Samuel J. Palmisano
IBM Chairman and Chief Executive Officer
Final Remarks, as prepared
The Forum on Global Leadership
London, United Kingdom
May 6, 2008
"The Globally Integrated Enterprise: The Next Phase"
The First Law of Global Integration
Last July, we convened our first-ever Forum on Global Leadership, in Washington, DC. We invited leaders from a broad spectrum of civil society in the U.S.—government, business, universities, non-profits, labor organizations, and experts in such key areas as healthcare, economics, science and technology. Every state in America was represented.
We focused on competitiveness, and specifically competitiveness in a global context. We talked about a simple but irresistible force—what I call the first law of global integration: When everything is connected, work flows.
And if you accept this principle, then the central question for every company, community and nation is:
How do we get work to flow to us?
Now, nine months later, here we are in London for our second Global Leadership Forum. The same question is before us—and its urgency has, if anything, been increased by what has happened in the world during the interim.
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In order to figure that out, we need to focus on what drives the flow of work.
What Drives the Flow of Work
As I see it, it is determined by three forces: economics, expertise and openness.
First, economics. Clearly, cost and profit potential have a lot to do with where and how work flows.
But costs aren't the only factor—and they're not the key to competitive differentiation. For that, the keys are a unique value proposition and the skills to deliver it. As Prime Minister Brown put it so well last November when speaking to the CBI, "Higher standards of living will depend on higher standards of learning."
And not just any skills... but the skills that enable you to innovate—and to keep doing so, even as circumstances, markets and societies continually change.
In fact, I believe that innovation and global integration are two sides of the same coin. I think of it this way: Global integration is the new playing field—and innovation is the way you win the game.
That's true whether you're talking about creating profits or jobs... or a healthier society. And it applies to you whether you're a nation, a region, a company or an individual.
This ability to innovate, reinvent and adapt is a traditional strength of the UK. It will be interesting to discuss over the next two days whether you believe British innovation can still be a basis of sustainable competitive advantage... and what the UK must do to deepen and support it.
This leads to the third key to the flow of global work—openness.
When I talk about openness here, I don't just mean open technology standards, as important as those are. I mean open trade. I mean balanced approaches to intellectual property. I mean governmental policies that encourage the broadest participation in our economy and society. I mean the rule of law. I mean modern education systems that teach the skills of the future... and teach them in modern ways.
So, if you accept that these three forces—economics, expertise and openness—are the drivers of where and how work flows... then we turn to the essential question: How will the UK differentiate itself?
As you listen to the speakers and panelists over the next two days... and as you talk with one another... I think it will become clear that the UK starts from a position of strength... in large measure because it has chosen to differentiate itself on the basis of expertise and openness.
The UK and Global Integration
We are all acutely aware of the storm clouds on the horizon today. It would be foolish to pretend that everything is rosy—and equally foolish to respond to real economic and societal problems with nothing but bromides about the virtues of free trade. We need to respond, rather, with real economic, commercial and societal innovation.
And we need to do so in real time. I believe we stand today at one of those inflection points in history, when a convergence of forces and events makes the decisions of leaders particularly urgent and consequential. When you just survey the landscape...
... the volatile balance-point on which our financial markets seem poised today...
... the recent and rapid emergence of powerful new technologies, and their integration into the fabric of work and life, around the world...
... the cadence of elections and government changes in major nations... with perhaps more to come...
... not to mention the broad environmental, demographic and geopolitical contexts that are themselves shifting rapidly...
... it becomes clear, I think, that we must make some decisions, and take some actions... if we want to shape the future beneficially, for our organizations and countries, and for the world... rather than be swept along by the changing tide.
As always, the crucial thing for leaders, in all sectors—of which this gathering is an excellent microcosm—is to base our judgments on reality. And the reality is that while the UK faces the same challenges as the rest of the developed world—from the credit crunch... to issues surrounding immigration... to the political impact of growing wealth gaps—it seems as though this country has learned some important lessons from the past... and is in a strong position to engage the future.
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Since the 1970s, London has transformed itself into the world's largest financial hub and opened its doors to foreign direct investment from every corner of the globe. London has been ranked as Europe's best city for business for the last 14 years.
