Discussion
A New Era for Global Enterprise
By Samuel J. Palmisano March 28, 2014
Photograph by Gallery Stock
Adapted from Re-Think: A Path to the Future
I graduated from college in 1973 and started work at IBM (IBM) shortly thereafter. At the time, no one talked of a “global economy.” The U.S. and other developed countries in Western Europe were dominant—accounting for about half of global gross domestic product. The term “emerging markets” didn’t exist (it wasn’t coined until 1981), primarily because those countries weren’t seen as “emerging.” They were poor, many of them saddled with ineffective leaders pursuing misguided policies and with large populations that were then viewed more as a burden than a benefit. They were the “debtor” nations. There was little reason to expect the status quo to change.
But it did. Perhaps the most compelling evidence of the change appeared in a Financial Times article published almost exactly 40 years after my graduation from Johns Hopkins University. The article took note of a historic development: “In 2013, for the first time … emerging economies will produce the majority of the world’s goods and services.” The article pointed out that the label “emerging” will become irrelevant as emerging markets’ share of world output rises to 55 percent by 2018.
I don’t think anyone in 1973 could have predicted this transformation. It certainly would have been unthinkable to me.
To those who knew me as a Baltimore native, who did not make any foreign trips with my parents, did not speak a foreign language, and stayed in the city for college and a first job, my advocacy for a new approach to global business might seem puzzling. Even within IBM, it was more than a decade before any of my work had an international dimension.
But growing up in Baltimore did give me an appreciation for the world beyond America’s
shores. The city has always been home to one of the busiest ports in the U.S. and a hub for international trade. I saw how the port helped give Baltimore—often thought of as a down-on-its-luck provincial city—energy and resilience.
Those impressions were reinforced years later when I moved to Tokyo in 1991. While it has little in common with “Charm City” (as Baltimore dubbed itself in the mid-1970s), I saw how trade and investment influenced Tokyo; it was becoming more open to people and products from beyond its shores.
My time in Baltimore and Tokyo, coupled with my global travels for IBM, shaped my thinking about the global era we’re in today. I came to see a commitment among political and business leaders in emerging markets to discard past practices in the interest of developing a large middle class. Equally important, I came to see that the best ideas could come from anywhere—and that they often came from outside traditional channels. Every company—indeed, every country—can fall prey to groupthink, which has a corrosive effect as it stifles the innovative impulse that’s so essential to progress.
We are in the midst of the first truly global era in human history. It is an era in which the volume of people, products, services and—perhaps most important—ideas circulating around the world is greater than ever before. Global competition has intensified in tandem with the world becoming more connected. Businesses, workflows, transactions, and billions of individuals are becoming linked together in countless ways, unleashing new insights about the way the world works.
The fundamental question for companies—particularly those in developed markets—is not whether to compete globally, but how to compete globally. In earlier eras (pre-1992, for example) companies might have simply shifted production to low-wage countries. But it’s unlikely their investment in these countries would have focused on developing local talent or producing goods that could be sold to local populations.
Today the evolving model is the globally integrated enterprise, which 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 behaviors, more collaboration, greater focus on a multiplicity of cultural differences, and less hierarchy.
Rather than maintaining separate supply chains in different markets, for example, 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.
Fundamental to excellence in the global era will be the ability both to adapt to change and—even more important—to see changes coming and position yourself to benefit from them. Rather than asking, “What will the global era do to me?” a better question is, “How can I get work and investment to flow to me?”
The answer comes from understanding the three forces that lead work to flow across the global network and economy. The first force is simple economics, which is driven by cost and profit potential, but also differentiation. While low-cost labor was the initial reason so much work moved to such places as India, China, and Latin America, a number of other factors are now driving investment decisions. Why did Rolls-Royce (RR/:LN) decide to have its jet engine parts, which are used for assembly in Europe and Asia, manufactured in Virginia? Why is Airbus (EAD:FP) building a $600 million assembly plant in Alabama? Why did foreign investment in U.S. manufacturing increase from $270 billion in 2007 to $493 billion in 2012? In all these cases, the decisions are not based solely on cost. This isn’t a “race to the bottom”—it’s a race for differentiation.
