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Icons of Progress
 

The Globally Integrated Enterprise

 

The “globally integrated enterprise” business model emerged from massive socioeconomic changes that were occurring throughout the world in the 1990s. A key factor was the emergence of the Internet [Read more about this Icon of Progress] and the laying of a global network of communications cable. Together, they made it possible for knowledge work to be performed anywhere in the world where skilled people could be found to do it.

Workers in populous countries, such as India, were acquiring highly valued technical skills. New competitors appeared—Indian tech companies that could provide some services at a fraction of the cost of IBM. Industry experts warned that the Indian tech services companies—the Bangalore Tigers—would devour American competitors.

IBM decided to engage in this competitive battle on two fronts. First, it would reduce the cost and improve the quality of its service delivery. Second, it would position itself in India, not as a low-cost provider, but instead as a company that could draw on its capacity to create breakthrough technology and deeper client solutions. IBM rapidly expanded its presence in India and other emerging markets, attracting talent and building up its local presence through the promise of long-term, transformational work.

2006: Announcement in Bangalore, India

In India—and elsewhere—IBM didn’t want to just hire local talent. The company wanted to align itself with the host country’s national economic vision for growth; to tailor products and services across all brands to the local market.

When IBM Chairman and CEO Samuel Palmisano spoke to 10,000 employees in Bangalore, India (plus hundreds of thousands via global webcast) he made a financial commitment of US$6 billion to grow IBM’s presence in that country which was already the largest country division outside of the US.

IBM would establish a number of new research and service delivery centers based in Bangalore to serve clients around the globe. Palmisano’s Bangalore announcement not only reflected IBM’s recognition of the vast opportunities in India; the speech also marked IBM’s boldest advancement toward becoming a globally integrated enterprise—a vision he outlined in an essay in Foreign Affairs magazine that same month.

2006: IBM opens first integrated delivery centre in South Africa

Integrated delivery centres (IDCs) are a means of developing skills and jobs in areas that hold significant business potential for IBM. Within its first year, the South Africa IDC created 500 new jobs and continued to increase local employment, while providing services to more than 250 businesses in South Africa and elsewhere. As part of the effort, IBM also established a graduate program for financially challenged students, helping to foster their professional careers. Based on its success, the South Africa IDC became the model for the establishment of IDCs in Argentina, Brazil, China, Egypt, Vietnam and other countries worldwide.

2006-2010: Remaking IBM into a globally integrated enterprise

IBM was clear on its strategy; making it a reality took a lot of work. The transformation took place in phases that often overlapped. From 2006 to 2008, IBM expanded its presence in Asia, Latin America and Eastern Europe, and today nearly half of its employees are in emerging markets. The company set up a network of global delivery centers in India, China, Brazil and other countries. By standardizing processes and outputs across its large, diverse client base, IBM could deliver quality services to its IT and business process outsourcing clients consistently, with the right skills, in the right place—wherever that would be. Projects could be staffed more quickly, delivering greater value to clients sooner.

Sharing resources

The model of shared services caught on. Global procurement was centralized in China. Back-office finance operations moved to Brazil. IBM established Centers of Excellence—for telecommunications, water management, rail innovation and more—which served clients around the world. Today, IBM shares services among its legal, marketing communications, sales transactions, real estate and other functions. From 2005 through 2010, IBM has reduced total spending by US$4.8 billion through shared services.

Simplifying processes

In 2008, the transformation journey entered a new phase. “Our mantra is radical simplification—eliminating, standardizing and automating work that currently adds to our complexity and makes global integration difficult,” said Linda Sanford, senior vice president, Enterprise Transformation. IBM began to review its horizontal processes end-to-end, looking for greater synergies, simplifying workflows, and moving services and resources into the right channels.

For example, in the hardware product design and development process, the systems portfolio was reduced by 40 percent; features and products were slimmed down by 35 percent—streamlining that is expected to yield US$250 million in savings through 2015. And in the sales process, by pooling tasks related to the pre-sales phase into a sales support hub, 10 to 20 percent of seller time was freed up to focus on the client.

New technologies ease integration, make transformation smarter

Analytics, cloud computing and other capabilities have been critical to much of IBM’s global integration. In manufacturing, deep analytics have enabled IBM to improve chip yields, detect problems and optimize performance across complex manufacturing processes—resulting in US$32 million in cost savings and US$21 million in annual incremental revenue. Using analytics, IBM optimized 13,000 seller territories, which show an average of 10 percent sales performance improvement.

Two other factors are facilitating global integration: flexible work arrangements and social media. About one-third of IBMers work from mobile locations, gaining flexibility in terms of location and hours—they can work side by side with clients for periods of time as needed and change their daily schedule to accommodate different time zones. Secondly, social media offers compelling new ways to collaborate. As of December 2010, 500,000 employees had participated in four jams—open brainstorming events on IBM’s intranet—around key topics. In addition, as of that date, some 300,000 employees were collaborating through the developerWorks site, and 196,000 IBMers were using LinkedIn.

A new generation of managers

A highly dispersed business model requires a new approach to management and training. “We need not a handful of people—but thousands of people who can become effective leaders able to make the decisions on a global level. We’re approaching this in a number of ways—for example, the Corporate Service Corps,” said Mike Wing, vice president, Strategic and Executive Communications. IBM also created a comprehensive management system that included career counseling and leadership training, collaboration tools, and a centralized database to identify and track the development of thousands of high-potential employees.