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Growing Beyond

Growing Beyond
How high performers are accelerating ahead

In this report
Executive summary Adjusting to the new reality Customer reach: Getting closer but looking beyond Operational agility: Moving quickly in a customized world Cost competitiveness: Finding the right balance Stakeholder confidence: To inform, to explain, to engage 2 4 10 16 22 26

Conclusion 32 Further reading About this report 34 36

The benchmark findings for this report are drawn from a study undertaken in August and September 2012 by the Economist Intelligence Unit (EIU), surveying 1,500 C-suite, board directors and senior managers from around the world. As with our earlier studies, we have factored out the impact of sector and distinguished between the highest and the lowest quartile of performers in both revenue and EBITDA growth to see if we can identify specific patterns of action that might explain the difference in performance. Source for all charts: EIU panel survey, AugustSeptember 2012. All charts show percentage of respondents.

How high performers continue to grow beyond


Growth has become the magic word for both business and government. Taken for granted in the pre-crisis years, the first bite of the credit crunch in 2007 ushered in an age in which growth has proven frustratingly elusive to many, rather than few. While no business is immune to the health of the wider economy or its market, some companies have continued to prosper, even thrive, during the most difficult conditions of recent years. And the difference between these high performers and others is becoming more and more pronounced.

What is it that high performers are doing differently? What are the lessons that all businesses can learn?
These are the key questions addressed by a series of studies conducted by Ernst&Young since 2008, with a view to providing practical insights to help our clients navigate the harsh economic terrain. Our first study showed how high performers were proactively reacting to the first wave of the credit crunch by seeking out Opportunities in adversity. In 2009, we built on this with a study that analyzed the Lessons from change. In early 2011, we explored how the high performers were Competing for growth by adopting new strategies for new markets and new products, and taking new approaches to managing the talent that is essential to achieving their goals. Later in 2011, we returned to this theme, analyzing how high performers are Growing Beyond, drawing out key lessons on how they were growing beyond their competition by increasing their customer reach, operational agility, cost competitiveness and stakeholder confidence.

One year on and we test the water again. What has changed since our last survey?
As we present this latest report in our Growing Beyond program, we would like to thank all the business leaders from around the world and Ernst&Young professionals who have taken the time to share their insights with us.

Growing Beyond How high performers are accelerating ahead

Executive summary

Accelerating ahead of the pack


Ever since the onset of the global economic crisis, Ernst&Young has surveyed C-suite, board directors and senior managers in large organizations to find out how they run their businesses.
Our objective is to find out what it is that high performers are doing differently and set out the lessons that other businesses must learn if they are to emulate them. The latest survey findings enable us to gain a fresh insight into decision-making in boardrooms across the world and draw some key new conclusions. Ernst&Young has identified four factors that drive competitive success in todays global economy: customer reach, operational agility, cost competitiveness and stakeholder confidence.

This is how high performers are using these drivers to help them pull away from the competition:

Customer reach
High performers are more outward-looking and focused on the market.
They seek deep understanding of their customers demands and
expectations and are increasing marketing spend to attain this.

Operational agility
High performers respond smartly to change but, more importantly, respond speedily.
They understand that the risks of being first to market are
beginning to outweigh the opportunities, but that speed of response is always critical.

They focus on finding new markets for existing products and


services. High performers are nearly three times more likely than low performers to generate sales in new markets.

High performers continue to accelerate, while low performers


are reaching the limits of their organizational capacity to respond.

They plan more carefully when entering new markets. They


identify a clear demand for a current product or service, and assess the scale and growth projections of that market.

They understand that consistency can have a market cost that


outweighs its management value. It can reduce their ability to respond to an increasingly varied and volatile world.

They prioritize innovation. Nearly twice as many high performers


as low performers generate more than 10% of their sales from products or services developed in the past three years, focusing on incremental innovation of new products for current customers and current products for new markets.

They adapt flexibly to fast-changing circumstances, by deploying


technology, devolving decision-making and enhancing the skills of their workforce.

Growing Beyond How high performers are accelerating ahead

Key findings

High performers are more outward-looking and focused on the market.

High performers respond smartly to change but, more importantly, respond speedily.

High performers understand what drives cost and what drives value.

High performers engage more with stakeholders and unleash their talent.

And the difference between high performers and the rest is becoming more and more pronounced.

Figure 1: High performers are ahead with respect to how they:


Broaden product/ service offer Focus on key segments Prioritize markets Reinforce brand

Customer reach
Accelerate speed of response Create exible work/delivery platforms Master innovation Improve collaboration Inform pricing process

Operational agility

High performers seek ...

Cost competitiveness

Sustain cost reduction

These are just some of the actions that divide higher-performing companies and their lowerperforming competitors. With the shadow of the economic crisis continuing to cross large parts of the global economy, businesses of all sizes and markets have a duty to constantly evaluate their performance. Examining how they execute against these four key areas customer reach, operational agility, cost competitiveness and stakeholder confidence is an important starting point.

Pass on cost pressure Optimize capital

Stakeholder condence
Identify and explain risks Enhance reporting Re-engage with internal talent Anticipate regulatory compliance

Cost competitiveness
High performers understand what drives cost and what drives value.
They are externally focused on value-creation and opportunity.
They place more emphasis on customer segmentation and market analysis. High performers recognize that understanding what customers need, what they expect and what drives them is crucial when determining pricing strategies.

Stakeholder confidence
High performers engage more with stakeholders and unleash their talent.
High performers seek to make the value they create visible to
their external stakeholders and have significantly increased both the scope and frequency of reporting.

They understand that future success is global and value the


ability to lead effectively in a global business environment. They offer their talent opportunities to operate internationally and see access to talent as a reason to enter rapid-growth markets.

Because they understand their customers, high performers can


be more confident about increasing prices.

They know the difference between eliminating waste and simply


cutting cost. They identify the actual organization-wide costs involved in supplying their service or product.

High performers place a greater focus on the individual. They


place greater emphasis on linking pay with performance and providing customized development.

High performers focus more on efficiency than on reducing


headcount. Just a quarter of high performers have reduced headcount, compared with 43% of low performers.

High performers unleash their talent onto the market by


devolving decision-making as far as they can and refine roles and job descriptions to make them more flexible.

Growing Beyond How high performers are accelerating ahead

Adjusting to the new reality

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Growing Beyond How high performers are accelerating ahead

We may not yet have seen the worst


It is now over five years since the start of the global financial crisis. The shocks of 2007 and 2008 heralded what is already one of the longest periods of economic retrenchment in history. While governments, markets and people long for a period of stability and recovery, all must face up to a stark possibility: we may not yet have seen the worst.
At least, that is the main conclusion from our latest study of how high performers are surviving and indeed thriving in the new economy. Of our 1,500 respondents, 83% predict that their market will become more competitive over the next two years. Indeed, this rises to 91% for our high performers, whose success we have shown to be largely dependent on a deeper understanding of market trends and customer demands. Looking ahead, these high performers see difficult times our study suggests that they too are beginning to struggle to grow beyond the parameters of the economic crisis in which the world is engulfed. They are right to be concerned. The developed world struggles under a mountain of personal, corporate and sovereign debt that has reached proportions that can no longer be passed from current generations to the next. Democratic governments struggle to find credible solutions that they can persuade their electorates to back. And the corporate world seems to be increasingly polarized into those who cant take action through lack of capital or opportunity and those who wont, for fear of what lies ahead. Even the rapid-growth markets have not escaped the fragility of the global economy. Economic expansion in 25 leading rapidgrowth countries has slowed sharply since the beginning of this year, according to Ernst & Young's October 2012 Rapid-Growth Markets Forecast. Our forecast for 2013 growth has fallen by about a sixth to 5.3% this year. Time, it is said, heals all woes, so eventually it is expected that the global economy will recover and return to health. But is there something that management should be doing rather than simply watching the clock?

Growing Beyond How high performers are accelerating ahead

Adjusting to the new reality

The new normal year five


Our research and work with clients continues to confirm four key features that characterize the new economy. They seem to be shaping the market in which we all compete and driving increased competitive intensity. These features are market variation, increased volatility, growing cost pressure and deep uncertainty.
Market variation
The new economy is more varied than the old. We are competing in a multi-speed world in which variation between countries and sectors has never been greater. Indeed, this variation goes beyond countries and sectors to regions and segments. For example, the gap in economic performance between members of the European Union is considerable: the ratio between Greece and Germany currently stands at 1:1.3. However, the gap in performance between the 29 states that comprise India is much greater, with a ratio closer to 1:5. With growing customization and variable performance, the fragmentation of markets into myriad niche segments will continue.

Cost pressure
As consumers and governments rein back their expenditure, and as borrowing to buy becomes harder, there is undoubtedly a greater cost consciousness in the wider economy. At the same time, however, the costs of many commodities continue to rise. Thus margins are squeezed. In developed markets, many employees are now enduring a fourth or fifth year of belowinflation pay-rises. This prolongs the downturn through dampening demand. In rapid-growth markets, however, wage inflation is becoming a major issue that threatens their competitive advantage if passed to end users and their profit margin, if not.

Volatility
Another enduring feature of todays interconnected market is its volatility. Stock market indicators of volatility, such as the VIX Index, seem to have settled down in recent months compared with the past five years. But this is more a signal that the market is beginning to make a permanent adjustment to volatility rather than heralding a new period of stability. Indeed, some are arguing that as the consumers of the rapid-growth markets play a bigger role in the global economy, cyclical volatility has inevitably increased.

