IBM in the 21st Century: the Coming of

the Globally Integrated Enterprise

INTEGRATED MARKETING COMMUNICATION

2

Case objectives… What makes the global business operating environment uncertain, complex, diverse, & transparent?

What role do “values & principles” play in the functioning of large organizations;

What are the 3 facets of global leadership skills? Institutional, integrative, & identity related?

How do organizations manage change? How are management: actions for transformation planned?

“Global integration is the new game. Innovation is the way to win. We must be out there connecting

across the world.”--Sam Palmisano, Chairman and CEO

Members of IBM’s fifth Integration & Values Team (IVT5) were close to finishing their deliberations in April 2008.

The mission of IVT4, formed in 2002, had been to globally integrate the company’s supply chain, manufacturing, human resources, and services delivery functions….

Synopsis: Towards becoming a globally integrated enterprise

IVT5’s mandate was to identify ways to integrate IBM’s people & culture in order to produce more global leaders & citizens.

People responsible:

◦Jon Iwata, SVP Corporate Communications &

◦John E. Kelly, SVP & Director IBM Research, globally- oriented systems thinkers who reflected IBM’s emphasis on innovation.

Synopsis: Towards becoming a globally

integrated enterprise

6

Company Profile Founded in 1911 by Thomas Watson, IBM (Big Blue) nearly perished in the late 1980s/ early 1990s.

Under Lou Gerstner, (1993-2001) IBM “retooled itself from a hardware & PC manufacturer to a software & services provider.

New Chairman & CEO Sam Palmisano, appointed in 2002 set out to globalize IBM.

7

Company Profile 2003 - 2007: IBM acquired over 50 small software development companies for $16 billion to meet its need to provide service.

In 2005, it sold off the PC business to Lenovo, in China.

IBM grouped its businesses in 4 areas:◦Global Services;◦System & Technology;◦Software;◦Global Financing.

8

Company Profile

Global scope/ International business:

By 2007, 60% of IBM's revenues & 65% employees were located overseas. BRIC countries had special significance as growth markets. Over 50 countries grew at >10%.

9

Company Profile Extended Family & Ecosystem IBM served every industry across markets with 1 million clients, & 33,000 vendors/ 100,000 partner companies;

Relationships varied by market - in some areas HP, Microsoft, Oracle, & Accenture were major competitors - in others they teamed up as partners with IBM.

Company Profile

Technology & innovation IBM was always committed to technology & innovation being an engineering product manufacturer – Gerstner simply revived the spirit.

Patents applied in the US as early as in 1993;

Adopting “open source computing” a major step;

10

Company Profile Technology & innovation IBN also partnered with academia to promote service science management & engineering (SSME);

Global Innovation Outlook (GIO) online project ‘Innovation Jam’ attracted 150,000 participants;

IBM now partnering with Google on major cloud computing initiative.

11

Company Profile

By 2008, IBM was a self-described “globally-integrated enterprise focused on innovation”, with 386,000 employees working in 170 countries generating $99 billion in annual revenues.

12

A look at numbers

13

14

IBM: Management Philosophy

Palmisano: “Management by Flying Around”

With internet in use for routine work, Palmisano & other senior executives circumnavigated the globe, meeting major clients, government officials & mentoring executives on ground.

15

IBM: Management Philosophy Lowering the Center of Gravity Global integration intended to make it easier to bring ideas, technology, initiatives & people to clients worldwide.

Decision making moved down the line to Regional Executives leading Integrated Operating Teams. Given higher status & compensation.

On the ground, leaders strengthened links with vendors, partners, & customers.

16

IBM: Management Philosophy

Lowering the Center of Gravity◦Lab opened in Moscow;◦Centers of Excellence in many locations;

◦IBM Business Leadership Forum;◦Corporate Philanthropy projects.

Few “power holders” but many “integrators”.

17

IBM: Management Philosophy Localizing: WHY? Governments were major clients; Local policies & educational systems affected business - IBM wanted a say;

Closer connections on ground provided sound local knowledge;

Country GMs and local teams “IBM’s local ambassadors”;

“Local managers” also connected with the IBM global network.

18

Next stops on the GIE Journey

“The art of management of IBM is to balance, like walking on the rope. It is one successful strategy all the time.”

– Kirill Korniliev, GM – IBM, Russia.

19

Next stops on the GIE Journey GIE objective: channel global resources, bring them together, to quickly & effectively produce value for customers.

Find ideas & opportunities “anywhere in the world” to enrich & change the entire organization.

Managerial skill development focused on “systems-thinking, initiative-taking, persuasion & diplomacy, a collaborative spirit & concern for the social good”.

20

Case Analysis

Globally integrated enterprise: IBM’s gradual transformation, was a direct response to the new business environment:

uncertain, complex, diverse, & transparent.

21

Changing Trends

How did changing Global Trends affect IBM’s moves?

In the 1980s: deregulation, disruptive technology, free trade, end of Cold War;

Turn of the Millennium: Asian financial crisis, new direction in globalization, emerging markets (CEMEX, SAB, Tata, Web 2.0.), terrorism& security concerns.

