Samuel J. Palmisano
IBM Chairman and Chief Executive Officer
Final Remarks, as prepared
Global Leadership Forum
Washington, D.C.
July 25, 2007
"The Globally Integrated Enterprise: A New Model"
The last time I addressed a conference in Washington on American competitiveness and innovation—in this very building, in fact—was more than two years ago. I presented the findings of the National Innovation Initiative. Some of you participated in that effort to reignite American competitiveness. My co-chair was Wayne Clough, the president of Georgia Tech, and we had the generous sponsorship of the Council on Competitiveness.
The NII did in-depth studies that engaged hundreds of leaders and experts from across the country in both the public and private sectors. It framed a program of specific proposals to stimulate American innovation in three key areas: talent, infrastructure and investment.
A lot has happened in the past couple of years on all of these fronts—and the NII itself has become a kind of template for innovation initiatives in other countries and regions. But much remains to be done. And if anything, the issues that we looked into back then have become even more urgent, and even more complex.
The reason we have brought you together—leaders from across American business, government, academia and civil society—is to engage very seriously on how we enhance American competitiveness through our response to two overarching realities.
The first is the chief opportunity and imperative we face as a society—which is innovation.
The second is the seminal economic and societal development of our lifetime—the reality of global integration.
Globalization has arrived. It has arrived because of the convergence of:
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For the first time in history, everything is connected—businesses, workflows, transactions and billions of individuals.
There are 1.2 billion people, millions of businesses and perhaps a trillion devices connected to the World Wide Web.
By 2011, it is estimated that the Internet will reach 2 billion people—nearly one-third of the world's population.
And it isn't just about connecting people and companies…
Last year the world produced more transistors than grains of rice, at lower cost…
So it's not surprising that 70 percent of the computer chips being produced today do not go into "computers."
They are going into cars and planes, appliances of every type, roadways, shipping containers, pacemakers, emergency rooms and every product with an RFID tag… all 'intelligent' and all connected.
And when everything and everyone is connected, we know what happens… work moves. It flows to the places where it will be done best—that is, most efficiently and with the highest quality. It's like water finding its own level.
That's why, in my view, the most productive way to think about this—both for business growth and for societal health—is not "What will globalization do to me?" Rather, it's "How can I get work and investment to flow to me?"
In fact, our goal in convening this Forum on Global Leadership is to begin answering that question for our own country.
In order to figure that out, we'll need to understand what causes work to flow across the global network and economy. As I see it, it's driven by three forces: economics, expertise and openness.
First, economics. You can't fight economics. A key determinant of where and how work will flow is cost and profit potential. There's no question that low cost has been the initial reason why so much work has moved to places like India, China and Latin America, where labor costs are a fraction of those in North America and much of Western Europe.
But costs aren't the only factor. If they were, we'd see everything commoditizing and all work flowing in one direction. And that's not happening.
Why are European biotech and pharmaceutical companies like Roche and Eppendorf building manufacturing and R&D centers in the U.S.? Why is Sony investing in upstate NY—not a traditional low-cost neighborhood? Why is Takeda Pharmaceutical (of Japan) setting up their global R&D in Chicago? And why did our most recent survey of foreign direct investment show that Europe had beaten out Asia in 2005?
In all these cases, the decisions are not based solely or primarily on cost. This isn't a "race to the bottom"… it's a race to the sweet spot—whatever that may be for your own particular company, country or community.
In this race for differentiation, businesses, governments and individuals are responding to the second principle of global integration: the growing value of expertise.
In a world where the means of production and distribution are increasingly available to anyone, the only way to distinguish yourself is to have a unique value proposition and skills. You've got to have a better idea. You've got to have the talent to do something that isn't just cheaper, but that makes you distinctive.
And you've got to make this sustainable. Today, because you can so quickly lose your differentiation and competitive advantage, you've got to keep adapting, reinventing, transforming—in a word, innovating.
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… whether you're a nation, a region, a company or an individual.
