The Conference Coard CEO Challenge

research report

The Conference Board CEO Challenge™ 2011

FUELING BUSINESS GROWTH WITH
INNOVATION AND TALENT DEVELOPMENT

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www.conferenceboard.org

The Conference Board CEO Challenge™ 2011
Fueling Business Growth with Innovation and Talent Development
RESEARCH REPORT TCB-R-1474-11-RR

5 Preface

7 Challenges It’s All about Growth
8 Regional View Contrasting Cultures, Divergent Needs, Different Solutions
12 Industry View Growth, Talent, and Government Regulation Top the Charts
13 Company Size View Growth and Talent Are Chief Concerns for Companies of All Sizes

15 Strategies Innovation and Talent to the Rescue
16 Business Growth Strategic Links in the Global Growth Chain
21 Talent Developing Leaders, Improving Effectiveness
27 Cost Optimization Bigger Is Better, but Technology and People Count Too
32 Innovation Mashing Up Technology, Culture, and Talent to Find the Next Big Thing
37 Government Regulation Obstacle or Opportunity?
42 Strategies to Meet Unique Challenges

45 Survey sample

46 Acknowledgments

Global events in the first part of 2011 demonstrate just how fragile and interdepen-
dent—and ultimately resilient—the world’s economic system is. Meeting the business
challenges selected by 704 CEOs in The Conference Board CEO Challenge 2011 Survey
would require herculean effort, even in a world immune from shocks and surprises.

As this report goes to press in April 2011, the effects of the earthquake in Japan, the
political distress in the energy-rich Middle East, labor unrest and wage pressures in
Asia, and the ongoing sovereign-debt crisis in Europe all continue to underscore why
crisis and risk management, flexibility, and agility need to be part of any corporation’s
or government’s DNA. While it will take considerable time before the full impact of
these events can be measured, the effort to meet the top five challenges chosen by CEOs
in our survey (Business Growth, Talent, Cost Optimization, Innovation, and Government
Regulation) just became more difficult.

Perhaps the only certainty in the coming years is that more shocks to the global eco-
nomic system will occur. With the center of consumer and business gravity shifting from
advanced to emerging markets—clearly an issue CEOs must deal with on a strategic
level—short-term shocks demand immediate attention at an operational and tactical
level. The “challenge of challenges” for CEOs, however, is to focus on meeting the long-
term issues outlined in this report and putting their companies on a solidly sustainable
path to growth.

If anything, the challenges cited by CEOs will grow more intense as the world and its
surprising “black swans” highlight the volatility and unpredictability of today’s complex
and interdependent business environment and the importance of being innovative to
cope successfully.

A New Survey for 2011

This year’s survey is entirely new shares. Each response was assigned an “importance-adjusted” score for
and features a fully revised and con- a weight according to its relative each strategy.
densed set of 10 overall challenges ranking. A challenge ranked number
Due to this survey redesign, any
(down from 84 in previous surveys) one, therefore, was assigned greater
year-over-year comparisons (the
and a more in-depth strategy importance than a challenge ranked
first CEO Challenge report was
section. From November 2010 to number three. The calculation of
published in 1999) in this report
January 2011, CEOs were asked to the mean of the ranks resulted in
are limited to broad trends rather
rank order the top three challenges an overall score. (If a challenge was
than specific challenges. Upcoming
they anticipated their companies not chosen, it was assigned a value
releases of the CEO Challenge
will face in the coming year. The 704 of zero.) To get deeper insights
Survey results will use the new
responses were weighted according into how CEOs plan to meet their
model, which will hopefully allow
to the country GDP of each respon- challenges, respondents were also
for specific comparisons in future
dent. Regional, industry sector, and asked to rank order three critical
reports.
revenue groups were also weighted strategies for meeting their top
based on individual country GDP three challenges, which resulted in

www.conferenceboard.org Research Report The conference board CEO Challenge 2011 5

IT’S ALL ABOUT GROWTH

Business growth is the According to respondents to The Conference Board CEO Challenge 2011 Survey, com-
top-ranked challenge globally panies are revving their engines for growth. CEOs from around the world cite Business
Growth as the “most important” issue they face. However, while they may be in agree-
importance-adjusted
rank top three strategies score ment on the importance of growth (no other challenge is ranked higher in the global
results for industry and company size), the strategies CEOs cite as critical to meeting this
1 Business growth 1.65
challenge differ considerably by geography, by industry, and by company size, although
2 Talent .74
slightly less so for the latter two.

Since 1999, the CEO Challenge Survey has asked CEOs, presidents, and chairmen across
3 Cost optimization .72
the globe to identify their most critical challenges. According to the 704 top executives
who responded to the 2011 survey, it’s all about reorienting their organizations toward
4 Innovation .70
growth after years of hunkering down to combat the effects of the global recession and,
in some cases, to fight for survival.
5 Government regulation .59
With growth clearly established as the critical challenge for CEOs, the next four most
Corporate brand and
6 .42 highly ranked challenges—Talent, Cost Optimization, Innovation, and Government
reputation
Regulation—all have links to the growth chain. (For more information on the new sur-
7 Customer relationships .40 vey model, see “A New Survey for 2011” on page 5.) The first three of the four are clearly
enablers of growth, both for the top and the bottom line, while Government Regulation,
8 Sustainability .37 depending on the industry, the country, or even a CEO’s personal view about govern-
ment’s role in the markets, can be seen as either an obstacle to growth or an opportunity
9 International expansion .29
for innovation and new product lines.
10 Investor relations .09 The three “most important” strategies that CEOs pick to deal with their top challenges
reflect the growing complexity of the global business environment. They also highlight
N=704
the need for the coordinated interaction of diverse parts within their organizations.
Number of observations varies for
Meeting these challenges will demand clear organizational alignment, teamwork, and,
each challenge.
not least of all, strong, thoughtful, and visionary leadership.
Each score represents the mean of
the ranks given the challenge. For
more information on how the scores
were created, see “A New Survey
for 2011” on page 5.


