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Global disruptors:Steering through the stormsA report from the Economist Intelligence Unit

Sponsored by PRTM

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© The Economist Intelligence Unit 2008Global disruptors:Steering through the storms

Preface

�Global disruptors: Steering through the storms� is an Economist Intelligence Unit brieÞ ng paper, sponsored by PRTM. The Economist Intelligence Unit executed the survey, conducted the analysis

and wrote the report. The Þ ndings and views expressed in the report do not necessarily reß ect the views of the sponsor.

Research for the report was conducted from April to June 2008. The Economist Intelligence Unit surveyed 242 executives globally using an online questionnaire. In-depth interviews with eight senior executives supplemented the survey results. The author of the report was Tim Hindle, and the editors were Winter Wright and Katherine Dorr Abreu. Our thanks to all survey participants and interviewees for their time and insight.

October 2008

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Executive summary

Today�s business environment is characterised by the presence of powerful disruptive forces operating on a global scale. As the current crisis in the Þ nancial markets demonstrated, these �storms of

change� are often difÞ cult to foresee, yet can have a devastating effect.An earlier Economist Intelligence Unit report sponsored by PRTM (�Fortune favours the brave�,

December 2007) identiÞ ed a new breed of high-performing corporation, the �operational innovator�. Such companies, the report said, �seek out new ways of operating, without waiting for pressure from external forces�.

This second report, �Global disruptors: Steering through the storms�, looks in more detail at the most powerful of these external forces, all of them global disruptors in one form or another. It identiÞ es nine in particular, and divides them into three groups: global resource disruptors, global policy disruptors and global market disruptors. The report goes on to examine whether companies perceive these disruptors as a threat or an opportunity, and what they are doing (or planning to do) to minimise their negative impact or amplify their positive potential.

ConÞ rming the conclusion of our earlier report, this study Þ nds that changes in operational strategy are a key ingredient for success. A signiÞ cantly higher percentage of Þ rms that make operational changes quickly in order to take account of the disruptors outperform their rivals. Furthermore, these Þ rms plan to make still more changes in the future. Top performers move early, and they expect to keep on moving.

The survey also examined which areas of their operations companies think will have to be changed most radically to adapt to these disruptive forces. The answer is rather unsettling. The three areas

Firms that make operational changes quickly to take account of disruptors outperform their rivals.

Who took the survey?

This report is based on an online questionnaire taken by 242 senior executives from around the world. Thirty-three percent of respondents work for companies headquartered in North America, 31% in Europe and 26% in the Middle East, Africa and the emerging markets of the Asia-PaciÞ c region.

An analysis of the geographic spread of the companies� operations classiÞ es 31% of respondents� Þ rms as being �fully global� (for deÞ nition, see page 16), another 36% as being moderately global and 33%

as being regional or local.The Þ rms are almost equally divided between

products-based and services-based businesses. One-quarter of the respondents� organisations had annual revenue of more than US$10bn, while 35% had a turnover between US$500m and US$10b.

The survey was supplemented by in-depth interviews with chief executive ofÞ cers and chief operating ofÞ cers. These executives came from Argentina, India, Turkey, the UK and the US, reß ecting the global spread of the survey sample itself.

For further information, see the appendix at the end of this report.

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targeted for greatest change�organisational structure and talent management, customer operations and product operations�are the same three areas that, in both this survey and the previously published report, executives say contribute most to the performance of their business.

This is a bit like being told that in order to remain strong and healthy a surgeon is going to have to operate on your heart, lungs and liver. In such circumstances, patients want to be sure not only that they have chosen the best possible surgeon for the job, but that the surgeon has the best possible team in support and the most up-to-date equipment to enhance the chances of survival.

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The forces of change

This report focuses on nine �global disruptors��external forces that are having a powerful impact on

business around the world. These fall into three distinct groups: resource disruptors, policy disruptors

and market disruptors. All three are simultaneously undermining companies� traditional ways of doing

things. Together, they present an exceptional challenge to management over the next few years.

Limited resourcesThe Þ rst group of disruptors relates to resources�natural, human and Þ nancial. Essentially, they have to

do with the question of what resources will be available to companies to enable them to carry out their

business. Forces affecting corporate inputs include:

! constraints on the availability of natural resources;! global shifts in access to labour and talent; and! uncertain and shifting global Þ nancial markets and sources of capital.

Although energy is the most obviously constrained natural resource these days, global Þ rms are also

affected by tightening in the markets for metals, such as copper, gold and platinum. The scarcity of water

is a looming issue as well.

A wave of renationalisation of natural resources around the world is stoking corporate fears. According

to one estimate, 85% of the world�s oil is now controlled by state-owned organisations. Countries such

as Nigeria may yet follow the examples of Russia and Venezuela in bringing their energy resources under government control. Firms need to consider alternative sources of these inputs and the operational implications of tapping into such alternatives.

