World's Business Leaders Agree Size Will Still Matter in 2010

In fiercely competitive economy, survival depends more on ability to quickly adapt business model, executives say in survey

In fiercely competitive economy, survival depends more on ability to quickly adapt business model, executives say in survey

Walldorf, Germany — March 4, 2005 — Life is set to get tougher at the top for business leaders over the next five years, according to the results of a study by the Economist Intelligence Unit (EIU).

The study, sponsored by enterprise software giant SAP and based on in-depth interviews with 4,000 business and public sector executives across 23 of the world's leading economies, reports that most respondents believe that survival in a fiercely competitive global economy will depend more on adapting their business models — or the way their organization operates — than what their organization does.

Worldwide, more than 60 percent of respondents agreed that size will matter over the next five years, citing consolidation as a greater competitive threat than new entrants from emerging markets in 2010. Additionally, the ability to swiftly adapt to change was singled out as the greatest management challenge for 33 percent of respondents and among the top three challenges for 68 percent.

Flexibility Beats New Products

To meet this challenge, the flexibility to swiftly implement new ways of doing business was more important than new products or services for 54 percent of respondents. At the same time, directors expect customers, shareholders and employees to exert ever greater, and often conflicting, demands on their organization.

"To compete successfully in 2010, organizations will need to assimilate the characteristics of flexibility, openness, collaboration and speed," said Henning Kagermann, chairman and CEO of SAP. "As companies increasingly focus on their core business, they will be ever more dependent on an integrated network of partners and suppliers to meet customers' requirements of flexibility and convenience. In this environment, it is essential that the ecosystem is geared to enable the rapid implementation of the new business models that will drive and sustain competitive advantage."

"The pace of globalization and technology change are driving faster innovation," said Daniel Franklin, editorial director of the Economist Intelligence Unit. "Add to that the overall trend in the world toward market liberalization, and it's clear that the pace of change in the next few years will be relentless. Executives understand that the clock won't stop — it will get faster."

IT Innovation Seen Accelerating

Denis McCauley, director of Global Technology Research at the Economist Intelligence Unit, said the study shows that how companies use information technology will make or break their ability to acquire the attributes of flexibility, openness, collaboration and speed and to change the way they operate. "Executives seem again to believe in the power of technology to drive business change," he said.

Erik Brynjolfsson, Schussel professor of management at the MIT Sloan School and director of the MIT Center for eBusiness, said that the EIU-SAP study matches his center's own research highlighting the growing role of IT in creating new business models and driving customer focus. "Predictions of the commoditization of IT are premature," Brynjolfsson said. "In fact, the next five years will probably witness more innovation in the use of IT to drive competitive advantage than any previous period. As data and computing become ever cheaper, the potential for IT-enabled innovation is only increasing."

The key findings of the study included:

  • Companies want, and need, to better understand their customers. The identification of changes in customer behavior and needs was cited by respondents as the most significant hurdle in the way of effective product and service innovation.

  • Adaptability and innovation and are the top strategic priorities. Fully 33 percent of respondents cited swift adaptability to change as the number one management priority for creating long-term value, while 18 percent singled out speed of innovation.

  • Diversification is out, specialization is in. Respondents expect competition to be fiercer in five years time, with three out of five respondents citing consolidation as their number one threat; the rest fear new entrants from emerging markets most. Faced with this pressure from above and below, 60 percent of firms will focus on improving existing products or services.

  • IT will be a competitive weapon. More than 80 percent of respondents singled out IT as being of central importance to their organization's ability to drive through the changes required to cope with the many challenges they face. Indeed, almost 60 percent view IT as becoming a competitive weapon, rather than simply a driver of cost efficiency.

  • The staff brain-drain is a major concern. Almost 50 percent of business leaders cite retaining personnel as the number one human resources challenge, while the same percentage fear the loss of key personnel to competitors as the biggest threat to the integrity of intellectual property.

  • Pay should be tied more closely to performance. Across all regions, the overwhelming majority of respondents agreed that board-level compensation should be tied more closely to performance. At the same time, 82 percent believe that brand value will be increasingly linked to good governance.
The report, "Business 2010: Embracing the Challenge of Change," is available from the Economist Intelligence Unit's Web site at:

More research from the Economist Intelligence Unit.
Companies in this article