REGIONAL VIEW
CONTRASTING CULTURES, DIVERGENT NEEDS,
DIFFERENT SOLUTIONS

The top challenges selected by CEOs in Asia, Europe, and the United States clearly
reflect the economic, business, and political realities of their specific business environ-
ments. (There were respondents from outside of the three listed regions. Their responses
are included in the global results, but the results for the “Rest of world” category are
not discussed in the report.) There is not a one-size-fits-all approach to dealing with the
regional impact of the forces driving global business today.

Only two challenges are ranked in the top five in all three regions: Business Growth and
Innovation. Following the deep recession of 2008–2009 and the ongoing shifts of the sites
of production from the Western world to emerging markets—especially those in Asia—it
is no surprise that growing one’s business is considered the key to success. And since we
have returned to an era of hyperglobal competition, where the market advantage derived
from new products or technologies can be relatively short-lived, the selection of inno-
vation as a shared critical concern is hardly surprising. When looking at the strategies
to drive innovation selected by CEOs in each region, there is a clear recognition that a
culture of innovation, which fosters entrepreneurship and risk taking and is realized by
an incentivized talent pool, is required to produce the stream of new ideas needed for
companies to remain competitive on the global stage.

Differences in regional rankings reﬂect unique challenges

Global Asia Europe United States
N=704 Importance-adjusted top three challenges N=174 N=169 N=261

1 Business growth 2 1 1
2 Talent 1 7 T4
3 Cost optimization 6 2 T4
4 Innovation 3 3 3
5 Government regulation 7 5 2
6 Corporate brand and reputation 4 9 8
7 Customer relationships 8 4 7
8 Sustainability 5 8 9
9 International expansion 9 6 6
10 Investor relations 10 10 10

N=Number of overall respondents. Response rate varies for each challenge.
T=Tie

8 Research Report The conference board CEO Challenge 2011 www.conferenceboard.org

ASIA
TALENT IS THE TOP CHALLENGE; CORPORATE BRAND AND
REPUTATION AND SUSTAINABILITY ARE ALSO CONCERNS

Asia CEOs rank talent their CEOs in Asia cite Talent—finding it, growing it, keeping it, and rewarding it—as the
most critical challenge “most important” challenge they face, making Asia the only region where Business
importance-adjusted
Growth is not the number one issue. A focus on aggressive growth targets, rapidly chang-
rank top three strategies score ing business models, workforce demographics and preparedness issues, and the demand
for language skills means there is constant pressure to keep the talent pipeline filled.
1 Talent 1.36
This is consistent with earlier editions of the CEO Challenge Survey in which “finding
2 Business growth 1.19 qualified managerial talent” consistently ranked higher in Asia than in other regions.1

Both Corporate Brand and Reputation and Sustainability are two of the five top chal-
3 Innovation .73
lenges in Asia, the only region where these two issues receive such a high ranking. These
Corporate brand and challenges speak to recent high-profile incidents related to quality that have plagued
4 .64
reputation the region, and China in particular (chemically tainted pet food and toothpaste, baby
formula, toys infused with lead paint), as well as growing strains on resources, environ-
5 Sustainability .63
mental quality, and the social fabric.
6 Cost optimization .51 The region is home to some of the world’s fastest growing economies, but such rapid
development has come at a high cost. Much of emerging Asia’s growth has been heavily
7 Government regulation .33 dependent on carbon-intensive, polluting industries and labor-intensive manufacturing.
Growing concerns about the region’s unbalanced growth model and its long-term impact
8 Customer relationships .25
on natural resources, public health, and social equity are forcing governments to take
significant regulatory action toward implementing a more sustainable growth model that
encourages markets to reward responsible business practices. Despite these pressures,
CEOs in Asia rank Government Regulation seventh out of the 10 challenges.
10 Investor relations .11
Increased public exposure of corporate misconduct, including revelations made by
N=174
China’s rapidly growing online community, nongovernmental organizations, and the
media, are raising the profile of reputational issues on CEOs’ business agendas. In a
each challenge.
recent survey by The Conference Board about sustainability and reputational issues in
the ranks given the challenge. For the region, more than 50 percent of Chinese companies said that environmental pol-
more information on how the scores lution and increasing income differentials will have a significant impact on their busi-
were created, see “A New Survey nesses in the long term. The survey results also show that “reputation/public image” is
one of the top three drivers for Chinese companies when they consider investment in
corporate sustainability programs.2

1 CEOs in Asia ranked the “finding qualified managerial talent” challenge seventh in the 2009 survey and
first in the 2007 survey. Source: CEO Challenge 2010: Top 10 Challenges, The Conference Board, Research
Report 1461, 2010, p. 8; and Esther V. Rudis, CEO Challenge: Perspectives and Analysis: 2007 Edition, The
Conference Board, Research Report 1418, 2008, p. 9.

2 The Conference Board China Corporate Sustainability Survey is scheduled for publication in spring 2011.


EUROPE
PAYING FOR HIGH WAGES AND SLOW GROWTH

Europe Cost optimization In Europe, the focus is on Business Growth and Cost Optimization. These choices reflect
follows business growth as the region’s overall economic climate, which has been characterized by the uneven speed
a top challenge of recession recovery on a country-by-country basis; structural issues concerning mar-
kets and labor; the expensive euro; national debt crises in Spain, Ireland, Portugal, and
importance-adjusted
rank top three strategies score Greece; and the region’s relatively weak productivity growth.

