Globally
Integrated Enterprise model is a must for modern firms: IBM ex-CEO
Samuel J. Palmisano spent nearly four decades at IBM, where he was responsible for leading its transition from a computer maker into a services and consulting firm. After retiring as Chairman in 2012, Palmisano, 62, has focused his energiesBSE -4.94 % on building a think-tank, The Center for Global Enterprise. The aim is to establish a new set of management and leadership principles to build and lead a 21st century global organisation.
"I like to say that the globally integrated enterprise is more a frame of mind - a way of thinking - more than an organization chart," says Palmisano who led this directional change at IBM. He recently published an e-book, 'Re-Think: A Path to the Future' which has his take on competition in the 'first truly global era in human history'.
Palmisano shares with CD how the globally integrated enterprise is the way forward and how organisations can handle this transition. Edited excerpts:
Why is the hub-and-spoke model no longer relevant?
It is more that the hub-and-spoke is no longer necessary, nor is it sufficient to be competitive. During the last three decades of the 20th century, some important changes unfolded across the global economy that created opportunities for companies to upend traditional organizational structures and become more unified in their outlook, and more integrated in their operations.
First, economic nationalism abated - trade and investment barriers receded and capital controls were liberalized. The result was a boom in trade and investment. Second, starting in the early 1970s, the revolution in information technology dramatically improved the quality and reduced the cost of global communications and business operations. Suddenly, businesses could "go global" without needing to open foreign offices, as a website provided the kind of global presence that would have been unthinkable just a few years earlier. Third, standardized technologies and business operations emerged all over the world. By interlinking and facilitating work both within and among companies, standards fostered efficiency and liberated companies to focus in areas that would drive lasting growth and renewal, such as innovation.
Similarly, by creating common platforms, standards were a great enabler of scale. These three elements combined to fundamentally transform the opportunities for globalization and help give rise to the globally integrated enterprise (GIE). With fewer obstacles to selling and operating around the world, companies could shift their focus from products to production - with greater emphasis on how to manufacture goods and how to deliver services. These elements also positioned companies to become less hierarchical, with decision-making more distributed as information and key data became widely accessible, and core processes and functions that were once managed regionally could be managed globally.
How is the DNA of a GIE different from an MNC?
The globally integrated enterprise refers to companies that are truly global, as opposed to multinational, in their management and their operations. In this model, work is organized in fundamentally different ways. It calls for different skills and behaviours, more collaboration, greater focus on a multiplicity of cultural differences and less hierarchy.
For example, decisions about where to locate operations are based on how to maximize value for customers, employees, and business partners. Instead of taking people to where the work is, you take work to where the people are. Thus rather than maintaining separate supply chains in different markets, there is one supply chain, and it's global, not just for products, but also services, capital, ideas, and intellectual property.
Similarly, human capital is thought of not in terms of countries and regions and business units, but rather how to manage and deploy it as one global asset. The GIE is nimble - possessing the ability to quickly enter new markets and seize business opportunities wherever they arise. It operates seamlessly as a single organic entity by integrating internal operations horizontally and globally, collaborating with external partners, and operating at the best location in the world, to maximize value creation from a global point of view.
When I joined IBM in 1973, it was a classic multinational - with mini-IBMs in countries all around the world. It was a very successful model. It allowed us to grow in those markets and understand local customer requirements and customs. The IBM brand became a strong national asset in each of these countries. We developed local talent, hired and developed leaders "in country" and exposed them to various parts of IBM during their careers.
This was a very efficient way to grow in local markets, for a while. But the world changed. We needed to rethink how we managed and thought about our business. What once looked like efficiency, came to look like redundancy. The GIE model was enabled by changing market, policy, infrastructure and technology trends. We chose to go to the future and embrace new ways of structuring the company and new management approaches to create greater agility and productivity.
GIE is an
execution model, what about strategy, will a GIE transition mean a change in
strategy too?
Absolutely. What I came to understand as CEO, following a series of wake-up calls, was the reality of global integration and that it had changed the corporate model and the nature of work itself. Ongoing technology advances were making it ever easier to trade, interact and transact business across geographic boundaries, time zones and languages.
I saw that there would be winners, and there would be losers. And I saw that the new leaders would win not by surviving the storm, but rather by fundamentally changing the game. So that's what we did at IBM - we changed the game. Our evolution into a globally integrated enterprise changed the way the company worked, managed, and made decisions - from sales and marketing to HR and research.
We significantly lowered our operational center of gravity - away from headquarters, closer to markets and customers. And we didn't simply enter markets. As IBM has done throughout its history, we made markets, working with leaders in business, government, academia and community organizations to help advance their national agenda and address their societal needs. It requires building real skills in the local workforce and enabling new capabilities among its citizenry - being a force for modernization and progress.
Many of these changes were huge shifts for IBM - but I believed they were necessary if we were going to capture the benefits and step up to the challenges of a globally integrating economy. And the changes weren't just happening at IBM. Throughout the world, I saw that organizations with a globally integrated business model were optimizing resources and capital productivity on a global basis while also reducing costs.
