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Icons of Progress
 

The Globally Integrated Enterprise

 

In June 2006, Sam Palmisano kicked off an IBM employee town hall meeting far from the company’s suburban New York headquarters. The venue was 8000 miles away on the grounds of the Bangalore Palace, in the heart of India’s Silicon Valley. Palmisano told a crowd of 10,000 IBMers that the company had expanded its Indian workforce from 9000 to 43,000 in just two years, and planned on investing US$6 billion in the country over the next three years. “IBM was international before people even thought about international companies. It was multinational before that was contemporary. Now we’re taking it to the next dimension and creating a truly globally integrated company,” he said.

The event was a debut for the concept IBM calls the globally integrated enterprise. Like other multinational corporations, IBM had long maintained national organizations in most countries where it operated; each one was, in many respects, a replica of the parent corporation. But Palmisano thought the model was outdated. Indeed, he had just proposed a historical account of the global corporation’s evolution to the new, globally integrated model, published in the policy journal, Foreign Affairs, in 2006.

This was not a theoretical exercise. Palmisano had decided some years before that IBM had to be run differently if it were to remain competitive and expand rapidly in high-growth markets. So he reorganized the company around the principle that IBM would perform work for clients and for its own business units where the jobs could best be done—tapping the right talent and the right market segments at the right price. And a major part of that was the creation of a truly global human resources supply chain.

The concept of distributing work and corporate functions around the world in this way emerged along with the rapid globalization of financial markets and labor in the 1990s. “All industries are moving in this direction,” says Christopher A. Bartlett, professor emeritus at Harvard Business School and co-author of a seminal book on the topic, Managing Across Borders: The Transnational Solution. IBM aimed to get out in front by truly integrating its global operations.

Palmisano had formally launched IBM’s global makeover in mid-2005 by announcing it would establish global service delivery centers around the world. The goal was to use a combination of business process redesign, technology upgrades, and re-deployment of global labor to improve quality and responsiveness, and drive annual 10 to 15 percent productivity gains across IBM’s entire services portfolio. Over the next two years, the company set the plan in motion, shifting work to Asia, Latin America and Eastern Europe, and setting up giant centers that were capable of serving clients—and IBM’s own business units—scattered around the world. For instance, a former IBM manufacturing plant in Hortolandia, Brazil, now serves clients who speak Portuguese, French, Spanish and English. The strategy has cut IBM’s annual bill for internal shared services alone from US$16 billion in 2005 to US$11.5 billion in 2010.

At the same time, IBM is transforming many other aspects of its global operations, strategy and culture—from leadership development to how it conducts research and develops offerings. The Global Citizens Portfolio, launched in 2007, is a suite of programs designed to enable IBMers to be effective global leaders and global citizens. One of these programs, the Corporate Service Corps, organizes small groups of employees and sends them into developing countries to help craft economic development strategies, assist local industries and improve government services. [Read more about this Icon of Progress]. On the global workforce front, the IBM software division alone has more than 40 of its product development labs housing 26,000 programmers in 25 countries around the world. And the company’s Smarter Planet strategy is an expansion of the globally integrated enterprise vision of a global commons of interdependent business and societal systems.

Over the coming decades, IBM expects to continue expanding globally at a rapid pace—in both the clients it serves and the talent it taps. It set up a business unit in 2008 to target emerging markets and expects the percentage of its revenues from those countries to grow from 18 percent that year to more than 25 percent in 2015, contributing 50 percent of the company’s revenue growth over this period. For instance, IBM had just 10 branch offices in Africa and the Middle East in 2000; by 2010, it had 23 offices, and expects to expand to 40 by 2015.

The globally integrated enterprise is a new kind of commercial organization, responding to a new era in global economics. As it evolves, it has the potential not only to achieve efficiencies and enable profitable growth, but also to help bridge gaps between countries and cultures in ways that could improve global security and promote peace. Thomas Watson Sr. led an international campaign in the 1930s in an unsuccessful attempt to head off World War II, hoping for “World Peace Through World Trade.” In a sense, the globally integrated enterprise is a descendant of that effort. Palmisano wrote of the globally integrated enterprise in his Foreign Affairs essay: “Now leaders in business, government, education, and all of civil society must learn about its emerging dynamics and help it mature in ways that will contribute to social, economic and human progress around the planet.”