The ability to innovate, reinvent and adapt is a traditional strength of the U.S. It will be interesting to discuss over the next two days whether you believe U.S. innovation can still be a basis of sustainable competitive advantage.
This is directly related to the third principle of global integration—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 regulation. I mean governmental policies that encourage the broadest participation in our economy and society. I mean the rule of law… and modern education systems that teach the skills of the future… and physical infrastructure that enables everyone to take part. And I mean a culture in business that is hungry for new ideas and new ways to work.
So these three forces—economics, expertise and openness—are my candidates for the Principles of Global Integration.
If you accept this, then we turn to the essential question: How will we differentiate the U.S.?
In our discussions tomorrow, we will hear from experts on key public policy issues and on how government and academia can take steps to enhance American competitiveness:
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And we will not only talk about recommendations and proposals.
Importantly, we've invited leaders from U.S. businesses and regions who will provide concrete, real-world examples about how their companies and communities have caused work and profits to flow to them. They are competing on a global stage, and winning.
As I think we'll see, they are winning because they have embraced change. They are winning through innovation—and not just technical innovation, but innovative business models and progressive public policy. They're leveraging new skills and fields of expertise.
I look forward to learning how companies and regions are effectively responding to these new realities. Let me tell you… as the CEO of a nearly 100-year-old company that operates in more than 170 countries, I understand the need and benefits of embracing change—as well as its challenges.
When I joined IBM in 1972, it was a classic multinational—with mini-IBMs in countries all around the world. Now, we are moving aggressively from that multinational model to a fundamentally new architecture of the corporation—what we call the "globally integrated enterprise."
We are locating work and operations anywhere in the world based on—and this won't surprise you now—economics, expertise and the right business environment. We are integrating those operations horizontally and globally.
We used to have separate supply chains in different markets. Now we have one supply chain, a global one. Our R&D has been global for many years, with research and software development carried out in labs around the world. But in our professional services businesses, where we used to think about our human capital—our people—in terms of countries and regions and business units, we now manage and deploy them as one global asset.
We have located our semiconductor R&D and manufacturing in upstate NY and Vermont, moved our global procurement mission to China, put global services delivery in India, and located many of the services that support our external and internal Web sites in places like Brazil and Ireland. We are making an $89 million expansion of our data center in Boulder, Colorado, to add 80,000 square feet of space. Our financing back office is in Rio de Janeiro.
These people are not leading teams focused on China or India or Brazil or Ireland—or Colorado or Vermont. They are leading integrated global operations.
This is a huge shift for IBM—but I believe it's necessary, if we want to capture the benefits and step up to the challenges of a globally integrating economy.
We're going to hear a lot about how companies, institutions, states and regions are effectively competing in a globally integrating environment. Personally, I hope to learn some things that I can take back and apply at IBM.
But, in addition to corporate, regional and national competitiveness, I think we also need to spend some time discussing another important aspect of global integration. And that is: How does the individual compete and win in a "flat world?"
Frankly, this is what makes globalization such an emotional and polarizing issue to many people. And let me offer my own point of view. I believe that the answer for the individual is similar to the answer for companies and nations—expertise, skills, knowledge.
Straightforward enough—or is it? Maybe we need to spend a moment talking about the changing nature of expertise.
How does a person become an expert? Well, up to now, you went to school—whether that was technical school, or college, or medical school or law school. You studied a body of knowledge, received a degree or certification and then went to work, usually with the expectation that you would stay in that field, profession or career track for a lifetime.
But that's not what the world is like any more. The nature of competition and the forces of innovation shift the frontiers of science, business and technology at a rate we've never seen before. Which is why expertise is not static. To be competitive, any individual—like any company, community or country—has to adapt continuously, learning new fields and new skills.
I believe that building and sustaining this kind of expertise requires a wholly new kind of relationship between the company, the individuals who make it up, and society at large.
We need a workforce model that recognizes this shift. As always, the really hard part is culture and mind-set.
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I believe this shift to a different kind of employer/employee relationship—a different kind of management system, really—is the right path forward. But it does require some unconventional approaches.