Uncertainty
In the past 12 months, any global board looking to manage strategic risk will have increased the weight it attaches to major strategic threats. These threats include the break-up of the Eurozone, the debt-default of the US, international conflict in the Middle East and a major political or economic incident in one of the BRIC countries. Not surprisingly, perhaps, boards with cash prefer to preserve their options to choose, rather than choose wrongly. Similarly, within companies, employees remain uncertain about their economic security or their economic prosperity. Consumer confidence is low. Employee engagement is strained.

Growing Beyond How high performers are accelerating ahead

A gap becomes a growing gulf


Five years after the start of the global downturn, many companies continue to struggle certainly more than we would have expected at this stage in previous recessions. But a growing number are demonstrating that they have learnt to master the new economy and are pulling ahead.
Figure 2: Change in the importance of business activities
2008
Securing the survival of your existing business Protecting your current business/assets Improving the performance of existing business/assets Restructuring the business to meet new conditions Taking advantage of the situation to pursue new market opportunities

2012 65 22 30 23 26

2008-12 -9 -18 -9 -14 +7

74 40 39 37 19

65
22 30 23 26

Q: Over the next 12 months, what change do you expect in the importance that your organization attaches to the following activities? (Five-point scale)

When we started this program in 2008, we asked companies to say where they were focusing their efforts: from securing their very survival, through to taking advantage of the market to pursue new opportunities. We can see that, while the number in crisis has fallen over the past four years, it continues to be very significant. The number of companies feeling defensive about their current position has declined, but still accounts for one in five companies. A sizeable group are now actively seeking to either improve performance from their current assets or restructure their operations. But the biggest increase has occurred in the group who now believe they can take advantage of market opportunities.

There is some variation across different regions of the world in how companies view the market. The US and Asia-Pacific show the biggest increase in the number of companies who believe they can pursue opportunities. They also, however, show the biggest increase in the number of companies in trouble. This suggests an increased polarization of performance. The gap is growing. Moreover, this emerging polarization in performance seems to hold true across all major sectors. In none of the 13 sectors that we have examined was there a material difference, except in mining and metals and private equity, where the pattern is comparable.

Figure 3: Change in the importance of business activities (sectors)


% signicant increase and increase 80 70 60 50 40 30 20 10 0 Securing Protecting Improving Restructuring Pursuing Total Private equity Mining and metals Other sectors

Q: Over the next 12 months, what change do you expect in the importance that your organization attaches to the following activities? (Five-point scale)

Growing Beyond How high performers are accelerating ahead

Adjusting to the new reality

Staying ahead of the pack


We asked respondents to choose up to three factors that would determine their future competitiveness over the next two years.
In general, the response to our survey suggests an increasing focus on the market, a continued focus on optimizing costs and a growing focus on talent and internal engagement. High performers, however, focus more on customer reach issues and human capital, while others focus more internally on optimizing costs and improving organization. These are only differences in emphasis. Our key overall finding is that optimal performance requires a balance across all dimensions. Care always needs to be taken when aggregating results. In seeking the macro pattern we must not lose the micro insights. Sectors vary greatly in the weighting placed on sources of competitive effectiveness. The facing page maps high performer versus low performer responses for 12 sectors. Each sector shows differences in how high performers see the competitive challenge compared with their competitors. competition the major area of difference for five sectors. Cost optimization is seen as important for all the sectors, but is much important for the high performers.

Stakeholder confidence is seen as less


important by most sectors, but it is an area where the difference between high and low performers is most material especially in the area of talent.

Customer reach is an area of major


difference in 9 of the 12 sectors. In 4 of the sectors this is based on seeking deeper customer relationships. In 7, the difference is based on innovation and, in 8, based on market expansion.

Operational agility is seen as the least


important area for focus, with the exception of technology. For five sectors this is a key area of high performance focus.

Cost competitiveness is the second


area of focus, with branding non-price

Figure 5: Critical factors for competitiveness all respondents


Customer reach
Customer relationships Innovation Market expansion

Technology

Brand

Operational Agility agility

40% 50% 60%

Cost competitiveness

Regulatory risk

Cost optimization

Stakeholder relationships High performers Low performers

Sustainability Talent

Stakeholder condence

Growing Beyond How high performers are accelerating ahead

High performers approach the world differently


Automotive
Customer relationships Innovation Market expansion Innovation

Banking and capital markets


Customer relationships Market expansion

Consumer products
Customer relationships Innovation Market expansion

Technology

Brand

Technology

Brand

Technology

Brand

Agility

Agility

Agility

Regulatory risk

Cost optimization

Regulatory risk

Cost optimization

Regulatory risk

Cost optimization

Stakeholder relationships

Sustainability Talent

Stakeholder relationships

Sustainability Talent

Stakeholder relationships

Sustainability Talent

Insurance
Customer relationships Innovation Market expansion

Life sciences
Customer relationships Innovation Market expansion

Media and entertainment


Customer relationships Innovation Market expansion

Technology

Brand

Technology

Brand

Technology

Brand

Agility

Agility

Agility

Regulatory risk

Cost optimization

Regulatory risk

Cost optimization

Regulatory risk

Cost optimization

Stakeholder relationships

Sustainability Talent

Stakeholder relationships

Sustainability Talent

Stakeholder relationships

Sustainability Talent

Mining and metals


Customer relationships Innovation Market expansion

Oil and gas


Customer relationships Innovation Market expansion

Private equity
Customer relationships Innovation Market expansion

Technology

Brand

Technology

Brand

Technology

Brand

Agility

Agility

Agility

Regulatory risk

Cost optimization

Regulatory risk

Cost optimization

Regulatory risk

Cost optimization

Stakeholder relationships

Sustainability Talent

Stakeholder relationships

Sustainability Talent

Stakeholder relationships

Sustainability Talent

Power and utilities


Customer relationships Innovation Market expansion

Real estate
Customer relationships Innovation Market expansion

Technology
Customer relationships Innovation Market expansion

Technology

Brand

Technology

Brand

Technology

Brand

Agility

Agility

Agility

Regulatory risk

Cost optimization

Regulatory risk

Cost optimization

Regulatory risk

Cost optimization

Stakeholder relationships

Sustainability Talent

Stakeholder relationships

Sustainability Talent

Stakeholder relationships

Sustainability Talent

Growing Beyond How high performers are accelerating ahead

Customer reach

Getting closer but looking beyond


When asked what factor was most critical to their companys competitiveness in the next two years, high performers said deepening their relationship with customers, while low performers said cost optimization. There, fundamentally, is the crux of two very different management approaches: one focused on the market, the other on the operation. Both are clearly important and necessary within an organization, but our research suggests that high performance is fundamentally driven by the predominance of a markets model.

What we learnt before


High-performing companies have been entering new markets by:
Taking care when expanding across borders they maximize their growth potential at home first and expand only after carefully assessing opportunity, cost and risk. Developing new markets and creating additional value from current products new products for new subsegments or new opportunities for existing assets. Adopting increased caution high performers are less likely to slow themselves with internal consultation and more likely to consult external stakeholders.

High-performing companies have been approaching product development by:


Carefully selecting customer segmentsthat allow them to create long-lasting competitive advantage. Recognizing the value of innovation they are ahead in utilizing their planning process to drive innovation. Listening to their employees recognizing their expertise in products and spotting new client needs.

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Growing Beyond How high performers are accelerating ahead

Meeting a moving target


Targeting and satisfying customer needs
Its a simple aim, but its easier said than done particularly in todays volatile market. Shifting economic terrain, as well as ongoing macro-trends, such as globalization and sweeping demographic change, mean that customer needs remain in a state of flux. Only those organizations that possess a deep understanding of customer demand and expectations will manage to match their service or product with demand. The process of marketing in which companies seek to shape choice to better align demand and supply has risen as a focus area, especially for high performers. Existing clients remain the focus of most companies when they are seeking new sales. Gaining a deep understanding of customers and a close relationship with them is well-documented as a fruitful area of focus when looking to reduce costs. It is the top success factor among all categories of respondent. However, while it is still very important, it has now been supplanted as the top response of high performers. They now list finding new markets for existing products as being the most important area. These new markets could be new geographies or new segments in existing geographic markets. The process of understanding and responding to changing market demands is rising fast up the corporate list of priorities. The need to invest more in marketing as a consequence, and to consider adapting products, services and delivery methods for new markets, is recognized more by high performers than low performers. Similarly, the trade-off between growing volume and growing value shows that high performers are over 50% more likely to increase price than low performers and almost 40% less likely to cut price to grow or protect volume. We have not previously focused on non-organic routes of growing revenue, through acquisition or merger. This is because, when they prove successful, these routes can normally be seen to have driven the faster attainment of a strategic goal already covered by the framework. It is noticeable, however, that from parity in response rates, we now see a much greater difference in the response of high and low performers. High performers are now 40% more likely to be considering merging with or acquiring competitors to increase market share. This wave of sector restructuring has been anticipated for some time. Interestingly, however, the response suggests that it covers all sectors, with no particular sector standing out as more or less active.

Figure 6: Actions taken to increase sales


High performers
Develop new geographic markets to sell existing products/services Introducing new products and/or services to meet evolving needs of existing clients or to attract new customer segments Broadening existing product/service range to develop new customer segments in existing geographic markets Increased investment on marketing and sales Adapting existing product/service offerings for new geographic markets Opening new distribution channels/reorganizing to address markets through multiple channels Merging with and/or acquiring competitors to increase market share Increasing prices Cutting prices

Low performers 39 49 39 33 30 35 25 12 21

Gap: high vs. low +19 +8 +12 +9 +8 +1 +10 +7 -8 48 53 46 37 33 39 31 14 15

Total

58 57 51 42 38 36 35 19 13

Q: Which of the following actions is your company taking to increase sales?

