What are the two most significant factors holding back your 3 to 5-year investment plans in overases operations? Select all that apply.(% respondents)

35

28

19

19

17

14

11

11

8

8

8

4

Consumer confidence

Geopolitical uncertainty

Shortage of funds

Tax/regulation uncertainty

Shortage of skilled labour

Long-term interest rates

Exchange rates

Commodity prices

Environmental issues

Transport costs

None of the above

Don’t know

What are the two most significant factors holding back your 3 to 5-year investment plans in domestic operations? Select all that apply.(% respondents)

42

27

25

24

19

18

13

13

8

5

9

3

Increase investment incentives

Reduce taxes

Cut regulation

Reduce red tape

Cut interest rates

Raise import tariffs

Stockpile commodities

Other

What can your country’s government do that would most help your organisation meet its business priorities? Select up to two.(% respondents)

46

38

35

32

10

3

1

8

Asia-Pacific

North America

Latin America

Middle East

Europe

Other markets

All markets

Which region do you think will be the most important source of economic growth in the next 12 months?(% respondents)

58

14

11

7

4

5

1

Asia-Pacific

Latin America

North America

Middle East

Europe

Other markets

All markets

Which region do you think will be the most important source of economic growth in the next 3 years?(% respondents)

52

13

13

8

4

8

2




Asia-Pacific

North America

Latin America

Middle East

Europe

Other markets

All markets

Where do you think your organisation’s future investments are most likely to take place? Select all that apply.(% respondents)

52

28

23

23

23

12

4

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

What geographical regions do you see your main competition coming from in the next 12 months? Select all that apply.(% respondents)

48

33

29

12

10

3

Asia-Pacific

North America

Europe

Middle East

Latin America

Other markets

What geographical regions do you see your main competition coming from in the next 3 years? Select all that apply.(% respondents)

57

31

28

16

12

4

Increasing revenue 1.5

Reducing costs 1.8

Finding and retaining customers 2.0

Securing financial stability 2.1

Entering new markets 2.2

Maximising employee productivity 2.3

Creating new products and services 2.3

Streamlining business processes 2.6

Other 2.3

What are your organisation’s overall top three business priorities for the next 12 months? Select and rank the top three, where 1 represents the top business priority.

Increasing revenue 1.5

Finding and retaining customers 1.9

Reducing costs 2.0

Securing financial stability 2.1

Entering new markets 2.1

Creating new products and services 2.2

Maximising employee productivity 2.3

Streamlining business processes 2.5

Other 2.0

What are your organisation’s overall top three business priorities for the next 3 years? Select and rank the top three, where 1 represents the top business priority.

Product/service superiority

Operational efficiency

Innovative technology

Agility

Talent management

Geographic spread

Use of IT

Other

What do you see as your organisation’s top 2 competitive advantages in the next 12 months? Select two.(% respondents)

43

36

26

23

18

17

8

2




Product/service superiority

Operational efficiency

Innovative technology

Talent management

Geographic spread

Agility

Use of IT

Other

What do you see as your organisation’s top 2 competitive advantages in the next 3 years? Select two.(% respondents)

44

29

26

24

23

20

8

3

54

36

10

Yes

No

Don’t know

Does your IT department play a role in shaping your organisation's competitive advantages?(% respondents)

1 - Very well

2

3

4

5 - Not well at all

How well would you rate your IT department’s role in shaping your organisation’s competitive advantages? Rate on a scale of 1 to 5, where 1=Very well and 5=Not well at all.(% respondents)

14

43

33

9

1

54

34

12

Yes

No

Don’t know

Does your IT department contribute to the success of your organisation's business priorities when it comes to reducing business costs, entering new markets, or managing risks?(% respondents)

1 Highpriority

2

3

4

5 Not apriority

Investing in technology

Outsourcing services

What kind of priority does your organisation accord to the following strategies? Rate on a scale of 1 to 5, where 1=High priority and 5=Not a priority.(% respondents)

31 34 22 10 3

8 21 30 24 17

1 Largecontribution

2

3

4

5 Smallcontribution

Don’t know

Reducing business costs

Entering new markets

Managing risk

How would you rate your IT department’s contribution to the success of your organisation’s business priorities in reducing business costs, entering new markets, or managing risks? Rate where 1=Large contribution and 5=Small contribution.(% respondents)

22 39 30 5 4 1

14 23 29 17 13 4

13 31 31 15 7 4




100:0 90:10 80:20 70:30 60:40 50:50 40:60 30:70 20:80 10:90 0:100

Cost cutting : Operational investments

Overall, does your organisation place more emphasis on cost cutting or operational investments? Drag the slider button to choose a relevant percentage split that reflects how each option should be weighted (eg, 60% to 40%).(% respondents)