That speaks to the second principle of the global era: the growing value of expertise. In a world where the means of production and distribution are increasingly available to anyone, the only true differentiator is to have unique valueAirbusideas, skills, talents, or resourcesAirbusthat can be continually refined.
The third force is openness: open technology standards, open trade, and openness to new ideas and new ways to work. Open approaches provide a level playing field, which stimulates competition, nurtures collaboration, and sparks innovation. Open standards are particularly important, as they free companies from the work of building labor-intensive platforms and thus are great enablers of scale.
We are at an historic inflection point, with people throughout the world seeing institutions (both public and private) being disrupted through global integration.
But when a historic shift is underway, though not fully understood, there’s a need to explore the implications, identify the pressure points, and map out a path forward. That’s the reason for the Center for Global Enterprise.
If I learned one lesson from my 39 years at IBM, it was that the longer you wait to implement change, the harder it is to implement it—and the less effective it’s likely to be. In the global era, the changes are going to come faster, they’re going to come from countries—and especially cities—throughout the world, and they’re going to be more transformative than in the past.
Former IBM Chairman's Next Move: Reinventing the Global Corporation
By Ira Sager
March 28, 2014 2:05 PM EDT
You’d think after running one of the most complex corporations in existence, Sam Palmisano might indulge in the usual CEO retirement package—golf, a few blue chip corporate boards, and some prestigious nonprofit work to round it all out. Life is good, right?
Palmisano, 62, is doing all that. His nonprofit work, though, is no mere hobby. The former IBM chairman, who left the C-suite in 2011, has started a think tank to work with chief executive officers and business schools on building a body of new management principles and providing leadership training for the 21st century global organization.
On April 2, the Center for Global Enterprise will make its official debut, along with a 101-page e-book penned (with a co-writer) by Palmisano. The book offers his perspective on competition in “the first truly global era in human history.” (You can read an excerpt here.)
When I point out during his first post-IBM interview that Re-Think: A Path to the Future offers some rare insight into his private life, Palmisano laughs, saying it’s no autobiography. “They said, ‘If you don’t have one chapter in there about you, this thing will be completely boring.’”
Spend some time with Palmisano and you won’t be bored. You’ll get a lesson in the evolution of the modern corporation, the role of business in society, and some honest talk. (On B-schools: “They’re not preparing these young people for what they’re dealing with.”)
The center and the book, which features examples of global efforts at IBM, Mexico’s Cemex, India’s Bharti Airtel, and China’s Geely, embody management ideas Palmisano first expressed in an article for Foreign Affairs in 2006: Today’s global organizations need new management systems, different skills, more collaboration, and less hierarchy.
Most corporations have managed to realize only a small piece of Palmisano’s vision—creating a global supply chain, for example. “Nobody’s done everything you need to do,” he says, seated in a conference room in his suburban Connecticut office. The office lacks the killer 17th-floor Manhattan views of the Madison Avenue office he got to use in his former life. The center does have its own prestigious Park Avenue address, coincidentally also on the 17th floor.
Palmisano, who studied history at Johns Hopkins University, is explaining the hub-and-spoke structure of the traditional multinational corporation, a concept whose past-due date has expired. Headquarters is the hub, he says. The spokes are the distribution outlets for products or services. The problem with that structure is most companies replicate too many headquarter functions—human resources, marketing, finance, and so on—in each regional operation (the spokes). That’s a lot of overhead for companies struggling with what he is convinced will continue to be a slow-growth global economy.
Palmisano proposes a new model, what he calls the Globally Integrated Enterprise, structured to operate effortlessly across international borders and placing operations anywhere that makes the most sense. The corporation of the future, he says, will organize around a single global supply chain for services, capital, talent, and intellectual property—managing it as one asset, instead of region by region.
Globalization is not a new concept, of course. Companies woke up to the growing economic power of emerging-market nations more than two decades ago. But Palmisano argues that we are at an “historic inflection point” enabled by advances in technology, open standards, and a reduction in the barriers to trade and investment—making it easier than ever before to share resources regardless of where operations are based.