1 Business growth 1.83 While the region as a whole has emerged from the global recession relatively late, some
countries—and especially Germany, which is reliant on exports to fuel growth—are
2 Cost optimization 1.12 seeing robust improvement. Concerns about downside risks, however, are still preva-
lent in many parts of the region. Stubbornly slow growth in some internal markets, tax
3 Innovation .66 increases (which, in many cases, are being absorbed by companies rather than passed on
to battered consumers), and concerns about the financial health of some of the region’s
4 Customer relationships .57
banks have caused many CEOs in Europe to keep a cautious eye on the bottom line.
Their stance is similar to that of many U.S. CEOs before the U.S. rebound began.
5 Government regulation .47
Europe is also the only region to rank Customer Relationships a top five challenge,
6 International expansion .35 although the notion of listening to customers is also woven throughout the strategies
selected by CEOs in the United States and Asia. In some European industries—tele-
7 Talent .30 communications, banking, travel, and utilities—deregulation and increased choices
for consumers have reinforced the need to enhance the loyalty and retention of existing
8 Sustainability .28
customers. The explosion of technology and social media tools has also created a more
Corporate brand and knowledgeable and demanding consumer, which may have led respondents to put even
9 .25
reputation more emphasis on maintaining positive relationships with customers.

10 Investor relations .14 As in the United States, where it is ranked second, Government Regulation is considered
a major challenge in Europe, although it is ranked lower. This is probably a reflection of
N=169 the region’s long experience with a relatively high degree of regulation.
each challenge. Like their counterparts in the United States and Asia, CEOs in Europe also give a high
Each score represents the mean of rank to Innovation, which is the third “most important” challenge in the region.


THE UNITED STATES
GOVERNMENT REGULATION IS A CRITICAL CONCERN

United States Government The attention paid by CEOs in the United States to Government Regulation, which is
regulation is the second- their second-ranked challenge, is greater than the emphasis placed on the concern by
ranked challenge executives in Asia (where it is ranked seventh) and Europe (where it is ranked fifth). The
influence of the regulatory environment first appeared as a top 10 global challenge in
importance-adjusted
rank top three strategies score 2009, when it zoomed from twenty-sixth place in the 2008 “crisis” edition of the survey
to tenth.3
1 Business growth 2.00
Although U.S. CEOs see legislation as a challenge, it is a challenge that has the potential
2 Government regulation .94 to be viewed as an obstruction to growth or as an incentive to increased innovation and
opportunity creation. While some CEOs undoubtedly take the latter view and look for
3 Innovation .63 ways to adjust their business models to profit from the new reality, there is evidence that
many view it as a negative. In the October 2010 edition of a survey conducted three times
T4 Talent .61
a year by The Conference Board for The Business Council, a U.S.-based association of
CEOs from some of the world’s largest business enterprises, members expressed a strong
T4 Cost optimization .61
message of concern about increasing government regulation and intervention, especially,
but not only, in the United States. When asked to rate a wide range of risks to the business
climate, 88 percent of Business Council members cited greater U.S. government regulation
7 Customer relationships .34 as a “high” or “very high” risk, and 71 percent said that government regulation and poli-
cies that create an uneven playing field were “high” or “very high” business climate risks in
Corporate brand and all countries. The emphasis on government regulatory risk was in contrast to other listed
8 .25
reputation
risks. For example, slightly more than half of respondents said that trade protection and
9 Sustainability .22 slowing growth in advanced economies were “high” or “very high” risks, and only about
38 percent saw adverse public attitudes toward business as a major risk.4
10 Investor relations .02

N=261
each challenge.
T=Tie

3 CEO Challenge 2010: Top 10 Challenges, p. 5.

4 CEO Survey Results, The Business Council in collaboration with The Conference Board, October 2010.


INDUSTRY VIEW
GROWTH, TALENT, AND GOVERNMENT
REGULATION TOP THE CHARTS

CEOs in all three industry sectors—manufacturing, financial services, and non-
financial services—cite Business Growth as their number one challenge. Talent, Cost
Optimization, and Government Regulation all land in the top five, although the latter
is of greatest concern, as would be expected, to the financial services sector.

CEOs in the manufacturing sector, which faces highly variable costs on inputs, rank
Cost Optimization their second “most important” challenge, compared to their counter-
parts in financial (fourth place) and nonfinancial services (fifth place). For their part,
CEOs in the financial services sector rank Government Regulation their second most crit-
ical challenge, and they are the only sector to rank Corporate Brand and Reputation a top
five challenge. They are also the only group that does not rank Innovation among their
top challenges, although financial services CEOs do rank introduce innovations and new
value propositions their second “most important” strategy for pursing growth (page 19).
This disconnect may be the result of CEOs in financial services holding a narrower view
of innovation than their colleagues in other industries.

Cost optimization is critical to manufacturing, while one of the ﬁnancial sector’s top
concerns is government regulation
Financial Nonfinancial
Manufacturing services services
Global Importance-adjusted top three challenges N=265 N=104 N=330

1 Business growth 1 1 1
2 Talent 4 3 2
3 Cost optimization 2 5 4
4 Innovation 3 7 3
5 Government regulation 5 2 5
6 Corporate brand and reputation 6 4 8
7 Customer relationships 9 6 6
8 Sustainability 7 8 7
9 International expansion 8 9 9
10 Investor relations 10 10 10



COMPANY SIZE VIEW
GROWTH AND TALENT ARE CHIEF CONCERNS
FOR COMPANIES OF ALL SIZES

Whatever their revenues, CEOs participating in the survey rank Business Growth and
Talent their top two challenges, which indicates that CEOs do see a strong talent pool as
an enabler of growth. While the rank order of the remaining challenges varies according
to size, Cost Optimization also makes the top five in each size category.