Access to talent is also a challenge. Despite the growing cohorts of well-educated young people in countries such as China and India, there is scarcely a chief executive ofÞ cer (CEO) today for whom the discovery and retention of talented human resources is not a major concern. Education in general may be

increasingly accessible, but the right skills are not. As one senior executive interviewed for this survey put

it: �Well-educated is not the same thing as talented. What we need is the entrepreneurial spirit. We need

people who are hungry for achievement.�

Likewise, capital markets are shifting�essentially, from west to east. This is diffusing the sources of

corporate funds and making it more complex to raise capital. The current credit crisis is distracting from

this trend, but in the longer-term it is likely to continue.

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Policy mattersThe second group of disruptors speaks to changes in regulatory policies. Here the question is how Þ rms should set up their processes and their controls in the future to deal with:

! increasing requirements for transparency and accountability;! growing requirements to manage resource consumption, emissions and disposal; and! the heightened complexity of operating in many different social, political and regulatory environments.

The Sarbanes-Oxley legislation of 2002 imposed a huge extra reporting requirement on public companies operating in the US, and there is little prospect of that extra burden being lifted. Quite the contrary: the current credit-market crisis has hastened calls for greater transparency and accountability.

Alongside this, economics and environmental concerns are conspiring to impose on corporations more responsible management of their carbon footprints and a more eco-friendly attitude to sourcing. At the same time, the continuing momentum of globalisation is creating new layers of complexity for the management of all multinational corporations. Although these shifts may not generate greater costs, they do require signiÞ cant operational changes.

Market shiftsThe third and Þ nal group of forces involves global market disruption. Here the question is where companies should operate�that is, where they can best deploy their assets in light of:

! the growth and decline of markets, economies and competitors across geographies;! geopolitical instability and change; and! the emergence of low-income and rural mass markets.

Although the growth and decline of markets is an ongoing process, it has accelerated in recent years with the rise of the so-called BRIC economies (comprising Brazil, Russia, India and China). In addition, at

Please estimate the degree of impact (positive or negative) these forces will have on your business over the next three years. Rate on a scale of 1 to 5, where 1=Little or no impact and 5=Very large impact. (% respondents)

1 Little impact2 Some impact3 Moderate impact4 Large impact5 Very large impact Not applicable/ Don't know

Constraints in natural resource availability

Global shifts in availability and access to labour and talent

Increasing requirements for making operations transparent and accountable

Growing responsibility to manage consumption, emissions, and disposal

Growth and decline of markets, economies and competitors across geographies

Geopolitical instability and change

Increased complexity of operating in multiple social, political, and regulatory environments

Emergence of low-income and rural mass markets

Uncertain and shifting global financial markets and sources of capital

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Which of the following global forces do you see as being opportunities and/or threats for your business over the next three years? (% respondents)

More threat than opportunity Both opportunity and threat More opportunity than threat Neither threat nor opportunity Not applicable/ Don't know




Growing requirement to manage resource consumption, emissions, and disposal






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the same time as the distribution of income and wealth among countries has been changing, so has the distribution of income and wealth within countries. Almost universally, the disparity between rich and poor is increasing, creating the potential for conß ict.

Political instability and change are also evident. The Middle East remains a powder-keg, while the economic successes of Russia and China have not yet been fully mirrored in their political and institutional development. Among the developed economies, the US and, to some extent, France and the UK are in the midst of leadership transitions, which often result in policy changes.

The emergence of low-income and rural mass markets has in many countries created the potential for Þ rms to reach consumers who have hitherto been largely ignored. Emerging economies that a decade ago were considered little more than sources of cheap labour are now signiÞ cant markets in their own right. China, the most obvious example, is already the world�s largest consumer of television sets and mobile phones. Russia is also fast becoming a consumer society, with hundreds of new shopping malls scheduled to open there within the next few years.

To reach these new markets, companies have to radically restructure their operations. They cannot hope to serve these markets merely by exporting more goods or services from existing facilities. Although companies that move into new markets face challenges in Þ nding talent and integrating new operations, they may beneÞ t by developing new sources of supply that can give them a competitive edge.

Threats and opportunitiesThe survey conducted for this report delved into the relative importance of various global disruptors and the expected impact of each. When asked which disruptors they thought were likely to have the greatest impact on their business, two stood out: a market disruptor�the growth and decline of markets, economies and competitors across geographies; and a resource disruptor � global shifts in availability of and access to labour and talent.

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The increased complexity of operating in multiple social, political and regulatory environments�a policy disruptor�ranked third. Uncertain and shifting global Þ nancial markets and the emergence of low-income and rural mass markets came next (see chart on previous page).

A slightly different picture emerged when respondents were asked which of the disruptors presented the biggest threat to their business, and which presented the biggest opportunity. The Chinese use two brush strokes for the word �crisis�: one to denote danger, the other to denote opportunity. In our survey, each of the crisis-creating disruptors was similarly seen as containing elements of both danger and opportunity.