Growing Beyond How high performers are accelerating ahead

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Getting closer but looking beyond

Customer reach

On markets
Successful pioneers need a plan
Market expansion is a key feature of high performers strategies and their top priority in developing sales. Essential though the rapid-growth markets may be for the future, investing in other developed markets seems to be at least as important. We may be in the middle of a major rebalancing of the global economy, as rapid-growth markets increase their market share, but today and indeed for the next decade developed markets will continue to account for over 50% of global demand and a significantly higher proportion of profit for companies.

Figure 7: Proportion of sales generated in recently entered markets


High performers
39 37 28 19

Low performers

All respondents

28

25

22 14

7 3 0%

9 4 1%5% 6%10% 11%20% 6 2 3 3 1 1 3 1 2

21%30%

31%50%

Above 50%

Q: What proportion of your sales is generated in markets which your organization/ company hasentered in the past three years?

Case study: PCH


Liam Casey is the Ireland-born CEO of PCH International. The China-based supply chain management company is one of the worlds leading manufacturers and distributors of smartphone and tablet accessories, working with consumer electronics brands to produce devices and ship them to customers around the world. PCHs base in Shenzhen, China a city with a population of more than 10 million people that, only two decades ago, was quiet and provincial has played a crucial role in its growth story. Casey began his Chinese odyssey in 1995, leaving his home in Cork, Ireland, to follow the example of a friend who had been making a good living from importing Chinese hardware into the US. After flying to Taiwan to attend a trade show, Casey started his own business importing cables from Shanghai to Cork. Casey says that PCHs success as a start-up in China depended on making processes as straightforward and understandable as possible. The big challenge was to take confusion out of business, so we had to keep things simple, he says. Consequently, as Western businesses interest in China grew, PCH was ideally placed to help them find a clear route into the Chinese manufacturing sector.
Source: Exceptional, Ernst & Young, 2012. Article author: Christian Doherty.

A third of high performers have over 10% of their sales generated in markets entered in the past three years, compared to 13% of low performers. Apart from oilandgas, this is true for all sectors. When asked to identify the developed countries on which they should place their corporate bets, both high- and low-performing survey respondents opted for the US. This is not surprising, given the size of that market and its comparative resilience to the wider global economy. Europe, however, performs less well, with only 4 of the top 10 national markets. The rapid-growth markets show, as expected, that the BRIC countries dominate, with China increasingly pulling ahead as the major focus. Of note, however, is the particular focus that high performers are placing on Brazil. But care needs to be taken with simple lists such as these: behind the figures lies considerable regional variation, as we have shown before. Attractiveness is shaped by perspective, which in turn is often influenced by proximity. High-performing companies in the US, for example, are far more likely to see most potential in their domestic market, followed by other Anglo-Saxon markets, such as the UK and Canada. Asia-Pacific based companies are more likely to favor their own region (including India), while the preferences of European companies are the most broadly spread. Ironic perhaps that, through history rather than intent, European companies are by some margin the most global in their spread of operations. Certainly, there is little doubt that market opportunities exist even in the current economic environment. Although global trade collapsed during the financial crisis, it has since rebounded strongly, led by trade among emerging markets. By 2020, world trade in goods will total around US$35t, two-and-a-half times its

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Growing Beyond How high performers are accelerating ahead

Figure 8: Top potential markets over the next five years


Developed markets
High performers US UK Germany Singapore Australia Canada Japan France Hong Kong Norway 51 34 22 19 16 16 15 11 10 6 Low performers 40 31 28 14 14 12 14 14 8 4 +2 +2 +5 +2 +4 +1 -3 Gap: high vs. low +11 +3 -6

Rapid-growth markets
High performers China India Brazil Russia South Africa Indonesia United Arab Emirates Saudi Arabia Poland Singapore 43 32 31 19 11 11 10 9 8 8 Low performers 37 29 20 21 8 7 3 11 10 9 +3 +4 +7 -2 -2 -1 Gap: high vs. low +6 +3 +11 -2

Q: Which of the following developed/rapid-growth markets holds the greatest potential for your company over the next five years? (Select up to three)

value in 2010, according to Ernst&Youngs 2012 report, Trading places: the emergence of new patterns of international trade. At the same time, world trade in services will double to around US$6t. As new regional trade agreements are reached, companies will be assisted by lower trade barriers as well as falling global transport and communications costs. This will enable organizations to market their products around the world and coordinate with suppliers in other countries.

Rapid-growth markets are driving global growth


Rapid-growth markets are becoming ever more important. They have grown on average by 5.8% per year over the last decade, more than three times as fast as the advanced economies combined. But, importantly, their future potential is only now becoming clear. Continued industrialization and urbanization, along with strong population growth and the emergence of a substantial middle-class, will further encourage their expansion. Although there has been a slower rate of expansion this year, a return to significant growth is likely from 2013. Soaring domestic demand will offer businesses exciting new markets for goods and services in the years ahead. For example, in 2011, two-thirds of consumer spending across the world came from the advanced economies. But in 25 years time, Asia alone will have overtaken them as the largest source of consumer spending, at almost 40%. This level of demand will ensure that rapid-growth markets eventually replace the advanced economies as the key driver of global growth, and the shift in import demand should also assist in rebalancing the global economy. For further information, see the latest edition of Ernst&Young's Rapid-Growth Markets Forecast.

Increased fragmentation demands more planning


High performers seem to have a more developed plan for their market-entry strategies than low performers. Their decision to enter a developed market is based on identifying a clear demand for a current product or service, supported by the scale and growth projections of that economy. For them, quantitative demographics and income per capita analysis is not enough. A potential move into new markets also prompts them to consider factors such as purchasing behavior, the power of local brands and changes in attitude and consumer behavior. The increased variation in performance has resulted in a more fragmented market. Take Europe as an example. The ongoing problems of the Eurozone should not overshadow Germany, whose consistently robust economic performance has continued, even in recent years. But a closer analysis reveals that some German regions particularly in the west of the country are vastly outperforming other regions, mainly in the east. Market segmentation is deepening and businesses dont now necessarily want to serve a whole country. Instead they prefer to target a specific segment of a country.

Growing Beyond How high performers are accelerating ahead

13

Getting closer but looking beyond

Customer reach

On product
Matching customers evolving needs
Developing or adapting products or services holds the key to creating new revenue streams. Over half our respondents say that selling new products to existing customers is their primary source of increased sales particularly in banking and technology. A further 33% report that they are adapting existing products for new markets, with life sciences and technology, again, in the lead (see Figure 6, page 11). One of the major drivers of change continues to be the impact of technology. Digital technology now allows for both more focused communication and consequent customization than ever before. Customers can search more widely for their specific requirements and are much less willing to compromise than before. Market segments are constantly being redefined by the "know it all, want it all consumer." Moreover, while this started in consumer markets, it now affects the way people interact with government and utilities and how businesses interact with each other. As explored in a recent Ernst & Young study This time its personal: from consumer to co-creator digital technology is driving a revolution in consumer demand. Market segments are constantly evolving, brand loyalty challenged, communication channels fragmented and consumers more informed and demanding. To remain relevant to the new consumer, organizations must undergo a similarly radical transformation. The implications for businesses are great and include intensifying the dialogue with customers, making service personal, delivering consistent multichannel service and providing an end-to-end brand experience. Companies therefore need to tailor their goods and services to match such niche requirements. Segmentation of the customer base is the foundation for successful innovation, and is the third most quoted source of increased profitability for high performers. Successful segmentation requires companies to be both quick to exploit new opportunities and highly innovative in their breadth of customer offerings. Yet this doesnt happen automatically. The most innovative companies understand how to capitalize on the opportunities in their environment. While innovation is important to all companies, it is particularly important to high performers. They deem it the second most important factor in determining future success. Thirty-eight percent say they generate in excess of 10% of their sales from products or services developed in the past three years, as opposed to only 21% of low performers. But getting the balance right is important. The real difference happens between 11%20% of new products the difference in performance of companies with over 30% of new products is immaterial.

Figure 9: Global sales generated by new product development


46 40

High performers

Low performers

All respondents

29 26 22

29

20 13 10 9 4 5 4 3 3 5 4 3

12 5 6

0%

1%5%

6%10%

11%20%

21%30%

31%50%

Above 50%

Q: What proportion of global sales are accounted for by products developed in the past three years?

Our research has found that those companies that embed innovation into every aspect of their organization are the most successful. Innovation is not a tactic: it is simply what they do. Our recent study, Innovating for growth: innovation 2.0 a spiral approach to business model innovation, suggests a loosely structured, circular process that allows companies to connect with the various points of the spiral in different ways and at different times, ultimately reaching an innovative breakthrough. It sets out how, for most innovative companies today, innovation is a continuous cycle with ups and downs, input from different places, repetition, failure, and many steps back and forth.

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Growing Beyond How high performers are accelerating ahead

Figure 10: Spiral innovation system


ip mindset and cult dersh ure Lea
Customers
Pe o

By adopting this approach, the most innovative companies can:

Oth er co m

Take advantage of changes in the external environment Continually revamp their business models to achieve
urement and KPIs Meas

lls ski nd ea pl

Fu nd in g

s nie pa
ion

Intuition

Inv

rs to es

Capitalize

s a nd serv

Academics

competitive advantage Innovate to obtain specific business outcomes, such as increased agility or productivity It is difficult to be innovative in a world where competition comes at you from all sides. But the spiral approach is a robust process for innovation. If followed carefully, it can provide flexibility and structure for companies of all types, regardless of size or sector.