It’s a concept he spent the last year bouncing off friends, colleagues, and other CEOs. Once he was convinced the idea had legs, he began raising money (he won’t say how much) and lining up business schools to collaborate on research. So far, Stanford, Peking University, and Insead are on board. Talks continue with the Indian Institute of Management, Harvard, Fudan University, and Brazil’s Fundação Dom Cabral. The center will hire fellows expert in such aspects of global enterprise as supply chain efficiency, intellectual property, corporate culture, and market access.
The draw for business schools is “unprecedented insight,” says Garth Saloner, dean of Stanford’s Graduate School of Business. The center, thanks to Palmisano’s A-list connections, will convene small groups of CEOs to discuss their issues freely and help guide the research. “What I hope to get out of this is a set of in-depth case analyses of real-world situations,” Saloner says.
The following conversation with Palmisano has been edited for length and clarity.
How did the idea for the Center for Global Enterprise evolve?
We had this lecture series, “Lessons Learned of a Hundred Years,” as part of the IBM centennial in 2011. We went to some great schools around the world. When we talked about the things we had done and the world as it is today, the kids would come up at the end and say: ‘There’s a lot that we need to learn about this. You need to share this. What do you have?’
When we were in Beijing, I figured there would be translation in Mandarin. Well, everything was in English. The only ones asking questions in Mandarin were the faculty. English was the language. I was prepared to speak slowly. I practiced so the kids could get their questions in. There was no societal or cultural gap because of things like the Internet. That was the genesis.
What do you hope to gain from the collaboration with business schools?
If there was more to be learned, then we should scale it so that hundreds of thousands of people can look at the information and learn something. We needed academic partners because they are in the business of creating cases, curriculum, and writing books.
Are B-schools doing enough to prepare their students for the global business issues they’ll face?
At least you can get them thinking in a way that they’re better prepared for when things happen. Say you’re Chinese and bought a European business. What were you taught when you came out of Peking University that prepared you to integrate the Europeans into a Chinese operation? I guarantee you, nothing.
The center will conduct a series of small, private meetings with CEOs around the world. What do you hope to accomplish?
We’re trying to do research that maps the pragmatic with the academic. We keep it small—8 to 12 CEOs so they don’t have to worry who’s in the room. The idea is for the CEOs to tell us where we need to do further research. We have faculty assigned to work with us. We did our first exchange in China. Our next one’s at Stanford.
We’ll ask the schools participating if they would like to join in the research. We will fund some of the research. We’ll collect a library of best practices for people to share. Hopefully by the end of 2015, we will have completed some pretty good studies.
What will the B-schools do with the material?
We’d like to see schools begin to teach some of these things. We would like to see people create MOOCs (massive open online courses), where they’re not limited to their residential campuses but open it up to hundreds of thousands of people.
Your book is titled Re-Think: A Path to the Future? What do people need to rethink?
We’re trying to get people to reconceptualize how you look at a problem. And, yes, create a new management system, too. You need to do both.
What role does technology play?
The technology enables this. But it’s more about how you think about problems than the traditional way you approach corporate strategy or management. I believe you can turn the whole thing upside down. Companies that do are going to have an incredible advantage from a cost structure.
If you were starting something today, what do you have to do yourself and what could you subscribe to [from a cloud-based service]? If I can subscribe to payroll and benefits and have HR only worry about leadership development and hiring, which is what you want them to do anyway, vs. thousands of people building call centers and benefit administration and now worrying about Obamacare and all that junk, why not put it in some global thing and subscribe? We walked very diligently down that path.
How did you apply these concepts at IBM?
We did a lot on the supply chain. We did a lot in finance and accounting. We did a lot in HR. But there were still areas that we were trying to make progress. What’s global marketing vs. what’s local distribution? We were constantly trying to figure it out. Skills development on a global scale was another area. I could argue that before I left you’d probably have 8 to 10 years to go.
In this economic climate a lot of companies have struggled with growth, but why does IBM appear to have a particularly difficult time growing revenue?
