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 importantly–ideas being circulated around the world is greater than ever before.
The fundamental question for companies–particularly those in developed markets–is not whether to compete globally, but rather how to compete globally.
In earlier eras, companies might have simply shifted production to low-wage countries. But it’s unlikely their investment in these countries would have been 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.
As an example, decisions about where to locate operations are based on how to maximize value for customers, employees, and business partners. In the succinct observation of one of my former colleagues, Michael Cannon-Brookes, IBM’s vice president of global strategy for growth markets, “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.
Soon after I moved into the CEO suite at IBM in 2003, I saw the need to transform the company, given what we at IBM saw coming–namely, fundamental shifts in the information technology industry and in the global business environment. Not only did our products and services need to be transformed, so did the entire structure of the company. So we took wholesale action, which positioned us to deliver on our business model on a sustainable basis, while giving us greater flexibility to focus on growth and profit opportunities in what was a rapidly-changing world.
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.
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.
A number of principles can serve as a guide for companies evolving into globally integrated enterprises. These three principles stand out:
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.
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.
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.
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. Resisting the change is a recipe for oblivion.
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.
—Adapted from Samuel J. Palmisano‘s new e-book, Re-Think: A Path to the Future. Palmisano is the former chairman, president, and chief executive officer of IBM.