Exp loi ta t

siness model Bu
i ce

ion lizat cia So

Achieve

Technology

Suppliers

Pr od
Ar ea s

u ct

en t

of innovat

Source: Innovating for growth: innovation 2.0 a spiral approach to business model innovation, Ernst & Young, 2012.

ge m en t

Exte

Fina ncial institutions

Org nce anizat ion and governa


Innovation enabler

rnal collaboration

s ra Inf

Lessons from Asia


One region in particular that has seen Figure 11: Which export countries or regions do you expect will hold the new opportunities ricochet across best growth opportunities for your company over the next three years? borders is Asia. Its rapid-growth markets For globally focused companies For regionally focused companies are the fastest-growing economic regions in the world, with annual growth forecast 32 Western Europe 42 Mainland China at more than 6% p.a. Companies from Middle East and North Africa 28 33 India these regions are expanding into new 20 Brazil 29 Indonesia markets for various reasons: growth, 18 Russia 25 Vietnam diversification, routes to market and 15 Eastern Europe (ex-Russia) access to resources, skills and technology. Middle East and North Africa 24
Brazil

24 23 18 18 15

US or Canada Mainland China Sub-Saharan Africa Singapore Hong Kong (SAR)*

14 8 8 7 7

Our report Beyond Asia: strategies to support the quest for growth explores the differences among companies in their quest for growth, and contrasts findings for globally and regionally focused companies. Asian companies are on a very successful expansion path, but are meeting challenges and risks that even established multi-nationals would find hard to overcome. The strategic moves

Western Europe Russia US or Canada Australia and New Zealand

Note: Scores shown = percentage of respondents * Special administrative region

Asian companies must make to counter these obstacles are difficult, but essential, steps toward globalization.

For further information, please see Beyond Asia: strategies to support the quest for growth, Ernst&Young, 2012.

Growing Beyond How high performers are accelerating ahead

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15

Operational agility

Moving quickly in a customized world


There will always be a time lag from the point when an organization sees opportunities (and threats) to when it executes its plan of response. How successful a company is in minimizing this elapsed time is one of the many factors that separate high and low performers. But the traditional source of speed has been standardization of both product and process, neither of which addresses a new, fragmented market of dynamically evolving customer demand.

What we learnt before


High performing companies have been gaining speed by:
Placing greater emphasis on empowering local-decision making,as well as the need to encourage employees to innovate without active management intervention. Seeking speed from their suppliers and distribution partners.They are significantly more likely to be willing to change both, in order to achieve a faster time to market. Remembering the importance of longer-term strategic goals.In most cases, lower performers seem to be working to a shorter time-frame.

High performing companies have been increasing flexibility by:


Organizing around the customer,to ensure that they remain at the center of their thinking. Effectively deploying digital sales toolsto manipulate masses of data to customize their response to a specific client. Recognizing that proactive human resource programsmay be required to get even good employees on side in the quest for speed and flexibility.

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Growing Beyond How high performers are accelerating ahead

On speed
Being fast is more important than being first
Only one person can ever be first to do something and the record of commercial success for such pioneers is at best mixed. Speed, however, matters for everyone. Speed to market. Speed of change. Speed of operations. These are often the difference between success and failure. And in todays competitive market, organizations deploy a variety of techniques to improve this aspect of their performance. De-layering management to increase the pace of decision-making is one example. Others include changing supply and distribution channels to respond quicker to market changes, and seeking partnering agreements with key suppliers and distributors. In our previous studies, we found that high performers were achieving their faster speeds by improving processes, especially by devolving decision-making closer to the market, as well as seeking speed from their supplier and distribution partners. When analyzing the changes in speed to market compared to three years ago, it appears, however, that while getting faster, the rate of acceleration is no longer as great as it was. Although 74% of high performers believe that their organization is getting faster at developing new products and services, this is 6% lower than in 2011. Low performers are experiencing an even faster deceleration 49% in this survey compared to 61% in 2011. Indeed, the gap between the two groups has grown. Three years ago, many companies were in a fight for their very survival and were under intense pressure to get new products to market for urgently-required new revenue. Today, with growing awareness that the road to recovery is long and challenging, there may be less anxiety to rush a product to potential customers and a greater willingness on the part of companies to pace themselves in a more sustainable fashion. Potentially, however, there is growing uncertainty about the business environment individual companies face. Recovery is not happening as planned, leaving some more optimistic players looking exposed. The risks of being first to market are beginning to outweigh the opportunities. Being fast to respond to a clear opportunity seems a more efficient approach. Equally some companies particularly low performers are reaching the limits of their current organizational response, having exhausted the incremental performance improvements that can be achieved without major change to their operations. The transformation of organizations typically slows the existing operation down, regardless of the longer-term benefits.

The DNA of the COO: time to claim the spotlight


Why is so little known about the role of the COO, despite its long history? Ernst & Young's The DNA of the COO: time to claim the spotlight uncovers a compelling story of a wideranging role that still needs to justify its existence, despite having a clear rationale. The DNA of the COO explores the expectations and aspirations of those in the job, along with the skills, capabilities and relationships they need to master in order to succeed. What we find is a breed of executive that combines deep operational knowledge with broad strategic insight, and who has what it takes to become the next CEO. Yet we also find a role that is fraught with challenges. Successful COOs have to adapt constantly to a fast-changing corporate and external environment. They must possess a mastery of change, to help translate strategic vision into action. And they must ultimately help the business to innovate and grow. The average COO is a 48-year-old male. He has typically been in his current role for six years. Over half (54%) of COOs have a Masters degree or higher, although there is no particular qualification that dominates, given how sector-specific the role can be. Where companies have a COO role, it tends to be senior 66% of those polled are a member of the executive committee or board. COOs are generally very satisfied with their role, especially their potential for career development and influencing corporate strategy. Many COOs worry that they may not be sufficiently accepted or respected by other members of the management team, but their peers do not share this perception and, in fact, hold them in the highest regard. Motivation and hard work are seen as the attributes that have done most to get COOs where they are today. The DNA of the COO incorporates analysis of two surveys: a February 2012 pilot study of 200 COOs and an April 2012 survey of another 306 COOs and senior operations professionals across Africa, America, Asia, Australia, Europe and the Middle East. In the second survey, a further 43 respondents from across the C-suite were also polled to give their perspective on how the COO is perceived by the rest of the management team. You can download the report at ey.com.

Growing Beyond How high performers are accelerating ahead

17

Operational agility

Moving quickly in a customized world

On flexibility
Consistency is a dangerous word
Consistency remains a favorite mantra for management. Consistency facilitates efficiencies in operations and the ability to deliver a shared brand promise across service, sector and national boundaries. But, while such consistency at the level of an individual client may well be essential, there is also a risk that it reduces the opportunity to respond in an increasingly varied and volatile world. Indeed, the variation in markets and the volatility of recent years has demonstrated how vital it is for companies to possess the flexibility to adapt to fast-changing circumstances. New trends, shifting customer demands and an unpredictable, and ongoing, financial crisis are just a few of the reasons why companies need to be ready to move quickly, whenever necessary to respond to opportunities and threats. In seeking flexibility, organizations put different emphasis on different tools, depending on their country of origin. In the US, for example, both high and low performers place much greater emphasis on the use and role of technology to achieve this goal. By contrast, the Europeans stress breadth of product range and decentralization of decision-making, while companies from Asia-Pacific show a greater reliance on generating internal responsiveness and increasing the use of external partnerships. This may reflect the stage of company development, but may also be indicative of management and local culture. Comparing actions in pursuit of flexibility shows a stark contrast between high and low performers. High performers are far ahead in their use of technology, the breadth of their product or service portfolio, decentralizing decision-making and enhancing the skills of their workforce to utilize this freedom. There seems to be a collection of companies who have overcome the internal inertia of large organizations and empowered their people to leverage the organization to commercial success Low performers, by contrast, seemed trapped in a hostile ecosystem challenging their partners in the supply chain to do more and still trying to connect their internal resources to the harsh reality of the competitive challenge the company faces. The "control culture" that developed in previous decades, as companies sought to recreate previous success, has become one of the major obstacles to competitive success.

Figure 12: Actions taken to increase flexibility


High performers
Increased use of technology Enlarged the product/service portfolio to meet different market needs Made internal support functions more responsive Improved and/or broadened workforce skills Decentralized decision-making

Low performers 37 27 41 30 23 36 22

Gap: high vs. low +12 +18 +2 +9 +10 -3 +6 40 35 46 35 30 34 27

Total

49 45 43 39 33 33 28

Made external partnerships more efcient


Invested in more exible manufacturing processes

Q: Which of the following actions has your company taken to increase its flexibility over the past two years?

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Growing Beyond How high performers are accelerating ahead

Case study: DuPont


When Ellen Kullman became CEO of Delaware-based science company DuPont at the beginning of 2009, she had to move fast. Demand collapsed in every country, in every business outside of agriculture, in a three-month period, and it was totally unprecedented. We literally had to get everybody to stop what they were doing. Wed review a business, determine what was going on, and a week later, it would be different. In her first few months in the top job, Kullman eliminated about 4,500 jobs and narrowed DuPonts focus to 13 business lines. And that was just the start. We set out to further streamline and simplify the company, and we took out a layer of leadership and got really clear on what success looks like coming out of the recession, says Kullman. That clear view of the business began immediately after she became CEO. We started within days, she says. If we used to run a monthly review process, it became a weekly process, and if a business was running a weekly process, some months it was a daily process. The results were nothing short of stunning. Earnings increased by 23% in the third quarter of 2011, beating estimates by US$500m.
Source: Exceptional, Ernst & Young, 2012. Article author: Lester Picker.

