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Harry Hertz

Innovation

It’s 2020. Is Your CEO Thinking About Perpetual Reinvention?

What keeps CEOs up at night?

Published: Tuesday, February 4, 2020 - 12:03

It has been a little more than two years since I last summarized the topics that are keeping CEOs up at night, either thinking about challenges their organizations face, or opportunities and innovations that should be explored. I ended that column by stating that I looked forward to taking another look a few years down the road to see how those challenges and opportunities have changed. Well, we are now down the road.

As in the past, the findings presented below are generally applicable across industry sectors (including government and other nonprofits) and to organizations of all sizes. Also, as in the past, I have combined what I have heard from senior executives, what I have read in blogs and publications of all types, and what I have learned from 11 specific studies. I have identified six areas that are important to CEOs as we enter the next decade. Many of these areas are logical outgrowths of the topics highlighted in the 2017 study, but with new twists and a greater sense of urgency. Agility is the key word, and as the title of this column suggests, CEOs sense a forward-looking need for perpetual reinvention.

I will briefly describe the 11 articles included in the current study; share the six areas for consideration in 2020, and briefly relate them to how the 2019–2020 Baldrige Excellence Framework addresses these topics; comment on the similarities and changes in considerations from 2017 to 2020; and provide some food for thought as the Baldrige framework is revised in future years.

The 11 articles

The first article, titled “What’s Keeping CEO’s Up at Night?” was written by Ben Morton, an opinion columnist for CEOWORLD magazine. The second article, “CEO’s Curbed Confidence Spells Caution,” is the product of PwC’s 22nd annual global CEO survey. It involved 1,378 CEO interviews in 91 territories. The third article results from the Gartner 2019 CEO survey. This study involved 473 business leaders from 32 countries.

The fourth article was produced by the Conference Board. The Conference Board’s C-Suite Challenge 2019 is based on a survey of more than 800 CEOs and more than 600 other C-suite executives, primarily from the United States, Asia, and Europe. The fifth article, “15 Big Challenges You’ll Face as a Modern CEO (and How to Solve Them),” results from the challenges shared by 15 members of Forbes Coaches Councils, based on struggles their executive clients are facing. The sixth article, “3 Priorities for CEOs in 2019,” was a product of the World Economic Forum (WEF) annual meeting.

The seventh article, titled “Global Trends: Navigating a World of Disruption,” results from McKinsey Global Institute research and served as a briefing note for the WEF. The eighth article, “How are CEOs Adapting to the Innovation Challenges of 2020?” comes from European CEO magazine. The ninth article, “Incumbents Strike Back,” was produced by IBM. It shares the perspectives of 12,854 respondents across six C-suite roles from 112 countries and represents the 19th C-suite study in the series. The 10th article, “Citizenship and Social Impact: Society Holds the Mirror,” results from the Deloitte 2018 Global Human Capital Trends. The 11th and final article comes from the November 2019 McKinsey Quarterly and is titled “Answering Society’s Call: A New Leadership Imperative.”

Six areas for 2020

To arrive at the six areas for 2020, I have analyzed and synthesized information across the various articles and studies. I have listed the resulting six areas in order of decreasing mention across the 11 articles, giving some additional weight to the articles that result from studies of many C-suite executives. The first two areas are tied in importance and reflect a focus on the external environment and internal organizational environment, respectively. Areas three and four are also tied. All the areas are considerations for strategic-planning discussions.

1. Emerging technologies and the digital economy
The importance of this trend is probably best summarized in CEOWORLD. After stating that no single business or sector is safe from disruption by emerging technologies and the digital economy, even in the service sector, the article quotes hoteliers and taxi companies who said in effect, “Technology won’t affect us; people will always need a hotel and a taxi.” And then Airbnb and Uber entered the marketplace. Technology, including big data, data analytics, and artificial intelligence (AI), is crossing industries to create new and unique product offerings. Two examples that combine manufacturing and service are a Nike shoe that fastens itself through a mobile app and then collects data via sensors to send back to the company, and a capability developed by General Motors and Volvo to have Amazon deliver packages to car trunks using a one-time digital code to unlock the trunk wirelessly.

According to Gartner, 82 percent of CEOs state that they have initiatives to make the organization more digital, including dealing with cybersecurity concerns. According to the WEF, more than 70 percent of CEOs interviewed believe they need to lead a radical, digitally led transformation of their business model and that understanding the cloud, the impact of AI on the workforce, and cybersecurity are becoming table stakes for them. CEOs need to find the right balance between data and intuition, which means they need to get deeper into the way they develop data-driven insights for their business, according to the WEF.