The degree of each of these two elements varied. But even the most overtly threatening disruptor (geopolitical instability) was seen by more than 30% of respondents as presenting some level of opportunity. By contrast, the disruptor seen as providing the greatest opportunity (the emergence of low-income and rural mass markets) was viewed by 22% of respondents as both an opportunity and a threat.

Respondents were also asked which elements of their business strategy would most need to be changed to enable their organisations to adapt to the disruptive forces affecting them. Three aspects of strategy stood out, and were ranked nearly equally: product, service and technology strategy (which products and services to offer); target market strategy (which customer segments to aim for); and operational strategy (how to make those products and serve those customers). For the most fully globalised Þ rms among our survey sample, operational strategy stood right at the top of the list.

When asked what degree of change in their operational strategy each disruptor would require, respondents gave the highest marks to the same two forces that they had said would have the greatest impact on their business�the growth and decline of markets, economies and competitors across geographies; and global shifts in availability of and access to labour and talent.

What degree of change will be required in your operational strategy (or model) in order for your business to adapt to each ofthese forces? (% respondents)

Radical operational change Significant operational Change Incremental operational change Little or no operational change Not applicable/ Don't know










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Respondents were asked about the areas of operational strategy that would require the most signiÞ cant change to enable their Þ rm to adapt to these forces. Organisational structure and talent management ranked Þ rst, followed by customer operations. Tellingly, a high percentage of those respondents who identiÞ ed these two areas as contributing most to their Þ rm�s performance also said that they were the areas most in need of change: 69% in the case of customer operations, and 65% in the case of organisational structure and talent.

Which areas of your company’s operational strategy (or model) will have to be changed significantly to adapt to these forces? Select all that require significant change. (% respondents)

Organisational structure and talent management

Customer operations (how you target, acquire or serve customers)

Product operations (research, development, launch, renewal)

Supply chain operations (sourcing, manufacture, delivery, returns)

Networks of partners in your value chain

Information architecture and IT/automation systems

Physical footprint (where your operations are located worldwide)

Regulatory and policy management

Other, please specify

None of the above—we do not plan to make any changes to our operational model

Don't know

54

53

44

36

36

34

33

24

1

1

2

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Past experience

A high percentage of organisations say they have made operational changes in the past two years in response to the nine global disruptors. The vast majority of them feel that these changes have been �somewhat successful� (69%) or �highly successful� (8%) in helping them adapt to disruptive forces.

The areas in which most companies have made changes are customer operations and product operations. Just under one-half (47%) of respondents say that they target several operational areas at the same time, and as many as 15% of organisations say that the changes they are introducing involve practices that are new either to their industry or to the world. Clearly, many organisations are already undertaking enormously ambitious programmes of change in response to the global disruptors.

Just over one-half (52%) of the companies surveyed say that their CEO or chief operations ofÞ cer is the person primarily responsible for driving their operational changes. These Þ rms differ in important respects from the others surveyed. For example, a higher proportion of the �led-from-the-top� companies make signiÞ cant changes in their organisational structure and talent management in response to disruptive forces.

There is an almost even split between respondents who are satisÞ ed with their organisation�s ability to develop and execute operational strategies in response to global disruptors, and those who are not. The most common reasons for dissatisfaction are the Þ rm�s short-term focus and its underestimation of the degree of organisational change required.

Radical Significant Incremental Little/No Not applicable/ Don't know

What is the degree of operational change that your company has made in the following operational areas in response to theseglobal forces? (% respondents)



Supply chain operations (sourcing, manufacturing, delivery, returns)






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The most powerful disruptors

Each disruptor is expected to have a different impact on business. The individual interviews conducted as part of the research for this paper help to detail those differences. Yet regardless of the particular

disruptor, it is clear that tremendous effort, investment and talent are required to increase a company�s ability to weather the current storm.

Market changes The growth and decline of markets will have the strongest impact on business over the next three years, the survey found. Changes in the markets of China and India are expected to be the most signiÞ cant.

China in particular is now well and truly on everybody�s map. Even for Indian Þ rms, China is a top priority as a market. Hiren Doshi, until recently the business development manager in that country for an Indian outsourcing Þ rm, Infosys, says: �We have to make it happen in China. China is central to our global expansion.� Ersin Akarlilar, CEO of a Turkish manufacturer and retailer of jeans and leisure wear, Mavi Jeans, is planning to sell more of his branded goods in China. Moreover, he intends to make them where he sells them.

At the same time, China is losing some of its appeal as a low-cost manufacturing hub. A lack of English-language skills, and what one American CEO describes as �Asia�s generally slack attitude to intellectual property�, still weigh on the country.

More importantly, costs are rising in China, leading Western companies that had laid out extensive supply chains to the Chinese heartland to trim them. A UK importer of tiles and marble interviewed for this report recently switched much of his sourcing from China to Spain. ClearEdge Power, a small Californian start-up in clean-energy technology, is looking to the south-eastern and southwestern states of the US�where it claims labour costs are becoming competitive with China�for any extra manufacturing capacity that is needed.