Taking advantage of technology


Increased use of technology is the most popular way that high performers seek to improve their flexibility. Almost half have taken this step, compared to 37% of low performers. Compared with earlier times, when technology was often a source of standardization, imposing its requirements on the world, technology is now fluid and multifaceted and provides the route to far greater customization and flexibility. Take cloud computing, for example. Over the past few years a wide array of hardware and software services have become available over the internet. Both consumers and businesses are taking advantage of the possibilities. Mature sales-force management services, email and photo editing, and smartphone applications are just some of the ways in which cloud computing represents a fundamental shift. And then there is social networking, which many organizations are now using to promote products and services, and to communicate directly with their customers. As cloud adoption becomes more widespread, its ability to help businesses to become more agile is likely to lead to an increasing pace of change in all industries worldwide. But as business moves into the virtual world, and more and more data is transmitted over the internet and via cloud computing, the importance of information security grows. Some 60% of respondents in Into the cloud, out of the fog: Ernst & Young's 2011 Global Information Security Survey believe that their risk has increased, and only 3% feel their risk is decreasing. It is important for information security to be strategically aligned with the broader business agenda and based on an organizations risk tolerance. This is just one of many challenges facing todays CIOs. The influence of information technology on business has grown so quickly that many IT functions are still struggling to marry their technical expertise with a new business perspective. In addition to security issues, there are increasingly complex IT and business operating models, new regulations and cost-efficiency demands.

Growing Beyond How high performers are accelerating ahead

19

Operational agility

Moving quickly in a customized world

Our 2012 report, The DNA of the CIO: opening the door to the C-suite, found that less than one-in-five of more than 300 CIOs polled are members of their organizations top management team. And just 43% said they participate in strategic decision-making. In the evolution from providing tactical support for the business to becoming a strategic partner, CIOs need to align the priorities of IT to those of the business. CIOs also need to provide wise counsel, turning information into insights when the business is seeking to deploy new technology. The need to be faster to market may encourage organizations to procure and implement new technologies, but it is vital that they understand the risks that those new technologies may present. Companies today are investing in technology for many reasons, but five goals stand out: innovating processes to get faster, finding new ways to engage with the market, developing new products,

reducing costs and increasing flexibility. High performers place much greater emphasis on using technology to engage with the market and for developing new products and services. Looking ahead three years, the opportunity to develop new products and services through technology has risen to be top priority for all and high performers continue to seek new ways to engage with the market. They are also putting greatly increased emphasis on finding new ways to collaborate with third parties. Given the ongoing technological transformation and the need to invest to stay competitive, organizations perhaps feel that reducing technology spending is not a wise course of action at this time.

Figure 13: Objectives of current and future investment in use of technology


Today
Engaging with and selling to new customers Innovating your processes to increase your speed of response Developing new products or services 41 34 39 38 37 30 33 38 30 33 26 30 20 16 19 21 High performers

In three years
Developing new products or services Engaging with and selling to new customers Innovating your processes to increase your exibility Innovating your processes to increase your speed of response Reducing your operating costs More collaborative environment within the organization and the supply chain Reducing your production costs 13 11 27 35 27 25 23 27 41 37 36 32 35 32 34 33

Reducing your operating costs Innovating your processes to increase your exibility Reducing your production costs

Improving your reporting More collaborative environment within the organization and the supply chain

Improving your reporting Low performers

Q: Considering your organization's use of technology, please prioritize the objective of your organization's current investment today, and in three years' time. (Select up to three)

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Growing Beyond How high performers are accelerating ahead

Case study: Nycomed


In 2010, Nycomed, a privately owned, global pharmaceutical company demonstrated how a flexible, scalable finance model can drive business value. It did this by introducing the GAIN program, which involved a comprehensive review of the existing G&A operating model and cost structure for its European business. By comparing the findings of a feasibility study with leading practices for finance organizations, the following goals were identified to improve the flexibility and scalability of the finance function: Move transactional accounting and reporting processes out of 24 local countries and into four hubs Move accounts payable to Service Center Europe in Poland Implement a scanning system and automatic approval for invoices Outsource legal statutory reporting to an external service provider managed by the hubs on a regional level Strengthen and focus on business controlling processes supporting the local business to be retained in the local sites Ensure the finance role operates as a business partner close to the local business Implement SAP as the financial backbone in nine Eastern European countries and the UK, to have a Europe-wide SAP platform Implement automatic payment Implement standard travel expense process and outsource to an external service provider
Source: Performance, Ernst & Young, 2012.

The DNA of the CIO: opening the door to the C-suite


For many years, CIOs have been talking about becoming a true partner to the business and the executive management team to assist them in their strategic decision-making. But, as The DNA of the CIO: opening the door to the C-suite highlights, relatively few have broken out of their comfort zones to actually make that step. The encouraging news is that many CIOs find the remit and responsibilities of their existing role hugely rewarding and enjoyable. Nevertheless, many more will need to test the limits of their comfort zones if they want to become a relevant partner to the business and better aligned with the biggest organizational issues. Our report is based on our survey of 301 senior IT professionals from Europe, North America, Asia, Latin America, Australia and South Africa. It also draws on indepth interviews with a further 25 CIOs from these regions. A further 40 respondents from across the rest of the C-suite were polled to provide a perspective on how the CIO is perceived by the rest of the executive management team. Of the CIOs interviewed in our survey, 64% enjoy the scope and remit of their role. The CIOs contribution in any business can be wide ranging in its scope: Execution: All CIOs are involved in the execution of the basics keeping systems up and running, while keeping close tabs on the organizations overall IT spend. Enablement: This is where a more operational focus starts to give way to something more strategic in nature from improving business decisions by acting as an information broker to proactively enhancing business processes. Development: At the highest level, CIOs are called upon to help develop the business further. From delivering transformation through to introducing business model innovation, this can be the most rewarding part of the job but is only open to those who truly consider the rest of the C-suite as equal peers and the least often pursued. For more information, see the full report, available at ey.com.

Growing Beyond How high performers are accelerating ahead

21

Cost competitiveness

Finding the right balance


Low costs do not automatically translate into high profits. The best-performing companies not only understand what drives cost, but more importantly understand how that spend creates value. To get pricing right, the company must identify how value is created and the total value-chain-wide costs involved in supplying the service or product. Possessing an informed pricing policy, an effective program of cost reduction and well-managed cash flow are just a few of the ways in which high performers approach this challenge. Cutting costs in isolation will not lead to sustainable success.

What we learnt before


High-performing companies have been improving their pricing through:
Seeking a deeper understandingof where value is created. Price-setting is a dynamic dialogue affected by many variables and high performers are proactive in seeking to shape this dialogue. Placing significantly more emphasison understanding competitors pricing,enabling them to understand when there is a short-term opportunity and also a more sustained threat from a competitor. Putting a stronger focus on premium pricing.As in our previous studies, high performers seem to focus on seeking premium pricing, wherever possible.

igh-performing companies having been seeking H sustainable cost reduction through:


Being three times more likely than lower performersto focus on front-office efficiencies. Finding the cost of capital marginally lower than lowperformers,and finding access to capital markedly easier. Optimizing transfer pricing,reviewing intercompany lending structures and reassessing corporate and enterprise locations.

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Growing Beyond How high performers are accelerating ahead

On price
Profit starts with pricing
The market may set the market price, but it doesnt determine how much value is created or captured by individual companies. The importance attached to brand strength when entering either developed or emerging markets reflects this. Brand is ultimately a proxy for non-price based competition in any market. Even in todays difficult commercial environment, 9% of all respondents are planning to increase price by more than 20% in the next two years. This reflects the cost pressure that all organizations are facing. As inflation costs edge upwards, and the price of goods, labor and raw material gets more expensive, all companies have the difficult task of adjusting their prices without alienating their current or future customer base. But failing to maintain price or build premium brand positions is dangerous. This results directly in a massive downward dynamic within organizations that is internally focused and demoralizing. More than half of high performers believe that they can increase price by more than 5% a proxy perhaps for the real rate of inflation in the next two years. This is marginally up from two years ago. In contrast, only 14% of low performers now believe they can increase their price by more than 5% down from 21% from two years ago. This sets an entirely different context for these organizations: one externally focused on value-creation and opportunity, the other internally focused on reductions and cuts. Fundamentally, this ability to increase price shows the value of the actions taken by high performers to better understand current and future demand and build a brand that captures the most value from this. Because they know what their customers want, and how they value it, high performers are more confident about how far they can go with price increases. There is significant variation between sectors in the extent to which price rises are seen to increase sales. While the level of overall response does not vary materially across sectors, high performers in banking, mining and metals and life sciences see opportunities in this area. These sectors also scored highest on making changes to pricing policy in the past three years. By contrast, high performers in technology, media and entertainment and asset management saw little opportunity.

Case study: Leica Camera AG


A passion for photography and an appetite for risk inspired Andreas Kaufmann to invest in Leica Camera AG. As Chairman of its supervisory board, he has helped to cement the companys reputation as one of the worlds most exclusive camera brands. Under Kaufmanns leadership, Leica bought back its distribution networks and changed contracts with dealers to ensure that they meet quality standards, hit price points and distribute selectively. The company has also launched a fresh approach to product development that saw all R&D conducted with an eye toward price levels. In the past, if an engineer had an idea to improve a camera, we might have pursued that with abandon. With our new process, we first make sure that any developments working their way through the pipeline will be ones that will sell at a particular price, explains Kaufmann. Were not a luxury brand, but we are elite, and price plays a role in how we see products. Leica certainly seems to have found the right mix of technical quality and distinctive design at prices acceptable to the market. While its cameras may to the untrained eye, at least appear retro in style, customers are still willing to pay tens of thousands of dollars for them.
Source: Exceptional, Ernst & Young, 2012. Article author: Rhea Wessel.