For the smallest companies (those with annual sales of less than $1 billion), Customer
Relationships cracks the top five, but Government Regulation, a top five challenge in
the other remaining three size categories (and number three after Business Growth and
Talent for the largest firms) does not. Unlike respondents in the other size groups, execu-
tives from the largest companies (those with annual sales of $15 billion or more) do not
rank Innovation a top five challenge, even though their top strategy for pursuing growth
is introduce innovations and new value propositions (page 20). As with the similar ratings
for the financial services industries, CEOs of the largest companies may have a narrower
definition of innovation and see it as more of a tool to fuel growth and less as an end
in itself. CEOs from this largest group also rank Corporate Brand and Reputation their
fourth “most important” challenge, which underscores the importance they place on
their public face as a critical but fragile intangible asset that can account for a large por-
tion of their market value.

Industries of all revenue sizes are focused on growth and talent

Less than $1 billion to $5 billion to $15 billion
$1 billion under $5 billion under $15 billion and above
Global Importance-adjusted top three challenges N=309 N=160 N=72 N=82

1 Business growth 1 1 1 1
2 Talent 2 2 2 2
3 Cost optimization 4 3 3 5
4 Innovation 3 5 4 6
5 Government regulation 8 4 5 3
6 Corporate brand and reputation 6 8 9 4
7 Customer relationships 5 7 7 8
8 Sustainability 7 6 6 9
9 International expansion 9 9 8 7
10 Investor relations 10 10 10 NR

NR=Strategy was not ranked by any of the respondents.


INNOVATION AND TALENT TO THE RESCUE

After ranking their top three challenges, CEOs ranked their top three strategies to meet
these challenges. The specific strategies CEOs chose highlight the importance of talent
management and innovation—not just in products and services but in processes, business
models, and organizational design. The range of strategies selected also demonstrates a
demand for a cross-functional, enterprise-wide approach; reliance on new technologies;
and, in the case of Business Growth, Innovation, and Government Regulation, an open (and
perhaps new for many organizations) approach to alliances and collaboration that may
include nontraditional partners. To successfully respond to the CEO challenges, organiza-
tions must both leverage their core fundamentals and try new approaches while maintain-
ing alignment with their overall business strategy. All of this will place greater demands on
corporate leadership teams for flawless and timely execution and a more flexible and less
autocratic leadership style throughout their organizations.

Top ﬁve strategies to meet the top ﬁve challenges

Global Challenge #1 Global Challenge #2 Global Challenge #3 Global Challenge #4 Global Challenge #5
Business Growth Talent Cost Optimization Innovation Government Regulation

Improve leadership Redesign business Apply new technologies Engage with competitors
1 Develop or
development programs, processes (product, process, and/or critical
expand sustainable
products/services grow talent internally information, etc.) stakeholders to influence
portfolio regulatory agenda

Enhance effectiveness Improve productivity Foster entrepreneurship, Increase lobbying
2 Introduce innova-
of the senior of employees innovation, and activities to promote a
tions and new value
propositions management team appropriate risk taking level playing field

Provide employee Achieve economies Engage in strategic Engage with the public to
3 Enter or expand into
training and of scale through alliances with customers, influence government
emerging markets
development product/process suppliers, and/or other
standardization and business partners
harmonization

4 Increase value offer- Improve leadership Achieve economies Find, engage, and Strengthen internal
ing by improving the succession planning of scale through incentivize relevant talent regulatory compliance
price-quality ratio of business growth processes
products/services

Hire more talent in the Invest in new Change business model Engage in public/private
5 Seek external
open market technologies and partnerships
growth through
mergers & automation
acquisitions
(tie)

Enter or expand into
new customer/client
segments
(tie)


BUSINESS GROWTH
STRATEGIC LINKS IN THE GLOBAL GROWTH CHAIN

challenge
rank 1 Global 2 Asia 1 Europe 1 United States
While global rankings cite the development of sustainable products and services as the
key strategy to fuel growth, U.S. CEOs are far less enthusiastic about this approach than
their counterparts in Asia and Europe. Business leaders in all three regions have their
eye on emerging markets and merger and acquisition targets, and all agree that these
initiatives will require an innovative approach.

CEOs are looking to new ideas, new products, and new markets to drive growth. Their
strategy set is a balanced mix that links internally focused actions (development of
sustainable products, improved quality, and new value propositions for products and
services) to external expansion (expansion into emerging markets, growth through mergers
and acquisitions, and moving into new customer and client segments).

But a look beyond the global results reveals that the emphasis is not the same in all regions.
Take the develop or expand sustainable products/services portfolio strategy, which emerges as
the number one importance-adjusted strategy for driving Business Growth globally.

Business Growth Strategies CEOs in Asia and Europe look to sustainable products to drive growth

N=463 Importance-adjusted top three strategies N=92 N=116 N=200

Develop or expand sustainable products/
1 1 T2 7
services portfolio
Introduce innovations and new value
2 4 T2 1
propositions
3 Enter or expand into emerging markets 5 1 3
Increase value offering by improving the
4 3 T4 6
price-quality ratio of products/services
Seek external growth through mergers and
T5 2 7 4
acquisitions
Enter or expand into new customer/client
T5 7 6 2
segments
7 Introduce new products/services 6 T4 5
8 Enter or expand into developed markets 12 8 8
9 Increase speed to market 8 9 T9
10 Enter or expand into new industries 9 12 T9
Bring business decision making closer to
11 10 11 11
local markets
12 Provide products/services for public sector 11 13 13
13 Provide products/services at lower price 13 10 12