22

IBM Going Global

1. What global forces drove IBM to become a Globally Integrated Enterprise (GIE)?

a) Uncertainty; b) Complexity; c) Diversity; & d) Transparency.

EXPLAIN………

23

IBM Going Global1. What global forces drove IBM to become a GIE?

a) Uncertainty◦ Greater interconnectedness leads to

greater interdependence. ◦ Disruption anywhere in (global supply

chain) could disable the entire system;

◦ With innovation all around, difficult to predict where next disruption will come from;

◦ The difficulty in knowing & responding to what is happening in all places, at all times.

24

IBM Going Global1. What global forces drove IBM to

become a GIE?b)Complexity: With access to communication

technologies more choices & competition in the market;

Companies work better as interconnected networks of parts, to respond to the flow of people, money, & ideas;

Relationships with partners becoming closer – overlapping/blurring organizational lines.

25

IBM Going Global

1. What global forces drove IBM to become a GIE?

c) Diversity: With “global push” companies

encounter different religious, ethnic, national, & cultural types;

Understanding of diverse cultures essential for explaining/ motivating/ causing behavior.

26

IBM Going Global1. What global forces drove IBM to

become a GIE?d)Transparency: Communication technologies make it

easier for people to learn about company activities;

Customers, investors, & partners demand accountability - companies that engage in questionable activities put at risk;

With deregulation companies enjoy freedom of movement but are also expected to be more responsible.

27

IBM Going Global2. How did IBM adapt to the

challenge? What did they do?

◦ Migrated from hardware manufacturer to value-added services & solutions;

◦ Refreshed values, emphasizing client service, meaningful innovation & trust;

◦ Delivered solutions through extended partnerships within the ecosystem.

MORE…..

28

IBM Going Global2. How did IBM adapt to the situation?

What did they do? Moved decision-making center of

gravity lower down into the organization – out of from Armonk, New York to its “geographies”;

Embraced open source technologies & built capabilities through acquisitions & continued R&D investment;

Involved employees - held a ValuesJam - 140,000 employees participated online;

MORE…..

29

IBM Going Global

2. How did IBM adapt to the situation? What did they do?

Emphasized trust & collaboration in interactions;

Created new roles, e.g., high-status Account Managers & Connector” positions;

Put global supply chain head in China - allowed local managers to adapt services to local context.

30

IBM Going Global

3. What skills must global leaders have?

What types of leadership skills did Sam Palimisano’s actions as Chairman & CEO demonstrate?

31

IBM Going Global3. What skills should global leaders have…

Institutional - Integrative – Identity: Identify values & principles to anchor members of the company;

Embed values in action: via corporate diplomacy, collaboration with partners, approaches to innovation;

Get in “face time” by “flying around”;

Look inside & outside the company - speak to stakeholders.

MORE…..

32

IBM Going Global3. What skills should global

leaders have… Motivate employees to self-

organize by following company principles;

Recognize differences & respect them;

Reinforce common ground: Let employees remain together by commitment to company values & principles;

Allow to localize.

33

IBM Going Global4. What ACTIONS would you

recommend to Palmisano if you were part of ITV5?

Unbundle headquarters further& make company more regionalized;

Make service an essential component for working in the company;

Tie people’s compensation & rewards to project outcomes;

34

IBM Going Global4. What ACTIONS would you recommend to Palmisano if you were part of ITV5?

“On-boarding/ Induction program” for new hires: start early, introduce them to initiatives, empower people;

Build leadership training schools;

Set up a “leadership training” fund - notify people of resources, induct people from across the organization.

35

IBM Going Global3. How would the

recommendations be implemented?

What kind of organizational vehicle?

◦ New entity? Embed in existing entity? Coalition?

Who to lead – sponsor OR champion the change?

◦ Human Resources? Corporate Citizenship? Others? A board?

36

IBM Going Global

3. How quickly should the project proceed?

◦ Fast because business environment is changing quickly, get ahead of the change;

◦ BUT, in steps, because of proof of understanding – is everybody coming along…?

◦ …especially in uncertain, complex, diverse environments: need to be adaptive?

37

IBM Going Global

How quickly should the project proceed?

◦ Slow? Why?◦ Because the foundation exists,

but people & cultural change take time;

◦ Work more incrementally & let initiatives grow organically, but with focus on following a strategic direction.

38

Wrap Up!

Under Palmisano, IBM had become more globally integrated but the transformation was not yet complete.

The company employed nearly 400,000 people, had 33,000 companies in its global supply chain, partnered with 100,000 companies in its business network, & served roughly a million clients.

39

Wrap Up! In becoming a GIE it confronted challenges and developed solutions with its clients, who also struggled with uncertain, complex, diverse, and transparent operating environments, also needed.

The transition was not yet complete and answers were not obvious.

But the direction was right - following of core values & principles, and in the institutional, integrative, & diversity tasks of global leadership.