Figure 14: Future pricing of own primary products/services


2012 High performers
Increase by more than 20% 6%10% increase 1%5% increase No change Decline

Low performers 4 10 41 26 18 9 20 44 17 11

Total

19 31 29 13 9

2010 High performers


Increase by more than 20% 6%10% increase 1%5% increase No change Decline

Low performers 7 14 29 31 17 14 21 31 20 11

Total

28 19 27 12 12

Q: Over the next two years, how do you expect prices for your company's primary products/services to change?

Growing Beyond How high performers are accelerating ahead

23

Cost competitiveness

Finding the right balance

On cost
Maximizing efficiencies effectively
The increasing competition in the market underlines why it is so important for companies never to lose sight of their costs. Although cost reduction does not explain difference in performance because companies should always be focused on cost a combination of high operating expenses and increased complexity in many markets is forcing companies to rethink their approach. Our September 2011 research indicated that low performers were much more likely to be lowering production costs, reducing headcount or deferring R&D. They were twice as likely to focus more on the back office, whereas high performers were three times more likely to focus on front-office efficiencies. Cutting costs is not the same as eliminating waste. Although all companies have a similarly strong focus on reducing costs in non-frontline activities, high performers take a more strategic view and focus more on efficiency than reducing headcount. High performers also place more emphasis on customer segmentation and market analysis, with 42% taking actions in this area compared to 34% of low performers. Again, this shows that high performers know the importance of understanding their customer. Recognizing what they need and expect, and what drives them, is crucial when determining the future viability of pricing strategies. Management attitudes clearly vary between the two groups. Low performers have been far more active in headcount reduction 43% versus 26% and have also been more prone to offshoring their operations to lower-cost locations, and taking actions to reduce their tax liability. They are also twice as likely as high performers to take no significant actions to increase profitability. Companies in similar sectors would be expected to face similar cost pressures, but, as Figure 16 shows, there are important variations. The number one cost pressure for low performers is price erosion. This reflects failure to meet market demand effectively. The consequence of this is dramatic, as it can divert the organization away from the market and onto cost reduction, rather than taking

Figure 15: Changes over the past two years to increase profitability
High performers
Continual focus on cost reduction in non-front-line activities Process innovation and advances in technology Back ofce integration and efciency initiatives Customer segmentation and protability analysis Pricing policy changes Improved cash forecasting Reduced headcount Moved operations to lower cost locations Reduced tax liability No signicant changes

Low performers 45 31 36 34 25 30 43 22 25 6

Gap: high vs. low +3 +14 +7 +8 +11 -3 -17 -4 -9 -3 45 31 36 34 25 30 43 22 25 6

Total

48 45 43 42 36 27 26 18 16 3

Q: What changes has your organization/company made (if any) to drive increased profitability over the past two years? 24

Growing Beyond How high performers are accelerating ahead

Case study: GlaxoSmithKline


When Simon Dingemans became CFO of health care giant GlaxoSmithKline (GSK) in April 2011, he saw a chance for finance to be much more involved, to improve delivery and to help drive performance much more directly. This meant improving the quality of decision-making and focusing finance on driving the returns out of the strategy that weve laid out over the last two or three years, says the CFO. When it comes to R&D, GSK is breaking down some of the industrial infrastructure to create more flexible, smaller operating units. This strategy has allowed much better targeting of resources, which has released considerable cost savings. Enhanced productivity and financial efficiency has improved the internal rate of return on R&D up from around 11% in 2010 to 12% in 2012. more strategic actions to improve market share. In contrast, high performers are more likely to be struggling with labor costs, inflation and the price of raw materials. Again, however, there are regional variations to consider. High and low performers in the US are far less likely to see labor costs, exchange fluctuation or input costs as principle cost concerns. For them, the primary challenges are price erosion and decline in demand. Companies in Asia-Pacific, however, report significantly higher concerns over labor costs and exchange rate fluctuations than those from the other regions, partly reflecting the devaluation of major developed currencies, such as the dollar, euro and pound. Finance is also playing a part in simplifying GSKs business more broadly and reaping the rewards. Driving cost out of the business by reducing and simplifying the manufacturing and R&D footprints and by centralizing support functions has, so far, produced annual savings of 2.2b (US$3.4b). A further 600m (US$925m) of savings have been identified, by really working the existing programs of footprint reduction, process simplification and new infrastructure investment to improve our processes, Dingemans says.
Source: Capital Insights, Ernst & Young, 2012.

Working capital competitiveness


Many companies have seen their working cash reduce and the cost and availability of capital remains restrictive. All should seek a stronger working capital position to free up cash, boost flexibility and improve margins. Ernst&Youngs 2011 All tied up: working capital management survey contacted some 2,000 of the largest companies (by sales) based in the US and Europe. The report covered six extra regions, including Asia and LatinAmerica. It found that, compared with 2010, the working capital performance of companies in the US has improved, while stalling in Europe.

For companies headquartered outside the US and Europe, a big disparity in performance is revealed. While part of this gap may be explained by variations in market characteristics, payment practices and supply chain infrastructures, there are also marked differences in the degree of management focus on cash and process efficiency. It is therefore important for industry leaders to continue implementing truly effective working capital management strategies. The fact that US and European companies still have up to US$1.2t of cash unnecessarily tied in working capital a sum equivalent to nearly 7% of their combined sales points to the potential for further significant gains.

Figure 16: Most significant cost pressures


High performers
Labor cost ination Exchange rate uctuation Input cost ination (i.e., raw materials, energy, pre-fabricated products) Increased regulatory and compliance requirements Price erosion Demand decline Investor/stakeholder pressure Interest on and/or servicing debt

Low performers 37 36 31 40 42 33 26 22

Gap: high vs. low +6 +7 +7 -2 -6 -8 -4 -4 41 40 35 40 37 29 24 20

Total

43 43 38 38 36 25 22 18

Q: Which of the following cost pressures are most significant for your company?

Growing Beyond How high performers are accelerating ahead

25

Stakeholder confidence

To inform, to explain, to engage


Business is not just about numbers. The way a company communicates its story to its stakeholders has become ever more important. In part, this is down to the rise of social media and the insatiable appetite of the 24/7 media cycle. But it is also down to the volatility of todays market. There is now a heavier requirement for information about future business plans and strategies. The way businesses communicate to their internal and external audiences is another factor that helps separate the highperforming companies from the low. What lessons can we draw?

What we learnt before


High-performing companies have been engaging with external stakeholders by:
Talking about specifics:they share both broader and granular detail with more coverage of non-financial KPIs, putting significantly more effort into identifying and managing risk, and proactively measuring and reporting their environmental performance. Paying more attentionto their long-term reputation management and taking action to ensure a long-term relationship with business owners, financiers, key contributors, influencers and the communities they touch. Being more likelyto discuss the impact of regulatory change and potential environmental risks.

High-performing companies have been building internal engagement by:


Engaging proactively with their internal stakeholdersas critical contributors to the achievement of their growth strategies. Broadening their workforce skills,equipping their teams to be more productive through training, mentoring and sharing knowledge, and improving internal communications. Benefiting from past strength:high-performing companies had less need to implement major headcount reductions during the recession or cut back on staff benefits.

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Growing Beyond How high performers are accelerating ahead

On external
Making the value visible
Companies today are operating under two opposing pressures. On the one hand, there is much greater scrutiny than ever before. Enhanced governance processes, strengthened regulatory regimes and increasingly demanding shareholders and stakeholders require higher levels of disclosure and compliance than in previous years. Yet on the other hand, the world of business has never been more complex, as companies compete or collaborate as partners across ever-changing value chains to serve disparate and dynamic market segments. Success comes to those who can bring the value that they create to the attention of their stakeholders. Effectively communicating an organizations performance to diverse, geographically spread stakeholders is far from easy. How do you gain their attention? Should it be via multimedia or the written word? Yet in todays uncertain economic times, building and maintaining the confidence of stakeholders is critical. All organizations need to tell their performance story effectively and consistently to the investment community, regulators, commentators and customers. Previous research shows that the economic crisis has generated a greater need for active communication with external stakeholders. And this demand continues to be seen today. It should come as little surprise that, according to our survey, financial information is in most demand. There are also growing requirements for information on risk management and business planning. Two areas of particular importance relate to sustainability and human capital. Both are complex areas where we might perhaps have expected to see a growing demand for meaningful information. Unlike in previous years, however, there no longer seems to be much difference between high and low performers in this area. The scores are similar for almost all categories. Indeed, if anything, low performers see a greater need to improve their performance. The narrative story, of course, varies by sector and so we find:

Media and entertainment companies planning to increase the Technology and life sciences seeking to increase their Banking communicating more about risk Powerandutilities reporting more on sustainability
Enhanced communication can also help address another important area of concern. Ernst&Youngs Growing Beyond: a place for communication around their business planning amount of financial information they release

Figure 17: Areas with increased demand for information by stakeholders


High performers
Business planning and outlook Financial information Risk reporting and information on how risk will be managed Information on innovation and development Reporting on corporate social responsibility and environmental sustainability Frequency and detail of reporting requirements Information on human capital situation and expected future development New channels of reporting (i.e., digital and mobile reporting formats)

Low performers 50 52 47 29 22 25 21 15

Gap: high vs. low +4 +1 0 -3 +1 -3 -4 -4 50 54 47 29 24 23 19 13

Total

54 53 47 26 23 22 17 11

Q: As a result of the recent economic and market volatility, for which of the following has demand from your company's stakeholders increased the most?