Talent scoutsShifts in the availability of talent came second in terms of the impact on business and also in terms of the degree of change in operational strategy that it will require. Bill Mitchell, CEO of Arrow Electronics, a global supply-chain services provider, sees it as �the biggest challenge� facing his Þ rm. Part of that challenge lies in the growing difÞ culty in persuading employees to move to new locations.

Mr Doshi of Infosys says that talent management �is very, very important to us�. Like many other companies, Infosys is aiming to attract and retain talent by working hard to establish a reputation as a desirable place in which to work. For several years it has featured prominently on lists of the best employers in India.

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�Working together is what inß uences transfers of information and knowledge�human proximity is important�Ersin Akarlilar, Mavi Jeans

To optimise their use of talent, companies are thinking harder about how they organise it. One big issue lies in where to locate this talent. Some Þ rmly believe in �clustering�, to ensure that their most talented people work in physical proximity. To help develop clean and efÞ cient power systems, for example, ClearEdge Power hires some of its engineers and scientists from China, India, Bangladesh, Europe and Canada. But the Þ rm brings them together in its headquarters, a wooded area outside Portland, Oregon, known as �Silicon Forest�.

Such proximity can be helpful even in relatively low-tech industries, such as textiles. �Working together is what inß uences transfers of information and knowledge,� says Mr Akarlilar of Mavi Jeans. �Human proximity is important.�

Other Þ rms use sophisticated information technology (IT) to reduce the distance between different clusters of talent, no matter where they are based. Daniel W. Rasmus, the director of business insights at Microsoft, says that globalisation has made the world not ß at (as commentator Thomas Friedman would contend) but rather exposed the �lumps� in talent, capital markets and capabilities. IT doesn�t ß atten the lumps, says Mr Rasmus�it connects them.

Illumina, a California-based company that develops technology for use in genetic research, has plants in the US, the UK and Singapore. Its CEO, Jay Flatley, says that the company relies on closely integrated teams working together on projects. The Þ rm brings them together with the help of IT, but Mr Flatley insists that it would be �inÞ nitely better to keep such teams in one place�.

Money, money, moneyThe growth in recent years of private equity and sovereign wealth funds has marked a shift of capital away from the public markets of Europe and America. The sovereign wealth funds of countries such as Qatar and Singapore now own big chunks of large multinational corporations.

This has forced Þ rms to look in new directions for Þ nance. Turkey�s Mr Akarlilar, for example, has noticed a dramatic change in the sources of funds available to his Þ rm over the past few years. There have been changes �even within the private-equity market�, he says, �where the Gulf states have started to feature prominently�.

Mr Mitchell of Arrow Electronics, by contrast, says that �there won�t be any tumbleweed on the ß oors of the New York or London stock exchanges any time soon�. A former oil company executive, he remembers when that industry was dominated by a small number of private corporations called the Seven Sisters. Now, he says, most of the world�s oil �is owned by nationalised companies. But ExxonMobil [one of the old Sisters] hasn�t exactly gone away.�

Complexity paysNot surprisingly, many respondents to our survey think that the increasing complexity of operations around the world will require the most amount of change in their operational strategy (see chart on page 9). But complexity presents as many opportunities as it does threats. For Mr Mitchell, complexity is �what we do�. �We solve complexity,� he says.

Technology businesses in particular see opportunity, for technology is instrumental in managing complex business operations. However, while technology helps to reduce complexity in some areas, it often creates more in others. Google�s search engine gives immeasurable assistance to researchers, but it also gives them immeasurably more areas to research.

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AMR, a US-based research Þ rm, believes that a power shift is occurring in the technology world. Suppliers of technology are becoming less important than the service providers that manage companies� IT infrastructure and processes. These service providers, says AMR, are going to be a key strategic partner in an increasingly complex world.

In a recent interview, Filippo Passerini, the head of Procter & Gamble�s Global Business Services (GBS)

division, describes how his unit has evolved into being �a strategic partner� with the company�s operating

units. P&G saved some US$600m by reorganising its business services on a global scale, outsourcing many

functions but retaining in-house certain services that it considers to be �business critical��services that

include procurement, logistics and IT-driven innovation.

But complexity is not a one-way street. There are still ways in which the world is becoming less

complex. The creation of the euro, for instance, has greatly simpliÞ ed international transactions and

trade documentation. In many parts of the world there are now only two tradable currencies: the euro and

the US dollar.

The promise of low-income marketsThe emergence of low-income mass markets presents the greatest opportunities, our survey found.

Bangladesh�s Grameen Bank has opened many countries� eyes to the potential of mass markets among

the poorer sectors of society. In India, for example, people who do not yet have access to fresh water and

electricity do have access to a mobile phone. This has enabled banks there to reach customers who would

not have been commercially feasible just a few years ago.

