IBM CEO Study: Transportation Industry Executive Summary

Capitalizing on ComplexityInsights from the Global Chief Executive Of icer StudyTransportation Industry Executive Summary2 Capitalizing on ComplexityIntroduction How are leaders responding to a competitive and economic environment unlike anything that has come before? To find out, we held face-to-face interviews with 1,541 chief executive officers, general managers and senior public sector leaders, including 37 Transportation respondents from 22 countries.1 These conversations offer valuable insight into the agendas and actions of global leaders. Figure 1In our past three global CEO studies, CEOs consistently said that coping Performance analysis frameworkStandouts represent organizations from with change was their most pressing chal enge. In 2010, we identified a different industries and from all new primary chal enge: complexity. CEOs told us they operate in a world geographies.that is increasingly volatile, uncertain and complex. Many shared the view that incremental changes are no longer sufficient. We carried out financial analyses, including a comparison of responses anceStandoutsTop 50 percentfrom CEOs based on financial performance. We also compared responses to identify patterns that might apply to Transportation. The overal study data indicate organizations that performed wel during both good and bad economic conditions – we cal them “Standouts” – approach complexity differently than those that performed less robustly. Top 50 percentLong termteady-state performSFigure 1 il ustrates how Standout organizations ranked in the top 50 Short termpercent for both the long-term period of 2003 to 2008 and the short-Crisis performanceterm period of 2008 to 2009.The most successful organizations are using entirely new approaches to tap new opportunities and overcome the chal enges to growth. Four primary findings arose from our conversations: The vast majority of CEOs anticipate even greater complexity in the future, and more than half doubt their ability to manage it. But there is a huge disparity between the overal sample and the Standouts, who have turned increasing complexity into financial advantage over the past five years.Transportation Industry Executive Summary 3CEOs believe creativity is the most important leadership quality. Creative leaders encourage experimentation throughout their organiza-tions. They also plan to make deeper business model changes to realize their strategies, take more calculated risks and keep innovating in how they lead and communicate. Transportation CEOs share this perspective on creativity, but almost as many (51 percent) also feel that integrity is the single most important leadership quality in their organization.The most successful organizations co-create products and services with customers, and integrate customers into core processes. They adopt new channels to engage and stay in tune with customers and glean more intel igence from the barrage of available data to make customer intimacy their number-one priority. Among transporta-tion CEOs, 92 percent report that “getting closer to customers” is their Figure 2top priority. The complexity gapAlthough Transportation CEOs anticipate much more complexity, Better performers manage complexity on behalf of their organiza-roughly half do not feel confident tions, customers and partners. They do so by simplifying operations about handling it.and products, and increasing dexterity to change the way they work, access resources and enter markets around the world. Dexterous 32%leaders expect to generate 20 percent more of their future revenues from complexitynew sources than other CEOs.gapA drastically different world83%Increasingly interconnected economies, enterprises, societies and governments have given rise to vast new opportunities. But greater connectivity has also created strong – and too often unknown – interde-pendencies. The new economic environment, CEOs agree, is substan-tial y more volatile, much more uncertain, and increasingly complex. 51%Interestingly, views on the strength and impact of these shifts differ by vantage point. Perhaps driven by the turbulence of the past several years, Transporta-tion CEOs have a unique view on complexity. While CEOs from most industries expect complexity to increase, few face as large a “complexity gap” as those in the Transportation industry. Just over 50 percent of Transportation CEOs feel they are facing high or very high levels of complexity today, but ful y 83 percent of them expect to face a more Expect high/very high level complex future. Unfortunately, only 51 percent of Transportation CEOs of complexity over 5 yearsfeel that they are prepared for the increase in complexity that they expect Feel prepared for to face.expected complextityEmbodycreativeleadership4 Capitalizing on ComplexityBuildoperatingdexterityReinventcustomerrelationshipsEmbodycreativeSeizing