The UK today is well positioned to take advantage of new global opportunities—with its flexible labor markets, large and growing supply of high-quality university graduates and an open and globally focused economy... not to mention some of the world's strongest capabilities in science and technology.
IBM's own operations in the UK are clear examples of this country's advantages. Our Hursley lab, for instance—which is celebrating its 50th anniversary this year—is our largest outside the US, and serves as a worldwide developer of one of our fastest growing and most important families of web software. The economic dynamism of the UK is also clear from IBM's clients here... including the City of London.
Perhaps most important, the UK's competitive strength rests on a global mindset among the British people. Earlier this year IBM commissioned the research firm Zogby International to conduct a UK-wide study of citizens' attitudes to globalization. In fact, John Zobgy is here with us today. This study revealed that:
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In sum, the citizens of the UK understand that their country must compete in a global economy, and they overwhelmingly support open markets. This is not the case in many nations around the world, including those that have long supported free and open trade. It is a critical advantage that should not be taken for granted.
The Future of the Enterprise
For large companies, the answer to the question, "How do we get work to flow to us?" has become increasingly clear: You begin to take the journey toward being a Globally Integrated Enterprise.
This is a new corporate architecture—very different from the "multinational" model in which a company created mini-versions of itself in markets around the world, in order to work around trade barriers. To participate in the opportunities being created by a global economy, you need to locate work, skills and operations wherever in the world it makes sense, based on expertise, economics and openness.
The growing recognition of this new form of the corporation was evident in IBM's latest Global CEO Study, "The Enterprise of the Future." In this year's study, the largest of its kind, more than 1,000 CEOs and leaders of institutions across the public and private sectors—including many here in the UK, such as Marks & Spencer, HSBC, AstraZeneca, Diageo, Rolls Royce and Unilever—shared their experiences and plans, and looked out onto the horizon, building a remarkably detailed picture of the future of the enterprise.
Ginni Rometty will tell you more about the study's results. Let me just highlight two key findings:
CEO Study 2008: Global Integration
First, global integration.
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Second, CEOs are hungry for change.
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Not every business views this dynamic environment with alarm. Our survey reveals that the "outperformers"—the companies that are achieving the strongest results and growth—are actually hungry for change. They see it as a chance to push their competitive advantage. These companies make some of the boldest moves, in business models and global business designs, which in turn accumulate and contribute to more change.
Consider the example of Bharti Tele-Ventures. Here is a company that started small and local in India... and innovated its business model, thanks to the radical insight that a telecommunications company didn't actually have to own its network... that it could build a high-growth telecom business by focusing on customer acquisition, service and marketing. That epiphany was liberating—but fulfilling this vision required a lot of change—new kinds of skills required for collaborating and running the company in very new ways. Once those new approaches began to take hold, however, it enabled a local company to become a globally integrated enterprise. Bharti's revenue grew 45 percent in 2007.
At IBM, we've started down the road of what we expect to be a ten-year journey... and we are working with clients all across the world—in both developed and emerging markets—to help them become GIEs.
The New Global Entrepreneur
When people think about the globally integrated enterprise, they naturally tend to focus on large companies, like IBM... companies that today are multinationals and are transforming themselves into this new model.
However, I have never quite seen it that way myself. Because of IBM's work with global supply chains and complex business ecosystems, it has always seemed to me that small businesses could be global players. And today, that's just what is happening.
In the past, if you were a small businessperson, you were a local businessperson. You served a local market... had local suppliers... drew from a local workforce. Your unique asset was your local knowledge—of customers, the regulatory environment, tax policies, etc.
Now, don't misunderstand me... This local-to-local model will always be with us. But it is now being augmented by something entirely new—small businesses that are operating by a very different set of rules.
They have realized that the potential buyers of their products and services are not just local, they're global. They can reach the new middle classes that are arising around the world—hundreds of millions of people who are opening their first bank accounts, getting their first cell phones, using their first credit cards... tens of millions who are buying their first automobiles.
According to the World Bank, by 2030 there will be 1.2 billion people in developing countries—15 percent of the world population—in the "global middle class." That's up from about 400 million today. This group will have a purchasing power of between $4,000 and $17,000 per capita, and will enjoy access to international travel, cars and other advanced consumer goods... as well as international levels of education. They will play a major role in shaping policies and institutions in their own countries and the world economy.