This example is the inverse of Pareto�s Principle�the idea that 20% of a business�s customers produce

80% of its revenue, and that Þ rms should therefore focus on that 20%. The ability to manage the vastly

greater numbers of potential customers in mass markets now makes it worthwhile to spend more effort

marketing to the 80%. However, having spotted this untouched fruit across the river, corporations

need to build a bridge to reach it. They need an operational strategy that will enable them to enter such

markets proÞ tably.

Amanco, a South American manufacturer of plastic water pipes, has built a new business in such a

market by redeÞ ning itself. Initially a vendor of pipes, much of whose business was dependent on the

whims of government contracts in the region, Amanco changed its mission and became a supplier of eco-

friendly access to water and sanitation. This move opened up a number of non-traditional markets. With

support from the Interamerican Development Bank (IDB), Amanco started selling agricultural irrigation

kits to poor farmers in Guatemala. Not only are such farmers a good credit risk, but they have managed to

double their yields in one year. Big agricultural producers, by contrast, are lucky if they show an annual

growth rate of 30%.Firms that penetrate low-income markets and introduce operational innovations there sometimes Þ nd

that these innovations can be used to disrupt more traditional markets. For example, banking via mobile phones and text messages, while widely used in low-income markets in India, can also be an attractive way to reach youth markets in more developed countries. Delivery systems developed for microÞ nance can be applied to other markets in other places.

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Global firms are more likely to think that business structure should be changed (Percentage of firms within each subgroup selecting strategic elements to be changed significantly to adapt to global disruptors)

Least global Most globalOperational strategy (how your operational model is structured and executed)

Product, service, and technology strategy (which products and services you offer)

Target market strategy (which customer segments you target)

Business structure (mergers, acquisitions, divestitures)

Geographic strategy (which regions you sell to)

Competitive strategy (your primary basis of competition eg, product leadership, cost leadership, customer intimacy)

Economic model (how your company makes a profit or return for its owners)

Financial structure (capital structure, public/ private ownership, etc)

49

61

56

28

36

52

32

27

58

58

57

50

48

46

34

18

Global versus regional Þ rms *

Do the most global companies respond to disruptors differently from Þ rms whose business is more geographically restricted? The survey conducted for this report found, not surprisingly, that more of the fully global Þ rms (31% of the total) have already made signiÞ cant operational changes in response to the global disruptors, compared with the regional Þ rms.

The global Þ rms are also more likely to see environmental issues as an opportunity: 40% of them say that �the growing responsibility to manage consumption, emissions and disposal� is more of an opportunity for them than a threat. Only 18% of the least global Þ rms see it that way. Global Þ rms are also more likely to see the emergence of low-income and rural mass markets as requiring signiÞ cant operational change.

There are major differences, too, in how Þ rms identify strategic elements that would need to be

changed in response to the disruptors. A higher percentage of the most global Þ rms (58%) than of the least global Þ rms (49%) think that their operational strategy will have to be altered. In addition, a signiÞ cantly higher percentage of global Þ rms (47%) than of regional Þ rms (28%) think that their business structure needs adjustment. And 48% of global Þ rms think their geographic strategy will have to be changed, versus 36% of regional Þ rms.

Three sharp differences also exist with respect to the operational areas that must be modiÞ ed to adapt to these forces. Of the most global Þ rms, 43% believe that their physical footprint will need to be changed signiÞ cantly, compared with only 17% of the least global companies. At the same time, 41% of the global companies think their supply chain operations will have to be altered, while 24% of regional Þ rms hold this view. And 62% of global Þ rms believe their organisational structure and talent management will need to be changed, in contrast with 40% of regional Þ rms.

* Companies were classiÞ ed as fully global (or �most global�), moderately global or regional/local (or �least global�) based on their responses to the question: �How would you describe your operations in each of the following regions?�, found in the Appendix of this report. The responses were weighted 2 if �well established�, 1 if �recently established� and 0 if �no presence�. The most global companies scored more than 11 points, and the least global between 1 and 4 points.

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The Þ nal fourAlthough the remaining four disruptors were considered less relevant by our respondents, all of them

are sure to have some impact. In many cases, that impact will be considerable. For example, respondents

ranked the impact of constraints on the availability of natural resources lowest, yet there are few

companies that have not made operational changes in response to the rise in the price of oil. Mavi Jeans,

recently opened a plant in Egypt because it reckons that energy costs there are one-Þ fth of those in

Turkey, its traditional manufacturing base. Meanwhile, easyJet, a leading European low-cost airline, has

cut aircraft speeds on some of its routes in an attempt to save fuel.

For a few Þ rms, however, constraints on resources present great opportunities. Jon Slangerup, CEO

of ClearEdge Power, says that for his Þ rm, as for others in the alternative-energy business, �the biggest

opportunity lies in ending our dependence on of an oil-based economy�. The same duality is evident with respect to increasing requirements for transparency and

accountability. The disclosure requirements of the Sarbanes-Oxley Act in the US have proved onerous for many corporations. Illumina�s Mr Flatley says that he feels �oppressed� by today�s reporting requirements, which have become �a huge time issue at board level�. Mr Mitchell of Arrow Electronics says that reports to the US Securities and Exchange Commission that used to be 25 pages long now stretch for 200 pages or more.