In more than two-thirds of the use cases studied by MGI, AI can improve performance more than other analytics techniques. MGI promotes the belief that AI adoption can boost global gross domestic product (GDP) by as much as $13 trillion during the next 10 years. IBM writes about the internet of things (IoT) bridging the digital and physical worlds. IBM indicates that the IoT will result in value shifting to organizations that best orchestrate the combined digital-physical worlds. And just recently, the Harvard Business Review announced a survey on how executives are using technology and shared data to unite their human resources and finance teams to increase efficiency.

The Baldrige framework has organizational learning and agility, and managing for innovation as two of its core values. The 2019 Baldrige Criteria for Performance Excellence (part of the framework) ask how your strategic planning process addresses the potential need for transformational change and organizational agility. The notes refer to the need to integrate data from all sources to generate strategically relevant information, including technological innovations that could affect your products and services.

2. The right people for the organization
Although this topic did not generally rank at the very top of CEOs’ list of concerns (unlike technology and the digital economy), it was consistently present on their list. Several different organizational needs related to “the right people” were mentioned repeatedly by C-suite executives: the need for new skills and lifelong learning because of automation, AI, and the digital economy; the need for more cross-functional teamwork; the growing need for management development in a more empowered workforce environment, and for leadership development of the next generation of leaders; the need to “liberate” the workforce through empowerment and encouragement to experiment; and the need to retain talented people in a more mobile workforce. According to Forbes, leaders must promote a simple statement: “People first.”

In the Conference Board study, CEOs globally ranked attracting and retaining top talent as their No. 1 internal concern. Developing the next generation of leaders was their third-highest concern. CEOs expressed a need for more formal leadership development programs that provide cross-functional rotational opportunities. According to MGI, about 15 percent of the global workforce (approximately 400 million people) could be displaced by automation by 2030. At the same time, 550 to 800 million new jobs could be created that demand increasing digital skills. European CEO executives predicted that in 2020, the third and fourth most commonly added C-suite job roles will be focused on digital and cloud, respectively. (The first most commonly added role is focused on customer experience, my sixth area; the second on big data, my fifth area.)

In the IBM study, people skills rose sharply to third place among the external forces that will impact the organization, recognizing the need for having the right people in the organization. Sixty-one percent of C-suite executives rated this as an important external factor. They also believe they will be sharing people skills with other organizations in their value chain. Asked to rank the capabilities most important for innovation, CEOs in the study ranked two characteristics above all others: a willingness to experiment and the support of empowered people in the organization.

A Baldrige framework core value is valuing people, and this core value is thoroughly embodied in the Baldrige Criteria for Performance Excellence. The Baldrige Criteria place a specific focus on building an effective and supportive workforce environment, including preparing your workforce for changing work systems. This focus is accompanied by questions related to workforce and leader development. This development includes supporting the organization’s intelligent risk taking. Additional questions relate to how the organization’s workforce engagement processes foster retention. In the Leadership category of the Baldrige Criteria, leaders are asked how they create an environment for success, including the development of future leaders, and cultivating individual learning and intelligent risk taking.

3. Evolving and uncertain global markets
According to PwC, 2018 saw a record jump in global optimism about economic growth. By contrast, 2019 has seen a record jump in pessimism, with nearly 30 percent of CEOs projecting a decline in global economic growth. CEOs are showing growing concern over trade disputes and an unpredictable geopolitical landscape, counteracting a 40-year trend of increasing globalization. According to CEOWORLD, this is happening at the same time when CEOs are challenged by currency volatility, extended and uncertain supply chains, local competition, and a concern about changing policies and legislation that will have to deal with human, ethical, and moral implications of new technology. The Conference Board study indicates that globally, CEOs rank a recession as their No. 1 external concern and threats to global trade as their second-highest external concern. The WEF concluded that CEOs need to hone their geopolitical skills and engage more with politicians and civil society leaders.

These uncertainties are enhanced by MGI data that indicate that two-thirds of global GDP growth and more than half of new consumption during the past 15 years stems from emerging economies. Furthermore, more than 120 companies from these economies have joined the Fortune Global 500 list since 2000. MGI states that, by several measures, these companies are more innovative, nimble, and competitive than their Western rivals. IBM concludes that companies will have to “dance with disruption,” having the fortitude for perpetual reinvention even when the status quo is working well.