the opportunitiesleadershipYet certain organizations have delivered solid business results even in the recent economic downturn – and the people who lead them feel much more prepared for complexity. So, what are these Standouts doing to Buildthrive? Our extensive analysis shows that CEOs who are capitalizing on operatingdexteritycomplexity embody creative leadership, reinvent customer relationships and build operating dexterity.ReinventcustomerrelationshipsEmbody creative leadershipIn an uncertain and volatile world, CEOs realize that creativity trumps other leadership characteristics. Creative leaders are comfortable with Embodycreativeambiguity and experiment to create new business models. They invite leadershipdisruptive innovation, encourage others to drop outdated approaches and take balanced risks. They are open-minded and inventive in expanding their management and communications styles in order to engage with a new generation of employees, partners and customers. BuildoperatingdexterityPerhaps as a result of the fact that they manage time-sensitive opera-Reinventcustomertions that require decisions to be made without access to ful informa-relationshipstion, Transportation CEOs are often adept at dealing with ambiguity. For example, 68 percent use iterative strategic planning processes as distinct from formal annual strategy reviews, and 43 percent favor quick decisions. Transportation CEOs also rely less on the old hierarchical style of leadership: 62 percent tend to persuade and influence rather than to command and control.How can Transportation CEOs enhance creativity among their leadership teams?In what ways can Transportation CEOs explore, reward and globally integrate diverse and unconventional points of view? How are Transportation CEOs challenging every element of their business models to get the most from untapped opportunities?How will Transportation CEOs leverage new communications styles, technologies and tools to lead a new generation of talent and encourage breakthrough thinking? Transportation Industry Executive Summary 5Reinvent customer relationships “The work of leaders is making decisions, even when only 80 In a massively interconnected world, CEOs prioritize customer intimacy percent of the relevant as never before. Globalization, combined with dramatic increases in the information is known. It could availability of information, has exponential y expanded customers’ take five times the amount of options. CEOs said that ongoing engagement and co-creation with work to collect the remaining 20 customers produces differentiation. They consider the information percent.” explosion to be their greatest opportunity in developing deep customer Travel and Transportation CEO, Japaninsights.Transportation CEOs are especial y determined to put customers front and center. “Getting connected” to better understand, predict and give customers what they real y want is the top priority for 92 percent of Transportation CEOs. In our total sample, CEOs who put getting closer Figure 4to customers first on their agendas are 29 percent more likely than other Focus on customer intimacyCEOs to anticipate that the information explosion wil have a major Similar to Standouts from the overall impact on their organizations over the next five years and 18 percent study, almost all Transportation CEOs put getting close to customers at the top of more likely to use insight and intel igence to realize their strategy. their agenda.How will Transportation CEOs engage customers in new ways to increase 3%interest and loyalty to generate new demand?moreHow can Transportation CEOs involve customers more effectively and directly in product and service development?92%95%What can customers teach Transportation CEOs about how to profitably leverage new and existing distribution channels? Build operating dexterityIn an increasingly complex world, CEOs are learning to master complexity in countless ways. Transportation CEOs are no exception. They are redesigning operating strategies for ultimate speed and flexibility. They are embedding valued complexity in elegantly simple products, services and customer interactions. And they are careful y considering how best to take advantage of global efficiencies while addressing local needs.Transportation Standouts6 Capitalizing on ComplexityFifty-nine percent of Transportation CEOs are focusing on simplifying “Our customers want their products and operations to manage complexity more effectively. personalization of services and The most dexterous CEOs are also much more intent on reducing their products. It is all about the market fixed costs and increasing their variable costs so that they can rapidly of one.” scale up or down.Travel and Transportation CEO, Hong KongIn what ways can Transportation CEOs simplify processes, without ignoring underlying complexity, and develop the agility required to execute?How can