However, a relatively high percentage of respondents say that the new requirements present them with more of an opportunity than a threat. Infosys�s Mr Doshi maintains that �helping customers to be more transparent is an opportunity for [an outsourcing Þ rm like] us�. Mr Mitchell adds that improved transparency and better corporate governance improves his Þ rm�s relationships with partners. �When everyone views themselves as an independent island,� he explains, �it makes it extremely difÞ cult for us to do business.�

Although constraints on the availability of natural resources are expected to have least impact of all the nine disruptors, there are few companies that have not made operational changes in response to the rise in the price of oil.

Global firms focus more on physical footprint, organisational structure and talent management (Percentage of firms within each subgroup selecting operational areas to be changed significantly to adapt to global disruptors)









21

35

40

35

17

24

45

60

19

25

62

31

43

41

48

51

Least global Most global

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Products versus services

As in our previous report (Fortune favours the brave), we found signiÞ cant differences between the responses of Þ rms that provide services and those that make products.

Product-based companies are more likely to believe that they need to change their product and supply-chain operations, whereas service companies are more likely to focus on regulatory and policy issues. Furthermore, product-based Þ rms tend to believe

more strongly than service-based businesses that their organisational structure and talent, and their customer operations, will need signiÞ cant adaptation in response to the disruptors.

In general, product-based businesses tend to respond to the disruptive forces earlier than service-based companies. Moreover, those operational changes that are introduced tend to be more pervasive�that is, more widely spread throughout the enterprise�in product-based businesses than they are in service-based Þ rms.

Service-based firms focus on the regulatory and policy elements, product-based firms focus on core processes (Percentage of firms within each subgroup selecting operational areas to be changed significantly to adapt to global disruptors)









47

49

36

23

32

29

40

30

61

60

53

51

41

38

28

18

Service-based company Product-based company

Microsoft�s Mr Rasmus says that being proactively transparent can be good for business. �If a business aims to get ahead of regulation and starts proactively sharing data because it wants to represent itself truthfully and transparently, it could drive customer loyalty and build brand differentiation.� He believes that if London�s Heathrow Airport had been more transparent about its problems before the disastrous opening of its Þ fth terminal in March 2008, for example, it might have avoided much of the ill-will caused by the subsequent lost luggage and cancelled ß ights.

The growing requirement to manage resource consumption, emissions and disposal was the disruptor that respondents felt would require the least amount of change in their operational strategy. Nevertheless, it is having a signiÞ cant impact on a wide range of businesses. The electronics industry, for instance, is only just beginning to recycle the large amounts of �techno-trash� that it creates. Some Þ rms are Þ nding that by recovering parts and reusing them, it is possible to create value beyond the �brownie points� given by customers for eco-friendliness.

16


In Argentina, the local subsidiary of a Danish pharmaceutical company, Nycomed, says that it is gaining competitive advantage by adopting Denmark�s higher standards on emissions and disposal. In India, Infosys is rolling out a new service designed to help its customers to monitor their resource consumption, emissions and disposals for regulatory purposes

In the US, ClearEdge Power has changed its operations in order to manage its resources better. Its manufacturing process depends on platinum, whose price rose by more than 50% in less than a year. This rising cost prompted ClearEdge to lease its platinum over a Þ ve-year period rather than buying it direct. Under the arrangement, ClearEdge developed a recovery process in cooperation with its suppliers in order to recycle and reuse the platinum for future products. According to Mr Slangerup, this process signiÞ cantly lowers ClearEdge�s product costs.

Although survey respondents view geopolitical instability as the most threatening disruptor, they do not think that it is likely to have a great impact on business over the next three years, or that it will require great change in operational strategy. Recent events in Kenya, however, have provided a reminder of how great the impact from political disturbance can sometimes be. Inter-tribal hostility following the presidential election in December 2007 resulted in a 50% decline in the number of foreign tourists visiting the country. Many local agricultural businesses dependent on foreign tourists went bust as tour operators switched their clients to neighbouring countries, such as Tanzania.

17


Conclusion

The global disruptors are conspiring to challenge the core of what creates value for companies. Few Þ rms are Þ nding that their impact is merely marginal.

32

37

15

11

6

Yes, we have already made significant operational changes and may be making more

Yes, we are in the process of making significant operational changes

No, but we are planning to make operational changes within the next year

No, we are aware of these forces but need to make plans for operational change

Others

Level of response In the past two years, has your organization made any significant changes in response to the global disruptors?(% respondents)

The disruptors identiÞ ed in this report cluster around three distinct types of change�those in resources, in policies and in markets. The changes in all three areas are occurring simultaneously, and

they require Þ rms to rethink radically key strategic elements of their business�issues such as what they sell, where they sell it and how they produce it.