2 3 10 14 18 14 15 10 9 3 1

1 Very likely

2

3

4

5 Not at all likely

Don’t know

Double-dip recession in the global economy

Sovereign debt default in the Eurozone

Break-up of the Eurozone

Further political turmoil in the Middle East

Oil prices spike to US$150 a barrel

Political unrest in China

Chinese economy crashes

Developed economies fall into deflationary spiral

High inflation forces policy tightening in emerging markets

Widespread social unrest caused by rising food and commodity prices

Over the next 12 months, how likely are the following scenarios? Rate on a scale of 1 to 5, where 1=Very likely and 5=Not at all likely.(% respondents)

24 39 24 6 4 3

25 37 24 8 3 4

6 17 23 28 22 5

26 35 26 9 2 2

7 23 32 25 9 4

3 15 28 31 17 5

3 8 21 33 32 4

4 27 38 20 8 4

8 39 31 14 4 5

9 27 32 21 7 4

1 Very positive

2

3

4

5 Very negative

Don’t know

Double-dip recession in the global economy

Sovereign debt default in the Eurozone

Break-up of the Eurozone

Further political turmoil in the Middle East

Oil prices spike to US$150 a barrel

Political unrest in China

Chinese economy crashes

Developed economies fall into deflationary spiral

High inflation forces policy tightening in emerging markets

Widespread social unrest caused by rising food and commodity prices

If the following scenarios were to take place, what impact do you think they might have on your business? Rate on a scale of 1 to 5, where 1=Very positive and 5=Very negative.(% respondents)

3 7 19 34 34 2

2 5 36 30 21 6

2 7 33 27 22 8

2 8 42 25 17 7

7 12 24 27 25 4

2 8 40 26 16 8

3 10 29 27 25 6

1 7 25 34 28 5

2 7 35 35 16 5

2 5 28 36 25 4




United States of America

United Arab Emirates

United Kingdom, Canada

India

Pakistan

Australia, China, Germany

Brazil, Israel, Singapore, Bahrain, Hong Kong, Nigeria, South Africa,Spain, Switzerland

Malaysia, France, Italy, Mexico, Saudi Arabia, Belgium, Indonesia,Portugal, Colombia, Czech Republic, New Zealand, Qatar, Thailand,Austria, Brunei Darussalam, Bulgaria, Hungary, Jordan, Lebanon,Netherlands, Oman, Philippines, Romania, Sweden, Turkey, Uruguay

In which country are you personally located?(% respondents)

19

7

6

5

4

3

2

1

North America

Asia-Pacific

Western Europe

Middle East

Latin America

Africa

Eastern Europe

In which region are you personally based? (% respondents)

25

24

22

15

7

5

3

United States of America

United Kingdom

Canada, Germany

India, United Arab Emirates

Switzerland

France, Australia, Pakistan, South Africa, Hong Kong, Israel, Brazil, Italy, Mexico

Bahrain, Singapore, Spain, Netherlands, Nigeria, Saudi Arabia,Belgium, Malaysia, China, Indonesia, Romania, Sweden, Austria,Brunei Darussalam, Colombia, Hungary, Japan, Lebanon, Oman, Portugal, Qatar, Thailand, Uruguay

In which country is your company headquarters located? (% respondents)

28

7

5

4

3

2

1

North America

Western Europe

Asia-Pacific

Middle East

Latin America

Africa

Eastern Europe

In which region is your company headquarters located?(% respondents)

33

27

17

11

6

4

2

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more

What are your company’s annual global revenues in US dollars?(% respondents)

46

13

15

7

19

Board member

CEO/President/Managing director

CFO/Treasurer/Comptroller

CIO/Technology director

Other C-level executive

SVP/VP/Director

Head of business unit

Head of department

Manager

Other

Which of the following best describes your job title?(% respondents)

5

27

8

2

7

16

7

8

14

6




Privately-held company

Publicly-listed company

State-owned enterprise

Non-governmental organisation and/or not-for-profit organisation

Other

Which of the following best reflects the ownership structure of your organisation?(% respondents)

51

35

7

4

3

Financial services

Professional services

Manufacturing

IT and technology

Energy and natural resources

Healthcare, pharmaceuticals and biotechnology

Government/Public sector

Consumer goods

Construction and real estate

Entertainment, media and publishing

Education

Logistics and distribution

Chemicals

Automotive

Telecommunications

Transportation, travel and tourism

Aerospace/Defence

Agriculture and agribusiness

Retailing

What is your primary industry?(% respondents)

16

15

9

8

7

7

6

4

4

4

4

3

3

2

2

2

2

1

1

General management

Strategy and business development

Finance

Marketing and sales

Operations and production

Risk

Customer service

IT

Information and research

R&D

Human resources

Supply-chain management

Procurement

Legal

Other

What are your main functional roles? Choose up to three.(% respondents)

46

39

24

24

15

11

10

9

8

7

4

3

3

2

3

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsors of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in the white paper.Co

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