Transportation CEOs take on more complexity on behalf of their customers?How can Transportation CEOs integrate and analyze timely information to gain insight, make quick decisions and enable dynamic course correction? How to capitalize on complexityFor Transportation CEOs and their organizations, avoiding complexity is not an option – the choice comes in how they respond to it. Wil they al ow complexity to become a stifling force that slows responsiveness, overwhelms employees and customers or threatens profits? Or do they have the creative leadership, customer relationships and operating dexterity to turn complexity into a true advantage?Transportation Industry Executive Summary 7The combined insight from our 1,541 interviews cal s for CEOs and their teams to:EmbodyReinventBuildcreativecustomeroperatingleadershiprelationshipsdexterity• Embrace ambiguity• Honor your customers • Simplify whenever possible• Take risks that disrupt above all else• Manage systemic legacy business models• Use two-way complexity• Leapfrog beyond communications to sync • Promote a mindset of “tried-and-true” with customers being fast and flexible management styles• Profit from the information • Be “glocal” explosionWe invite senior leaders to use this latest Global CEO Study to spur ongoing discussions about how to navigate the hurdles of complexity and how to prosper because of it. As your organization explores many options to capitalize on complexity, we look forward to working with you.For further informationFor more information about this study, please contact one of the IBM leaders below. Or, visit ibm.com/capitalizingoncomplexity or send an e-mail to the IBM Institute for Business Value at iibv@us.ibm.com.Global Eric Conrad eric.conrad@sg.ibm.comAmericas Mike Ward mike.ward@us.ibm.comAmericas Brian Goehring goehring@us.ibm.comLatin America Charles Vincent charles.vincent@nl.ibm.comAsia Pacific Charles Vincent charles.vincent@nl.ibm.comAfrica Charles Vincent charles.vincent@nl.ibm.com Japan Eiki Momotani MOMOTANI@jp.ibm.comEurope Charles Vincent charles.vincent@nl.ibm.com IBM Institute for Business Value Steve Peterson steve.peterson@us.ibm.com © Copyright IBM Corporation 2010How our research was conductedBetween September 2009 and January 2010, we met face-to-IBM Global Business Services Route 100 face with 1,541 CEOs, general managers and senior public Somers, NY 10589 sector leaders representing organizations of al sizes in 60 U.S.A.countries and 33 industries, to better understand their chal-Produced in the United States of America lenges and goals. Our response sample in each region has June 2010 been weighted according to actual regional Gross Domestic Al Rights ReservedProduct (GDP) for 2008.2 IBM, the IBM logo and ibm.com are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both. If these and other IBM We also analyzed the differences between financial standouts trademarked terms are marked on their first occurrence in this information with a trademark symbol (® or ™), these symbols and other organizations, based on their long- and short-term indicate U.S. registered or common law trademarks owned by IBM performance relative to their peers, where this information was at the time this information was published. Such trademarks may also be registered or common law trademarks in other countries. A available. We used four-year operating margin compound current list of IBM trademarks is available on the Web at “Copyright annual growth rates from 2003 to 2008 to measure long-term and trademark information” at ibm.com/legal/copytrade.shtmlperformance; and one-year operating margin growth rates from Other company, product and service names may be trademarks or service marks of others.2008 to 2009 to measure short-term performance. This References in this publication to IBM products and services do not enabled us to identify the “Standout” organizations that were imply that IBM intends to make them available in all countries in able to improve their operating margins in both the long and which IBM operates.short term.Notes and sources1 For readability, we have referred to this collective group as About IBM Global Business Services “CEOs.” Strategy & Change2 IMF World Economic Outlook Database. “2008 Actual Regional GDP.” October 2009. . http://www.imf.org/external/pubs/ft/IBM Global Business Services offers one of the largest Strategy weo/2009/02/weodata/index.aspx& Change organizations in the world, with over 3,250 strategy professionals. IBM Strategy & Change practitioners help clients develop, align and implement their vision and business strate-gies to drive growth and innovation.About the IBM Institute for Business ValueThe IBM Institute for Business Value, part of IBM Global Business Services, develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. This Global Chief Executive Officer Study is part of our ongoing C-Suite Study Series.GBE03351-USEN-01