Let me tell you about what we're doing at my own company. At IBM, we've set off down the path of empowering and enabling our people to make decisions and to act. We call this "lowering the center of gravity" of the company—that is, trusting IBMers and pushing decision-making authority out and down. The design point here is a dual responsibility between the employee and management. Management has to provide the tools, the mechanisms, the funding… and the individual has to make use of them. This is a very mature relationship.
It has changed everything from how we manage our client relationships and R&D, to our benefits programs. More choice, more control, more responsibility in the hands of the people who are in the best position to call the shots—not headquarters, but the individual IBMer.
Still, we know we're not yet where we need to be. Despite IBM's long history as a company operating around the world, we're just at the beginning of a decade-long journey to become a globally integrated enterprise.
Recently, I asked a team of people to explore how we could take our journey to the next step. We already have a very rich array of programs, policies, technologies and other support. But I challenged the team to think about what we could add, how we could fill in the gaps, what opportunities there are to innovate across all of those areas.
So they did that, and came back to me with some very interesting ideas.
We're announcing today some elements of what we're calling the IBM Global Citizen's Portfolio. It is aimed at enabling current and future IBMers to position themselves advantageously as global professionals, as well as global citizens.
Let me just briefly touch on three programs, which I think illustrate the core ideas that are shaping our thinking.
1)The first isMatching Accounts for Learning.This is all about enhancing competitiveness through expertise—renewing skills continuously—and putting more responsibility, control and choice in the hands of the individual employee.
Under this plan, the IBMer demonstrates commitment to his or her own skills enhancement by investing in the account. IBM will match the individual's contributions up to a set limit. The account would be portable.
We're going to pilot this first in the U.S., and based on what we learn and how employees use the program, we'll think about rolling out appropriate versions of the idea around the world.
I invite you to think about what else might be done with such an approach. One thing is clear: This really needs to be a partnership between the individual, the corporation, educational institutions and the public sector. And an important element of that would be if governments—at the federal, state and local levels—made these accounts tax-favorable for both employees and companies. Also, perhaps universities and community colleges could offer discounts—say, 25% off tuition—for people who take courses in high-value fields like service science or public service. I'll be interested to hear what some of our government and academic leaders think of this.
2) The second idea is something we're calling the IBM Corporate Service Corps.At IBM, we know how to develop leaders for a multinational. We've been doing it for 50 years. I myself went on assignment to IBM Japan for a few years to get an "international" perspective.
But what are truly global leaders? How do we develop people who can lead truly global teams and operations, and who understand cultural and societal norms and expectations all around the world? Where will this new generation of leaders come from?
We're planning to create a global training ground in emerging markets of the developing world. We'll offer short-term assignments that engage IBMers with communities, governments and NGOs, and really steep them in the culture and society of those communities. To start, we envision having some 600 participants over a three-year period.
IBM will benefit from leaders with new perspectives and enhanced skills, and the community will benefit from our technology and talent. We hope it will help broaden our people's thinking and understanding not only of different cultures, but of the global context in which business today operates.
I'll be interested to hear from the NGOs here about what partnerships might be possible on such a program. And I certainly hope we'll hear from our colleagues from universities about how they can help train and develop truly global leaders. It's a vital need.
3)Finally,Transition Services. Over the course of the next 24 hours, we will certainly consider many kinds of "transition assistance" needed by U.S. workers—possibly things like universal and portable health care, lifetime learning assistance, improved approaches to unemployment insurance and better retirement savings assistance. We may hear about interesting new ideas such as mortgage insurance.
These are very important discussions for a society and its government to have. But in a way, I feel that they actually mistake the nature of "transitions" today. Even for someone who keeps his or her job in the same company, work in the globalizing economy of the 21st century is a constant series of transitions - from one skill set to another...from one business model to another...from one department manager to another.
So when we think about "transition services" at IBM, we're not looking at this as a singular border-crossing—from "inside" to "outside" IBM. We're looking at it as a continuum. Individuals—those who still carry an IBM badge and those who used to—need to be equipped for continual transitions, need to stay connected to the global economy and need to collaborate with others. And, of course, so many IBMers who leave the company go on to do great things. We want them to continue to feel, and be, connected to IBM.