Growing Beyond How high performers are accelerating ahead

27

Stakeholder confidence

To inform, to explain, to engage

integrity: 12th global fraud survey found that bribery, corruption and fraud remain widespread. In the survey, based on 1,758 interviews with senior decision-makers in a sample of the largest companies in 43 countries, 39% of respondents reported that bribery or corrupt practices occur frequently in their countries. The challenge is even greater in rapid-growth markets, where a majority of respondents believe these practices to be common. Multinational businesses have to confront this challenge. At the same time, many countries are strengthening their enforcement regimes. For example, the UK has introduced a Bribery Act and India has implemented a raft of proposed antibribery, anti-corruption (ABAC) legislation. As regulatory activity intensifies, the risk of external scrutiny of corporate activity also increases. Senior management have to ensure that they and their companies are not found wanting, should their activities come under the spotlight.

Developing channels of communication with contacts across the finance function and other executives within the business will help boards ensure that they have a full and accurate picture of what is occurring across their organization. Companies also need to be prepared to deal with investigations and enforcement actions that result from whistle-blowing complaints made directly to regulators. Processes need to be in place for prompt investigation and communication with enforcement agencies.

Case study: USAID


Few organizations have as diverse a mix of stakeholders as USAID. The largest bilateral donor organization in the world and operating in more than 80 countries, the agency deploys assistance to countries recovering from disaster, trying to escape poverty and engaging in democratic reforms. The organization is currently in the midst of a sweeping program of internal reforms that emphasize a more extensive role for recipient governments something that attracted the attention of the US Congress, which exercises a supervisory role over the agencys activities. When we launched our push for government-to-government I think they were a little shocked just how far we went, recalls David Ostermeyer, USAIDs Chief Financial Officer. Congress was not so restrictive that it stopped us, but in effect it waved a caution flag with appropriation language. And how has USAIDs staff responded to the shifting strategy? In the most part, positively, it transpires. Our own staff are stakeholders too, says Thomas Briggs, the agencys Public Financial Management Risk Assessment Leader. Actually, people have found it so empowering to engage directly again with counterparts in other governments. Its been wonderful to watch people get excited about this approach."
Source: Dynamics, Ernst & Young, 2012.

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Growing Beyond How high performers are accelerating ahead

On internal
Unleashing your talents
Our research since the start of the downturn has shown that one of the biggest drivers of differential performance relates to how companies develop and deploy talent. The latest data confirms this. Some 42% of respondents identified talent management as the second most challenging function to manage globally. The economic crisis has clearly had a major impact on employees. One in five of our respondents has cut staffing levels by over 5% in their main markets, and a further 32% have frozen or reduced headcount by up to 5%. Special management skills are needed to maintain engagement during such difficult times. While high performers have also felt the strain, the pressure has clearly been less and cutting jobs has never been a priority for them in optimizing performance. Indeed, almost 40% of them have been increasing their talent in key markets. But there is much more to the difference than simply redundancy. We have included human capital factors on a range of measures and, time and again, there is a significant difference between the responses of high and low performers: In managing an international or multicultural workforce, high performers place a much greater focus on the individual. They are significantly ahead in linking an individuals pay with their performance, providing customized training and development, and offering opportunities to their talent to operate internationally. In managing direct reports, they neither abandon hierarchy nor micromanage. But they are far more likely to devolve decisionmaking as far as they can and to make roles more flexible. In looking to assess the effectiveness of their talent management, all types of respondent regard elements such as employee satisfaction and retention rates as key measures. High performers, however, are ahead in recognizing the reality of the skills gap, the value of the employer brand and diversity in management teams. Our current research does not suggest that high-performing companies create an easier environment for their employees. Instead, they create a high performance culture where individual talents can be developed and then unleashed on the market.

High performers are 60% more likely to identify talent as one of High performers are 50% more likely to see access to talent as a High performers are 43% more likely to be achieving flexibility
through devolving decision-making and 30% more likely to be seeking to improve their workforce skills as a result. Consequently, high performers are 16% more likely to have a concern about labor cost pressures. In a major study published in November 2012 Paradigm shift: building a new talent management model to boost growth Ernst&Young explores the talent management challenge in the new economy. Applying the high performer versus low performer methodology to the findings shows significant areas of difference. reason to enter rapid-growth markets. the critical factors for determining future competitiveness.

Growing Beyond How high performers are accelerating ahead

29

Stakeholder confidence

To inform, to explain, to engage

On leadership
For the first time in this program, we have asked respondents explicitly what they consider to be the most important attributes for leaders of their organization. We have been surprised by the difference that has been revealed. The important point is not the difference in the scores that are given by different groups most of the scores are similar and, indeed, for six of the criteria high performers give a lower score. The two most critical areas of difference concern the ability to lead effectively in an international business environment, where high performers gave a 10% higher weighting, and decisiveness, which high performers mentioned 6% more often. Both reflect an understanding that future success is global or at least crossborder and that an imperfect decision in a context of local empowerment is much better than a slow one. High-performing organizations are complex and challenging and consequently call for greater skill in their leadership. This is reflected in the increased importance that these companies attach to both their current and future leaders. The importance of leadership is reflected in the very high emphasis placed on succession planning.

Figure 18: Most important leadership attributes for future C-suite leaders
High performers
Can lead in an international business environment Articulates and embodies the values and culture of the organization Can command the respect of colleagues and reports Engages effectively with multiple stakeholders Decisiveness Strikes the right balance between risk-taking and caution Has industry expertise Has a strong grasp of the nancials Is a good risk manager

Low performers 37 37 40 37 27 36 32 27 13 +6 +10 +7

Gap: high vs. low

47 44 38 33 33 32 30 21 12

-2 -4

-4 -2 -6 -1

Q: What do you consider to be the most important attributes for potential C-level leadership of your organization?

30

Growing Beyond How high performers are accelerating ahead

Paradigm shift: building a new talent management model to boost growth


Good talent has always been hard to find. So why is the global talent shortage such an urgent issue now?
Paradigm shift: building a new talent management model to boost growth, examines the talent expectations gap the disparity between what companies expect from their workforce and the skills available in the marketplace. The report is based on a 2012 Ernst&Young survey of 596 senior global executives from a variety of geographic regions, companies and industries. Our results, supplemental research and interviews show that companies understand where they need to be in terms of talent, but are struggling to get there. For example, they realize the importance of a global mindset, but are unable to implement effective mobility or diversity strategies. And although they recognize the need to obtain the best talent, very few are investing adequately in this effort. The report highlights and discusses a key survey finding: the clear relationship between a companys financial performance and how it manages its talent. High-performing companies those with significant increases in revenue and EBITDA in the last 12 months tend to manage their talent more effectively than their lower-performing counterparts. Another notable survey result is that companies based in emerging economies tend to adopt a more flexible and equitable approach to managing talent than businesses in mature markets. The message the report conveys is that, to fill the talent expectations gap, companies will need to change and flatten traditional organizational structures, allow for diversity of cultures and backgrounds, and adopt new and more inclusive leadership styles. For more information, see Paradigm shift: building a new talent management model to boost growth, available at ey.com.

Growing Beyond How high performers are accelerating ahead

31

Conclusion

Can you and your company grow beyond?

In this report we have detailed the differences we have observed between high and low performers. Why not ask yourself these questions about your own organization: Have you got your external 1 market focus correctly prioritized?
Have you got the balance of existing clients and future targets right? Are you operating in the right mix of segments and countries for sustainable growth?

3 Are you fast enough?

Have you reviewed and de-layered your processes and devolved decisionmaking sufficiently to move quickly, but still safely?

your cost management 6 Is strategic or tactical?

Do you have a clear understanding of where the optimal balance sits between efficiency and effectiveness?

Have you got an effective and inclusive innovation process that is listening sufficiently to those who work most closely with your clients namely your own people?

your product or service mix 2 Is right?

4 Are you flexible enough?

Are you sure that the consistency you seek has a management value that outweighs its market capitalization?

Are you communicating the 7 value you create effectively with your external stakeholders?
In addition to compliance, have you got clear objectives for each audience you need to influence?

5 Is your pricing effective?

When was the last time you fundamentally reviewed the value you were creating and how you could capture more?

you engaged sufficiently 8 Have with your talent?


Do you really have the right people and are you getting the full benefit of their energy and expertise?

32

Growing Beyond How high performers are accelerating ahead

Looking at high and low performers may be interesting, but our study is not driven by a desire to record the achievement of others.
Instead we are looking to identify what might be learnt so that others may apply those lessons and improve their performance. Our research over the past four years has shown that in every country, in every sector and in every market segment, there are companies that have grown beyond the constraints of the market to enjoy sustainable success. If the economy is to return to health, we all need more companies to join that group. The pursuit of competitive success isnt easy in benign economic times, let alone the environment weve experienced in the past five years. Living with the high longer-term cost of cheap debt is a new and painful experience for all of us. Add in the long-term challenges presented by shifting demographics, climate change and the ongoing march of globalization, and the difficulties have only increased. High performers, however, have not achieved their performance through luck, but by people taking the right decisions in the light of the market that they face. How they have continued to prosper holds important lessons for us all. Fundamentally, what distinguishes high performers from others is the recognition that focus, innovation, cost and execution are no longer distinct choices for competitive advantage, but must all co-exist as critical elements when seeking the optimal balance of competitive success. That recognition is based on having deeper understanding of the drivers of value in their specific markets, the imagination to think differently and the courage to translate those thoughts into action. The bigger challenge, perhaps, is the challenge of adopting a new mindset to how your company engages with the market. For those with an interest in the working of the global economy, the economic crisis we face has shaken many long-held assumptions and brought into question the beliefs and practices developed in pre-crisis days. Not all these established practices may be wrong, but all of them need to be questioned in the light of the new economy and potentially balanced by a set of new imperatives, many of which are not yet clear. That is much easier to say than to do, as most of us inevitably operate to patterns shaped by our experience as much as our conscious intellect. What is clear, however, is that recovery in the global economy is neither imminent nor inevitable and, should it come, will reveal a radically different competitive landscape. Survival, let alone success, is not guaranteed, but the chances are improved for those businesses that recognize the scale of the change required and mobilize the shared intent to jump the growth gap.