N=Number of overall respondents. Response rate varies for each strategy.
T=Tie


While CEOs in Asia rank it their number one strategy and the strategy ties for second
with introduce innovations and new value propositions in Europe, respondents in the
United States rank it seventh of the 13 listed strategies. Are U.S. CEOs behind the curve
when it comes to understanding the components of sustainability as a growth driver?
Probably not. Sustainability is at the forefront in Asia, where unbridled growth has
led to increased government concern that may force CEOs to address the issue, and in
Europe, where CEOs are faced with government mandates for sustainable products and
practices.5 Although many U.S. CEOs clearly recognize the need to address sustainabil-
ity in some form, the real issue may be execution. CEOs in the region may not be certain
how their organizations should address it or even how to define it. (For more back-
ground on this problem, see “The Sustainability Challenge at the Board Level” on page
18.) Sustainability requires a mindset shift from short-term goals to long-term horizons,
which in many cases may conflict with pay and performance criteria.

U.S. companies, which at least until recently have been less constrained by legislation
concerning the environmental effects of their operations, may therefore also have been
more pragmatic and less strategic about driving their businesses with sustainability.
Once it is clear that sustainability contributes to the bottom line, it will be incorporated
into business strategy.

Demands from customers, employees, governments, “activist” shareholders, and non-
governmental organizations (NGOs) for sustainable practices and products are changing
expectations and creating potential for new markets. Consumers around the world are
developing “green” expectations for pollution-free manufacturing, resource-efficient
products, recyclable packaging, organic food products, and paperless invoicing. As a
result, savvy companies are seeking ways to turn sustainability into a market advantage
and a growth driver. The clear challenge for business is how to implement sustainability-
centric approaches that respond to customer demand and ecological and social account-
abilities while delivering on the financial bottom line.

The development of sustainable products and services is also linked to the need to
introduce innovations and new value propositions, which is the number two strategy glob-
ally and number one in the United States. CEOs clearly understand that as competition
grows and the speed of innovation erodes market advantage by commoditizing once-
exclusive products and services, the value proposition presented to today’s informed
customers is more critical to growth than ever. CEOs also recognize that being first to
market with an innovative product or service may no longer be enough to ensure growth.
In the results of the CEO Challenge 2009 Survey, “corporate reputation for quality
products/services” was the sixth-ranked global concern.6 Quality still counts for execu-
tives, and increase value offering by improving the price-quality ratio of products/services
is the fourth-ranked global strategy to fuel growth. Indeed, the advantages of being a
first mover can be huge, but they can also quickly dissipate as more functional, better-
priced products or services are introduced. (U.S. CEOs rank the category sixth, but an
argument can be made that the quality function in the very competitive U.S. market may
already be more advanced and embedded throughout U.S. companies.)

5 For an example of European environmental regulations, see the Renewed EU Sustainable Development
Strategy (ec.europe.eu/environment/eussd).

6 CEO Challenge 2010, p. 5.


If you want growth, then you must go where the growth is.
Emerging and developing countries, which accounted for
only 40 percent of global output in 2000, will account for
60 percent by 2020.

Enter or expand into emerging markets is the top-ranked of four “expansion” strategies
for supporting growth. It is the third-ranked strategy globally, and top executives in
Europe rank it number one. CEOs’ interest in this strategy is in many ways a no-brainer.
If you want growth, then you must go to the emerging markets where the growth is and
place less emphasis on the advanced economies that lag behind.

China and India are now the largest and most dynamic economies in productivity terms
(measured as output per persons employed), registering 8.7 percent and 5.4 percent growth,
respectively, in 2010. Brazil is another emerging economy that continued to strengthen its
productivity performance (4 percent growth) in 2010, outperforming the Latin American
region as a whole (3.2 percent growth).7 Indeed, the world economy has reached a tipping
point when it comes to global growth. According to data from The Conference Board
Global Economic Outlook, emerging and developing countries, which accounted for only
40 percent of global output in 2000, will account for 60 percent by 2020.8

The Sustainability Challenge at the Board Level

One explanation for why U.S. CEOs give develop or expand sustainable products/
services portfolio a low mark as a growth strategy may be the lack of a structural
framework to enable proper director oversight of corporate sustainability. According
to a survey conducted by The Conference Board in 2009, many U.S. companies lack
access to independent sources of information, as well as the detailed procedures and
metrics needed to effectively integrate social objectives into daily business activi-
ties. However, a rapidly developing regulatory climate and the increased sensitivity of
enforcement authorities to the risk implications of environmental issues have opened
the door to shareholder activism in this field. As a result, directors are expected to
understand the rationale of requests for change and to adapt strategies and processes
to evolving market trends and emerging standards.
Source: Matteo Tonello, “Sustainability in the Boardroom,” The Conference Board, Director Notes 8, June 2010.

7 For more information, see the “2011 Productivity Brief Key Findings,” which is available on The Conference
Board Total Economy Database website (www.conferenceboard.org/data/economydatabase/).

8 These estimates from The Conference Board Global Economic Outlook 2011 are adjusted for differences
in relative price levels between countries through the use of purchasing power parities, which take
different price levels between countries into account. For more information on these adjustments,
see “Global Economic Outlook 2011 — Key Results” on The Conference Board website
(www.conference-board.org/data/globaloutlook_results.cfm).


BUSINESS GROWTH
BY INDUSTRY

challenge
rank 1 Manufacturing 1 Financial Services 1 Nonﬁnancial Services

Unlike their counterparts in the services industries, who are primarily focused on
product development and new customer segments, CEOs in the manufacturing sector
are targeting a mix of external and internal strategies to meet the growth challenge.
Enter or expand into emerging markets is their top strategy, followed by develop or expand
sustainable products/services portfolio—a strategy representatives from the services sectors
also give a high rank, albeit without the same emphasis. CEOs from all three sectors are
looking to introduce innovations and new value propositions as a strategy for growth.