Also, when someone retires from IBM, he or she remains part of the local community. As for that individual, IBM's relationship with those communities is of great importance to us. That's why a couple of years ago we developed Transition to Teaching, a program that assists IBMers in moving to a second career in teaching. We also have a similar program to help people move to jobs with our business partners. And as part of the Global Citizen's Portfolio, we'll be extending this idea to help people move to public service and non-governmental service..
So… providing opportunities for IBMers to acquire expertise and skills… providing global leadership experience… and providing the means for continual transition—all to function successfully as individual global professionals and citizens. Those are some of the elements of this new package we're planning to create.
What we do we expect in return? It's actually something pretty big. We would ask the individual IBMer to take on greater responsibility for the direction of his or her own career, his or her own learning, his or her own wellness, his or her own entrepreneurship, his or her own community involvement.
And let me make one thing crystal clear: IBM fully expects that these programs will make us a more competitive and successful business. In fact, we see this as potentially a very powerful "virtuous circle"—where the benefits to and from empowered individuals… more agile and innovative companies… healthier and more vibrant communities… and a more competitive nation will reinforce one another. If you think about each of the three programs I've described in that way, I think you can see why we're very hopeful about them.
This will require investment, but as much as any company in the globally integrating economy, IBM depends on having the best expertise and talent. We believe that this kind of program will help us attract the smartest and most creative workforce.
In the end, it's all about trust—in this case, trusting individuals to manage their own competitiveness and careers. But the issue of trust is actually pervasive. I believe it underpins all of the issues we'll be considering tomorrow. In fact, of all the challenges raised by globalization, trust may be the most fundamental.
This isn't just about ethics and legal compliance—though obviously those are essential for any business or institution. What I'm talking about goes far beyond that.
How do you sustain trust in enterprises that are based on increasingly distributed models? How do you ensure trust when your company's operations, its customer and employee relationships and its brand may be shaped—or even managed—by companies that are part of an extended "virtual" enterprise, and by people you will never meet? You may choose to leverage the expertise and scale of partners—there are compelling reasons to do so. But I would submit that you cannot outsource trust and responsibility.
Finally, how do you build trust on a global societal level? When it comes to fears about globalization—including the fear that globalization homogenizes and ultimately destroys cultures—how do we convince people in both the developed and the developing worlds that global integration is a positive force?
I'm talking about the billions of people for whom globalization's benefits have not yet become reality. If we do not find ways to open up globalization's benefits to these vast populations… if we do not help nurture trust among them, and enable them to feel hope for their future… then our own hopes for the future will not be realized, and this great opportunity to integrate the world and advance the human lot will fail.
In the Foreign Affairs piece that Marc mentioned, I called the Globally Integrated Enterprise "a promising new actor on the world stage." But in truth, we're seeing a whole cast of new actors walking out onto that stage. In addition to nation states and multinational corporations, we now have GIEs large and small… communities local and global… large, diverse national and regional populations… and literally billions of individuals.
Like the enterprises and institutions that they make up, these individuals represent something very new. They are true citizens of the world. In fact, Zogby is calling today's 18-to-27-year olds, the next generation of U.S. adults, "the New Global Citizens." You might also call them "globally integrated individuals."
But no matter what label we use, they are people who can be successful economic, social and political actors on this new world stage—if they choose to take advantage of the resources increasingly available to all, regardless of income or location or heritage.
These are complicated times, they're wonderful times, they're exciting times. And I think they present a unique chance for leadership. Which is why we're all here.
Globalization is a controversial and complex new reality. We all know that there are strongly held views on either side of this issue. We're here to discuss and share ideas on how our companies and communities can not only react to global integration, but capitalize and benefit from this new environment. I hope together we can help identify and build a path forward.
I want to thank you for taking time to be part of this forum, and I look forward to interacting with all of you.
Thank you for your attention.
