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The Next Paradigm?

CEO respondents to a Chief Executive survey outline the parameters of the 21 st-century corporation. On the horizon, CE readers see quality-driven businesses with innovative ways to deploy crucial human capital. But how do they stack up now?

Given rapid advances in technology, shifting international trade patterns and the proliferation of even cross-border strategic alliances, there’s little doubt that corporations are undergoing accelerated evolution. But what’s the shape of things to come? What will be the business paradigm of the 21st century?

CEOs responding to a recent survey by Chief Executive posit as an ideal a customer- and quality-driven organization with a flatter management hierarchy. Also important, they say, will be an organization’s sense of vision-its ability to deploy a shared sense of values in decision making-and its capacity to add significant value to products and services.

The survey compiled responses from 390 CEOs in industries including fabricated products, financial services, agribusiness and consulting. Thirty-nine percent of respondents’ firms have annual revenues under $50 million, and 44 percent have revenues between $50 million and $500 million. Some 14 percent have revenues between $500 million and $3 billion, while only 3 percent topped the latter figure.

The survey asked participants to gauge the importance to their organizations of adopting criteria outlined in a CE article entitled “Reinventing the Corporation” (October 1991), by Jerry Wind, Lauder Professor and Professor of Marketing at The Wharton School, and Alfred P. West Jr., chairman and chief executive of Wayne, PA-based SEI Corp. In the article, Wind and West described 12 interrelated criteria they determined would be key to 21st-century enterprises. The authors postulated that among other characteristics, businesses of the future would be more entrepreneurial, faster in getting their products to market and less focused on engaging in the full range of “cradle-to-grave” business activities-from R&D to marketing and distribution.

In general, respondents to the CE poll perceive as less than critical the need to institutionalize the criteria formulated by Wind and West. Particular criterion received a “critical” designation only if a CEO assigned it a rating of nine or 10 on a 10-point scale.

Only four criteria were rated critical by more than half of the respondents: customer orientation (73 percent), value-added, quality focus (69 percent), flatter organizational pyramid (60 percent) and the ability to formulate and communicate to staffers a corporate vision (55 percent).

Perhaps most surprising, the survey revealed that relatively few chief executive officers (28 percent) cited as critical the need to build global organizations or those focused on satisfying shareholder needs (21 percent). These findings appear to contradict a number of corporate trends.

In recent months, many U.S. corporations have been rocked by shareholder revolutions seeking changes ranging from a greater control of day-to-day operations to a fuller disclosure of CEO pay packages. Moreover, conventional wisdom holds that corporate markets are undergoing rapid globalization. Indeed, 67 percent of respondents to a 1991 CE poll cited globalization as critical to their companies’ success in the 1990s.

Meanwhile, CEOs also were asked how their firms stack up now against benchmarks of the future. A summary of the poll’s findings follows.

CRITICAL FACTORS

Exhibit 1 summarizes respondents’ answers to the question “We consider———-as a critical characteristic we should have.” This was asked for each of the 12 characteristics.

It is interesting to note that being a global organization, a network organization or a stakeholder-focused organization is a key requirement of less than a third of all respondents. These findings are consistent with the respondents’ assessments of the importance of the 12 characteristics, summarized in Exhibit 2.

Perhaps to be expected, the greatest mean percentage importance is given by the respondents to having a customer-driven organization. But somewhat surprising-in the flip side of a statistic from Exhibit 1-is that 27 percent of CEOs surveyed did not rate the customer-driven characteristic as critical to their organization.

Respondents who defined their companies as “leaders” in the industry segment they serve had higher assessments of the critical importance of the 12 criteria. For example, while 71 percent of leaders think it crucial to flatten their organizations, that figure dips to 56 percent among those who define their companies as “one of the top three but not the leader.”

SMALL STEPS

Overall, most responding executives are not taking major steps toward achieving the desired changes in organizational orientation and architecture. Exhibit 3 reports the results to the question, “We are taking major steps toward ———-.”

FREEZE FRAME

Respondents to the CE poll also were asked to rate the degree to which some specific aspects of each of the 12 characteristics describe their organization. Following below are the results of this self-assessment.

Cross-functional organization.

Only 22 percent of the respondents’ firms have cross-functional organizational designs. Only 28 percent of the respondents perceive that it is easy for their staffers to obtain input from other functions (those elsewhere in the organization), and only 42 percent of respondents perceive that key business decisions are made with participation of a number of functions. In general, organizations that describe themselves as “leaders” show smaller propensities toward cross-functional design.