How successful companies are driving their growth


Addressing these issues effectively will change how companies approach the market, the innovation of new products and services and their approach to talent. Collectively they will change the way that the world works.
New

markets
Customer reach

Operational agility

Growth

Cost competitiveness

Stakeholder condence

Growing Beyond How high performers are accelerating ahead

ew
N

ta len ts

odu New pr

s ct

33

Further reading
In todays rapidly changing world, its vital to make the right decisions today to sustain your business tomorrow. Ernst&Young has a clear perspective on the pressing issues that your business is now facing and a deep knowledge of your industry. Customer reach
Beyond Asia: new patterns of trade in Asia-Pacific
How well-positioned are you for an Asia-centric future in international trade? We examine the trends you can expect from now to 2020.

Rapid-Growth Markets Forecast


A quarterly economic forecast that offers insight on macroeconomic trends across 25 rapid-growth markets which have been selected based on the size of the economy and population, strategic importance for business and proven strong growth and future potential.
Growing Beyond

The Master CFO Series


Volume 3

A tale of two markets


Telling the story of investment across developed and rapid-growth markets

The Master CFO Series: a tale of two markets


How do you tell a tale of two markets? This third report in The Master CFO Series explores the role of the CFO in balancing investments across developed and rapid-growth markets and how this is communicated to investors.
Growing Beyond

Innovating for growth


Innovation 2.0 a spiral approach to business model innovation

Innovating for growth: innovation 2.0 a spiral approach to business model innovation
We look at how to take advantage of changes in the external environment, build the right mindset and culture, and innovate to obtain specific business outcomes.

Beyond Asia: strategies to support the quest for growth


Asian companies are on the move. We find out where and how are they expanding, as well as ask what they are looking to achieve by international expansion.

This time its personal: from consumer to co-creator


We survey the purchasing activities, preferences and perceptions of 25,000 consumers in 34 countries, across 10 different products and service areas and explore how businesses should respond to the trends.

Beyond Asia: developed-markets perspectives


Meeting the challenge of changing global competition

Exceptional

Entrepreneurship + Innovation = Growth | January-June 2012

Exceptional

34

Exceptional UK & Ireland | Entrepreneurship + Innovation = Growth | January-June 2012

UK & Ireland
Variety show

Published biannually, our magazine for entrepreneurs and fast-growth leaders provides motion insight for businesses to grow beyond traditional boundaries in this tough economic climate.
Dr. Amjad Aryan is on a mission to make Pharmacy1 the Middle Easts top pharmacy chain

Why Virgin Groups diverse portfolio has become the brands greatest strength

Help is at hand

What steps can businesses take to pursue growth in a volatile economy?

Growing beyond

Perpetual

Michael Dell on why staying still isnt an option for the technology company

Growing Beyond How high performers are accelerating ahead

Operational agility
The DNA of the CIO
Opening the door to the C-suite

The DNA of the CIO: opening the door to the C-suite


Why have so few CIOs made it to top-tier management? This report examines the skills, experiences, relationships and mindset that CIOs need in order to succeed in the role.

The DNA of the COO: time to claim the spotlight


Why is so little known about the role of the COO, despite its long history? This report explores the skills, capabilities and relationships they need to master to succeed.

Insights on IT risk

November 2012

Fighting to close the gap


Ernst & Youngs 2012 Global Information Security Survey

Fighting to close the gap: Ernst & Young's 2012 Global Information Security Survey
This year's survey seeks to understand the advances organizations have made to secure their data and finds that they are failing to keep pace with the speed and complexity of change.

Volume 4 Issue 4

Performance
A quarterly business journal that provides in-depth analysis of topical business issues. It explores how companies can spur innovation and position themselves for long-term success.

Providing insight and analysis for business professionals

Competitive strength
The innovation opportunity
How does your CIO measure up?

Innovative product concept testing

Assessing new markets

Cost competitiveness
All tied up
Working capital management report 2012

All tied up: working capital management report


How can companies improve their working capital management? With so many challenges, it is critical for companies to implement truly effective strategies that strengthen their performance.

Tax insight for business leaders

Magazine

T Magazine 09

09

T Magazine
Examines major business issues, from dealing with the post-crisis world to the changing environment for risk management, through a prism of tax. Each edition features the insights of high-level executives, experts, policy-makers and academics.

Changing Europe: for tax and tax directors Measuring the tax teams performance

Joining up
The corporate tax director: more connected than ever to business

The risk that tax poses to corporate reputations

Helping businesses raise, invest, preserve and optimize capital

Capital Insights
Insights
the shots Lead strapline
Deutsche Telekom CFO Lead strapline supporting copy line 1 Timotheus Httges on Lead strapline supporting copy line 2 collaboration, innovation and communication
Q3 2012

Calling

Two line Metals and Mining M&A: heading What the future holds One line heading Cross-border financing line Poland: RisingTwo in the east heading

A quarterly magazine that helps businesses manage their capital agenda by examining the latest developments around raising, investing, preserving and optimizing capital.

Drought or drowning? Cash challenges for CFOs at both ends of the liquidity spectrum
Many CFOs are struggling to maintain liquidity. Others are stockpiling cash like never before. We explore ways of tackling the challenges.

001_EYCI4_Cover_v6_JP.indd 1

12/09/2012 11:32:54

Stakeholder confidence
Growing Beyond

Growing pains

Companies in rapid-growth markets face talent challenges as they expand

Growing pains: companies in rapid-growth markets face talent challenges as they expand
As companies globalize, it is proving very difficult to get the talent equation right. This report explores the four major talent-related challenges.

Growing Beyond: a place for integrity


12th Global Fraud Survey

Growing Beyond: a place for integrity: 12th Global Fraud Survey


As regulatory activity intensifies, the risk of external scrutiny of corporate activity also increases how are companies mitigating fraud, bribery and corruption risk?

Growing Beyond

Paradigm shift: building a new talent management model to boost growth

Reporting
Its more than the numbers

issue four | november 2012

Reporting
Addressing the broad topics around reporting and governance, Reporting features articles on a mixture of business, regulatory and investor matters and represents the views of reporters, regulators, investors and advisors.

Are you thinking what theyre thinking?

Ernst & Youngs DNA of the CFO series captures the aspirations and insights of nearly 1,000 CFOs from around the world. Find out what your peers think about their role, their future and their people. Visit ey.com/cfo. See More | Insight

Paradigm shift

Building a new talent management model to boost growth

Capitalism in the balance


The growth of ethical business

This report explores the talent management challenge in the new economy, applying the high versus low performer methodology to show significant areas of difference.
2012 EYGM Limited. All Rights Reserved. ED 0113

The great unknown

What accounting issues will you need to consider if a country leaves the Eurozone?

Risk and the board

The financial crisis has increased the amount of time boards spend addressing strategic risk

Growing Beyond How high performers are accelerating ahead

35

About this report

For this study, Ernst&Young commissioned the Economist Intelligence Unit (EIU) to survey C-suite, board directors and senior managers in large organizations. This study took place between 13 August and 14 September 2012. More than 1,500 C-suite, board directors and senior managers responded. Results are compared by relative high and low performance in each sector, based on EBITDA and revenue growth over the last two years.
Geography
Western Europe Asia-Pacic North America Middle East and Africa Eastern Europe Latin America 9% 7% 8% 5% 28 % 43 %

Revenue
US$10b or more US$5bUS$9.9b US$1bUS$4.9b US$500mUS$999.9m US$250mUS$499.9m 9% 26 % 23 % 23 % 19 %

Performer groups
High performers Low performers 26 % 25 %

Stakeholder
SVP/VP/Director Head of department Other C-level executive CFO/Treasurer/Comptroller CEO/President/Managing director Head of business unit Board member CIO/Technology director 3% 3% 9% 6% 17 % 19 % 23 % 22 %

Sector Sector Consumer products Power and utilities Real estate Media and entertainment Oil and gas Life sciences Banking and capital markets Technology Mining and metals Insurance Automotive Asset management Private equity Other 5% 5% 6% 8% 8% 8% 7% 7% 7% 7% 7% 10% 9% 9%

36

Growing Beyond How high performers are accelerating ahead

About this report

Ernst&Young Assurance | Tax | Transactions | Advisory


About Ernst&Young Ernst&Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst&Young refers to the global organization of member firms of Ernst&Young Global Limited, each of which is a separate legal entity. Ernst&Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.

2012 EYGM Limited. All Rights Reserved. EYG No. AU1332 In line with Ernst&Youngs commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content.
This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst&Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. The views of third parties set out in this publication are not necessarily the views of the global Ernst&Young organization or its member firms. Moreover, they should be seen in the context of the time they were made. www.ey.com ED 1113 EMEIA MAS E168.1012

Growing Beyond
In these challenging economic times, opportunities still exist for growth. In Growing Beyond, were exploring how companies can best exploit these opportunities by expanding into new markets, finding new ways to innovate and taking new approaches to talent. Youll gain practical insights into what you need to do to grow. Join the debate at www.ey.com/ growingbeyond.