Welcome! This week we’re talking with Ataman Ozyildirim, Senior Director, Economics and Global Research Chair of the Conference Board about the results of their latest C-Suite Challenge Survey. The Conference Board conducts an annual survey that asks executives around the world, including over 900 CEOs, to identify the most critical issues they face and their strategies to meet them.
What's Keeping CEOs Up at Night?
Source: The Conference Board
Tien: Welcome Ataman! This has obviously been an unusual year, but in your latest survey I was struck by the three most important internal issues that executives were focused on: accelerating the pace of digital transformation, improving innovation, and modifying their business models. Clearly, the c-suite is already looking past the Covid crisis towards more pressing systemic concerns.
Ataman: Yes. Obviously, the Covid crisis was a huge disruptor, but I think in many ways it simply accelerated the issues that have been with us for quite some time. As we note in the report, the current crisis means the luxury of having years-long lead time to digitally transform and experiment with new business models is gone. Recovery will require finding the right balance between conserving cash, and investing in the innovation needed to succeed in this new commercial landscape.
Tien: Let’s start with the first priority: digital transformation. This is a phrase that tends to get thrown around a lot. There’s a lot of hype involved. What does digital transformation mean to the Conference Board?
Ataman: Well, first off I think it’s important to distinguish digital transformation from digitization. The two get mixed up. And the latter is simply the process of converting analog operations to digital ones. Scanning documents and so forth. And that’s still, unfortunately, a huge issue in large sectors of the economy.
Tien: Yes, I’m reminded of that every time I walk into a doctor’s office and see a wall full of manila envelopes.
Ataman: Digital transformation is something much broader and more holistic. Given that we’re in a digital-first world, it requires re-imagining everything: how you make products, how you deliver them to your customers, how you interact with your supply chain, how your company invests in innovation and operates within a larger ecosystem. It requires different ways of organizing and incentivizing your workforce. Shifting to remote work, for example, was obviously much more of an undertaking than just giving everyone laptops and sending them home.
Tien: Agreed. I tend to frame digital transformation as a shift from a product-centric mindset to a customer-oriented one. From shipping units to selling outcomes. And as you just described, that shift towards the customer re-orients the way you do everything. Take customization, for example. There are as many different Netflix home screens as there are Netflix customers. And lots of companies are still re-orienting to that fact.
Ataman: And as a result of that shift in power dynamic from products to customers, from organizations to individuals, the boundaries of companies are becoming more blurry, more permeable. There’s less rigid structure, and more collaboration. So that could be seen as a source of creativity and innovation. But it also means that competition can come from unexpected places, from adjacent or even non-adjacent industries. Twenty years ago, if you were in the health technology space, you probably thought of 3M as a tape company. Today they’re your competitor!
Tien: The second major concern of your survey is innovation. Now when a lot of people think about innovation, they think in terms of making processes more agile, rewarding creativity and being responsive to the market. But in one of your studies you frame investment in “intangible assets” as a proxy for investment in innovation. Could you explain what you mean by that?
Ataman: Sure. Intangible assets are a proxy for innovation spending because databases, software, and knowledge platforms are the backbone of the current service economy. What’s more, you can tie these assets directly to future streams of earnings. In the US private sector, intangible investment overtook tangible investment in the 1990s. And overall, that’s been a good thing. That’s kept this economy competitive.
Tien: What you’re suggesting here is that what used to be called “R&D” is turning into a much broader concept. And I agree with that. I recently had a conversation about intangibles with Dean Jonathan Levin of the Stanford Graduate School of Business, and according to Fortune Magazine, among S&P 500 companies, intangible assets have gone from 17% of total assets in 1975 to 90% last year. Anytime you sign up for an established SaaS service, for example, there’s usually a huge array of analysis tools included. The innovation, or at least the potential for innovation, is bundled with the product.
Ataman: Going back to the post-war economy, the innovation process was generally seen as depending on a “technology push” model: a progression from scientific discovery, through technological development in firms, to the marketplace. Think of all the consumer products we got from NASA research. Again, all very formalized and siloed. Today you’ve got open-source platforms, all sorts of collaboration tools, and new insights around customer experience. We actually think that most companies miss about four-fifths of their innovation spending when they think only about R&D.
Tien: That’s a lot! But innovation is still clearly a huge concern, for the competitive reason you just mentioned. You don’t know what you don’t know, and management teams are constantly trying to hedge against that fact. And of course, the biggest innovation spend is probably your payroll, your culture and your people.
Ataman: Finding the right talent is a perennial concern. Hopefully the shift to remote work will result in companies finding talent in all sorts of different markets.
Tien: Okay, let’s move on to the final issue: new business models. Why is this such a concern right now?
Ataman: It’s not surprising that this new environment calls for a different approach to organizing and selling. A different business model. One that’s much more fluid and continuous. One based on relationships as opposed to simply selling products. One that can react to changes in the market. We saw a huge amount of change in the restaurant industry last year, for example: online delivery, curbside pickup, cashless transactions, social distancing. Those kinds of changes aren’t cosmetic, either — they’re going to effect how you run your business, and who you choose to hire.
Tien: Right. Restaurants had to adapt not only to the pandemic, but to this new app-based world we all live in now. Going back to your earlier point, restaurants had to adapt to their customers. And when the “front of the house” changes, that has repercussions for the entire organization. It changes the way you recruit, the way you staff, the way you organize.
Ataman: The rules have changed. You’re not producing something, putting it on the shelf, and having a sales channel take care of the transaction anymore. You have to move to where your customers are — if you’re in B2C, that’s probably on a phone app. And if you’re in B2B, you need to offer a customer experience that’s as seamless as a phone app. That’s going to change how you operate and how you execute your business model. Most CEOs understand this, but they’re still looking for answers, which is why it keeps them up at night.
Tien: I appreciate all this great insomnia research from The Conference Board. Thanks Ataman!
Ataman: Thanks Tien!
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Disclosure: These opinions expressed are mine, not those of the company. The companies mentioned in this newsletter are not necessarily Zuora customers.
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