Business Growth Strategies While manufacturers eye emerging markets for growth,
service providers look to innovation
Importance-adjusted top three strategies N=170 N=75 N=214

Enter or expand into emerging markets 1 7 7
2 4 3
services portfolio
3 2 1
propositions
4 6 5
acquisitions
Introduce new products/services 5 5 6
Increase value offering by improving the price-
6 1 4
quality ratio of products/services
Increase speed to market 7 9 10
8 3 2
segments
Enter or expand into developed markets 9 10 8
Enter or expand into new industries 10 11 11
Bring business decision making closer to local
11 8 9
markets
Provide products/services at lower price 12 13 13
Provide products/services for public sector 13 12 12



BUSINESS GROWTH
BY COMPANY SIZE

challenge
rank 1 Less than
$1 billion 1 underbillion to 1underbillionbillion 1
$1
$5 billion
$5
$15
to $15 billion
and above

Companies in the two smallest size categories (those with annual sales less than
$5 billion) also rank the sustainable development strategy their number one tactic to
support growth, while larger companies rank it fifth. For the latter group, enter or
expand into emerging markets is considered much more critical for growth. The strategy
ranks first in the $5 billion to under $15 billion category and second for respondents
from the $15 billion and above bracket, who rank introduce innovations and new value
propositions number one. Only the smallest companies rank seek external growth through
mergers and acquisitions in their top five strategies.

Business Growth Strategies Smaller companies are interested in sustainable products/services;
larger companies indicate plans to expand into emerging markets
Importance-adjusted top three strategies N=216 N=99 N=55 N=58
1 1 5 5
services portfolio
2 3 3 1
propositions
3 9 4 3
segments
Introduce new products/services 4 7 2 T 11
5 6 6 6
acquisitions
Increase value offering by improving the
6 2 7 4
price-quality ratio of products/services
Enter or expand into emerging markets 7 5 1 2
Increase speed to market 8 10 8 8
Enter or expand into developed markets 9 8 11 7
Bring business decision making closer to
10 11 9 9
local markets
Enter or expand into new industries 11 4 10 T 11
Provide products/services for public sector 12 13 NR 10
Provide products/services at lower price 13 12 12 13

T=Tie


TALENT
DEVELOPING LEADERS, IMPROVING EFFECTIVENESS

challenge
rank 2 Global 1 Asia 7 Europe T4 United States
CEOs are focused on developing leaders and maximizing the effectiveness of their
management teams. On a regional basis, however, clear differences in strategy reflect
the varying realities of talent markets around the world.

CEOs responding to the survey give high priority to improve leadership development
programs, grow talent internally, which is the first-ranked strategy globally and in the
United States. For CEOs in Europe, the strategy ties for first place with promote and
reward entrepreneurship and risk taking, and CEOs in Asia rank it second. The stress put
on this strategy and the second-ranked enhance effectiveness of the senior management
team reveals that CEOs are looking beyond identifying talent and are now considering

Talent Strategies Leadership development is a top talent strategy in all regions

Improve leadership development programs, grow
1 2 T1 1
talent internally
Enhance effectiveness of the senior management
2 1 10 4
team
3 Provide employee training and development 3 7 3
4 Improve leadership succession planning 4 11 6
5 Hire more talent in the open market 11 4 2
Promote and reward entrepreneurship and risk
6 9 T1 7
taking
7 Raise employee engagement 5 13 5
8 Increase diversity and cross-cultural competencies 8 3 8
Flatten organization, empower leadership from the
9 T6 5 11
bottom up
10 Redesign financial rewards and incentives T6 6 9
11 Manage multigenerational workforce 12 9 10
Invest in education system to improve workforce
12 10 8 13
readiness
Invest in automation and technology to reduce
13 13 12 12
exposure to the scarcity of talent
Redesign benefits
14 14 NR NR
(e.g., health care and retirement)

T=Tie


how they can more strategically apply their talent management processes. As markets
expand and customer bases change, so do the skills needed by employees, and this
requirement is reflected in provide employee training and development, the third-ranked
strategy globally for addressing issues of talent management.

The task of improving an organization’s leadership development programs, however,
rests squarely on the shoulders of its CEO. Too often, according to leadership develop-
ment practitioners, leadership development is viewed by the C-suite as an event rather
than a long-term strategic program that requires serious commitment and accountability
at the top.9 This responsibility cannot be delegated.

CEOs in Asia rank hire more talent in the open market
eleventh, while their counterparts in the United States and
Europe rank it much higher. This probably reﬂects the realities
of the Asian job market, where qualiﬁed and experienced
talent is generally considered scarce and expensive.

While there is general agreement on the top strategy across all geographies, the regional
breakdown of the other strategies for the Talent challenge reveals less consensus on other
tactics. In Asia, where Talent is the number one challenge, CEOs appear to be inwardly
focused on maximizing the impact and improving the skills and development of the staff
they already have. CEOs in Asia rate the hire more talent in the open market strategy elev-
enth out of 14, while their counterparts in the United States (second) and Europe (fourth)
rank it much higher. This result may reflect the realities of the Asian job market, where
qualified and experienced talent is generally considered scarce and expensive. Classic
retention strategies are often less than fully effective in a white-hot talent market where
highly qualified employees have considerable leverage.

CEOs in the United States and Asia are also looking to raise employee engagement as a
talent management tool. It came in as the fifth “most important” strategy in those two
regions (it is ranked thirteenth in Europe and seventh globally).