When I was there, IBM was at a different point in time. It was completely different than today. We had to remix the portfolio because we sold $15 billion worth of stuff, PC being the biggest. At the time, it was not viewed as the most popular thing in the world to do. In fact, many people in our industry criticized me.
The world has changed. After the 2008 financial crisis, things got tough. Many people believed that it was going to be another cycle. It’s not. It’s a systemic shift. There’s not a lot of revenue growth in the macro environment unless you’re some startup. The typical company is struggling with revenue growth.
What’s the answer then?
You need to come up with an agile and flexible management system that lets you enter, reach, and drive new levels of productivity. By “enter and reach” I mean enter new markets. That can be a product or segments and it can be geographies. The easiest way is geographic. In technology, you’re looking for new segments. Everybody’s running to big data and cloud. You have to find a segment, or you have to find the geography for expansion. But to do that, you need a management system that gives you the flexibility to free up resources. Everybody, even the Chinese, is struggling with this problem. And they all have a different way to approach it.
How did you plan for retirement?
I talked to a lot of people who had been through it—Jack Welch, Lou Gerstner, and A.J. Lafley. They all approached it differently, but there’s a common theme: You need something that’s going to take up a lot of your time. I just felt that this idea needed to be fleshed out to see if there was something there. Now it turns out there is, so most of my time is spent on the center. It’s taking up probably half the month these days.
How are you spending the rest of your time?
I’m still involved with corporate stuff. It’s basically carryover from the past: ExxonMobil and American Express, but in the same week. I laid out the month. If I go on boards, they have to be that week. Then I try to make sure I give myself another week in the month to do whatever my wife and I want to do, which we’ve never had the flexibility [to do].
What have you done for fun lately?
We were skiing out West with the kids for 10 days. I never would have done that. I skied seven days. I wish I hadn’t skied seven days. This body is too old to ski seven days in Jackson Hole.
NOTE: Palmisano is a director of the Bloomberg Family Foundation, started by Michael Bloomberg, who owns Bloomberg LP and Bloomberg Businessweek. Bloomberg has helped fund the Center for Global Enterprise.
A BuzzFeed take on ex-IBM CEO's new book
Guest Contributor | Jon Steinberg | @jonsteinberg
7 Hours Ago
CNBC.com
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Former IBM CEO Samuel Palmisano's new book, "Re-Think: A Path to the Future," is one part history lesson and one part management guide for the global executive.
Palmisano explains how a mix of open standards and the Internet have allowed for global work. He contrasts this to a prior era. For example, during his time in Japan for IBM, phone calls were too expensive to allow for frequent communication, resulting in quarterly trips to IBM headquarters in Armonk, NY.
Source: Jon Steinberg
Jon Steinberg
Palmisano traces how, beginning in the 1960's IBM adopted global standards for computing platforms beginning with its S/360 mainframe. This allowed for projects to be segmented and performed globally. The unbundling of software from hardware further cemented the ability for the company to break work into discreet tasks that could be tackled across the globe.
This technical shift combined with the operational shift of "lower[ing] our center of gravity — away from headquarters, closer to markets and customers" allowed IBM, in Palmisano's view, to truly go global.
As I think about the book in light of BuzzFeed's international expansion, Palmisano's line in his recent CNBC op-ed "You need to be globally consistent but locally relevant" resonates completely.
A core part of BuzzFeed is capturing and covering culture. We've been vigilant about that as we've expanded into new markets (like BuzzFeed UK and BuzzFeed Australia) and always started with editorial talent that understands the market. We need to be locally relevant, but we also consistently deploy the BuzzFeed technology stack and best practices. This line perfectly fits how we at BuzzFeed think about being a globally-integrated enterprise.
The overarching thesis of the book is that the most effective companies use a mix of technology and management to operate truly globally. Units and tasks flow freely across the globe in ways that allow for the best service of employees and customers.
The book also describes the movement of IBM into services as the economy becomes increasingly knowledge- driven — this reminded me a bit of Robert Reich's "The Work of Nations" (1992), which I read in college.