The new global small businesses, like the larger global enterprises, have noticed.
Thanks to the globally networked infrastructure that was built out during the 1990s, global entrepreneurs can now tap into global supply chains... and global talent pools, with skills available anytime, and deliverable anywhere. They are able to adopt very new kinds of management systems—networked, real-time and collaborative.
This is important, because—as we all know—small businesses and entrepreneurs are the engines of job creation.
Here in the UK, 54 percent of jobs are in small and mid-sized businesses. According to our co-sponsors at the UK Dept. of Trade and Industry, there are about 4.5 million businesses in the UK, and only 6,000 of them are large enterprises... and "large" here just means they have at least 250 employees! And across the EU, two-thirds of employment is in small, medium or "micro" businesses (that is, businesses with one-to-nine employees).
This issue of new job creation is at the heart of both the economic and political debate over global integration. And that debate plays out most importantly at the local and regional level.
There is an axiom in democratic countries that all politics is local. Well, the same applies to jobs. In fact, the idea of a "national economy" is a bit of an abstraction. National economies are made up of local and regional economies.
We have all read about the "new global cities"—of which London is among the pre-eminent examples. One of our distinguished speakers tomorrow, Richard Florida, has written extensively about this topic... explaining that while the world is flattening... it still has some rolling hills... because knowledge sectors cluster together, in cities and regions. I'll be very interested to hear about his latest research and thinking.
The New Model of the Small Global Entrepreneur
This new model of the small global business and global entrepreneur brings with it a new set of needs... needs that today are largely unserved.
Access to capital is part of it. But even more than financial capital, what they really need is intellectual capital... knowledge... the better idea... the how-tos... the information on other regulatory environments... the solutions to common problems... and the breakthrough business model.
Think back to the IBM Global CEO Study I mentioned—and the widening 'change gap' it flagged. How do established businesses and institutions typically react when they see gaps like that? I think we know the answer. They experience a lot of anxiety.
But when entrepreneurs see those gaps... they tend to see lots of opportunity.
So the most important actor in the unfolding drama of global integration may actually be the smallest and closest to home... that is, the new global entrepreneur.
Consider a couple of examples:
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There are numerous such examples... but the full potential of this new phenomenon is not yet being realized. There is no existing mechanism to support this new kind of small global business and entrepreneur... to address their most urgent priorities, such as managing cash flows... maintaining a sustainable growth rate... and developing the talent and business capabilities to grow their organization.
We've been thinking about this within IBM... and that is one reason we chose to join with Prime Minister Brown, the Kauffman Foundation and the UK-based organization Make Your Mark to be a worldwide sponsor of Global Entrepreneurship Week, which is coming up in November.
I also floated some ideas during an online Forum on Global Leadership that we held recently in the US, as a follow-up to last year's event in Washington. Those discussions were very provocative... and they strengthened our impulse to find ways we can all come together to jumpstart something really historic.
Help for Global Entrepreneurs
One such way is an effort we've begun exploring with some of our co-sponsors at this Forum, as well as other governmental and non governmental agencies. The idea is to establish something we're calling the Global Entrepreneurs Exchange.
Its goal would be to fill a gap... to create something that does not now exist:
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The Global Entrepreneurs Exchange can be built on the base of something that does exist today—the SME Toolkit—an initiative IBM launched with the World Bank's IFC in 2006, with a joint investment of approximately $10 million. It already serves 3.5 million unique visitors in nearly 30 countries and supports 14 languages—with new sites coming online this year in Mandarin for China, Portuguese for Brazil, and Arabic for Saudi Arabia and Egypt. It maintains an "in geography" network of technical assistance providers.
And, of course, IBM itself has a lot of useful experience, knowledge and relationships to bring to the table. We work in 170 countries, and have been in many of them for decades... some for nearly a century. So, in addition to dedicating the time of IBM staff, we aim to draw on a volunteer mentor network... made up of IBMers and IBM retirees—and inviting other experienced business and technical professionals to join us—to provide this guidance and support.
We are tapping many of the 50-plus nations participating in Global Entrepreneurship Week. And we hope to stay engaged with all of you in the weeks and months ahead. We welcome your input, insights and ideas—especially the local economic development officials among you. Please feel free to contact Brendon Riley, the head of IBM UK.