Flatter, more empowered organization.

Most of the respondents (78 percent) say their firm has less than seven levels between the CEO and the first-level manager. Some 54 percent perceive that “individuals and groups are empowered to make decisions.” Consistently, those organizations that

perceive themselves as the leaders in the industry segment they serve (25 percent of all respondents) also perceive themselves as the most empowered.

Vision-directed organization.

Most respondents (59 percent), and a significantly higher number of self-described industry leaders, perceive their top management as providing “a strong vision and opportunities for identification”-one of the conditions for effective empowerment. A nearly identical 58 percent maintain their organization has “clearly stated values.”

Global organization.

Less than one in four CEOs perceive their organization as global in any of the dimensions that were probed. Just 18 percent of respondents say their strategies for each product and business are tailored to capitalize on conditions in particular markets. This is somewhat perplexing, considering the ongoing globalization of consumer and resource markets.

Network organization.

Despite the popularity of outsourcing and strategic alliances, only about 10 percent of CEOs say their firms “outsource all nonstrategic areas.” Some 20 percent “have or plan a number of strategic alliances.”

Information technology organization.

The number of firms that use expert systems-computer systems that imitate the reasoning processes of the human mind-is quite low-only one in five. Some 35 percent use information technology strategies not only to increase the efficiency of their operation but also as a way of obtaining a sustainable competitive advantage.

Customer-driven organization.

Given that this characteristic topped the list of those considered “critical” by respondents (73 percent), it is noteworthy that only slightly more than half of the respondents rated their organization as undertaking the survey’s three measures of customer orientation. The three are: the integration of customer requirements in the product-development process, the ongoing measurement of customer satisfaction-and that such satisfaction is one of the key criteria for awards-and the existence among all employees and corporate groups of a strategy to ensure customer satisfaction.

Stakeholder-focused organization.

Only about one in six respondents perceived their firm to have “an effective process for monitoring the changing needs of key stakeholders” and to include in their overall business plan explicit strategies for dealing with each key stakeholder.

Interestingly, a higher percentage (about 25 percent) of small firms-those which do not perceive themselves in the top 10 in their market segment-are moving toward becoming stakeholder focused.

Value-added, quality organization.

Surprisingly, only 51 percent of all the respondents and 60 percent of corporate leaders say their firm engages primarily in activities that build on its unique competencies and provide value and benefits to its customers. A much smaller percentage-32 percent of all respondents-and 40 percent of leaders-have values incorporating the principles of the Malcolm Baldrige award.

Time-based organization.

Slightly less than a third of the respondents, and about 40 percent of leaders, say their firm has objectives for reducing the time it takes to develop new products and “a process to significantly cut the time it takes to develop products and services.”

Innovative, entrepreneurial organization.

A third of the leaders and a lower number of other organizations indicate that their firm “stresses, rewards and is organized to enhance entrepreneurship and innovation” and undertakes “continuous efforts to significantly reduce the time it takes to develop new products.”

The learning organization.

Slightly over a third of all firms and 45 percent of the leaders indicate that their “corporate values and vision call for becoming a learning organization.” A slightly lower number of firms-29 percent of all firms and 41 percent of leaders-perceive their firm to “stress, reward and be organized to facilitate flexibility, adaptability and faster response to changes in its environment.”

CONCLUSIONS

Why didn’t a greater percentage of CEOs perceive as critical the need to implement the 12 criteria? One reason might be the predominance in the survey population of smaller firms. Only 17 percent had revenues of $500 million or more.

Another explanation for this might be that respondents interpreted the critical need question as applying to their corporations today. By contrast, the original article [CE: October 1991] was based on conversations with executives mostly from large companies about the forces expected to shape the business environment in the year 2000.

Meanwhile, since only four of the characteristics were considered critical by more than 50 percent of reporting executives, most of these factors are not likely to find their way to the corporate vision and objective. The authors of the original study maintain this may hobble the ability of these firms to prepare for the future.

Generally, however, self-defined industry leaders appear to be both more aware of the importance of the 12 characteristics and more aggressive in taking major steps toward their implementation. For example, 42 percent of leaders are taking major steps toward achieving the characteristics, (see Exhibit 4), but the figure among respondents whose companies are not one of an industry’s top 10 drops to 28 percent.

Regarding the average critical score across the 12 characteristics, the figure for leaders was 52 percent, while that for companies among an industry’s top four through 10 was 40 percent.

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