Our survey found that senior executives believe that operational strategy is one of the top three elements requiring change. For the most global of the Þ rms participating in the survey, operational strategy came at the very top of their list.

Many Þ rms have already made signiÞ cant operational changes in response to these forces, and say that they may yet make more. The areas that are most frequently changed are �organisational structure and talent management� and �customer operations�. These are the self-same areas that respondents say contribute most to the performance of their business. The global disruptors are conspiring to challenge the core of what creates value for companies. Few Þ rms are Þ nding that their impact is merely marginal.

A markedly higher proportion of the Þ rms that have made signiÞ cant changes are �outperformers��ie, companies that say that their revenue and proÞ tability have been better than those of their competitors over the past few years. Top performers, it seems, make changes earlier than their rivals and continue making changes thereafter. They are able to do this because they are continually looking ahead, trying to anticipate the impact of global disruptors on their businesses.

Yet anticipating change is not always easy, as the recent implosion of the global Þ nancial sector has demonstrated. If the survey were held today, many more executives would no doubt say that �uncertain

18


Response driverWhich statement best describes the way your company reponds to global forces? (% respondents)

We proactively track them and try to act before competitors do

We act in response to the forces that create a need for change

We act in response to the forces causing a shortfall in business performance

Others

25

50

17

7

Proactive Reactive Others

and shifting global Þ nancial markets and sources of capital� are their top concern than did so when the survey was conducted in the spring of 2008.

As a disruptor intensiÞ es, it has the potential to push previously dominant disruptors into the background, and to cause still others to increase in intensity. The present Þ nancial storm, for example, has already unleashed calls for regulatory changes to prevent a recurrence of the crisis in the future.

To prevail under these conditions, companies must be operationally agile�that is, their operational strategies must be adaptable, so that they can quickly change course when necessary. Winning companies demonstrate this adaptability, and are thus able not only to weather storms that arise but to make any storm, however threatening, work to their advantage.

19

© The Economist Intelligence Unit 2008AppendixSurvey results

Global disruptors:Steering through the storms

Appendix: Survey results

Revenue growth

Profitability

Return on invested capital

Over the past two years, how has your company performed, compared with its main competitors? (% respondents)

47 37 13 3

43 36 16 5

36 36 18 10

Higher than main competitors Same as main competitors Lower than main competitors Not applicable/ Don't know










Not applicable/Don't know

57

44

39

31

27

23

16

13

3

2

Which of the following areas of your company's operational model contribute most heavily to the performance of your business? (% respondents)

Which of the following global forces do you see as being opportunities and/or threats for your business over the next three years? (% respondents)

More threat than opportunity Both opportunity and threat More opportunity than threat Neither threat nor opportunity Not applicable/ Don't know




Growing requirement to manage resource consumption, emissions, and disposal






1023122232

38272933

422332614

719252326

34263730

81672445

211263624

816451912

316113040

20



Please estimate the degree of impact (positive or negative) these forces will have on your business over the next three years. Rate on a scale of 1 to 5, where 1=Little or no impact and 5=Very large impact. (% respondents)

1 Little impact2 Some impact3 Moderate impact4 Large impact5 Very large impact Not applicable/ Don't know










81817271613

3818273212

4132434206

7141931209

4313313712

51022341811

481737287

81319242413

291938258

Which of the following strategic elements will have to be changed significantly to adapt to the forces that affect your business? Select all that require significant change. (% respondents)

Financial structure (capital structure, public/ private ownership, etc)

Product, service, and technology strategy(which products and services you offer)

57Operational strategy(how your operational model is structured and executed)

55Target market strategy (which customer segments you target)

55Competitive strategy (your primary basis of competition eg, productleadership, cost leadership, customer intimacy)

49Geographic strategy (which regions you sell to)

45Business structure (mergers, acquisitions, divestitures)

42

Economic model (how your company makes a profit or return for its owners)35

26

Other, please specify0

None of the above—we do not plan to make any strategic changes1

Don't know2

Which areas of your company’s operational strategy (or model) will have to be changed significantly to adapt to these forces? Select all that require significant change. (% respondents)










None of the above—we do not plan to make any changes to our operationalmodel

Don't know

54

53

44

36

36

34

33

24

1

1

2

21



What degree of change will be required in your operational strategy (or model) in order for your business to adapt to each ofthese forces? (% respondents)

Radical operational change Significant operational Change Incremental operational change Little or no operational change Not applicable/ Don't know










102735217

21440349

52145255

92640214

411413510

62836256

31342376

72931239

32743215

In the past two years, has your organisation made any significant operational changes in response to these global forces? (% respondents)

Yes, we have already made significant operational changes and may bemaking more

32Yes, we are in the process of making significant operational changes

37No, but we are planning to make operational changes within the next year

14

No, we are aware of these forces but need to make plans for operationalchange

11

No, we do not need to make operational changes in response to these forces3

Don't know2

Enterprise-wide across most business units and operational areas

Enterprise-wide across one or two operational areas

Multiple operational areas across one or two business units

Change in a single business unit or operational area


50

22

22

4

1

How pervasive are the operational changes your organisation has made or plans to make? (% respondents)