Absolutely. What I came to understand as CEO, following a series of wake-up calls, was the reality of global integration and that it had changed the corporate model and the nature of work itself. Ongoing technology advances were making it ever easier to trade, interact and transact business across geographic boundaries, time zones and languages.
I saw that there would be winners, and there would be losers. And I saw that the new leaders would win not by surviving the storm, but rather by fundamentally changing the game. So that's what we did at IBM - we changed the game. Our evolution into a globally integrated enterprise changed the way the company worked, managed, and made decisions - from sales and marketing to HR and research.
We significantly lowered our operational center of gravity - away from headquarters, closer to markets and customers. And we didn't simply enter markets. As IBM has done throughout its history, we made markets, working with leaders in business, government, academia and community organizations to help advance their national agenda and address their societal needs. It requires building real skills in the local workforce and enabling new capabilities among its citizenry - being a force for modernization and progress.
Many of these changes were huge shifts for IBM - but I believed they were necessary if we were going to capture the benefits and step up to the challenges of a globally integrating economy. And the changes weren't just happening at IBM. Throughout the world, I saw that organizations with a globally integrated business model were optimizing resources and capital productivity on a global basis while also reducing costs.
What are the possible pitfalls a company should watch out for?
For most companies, evolving into a GIE will require a wholesale transformation. And transforming a company of any size is never easy. There are different transformations for different circumstances, of course. If a company is on its back and struggling to survive, there's going to be less resistance - internally and externally - to wholesale change.
But sometimes success can be a
company's undoing as it breeds complacency and an unwillingness or inability to
institute the reforms needed to sustain the success. And this applies not just
to companies - countless countries have fallen into the trap of basking in
their past glories rather than positioning themselves for future growth.
A common pitfall is for management to see the future the way it would like it to be, rather than how it is unfolding or will likely be. It is hard to be objective about change when you have been so successful using certain business models and practices. But I realized you must move to the future no matter how hard it may be - and there will be times that it will be VERY hard. If you aren't objective about the future and what it means for your company's value proposition, ultimately, your past success will be overcome by the innovation of the future.
How do you manage innovation in a GIE?
Every enterprise and every society must simultaneously invest in the future and improve its competitive muscle tone. While there's a compelling case for dealing with financial deficits, both public and private, anyone who has worked in an innovation- based business knows that you cannot cost-cut your way to competitiveness.
You have to invest in your future, and you have to sustain it in good times and bad. This is something IBM learned decades ago - and the lesson is similar for cities and societies. Winning on a flatter, higher playing field will require increased investments in key areas such as infrastructure, disruptive business models, contemporary skills and deep research.
And it's not just about investment. Policies must be adapted to nurture and promote an innovation economy. Every city and country, like every start-up or globally integrated enterprise, must be able to tap into global supply chains, talent pools and collaborative relationships. They must use them to create things of indigenous value, whether products or services.
What factors do you keep in mind while taking business portfolio decisions?
A common pitfall is for management to see the future the way it would like it to be, rather than how it is unfolding or will likely be. It is hard to be objective about change when you have been so successful using certain business models and practices. But I realized you must move to the future no matter how hard it may be - and there will be times that it will be VERY hard. If you aren't objective about the future and what it means for your company's value proposition, ultimately, your past success will be overcome by the innovation of the future.
How do you manage innovation in a GIE?
Every enterprise and every society must simultaneously invest in the future and improve its competitive muscle tone. While there's a compelling case for dealing with financial deficits, both public and private, anyone who has worked in an innovation- based business knows that you cannot cost-cut your way to competitiveness.
You have to invest in your future, and you have to sustain it in good times and bad. This is something IBM learned decades ago - and the lesson is similar for cities and societies. Winning on a flatter, higher playing field will require increased investments in key areas such as infrastructure, disruptive business models, contemporary skills and deep research.
And it's not just about investment. Policies must be adapted to nurture and promote an innovation economy. Every city and country, like every start-up or globally integrated enterprise, must be able to tap into global supply chains, talent pools and collaborative relationships. They must use them to create things of indigenous value, whether products or services.
What factors do you keep in mind while taking business portfolio decisions?
A centerpiece of the IBM transformation was exiting businesses that we believed did not fit IBM's future business model - such as the actions we took regarding PCs and hard disk drives. In these instances, and many others where we were advancing major reforms, my colleagues and I learned that if we only described the reforms as driven by "re-engineering," we were going to meet fierce internal resistance. Employees needed to hear more detail and, frankly, they deserved to hear how the reforms being implemented were part of a larger strategy to enhance the company's long-term competitiveness.
So as part of our transformation agenda, we set out to answer two basic questions: Is there a future for the company? Is there a future for me in the company? When answering the first question, we explained the principles underlying our vision for the globally integrated enterprise.
being implemented were part of a larger strategy to enhance the company's long-term competitiveness.
So as part of our transformation agenda, we set out to answer two basic questions: Is there a future for the company? Is there a future for me in the company? When answering the first question, we explained the principles underlying our vision for the globally integrated enterprise.
By Priyanka Sangani, ET140711
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