Forum on Global Leadership
Before I close, I'd like to say a few words on the question that is, of all the issues surrounding global integration, perhaps the most challenging:
How does the individual compete and win in a global economy?
This is a charged question, whether you're talking about the individual entrepreneur in a developed economy... or the individual employee in a globally integrated enterprise... or the individual villager in an emerging country.
This is what makes globalization such an emotional and polarizing issue. Nations and large companies can look out for themselves... but when you think about yourself as an individual on the vast ocean of a new global economy... it can seem daunting. And the anxiety that this engenders can have, as we know, major political ramifications.
And yet, in truth, it is individuals who may be the chief beneficiaries of global integration—if they understand their options... choose to seize their opportunities... and are empowered and enabled to do so.
At our Forum on Global Leadership in Washington last July, we introduced an approach that we believe holds promise for addressing this challenge. We called it the IBM Global Citizen's Portfolio. We're offering our employees a suite of services to help enhance their expertise and resources in a global context.
One of those programs debuts this summer. The Corporate Service Corps is modeled on the Peace Corps of the 1960s. Teams of high-potential IBMers from around the world will come together for a month, leading on-the-ground projects in emerging countries such as Ghana, Tanzania, Vietnam and the Philippines.
They will work on issues of economic and societal development... but this is not just traditional philanthropy or volunteerism. Our goal is to start building a new generation of global leaders.
We currently have 25 out of the first 100 CSC participants coming from IBM in Europe, including four, like Peter Ward, from IBM UK. [Point to him in the audience, have him stand up.] Peter will be going to Ghana to help develop micro-lending programs to increase jobs and economic opportunity. And afterward, like our other Service Corps pioneers, he'll be sharing his global experience and insights with his IBM colleagues. I personally will be fascinated to hear about what they learn.
This approach is based on the idea that the individual is in the best position to make decisions about his or her work, learning and career.
Companies—and the people who lead them—will need to move away from corporate paternalism, which is as much about tops-down control as it is about jobs, pay and benefits. It's a question of management philosophy: Who's in the best position to make decisions and take responsibility for outcomes?
Individuals will need to change, too. They are telling us they want flexibility, more of a voice, more control over their destiny. But in exchange for that, they have to accept greater levels of responsibility, accountability and ownership of the consequences of their decisions.
I will be very interested in your perspectives on these questions.
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What are the cultural barriers within organizations—and not just between them—that inhibit global integration?
Global Integration is a Reality: Conclusion
I believe we have crossed the Rubicon on global integration. Unlike Dennis, I'm not a world-class economist... but one thing seems pretty clear, when you visit the countries, cities and communities of the world with open eyes and an open mind.
Despite the well-publicized difficulties in the US economy, the prospects for continued global growth seem to be excellent.
When some people look out at the global economy today, they are concerned about possible ripple effects. They fear the impact on overall global growth of a downturn in parts of the developed world. I respectfully disagree. You only have to visit these places to see that something very new is happening.
The world's growth markets are no longer as dependent... on export-import, on the exchange of raw materials for industrial goods. Instead, they are innovating. They are differentiating.
In addition, their people are becoming consumers; they're joining the middle class.
These are historic developments, and are pretty far removed from economic fluctuations in the United States, Europe and Japan.
The convergence of the digital network revolution, the reality of global integration and new kinds of innovation and integration opens up vast new possibilities... ushers in an unprecedented complexity to societal and economic life... and presents us with enormous challenges. Hundreds of millions of "new global citizens" seem eager to make this journey. Will we?
I believe we must. I believe that this is the way you respond to innovation and change. You don't erect barriers and go backwards. Instead, you move past debating the 'whether' of global integration... and you focus on the 'how.' You acknowledge the challenges we face... the need for serious innovation in our economic and social safety nets... the global societal and environmental issues that we must tackle... and the inflection point at which we find ourselves today... and you respond not by playing defense, but by going on the offense.
The UK is a leader in embracing global integration. Your economy and society are benefiting from that... and the opportunities ahead for all of us are even more promising—if we come together and step up to the challenges.
We have so much to talk about over the next two days, and an extremely exciting program. So let's get to it.