In Europe, CEOs’ Talent efforts appear to reflect their top strategies for Business Growth—
expand into emerging markets and introduce innovations and new value proposition. CEOs in the
region are the only ones to rank increase diversity and cross-cultural competencies, promote
and reward entrepreneurship and risk taking, and flatten organization, empower leader-
ship from the bottom up in their top five talent strategies. The notion that global business
is a complex, demanding, and borderless expanse of diverse markets, customers, and
employees is clearly not lost on European CEOs. Many of their organizations are already
struggling to integrate diverse labor forces and seize the opportunities that Europe’s
highly diverse and fragmented markets present.

9 Go Where There Be Dragons: Leadership Essentials for 2020 and Beyond, The Conference Board, Council
Perspectives 23, October 2010. This report reflects the wisdom of more than 100 executives from seven
of The Conference Board Councils in Europe, the United States, and Asia who were asked define the global
forces that are influencing the structure of leadership and the essential skills and behaviors that will
define an effective twenty-first-century leader.


The fifth-rank position of flatten organization, empower leadership from the bottom up for
executives in Europe indicates a perceived link between their talent strategies and innovation.
Some organizations in Europe and North America are already experimenting with this
inverted leadership model—leading from the bottom—as a way to harness knowledge and
develop innovative ideas from their workers on the frontlines. This approach can result in
a whole new pool of empowered talent ready to lead new initiatives and foster innovation.

This flattening of hierarchical structures also appeals to the new generations in the
workforce. After all, Gen X and Gen Y leaders are used to operating in networks, and
networks challenge hierarchies and traditional corporate structures. Of course, inverted
leadership may not be suited to all industries or cultures. In Asia, for example, tradi-
tional Confucian, Buddhist, and Islamic values may well mean that leadership models
that rely on benign authority and clear hierarchy are more effective.

While there is no clear consensus on the top-ranked strategies for meeting the Talent
challenge, there is some consensus on the lowest. CEOs in Asia are the only respondents
to rank redesign benefits (e.g., health care and retirement) as a strategy, and they rank it
last. A similar pattern can be seen in the cuts for industry (page 25) and company size
(page 26) strategies. Given the headlines in developed countries regarding health care
costs, delayed retirement, competitive labor pools, and changing demographics, this
consistently low ranking is surprising.

Several factors may be at work:
• There is a great deal of uncertainty about how health care reform (in whatever repealed or
amended form it eventually takes) will affect benefits for current and prospective employees,
particularly those in the United States. Any plans made now would most certainly need to be
reevaluated as the legislation moves through the courts and other legislation takes effect.
• Many companies have already spent the last few years looking at ways to trim costs and
have, in many cases, already shifted to a model that shares costs with employees.
• In many emerging markets, talent is not expected to remain at a single company for long, and
companies may be shifting from long-term retirement benefits to short-term compensation
strategies to hire more talent in the open market, a strategy consistently ranked higher.

Workforce preparedness is, evidently, not high on the minds of CEOs, even though it
does represent a long-term challenge to national competitiveness. Invest in education
system to improve workforce readiness ranks twelfth out of the 14 globally, thirteenth in
the United States, tenth in Asia, and eighth in Europe.


Why Asia Is Different — Open Source Leadership Development

Rapidly changing business models, workforce demo- When it comes to multinationals based outside of Asia,
graphics and preparedness, language skills, the battle there can be a fundamental lack of understanding in
between national cultures and corporate cultures, and corporate headquarters about the complexities and
a focus on aggressive growth targets means there is subtleties of individual country markets, demographics,
constant pressure on talent management and leadership and cultures. Companies have only recently begun to
development professionals to meet what many on the understand that what may work in Vietnam, where the
receiving end view as near-impossible targets for basic average local managing director may be in his or her early
recruitment and retention. In Asia, accelerated growth 30s, loses relevance in Malaysia, where a person in the
also means there is tremendous demand for accelerated same position will likely be in his or her 40s. The notion of
leadership development programs — sometimes cutting an “Asian strategy” needs to give way to a “China strat-
what would normally be a three- or five-year develop- egy” or even a “Singapore strategy.”
ment track down to one to three years — that corporate
English proficiency is also a major issue, especially in
headquarters may still consider too slow.
China. For a high potential to keep moving forward, an
Questions of leadership potential and how a company international assignment is critical but impossible without
deals with it can be far more complicated in Asia. Growth foreign language proficiency. Intra-Asian assignments,
projections and plans are often disconnected from the such as placing a Chinese manager in Vietnam, are also
reality of the talent pipeline in Asia. Moreover, compa- difficult to fill. Even in-country rotational assignments are
nies that have found success in the fast development a challenge according to many companies. People just do
of potential leaders many times end up being a “net not want to move from Beijing to Shanghai or vice versa.
exporter” of rising talent, often to their competitors. In Standard big company practices for expatriation and
a hot labor market, retention efforts often do little to rotational assignments may not address these particu-
prevent good people, even those who may be years away lar issues. Remuneration strategy in Asia was identified
from reaching their leadership potential, from revolving as an area requiring much more attention. (In the CEO
out the door. Challenge Survey, executives in Asia rank redesign finan-
cial rewards and incentives sixth, while respondents in the
In such an era, “open source” leadership development is
United States rank the strategy ninth.)
the more pragmatic reality for many companies. In this
model, companies train people, they leave, and the com- Part of the problem has been that companies have gone
pany keeps in touch in the hopes that some will come too far in centralizing their leadership development pro-
back after receiving further leadership development grams, giving them far too much of a Western orientation
elsewhere. Or, like their competitors, companies hire instead of developing them with input on the local level.
trained or partially trained high potentials on the open, What often works is to import the model at the principle
and sometimes very inflated, market and try to merge the level and then localize it to fit the country culture.
basic leadership training given elsewhere with specific
Source: Adapted from Go Where There Be Dragons: Leadership Essentials for
company cultural traits and competencies. 2020 and Beyond, The Conference Board, Council Perspectives 23, 2010.