The final chapter concludes with some personal insights by Palmisano of growing up in Baltimore and working for more than a decade at IBM before getting international exposure. He notes the importance of being an internationally versed executive because "Every company — indeed, every country — can fall prey to groupthink, which has a corrosive effect as it stifles the innovative impulse that's so essential to progress."
This made me reflect on my recent CNBC op-ed about the up-and-coming Asian internet companies and how Whatsapp was surprisingly off Americans' radar despite its enormous scale, even according to Facebook's Mark Zuckerberg. Internet services and media will flow even more seamlessly than many of the enterprises Palmisano discusses. This makes me think that his insights for operating globally are even more important to Internet companies than those of the mainframe/pc era and I'd love to see him at some point add a chapter on companies like: Dropbox, Alibaba, Apple, and maybe even BuzzFeed.
A new model for going global
Sam Palmisano, former IBM CEO and author of "Re-Think: A Path to the Future"
Tuesday, 1 Apr 2014 | 2:32 PM ET
CNBC.com
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Global economic integration presents enormous opportunity for the future of business and society. The fundamental question for companies — particularly those in developed markets — is not whether to compete globally, but rather how to compete globally.
Today, the evolving model is the globally integrated enterprise, which 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 behaviors, more collaboration, greater focus on a multiplicity of cultural differences, and less hierarchy. 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.
Joshua Roberts | Bloomberg | Getty Images
Samuel J. Palmisano
The globally integrated enterprise is nimble — possessing the ability to quickly enter new markets and seize new business opportunities wherever they arise. In short, 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.
Evolutions in technology, operations, and work patterns have enabled the globally integrated enterprise. Shared business and technology standards that let businesses plug into truly global systems of production are unlocking efficiencies throughout companies. Collaborative approaches to work are fostering innovation. And new skills and new governance systems are changing how people work and how they are managed. These dynamic forces are coming together to transform corporations and unleash progress.
My views about global business, and the globally integrated enterprise, are a byproduct of my 39 years at IBM. During my time leading IBM, and in the years leading up to it, my colleagues and I recognized the dramatic change unfolding across the global business landscape. And we knew that while we could respond to these changes, the bigger long-term opportunity was in driving change and setting a standard that would become a baseline for companies throughout the world.
Given our size, we knew that implementing such transformative change would not be easy. Indeed, it would be highly disruptive within the company, and there was no guarantee the changes would succeed. But we also knew that "business as usual" wasn't an option and if we didn't undergo a transformation and do more to distinguish ourselves from our competitors, we would not be positioned for success in the future.
We decided to compete on the basis of expertise and openness, and we moved from a multinational to a globally integrated model as fast as we could. This wasn't easy. At IBM, as at other companies, people develop an emotional attachment to the sources of their prior successes — businesses and ways of doing business that are well established and very profitable. Proposing to overhaul these businesses — perhaps even sell them off — generates resistance from colleagues, from shareholders, and from the chattering classes.
But if companies want to differentiate themselves and compete in this globally integrated environment, they have to be willing to reinvent themselves. Indeed, that has been true as long as there have been businesses — as IBM's history vividly attests. And they have to be willing to tolerate the critics who tell them they're making a big mistake.
In "Re-Think," I list a number of principles that can serve as a guide for companies evolving into globally integrated enterprises. Three of these principles stand out:
You need to be globally consistent but locally relevant. Companies operating in multiple countries need to tailor their offerings — be they products or public policies — to local constituencies, all while ensuring that the brand's value proposition and the principles guiding the company are the same everywhere.
Learn from below. Management misses out on valuable information by failing to tap into the knowledge that resides at all levels of the company. Leaders can't afford to be insulated by a protective inner circle that shields them from information they think will be unwelcome.
Create a common culture around common values. All companies — but particularly those with operations spread across the world — need connective tissue that will focus employees on the same set of values. And the values will be more meaningful if the entire workforce is consulted on what they should be.
I think leaders will come to see — as I did — that the globally integrated enterprise offers the ideal operating structure for meeting the challenges and seizing the moments of opportunity in the global era.
