Midsize firms upbeat on growth prospects in developing economies

Midsize companies are optimistic about opportunities for growth, especially in developing economies, and are rapidly innovating their business models to become more competitive, according to the IBM Global CEO Study, the largest study of chief executives ever conducted.

The study, titled “The Enterprise of the Future,” which focuses on five core traits that define an enterprise of the future, shows that midsize companies face significant challenges with change and report a sizable gap between their need for change and their past success in managing it. But the study also shows that “In today’s rapidly changing global marketplace, CEOs of midsize companies recognize that the most effective path to sustained business success is through innovation, skills and active partnering,” IBM Philippines country manager for general business Chestnut Andaya said.

Andaya added: “It’s clear that these firms are aggressively changing their business designs to expand into new markets and forge stronger relationships with a new class of informed and collaborative customer. Local companies are in a good position to adapt and capitalize on these changes.”

In the face of anticipated changes to external market factors, skill requirements, and regulatory compliance, the gap between the amount of change that CEOs anticipate and their company’s past success with managing change is dramatic. More than eight out of 10 — or 86 percent — of midsize businesses anticipate substantial change, yet just over half — or 57 percent — have had prior success in managing that change.

Despite the challenges posed by this gap, CEOs of midsize organizations are making a range of strategic investments to evolve their business to succeed in today’s rapidly changing environment. The most frequently cited areas of planned new investment include growth through globalization, customer service for the new breed of more demanding and informed customers, and increased corporate social responsibility activities.

The first opportunity for investment is the rising purchasing power of emerging economies, an area that midmarket CEOs are targeting for growth through a 20 percent increase in investment over the next three years.

To achieve global expansion, midsize organizations are focusing on new business designs — in fact, three of every four CEOs of midsize organizations plan to change their business models to differentiate themselves over the next three years. They have identified three primary actions they must take to accomplish that goal: make deep changes to their mix of capabilities, knowledge and assets (60 percent), partner extensively (54 percent), and actively enter new markets (51 percent).

CEOs of midsize companies realize that they have to partner, not just for traditional reasons such as value chain connectivity and operational efficiency, but in order to gain the talent and skills needed to move towards greater global integration. One of the biggest challenges these companies face is how to acquire and manage the skills and talent required to succeed at global integration, since they realize that using a domestic team to drive international business is unlikely to succeed.

Second, CEOs will continue to invest in areas that allow them to tap into the increasingly informed and collaborative consumer, the “information omnivore,” a new breed of customer that the overwhelming majority of the participating CEOs of midsize companies see as positive for their business.

The findings are based on a series of interviews and analysis conducted by IBM in late 2007 and early 2008. A total of 1,130 CEOs, business and public sector leaders from 40 countries representing organizations across a variety of industries and sizes participated in structured interviews. IBM consultants conducted more than 1,000 face to face interviews, with the remainder conducted by The Economist Intelligence Unit (EIU).

The Global CEO Study is conducted on a biannual basis, and provides a benchmark and a blueprint for global business trends.