TALENT
BY INDUSTRY

challenge
rank 4 Manufacturing 3 Financial Services 2 Nonﬁnancial Services

CEOs across all industries cite improve leadership development programs, grow talent
internally; enhance effectiveness of the senior management team; and provide employee
training and development as powerful strategies to address the Talent challenge. Only
manufacturing CEOs cite hire more talent in the open market as one of their top three
strategies, a hint perhaps that the sector is beginning to ramp up again as the global eco-
nomic recovery picks up steam. Conversely, CEOs in both the financial and nonfinancial
sectors rank promote and reward entrepreneurship and risk taking third, while manufac-
turing executives rank it eighth.

Talent Strategies All sectors give leadership development and enhancing senior
management effectiveness high ranks
Importance-adjusted top three strategies N=103 N=34 N=117

Improve leadership development programs,
1 1 2
grow talent internally
Enhance effectiveness of the senior
2 2 1
management team
Hire more talent in the open market 3 7 T9
Provide employee training and development 4 4 4
Improve leadership succession planning 5 6 7
Raise employee engagement 6 5 6
Flatten organization, empower leadership from
7 13 T9
the bottom up
Promote and reward entrepreneurship and risk
8 3 3
taking
Increase diversity and cross-cultural
9 10 5
competencies
Redesign financial rewards and incentives 10 9 8
Manage multigenerational workforce 11 8 11
Invest in education system to improve
12 11 12
workforce readiness
Invest in automation and technology to reduce
13 12 13
exposure to the scarcity of talent
Redesign benefits
14 14 14
(e.g., health care and retirement)
T=Tie


TALENT
BY COMPANY SIZE

challenge
rank 2 Less than
$1 billion 2 underbillion to 2underbillionbillion 2
$1
$5 billion
$5
$15
to $15 billion
and above

Clearly, Talent, which is the second-ranked challenge for all size categories, is an impor-
tant driver of the business growth desired by all companies. Following that, the strate-
gies for addressing talent challenges are consistently focused inward.

The two smaller company categories—those with revenues less than $5 billion—rank
enhance effectiveness of senior management team and improve leadership development
programs, grow talent internally their top two strategies. Companies with revenues
between $5 billion and under $15 billion rank enhance effectiveness of senior management
team third and raise employee engagement second. With the advent of human capital
analytics and the rigor brought by employee engagement’s link to business performance,
it’s no wonder that companies of this size are focused on raising their levels of engagement.
They may also be making a stronger push for engagement because they find that they cannot
compete for talent in the open market with larger companies that have deeper pockets.

Finally, although the largest companies rank leadership development programs first,
they are the only group to rank provide employee training and development their second
“most important” strategy. Perhaps the layoffs during the global economic crisis have
resulted in a heightened awareness of skill gaps that large employers need to fill
if employees are to deliver the business growth that is desired.

Talent Strategies Leadership development is the top challenge for three out of the four revenue groups

Importance-adjusted top three strategies N=111 N=47 N=28 N=32

Enhance effectiveness of the senior management team 1 2 3 8
Improve leadership development programs, grow talent internally 2 1 1 1
Promote and reward entrepreneurship and risk taking 3 5 6 10
Provide employee training and development 4 4 8 2
Hire more talent in the open market 5 9 7 5
Improve leadership succession planning 6 8 5 7
Raise employee engagement 7 7 2 4
Flatten organization, empower leadership from the bottom up 8 6 11 14
Invest in education system to improve workforce readiness 9 12 9 12
Redesign financial rewards and incentives 10 3 10 9
Manage multigenerational workforce 11 11 12 6
Increase diversity and cross-cultural competencies 12 10 4 3
Invest in automation and technology to reduce exposure to the
13 13 13 11
scarcity of talent
Redesign benefits (e.g., health care and retirement) 14 NR NR 13



COST OPTIMIZATION
BIGGER IS BETTER, BUT TECHNOLOGY AND PEOPLE COUNT TOO

challenge
rank 3 Global 6 Asia 2 Europe T4 United States
CEOs see process improvements as a critical driver for optimizing costs. The need to
increase employee productivity is another key contributing factor, especially in Asia.

Despite emerging signs of a global economic recovery, CEO responses reveal an under-
standing that the pursuit of Cost Optimization is essential to Business Growth and
sustainable success. The top global strategies to meet the Cost Optimization challenge all
relate to matters of process, whether this means attempts to achieve economies of scale
through product/process standardization and harmonization (the third-ranked strategy)

Cost Optimization Strategies CEOs in all regions seek improvements in processes and productivity


1 Redesign business processes 4 1 1
2 Improve productivity of employees 1 4 2
Achieve economies of scale through
3 product/process standardization and 3 2 5
harmonization
Achieve economies of scale through
4 2 5 4
business growth
5 Invest in new technologies and automation 5 3 3
Secure lower-cost sources for materials
6 7 6 7
and other input resources
Achieve synergies through mergers and
7 6 9 6
acquisition
Reduce management layers, flatten
8 8 8 8
organization
9 Outsource operations 9 12 10
10 Reduce compensation costs NR 7 T12
11 Reduce workforce 13 10 11
(Re-)/Locate company operations in low-
12 12 11 9
cost countries/regions (offshoring)
Elevate authority for expenditures to higher
13 10 NR 14
management levels
14 Reduce marketing and promotion costs 11 13 T12
Reduce investments in research and
NR NR NR NR
development
NR Reduce investments in new technologies NR NR NR

T=Tie


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