Radical Significant Incremental Little/No Not applicable/ Don't know

What is the degree of operational change that your company has made in the following operational areas in response to theseglobal forces? (% respondents)



Supply chain operations (sourcing, manufacturing, delivery, returns)






40 5459

2938429

51437413

42135339

21448315

11336427

21644317

32546214

22



Changes involve practices new to our company, but not new to our industry

Changes involve practices new to our industry or new to the world

Changes involve no practices that are new to our company


69

15

13

3

For the operational changes you selected in the previous question, how innovative are the practices involved? (% respondents)

Highly successful

Somewhat successful

Neither successful nor unsuccessful

Somewhat unsuccessful

Highly unsuccessful

Too early to tell


8

69

7

2

2

11

0

How successful has your company been in adapting to the global forces by making the above operational changes? (% respondents)

How would you characterise the business results your organisation achieved by making those changes? (% respondents)

Radical improvement

Revenue growth

Profitability

Return on invested capital

41050305

61048297

71348265

Significant improvement Some improvement Little or no improvement Not applicable/ Don't know

We proactively track them and try to act before competitors do

We act in response to the forces that create a need for change

We act in response to the forces causing a shortfall in business performance

We rarely or never attempt to respond to these forces

Don't know/Not applicable

25

50

17

3

4

Which statement best describes the way your company responds to disruptive global forces? (% respondents)

We work on multiple operational elements simultaneously

We focus on one operational element at a time, in a planned sequence

We focus on one operational element at a time, in no particular sequence


48

30

15

7

Which statement best describes your company’s approach to managing significant operational change? (% respondents)

23



Which of the following statements best represents your company’s approach to measuring the success of its operational changes? (% respondents)

We integrate measurable performance criteria into our strategies and plansfor implementing each change or innovation

45We measure success using ad hoc indicators of business performancedeveloped after changes have been made

24

We have an integrated enterprise-wide performance managementframework that captures the impacts of all changes and innovations

17We do not measure the success of operational changes or innovations

9

Don’t know/Not applicable5

47

46

7

Yes

No

Don’t know/Not applicable

Are you satisfied with your organisation’s ability to develop and execute operational strategies to respond to these global forces? (% respondents)

If you answered "No", what are your most important reasons? (% respondents)

Underestimating the degree of organisational change required

Short-term focus

Poor execution of planned operational changes

Lack of needed operational skills among senior leadership team

Incentives not aligned to produce operational change

Insufficient understanding of the implications of global forces

Lack of insight regarding operational changes that need to be made

Inability to work across operational or organisational silos

No focus on this as an explicit part of our business or operational strategy

Difficulty in engaging with external organisations (governments, partners,competitors, etc)



50

50

39

39

38

37

36

32

27

20

7

0

24



CEO

CFO/Treasurer/Controller

Chief operating officer (COO)

Board of Directors

Head of business strategy

Heads of business units (functional)

Heads of business units (regional)

Heads of key functions



39

3

13

10

7

12

3

5

5

4

Who in your company is primarily responsible for drivingoperational changes in response to disruptive global forces? (% respondents)

49

51

Yes

No

Does your organisation have a COO? (% respondents)

North America

Western Europe

Asia Pacific (Emerging markets eg, China, India)

Middle East and Africa

Asia Pacific (Developed markets eg, Korea, Japan)

Eastern Europe

Latin America

In which region is your company headquartered?(% respondents)

33

27

14

12

9

4

2

Asia Pacific (Developed markets eg, Korea, Japan)

Asia Pacific (Emerging markets eg, China, India)

Latin America

North America

Eastern Europe

Western Europe

Middle East and Africa

How would you describe your operations in each of the following regions? (% respondents)

372142

243442

442036

251659

383428

241561

412732

Well established, operating for several years Recently established or planning to establish in near future No presence

25



54

46

Services

Products

Is your primary business products-based or services-based? (% respondents)

Financial services

IT and new technologies

Professional services

Telecom

Industrial goods (steel, equipment, components, etc)

Life sciences (including pharmaceuticals, biotechnology, medical devices)

Energy and utilities

Consumer goods

Entertainment, media and publishing

Automotive

Construction and real estate

Healthcare (hospitals, health insurance, and health services)

Education

Chemicals

Transportation, travel and tourism

Agriculture and agribusiness

Government/Public sector

Logistics and distribution

Retail

14

14

12

10

7

7

6

5

4

3

3

3

2

2

2

1

1

1

3

What is your primary industry sector? (% respondents)

39

12

17

6

25

$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)

Board member

CEO/President/Managing director

CFO/Treasurer/Comptroller

CIO/Technology director

COO

Other C-level executive

SVP/VP/Director

Head of Business Unit

Head of Department

Manager

Other

5

19

5

3

2

5

14

12

10

16

10

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

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor 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.

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