Two of the Baldrige framework core values are visionary leadership and organizational learning and agility. Visionary leaders need to manage risk and deal with external uncertainties. The organizational learning and agility core value states, “Success in today’s ever-changing globally competitive environment demands continual organizational learning and agility.” In the Strategy Development component of the Baldrige Criteria (item 2.1), there are specific questions relating to how your strategic planning considers potential changes in your regulatory and external environment, and how you prepare for potential blind spots. In Strategy Implementation (item 2.2), organizations are asked how they recognize and respond to needed shifts in their action plans with rapid execution.

4. Responding to society’s call
According to Deloitte (and others), corporate citizenship has become a CEO-level business strategy—defining the organization’s very identity. This strategy involves the organization’s ability to do social good, both externally (among customers, communities, and society) and internally (among employees and other key internal stakeholders). According to a 2017 Deloitte study, millennials, who constitute more than half of the workforce in many countries, are increasingly sensitive to how their organizations address issues such as income inequality, hunger, and the environment. Eighty-eight percent believe that employers should play a vital role in alleviating these concerns. Furthermore, 55 percent of consumers are willing to pay more for products coming from companies’ committed to positive social impact. MGI states that gender parity, a scenario where women and men participate in the economy in equal parts, will add as much as 26 percent to global GDP. A longitudinal study of purpose-focused companies found that they outperformed their S&P 500 peers by a factor of eight. Nevertheless, Deloitte found that while 77 percent of their global respondents cited citizenship as important, only 18 percent said it was a top priority in their organization’s strategy.

According to McKinsey, nine of every 10 Generation Z consumers believe that companies have a responsibility to address environmental and social issues. MGI states that governments and business leaders will have to jointly address societal concerns on misuse of AI, automation, and data privacy.

One of the Baldrige framework core values is societal contributions. Societal contributions include leading and supporting the environmental, social, and economic systems in your organization’s sphere of influence. Role-model organizations influence other private and public organizations to partner for these purposes. The Baldrige Criteria include leadership questions related to societal contributions. The questions encompass how your organization considers societal well-being and benefits as part of its strategy and daily operations, and how you strengthen and support your key communities.

5. Big data and business platforms
The challenge already faced by CEOs—and growing in importance—is translating vast amounts of data to use for better decision-making. According to the WEF, more than 70 percent of the CEOs contacted believe they need to lead a digital transformation of their business model. European CEO cites that in 2020 the second-most important new role in the C-suite will be focused on big data (the first will be focused on customer experience, the sixth area, which is described below). This also directly impacts the workforce skills that will be needed (an overlap with the second area, on the right people).

Big data will be instrumental in the growth of platform businesses. A platform business facilitates interactions across many participants. Existing large-scale platform businesses include eBay, Amazon, Facebook, and CVS Health. According to IBM, platform operators double down on data and turn large volumes of data into innovation and the continuous recalibration of their strategy and operations. They excel at creating personalized customer experiences (the sixth area). The IBM study found that 46 percent of organizations are investing in or considering the new platform business model. Organizations enter ecosystems, establish strong collaborative relationships, and emerge as orchestrators on a digital platform.

The availability of large amounts of data challenges our ability to practice the Baldrige framework core value of management by fact; it is increasingly difficult to analyze the data available and extract larger meaning for the benefit of organizational decision-making. This was a key challenge CEOs faced in my 2017 study, and it is even “bigger” today. The Baldrige Criteria have a component (item 4.2) on information and knowledge management. It asks how your organization blends and correlates data from different sources to build knowledge, and how this knowledge is used in your innovation and strategic planning processes.

6. Customer experience
The Conference Board asked CEOs how they plan on succeeding in 2025. CEOs expressed confidence about their organizations being able to thrive but stated that a challenge is that the customer experience is starting to be more important than the actual product. This will require rethinking their offerings. The IBM study found that 86 percent of organizations say they are at least somewhat effective at creating individual customer experiences, and 53 percent say they are quite effective. Nevertheless, 68 percent of C-suite executives said they will be changing their value proposition to emphasize customer experience over products.

According to European CEO, the most commonly added role to the C-suite in 2020 will be focused on customer experience. IBM found that more than one-quarter of its forefront organizations are using AI and cognitive solutions to improve their customers’ experiences. They are developing customer co-creation communities to better understand human motivations and gain customer empathy. Community members become influencers and brand advocates that extend trust outside the community more effectively than advertising can.

Organizations are trying to stand out from their competitors through new and novel offerings (possibly through ecosystems; see item 5 above). Competition is coming from different industries that suddenly invade “your” market space. As stated in the IBM study, “The risk for incumbents is that their business models will be turned into Swiss cheese.” Customer desires and market opportunities are breaking down old business silos.

Two of the Baldrige framework core values are customer-focused excellence and managing for innovation. Customer-focused excellence is about considering all product and service features and characteristics, and all modes of customer access that contribute to value for your customers. Managing for innovation includes collaboration among people who did not historically work together. This core value may need broadening in the future to include customer co-creation. Since customer focus is so central to the Baldrige framework, the area of customer and market orientation pervades the Baldrige Criteria questions, from category 3 on customers, to work systems, innovation, and knowledge management, all intended to enhance customer engagement and loyalty.

CEO issues of 2020 and 2017

Comparing the CEO issues in 2020 and 2017 reveals some subtle differences, a few significant changes, and a great deal of overlap or ongoing concern.

The seven areas identified in 2017 were:
1. Uncertainty and resilience
2. Finding the right employees
3. Short-term and long-term value creation
4. Partnerships and interdependency
5. Big data
6. Customer and market orientation
7. Cybersecurity

The 2017 area that has disappeared is short-term and long-term value creation. The concern about short-term value creation has been superseded by a concern for evolving and uncertain global markets (short-term and long-term). The long-term value creation focus is reflected within the scope of each of this year’s areas. This year’s concern about evolving and uncertain global markets is a sharpening of the theme of uncertainty and resilience expressed by CEOs in 2017. Finding the right employees has evolved into the larger topic of the right people for the organization. Partnerships and interdependency has been focused in the areas of business platforms (and ecosystems), and customer co-creation of the future. Big data remains a major focus for CEOs. Customer and market orientation has been focused on the customer experience and the service relationship that will drive customer decision-making. Cybersecurity is a major concern within the overall digital economy.

New this year is the area of responding to society’s call. While social responsibility was covered in my 2015 study, it did not have the strategic focus that is present now. Concepts that are in this year’s study for the first time include the digital economy, AI, business platforms, and customer co-creation.

Implications for future Baldrige framework revisions

While it is still too early to anticipate the next set of revisions to the Baldrige Excellence Framework, the results of this study yield some topics to keep top of mind as we anticipate the near- and longer-term contributors to performance excellence. The clearest contributors to the short-term evolution of the Baldrige framework are probably customer and societal innovations. There are opportunities to consider the enhanced role of the customer experience as we think about customer engagement, an experience that goes to strategic considerations when addressing customer co-creation of offerings. Similarly, in answering society’s call, there will be Baldrige framework opportunities to look strategically at offerings that improve the societal and community well-being, and to look at broadening the innovation focus to address products, processes, organizational effectiveness, and societal well-being.

Of longer-term strategic significance will be the need and opportunity to address changing work systems. Influencers will be the growing role of AI and its intersection with a digital economy. In addressing the digital economy, organizations will probably find it increasingly important to have a strategy that includes a role in platform businesses. All these areas will require a greater emphasis on retraining and lifelong learning as a core competency for all people in the workforce. While these three areas (AI, the digital economy, and platform business models) are still at the very leading edge in most business environments, they will have to be watched for rapid advances during the next few years.

I look forward to observing changes in performance excellence over the next few years. And I look forward to another look at CEO challenges and opportunities a few years down the road, to see what has remained the same and what has changed in our insights on the road to performance excellence.

Resources
Thirty Years of Evolution = Revolutionary Change (Summer 2019)
Culture and Strategy Eat All Three Meals—When Leaders Set the Menu (Spring 2019)
Is Good, Good Enough for You? Taking the Next Step After ISO 9001:2015 (Winter 2018–2019)
Archived columns

First published Jan. 14, 2020, on the Blogrige blog.

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About The Author

Harry Hertz’s picture

Harry Hertz

 Harry Hertz retired in June 2013 from the National Institute of Standards and Technology (NIST) where he served as director of the Baldrige Performance Excellence Program since 1995. For more than 15 years he was the primary architect of the Baldrige Criteria for Performance Excellence, responsible for expansion of the Baldrige Program and Award to healthcare, education, and nonprofits, including government. Hertz serves on the Advisory Group for VHA’s Center for Applied Healthcare Studies and on the adjunct faculty of American University. He has a bachelor’s degree in chemistry from Polytechnic Institute of Brooklyn and a Ph.D. from M.I.T.