Samuel J. Palmisano
IBM Chairman and Chief Executive Officer
Final Remarks, as prepared
American Chamber of Commerce Executives
Pittsburgh, Pennsylvania
July 31, 2008
"Competing in a Globally Integrating Economy: Now Comes the Hard Part"
Thank you, Roy [Williams]. I am honored to be with you today. I also want to personally thank Mick Fleming, Chris Mead and Mark Egan.
IBM has enjoyed a close relationship with ACCE for many years, and we are proud to be a gold sponsor of this conference. So when Mick asked if I would participate this year, I was eager to do so.
Your theme of innovation and your focus on winning economically are high priorities for IBM—and they are personal passions of mine. We have changed a lot over the past ten years, and we see a lot of change in the world. We know that to succeed in this new world, you have to keep improving your hand through change.
That is why, almost exactly a year ago, IBM convened a Forum on Global Leadership in Washington, DC. Mick played a leading role in our forum. We brought together nearly 500 leaders from across American business, government, academia and civil society. Every state in the nation was represented. For two days we discussed how to enhance American competitiveness through our response to two overarching realities.
The first is the imperative of 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…
Did you know that 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 flows. 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?"
Now, what determines the way work flows across the global network and economy? I think it comes down to three forces: economics, expertise and open business environments.
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. 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 and 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—even a defining—strength of the US. I will be interested to hear from you whether you believe American innovation can still be a basis of sustainable competitive advantage… and what the US must do to deepen and support it.
This leads to the third key to the flow of global work—open business environments.
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.
And when I talk about the business environment, I mean what kinds of investments you're making for the future. I mean access to skilled labor—which depends on your educational system and, more broadly, the development of the skills that will be crucial to growth and innovation. I mean the many issues surrounding quality of life. For any city, region—or country—those factors are crucial to its competitiveness.
So, if you accept that these three forces—economics, expertise and the right business environment—are the drivers of where and how work flows… then we turn to the essential question: How will the US differentiate itself? How will each of your communities differentiate itself?
A year ago in DC, we heard from experts on key public policy issues and on how government and academia can take steps to enhance American competitiveness:
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We also heard from leaders of U.S. businesses and regions who provided concrete, real-world examples about how their companies and communities have caused work and profits to flow to them. Mick moderated a fascinating panel of these women and men... local leaders who are competing on a global stage, and 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.
Pittsburgh's renaissance is a perfect example of this. Of course, we all know that Pittsburgh is home to global companies like PPG, PNC, Alcoa and US Steel—more than 100 of them with $1 billion or more in revenue. But just as important, this city has become a world-class hub of research in a number of fields that are key to our future:
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Forbes.com named Pittsburgh one of its Top 10 "up-and-coming" U.S. tech cities. And employment today is near record highs. This… in a region that a couple of decades ago was an emblem of economic collapse.
As Pittsburgh celebrates its 250th birthday, we can see a wonderful demonstration of how established enterprises, regions, cities and cultures can look themselves in the mirror, make difficult changes… and come out as reinvigorated winners.
We at IBM understand the need for and benefits of embracing change—as well as its challenges. Let me tell you, I personally am acutely aware of both, as the CEO of a company of about Pittsburgh's size—300,000-plus people—if not of its longevity. IBM is nearly 100 years old… which means, I guess, that we've taken about two-fifths of Pittsburgh's lumps and developed about two-fifths of Pittsburgh's wisdom.
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—and this won't surprise you now—on economics, expertise and the right business environment. We are integrating those operations horizontally and globally.
This has been a huge shift for IBM—but we believed it was necessary, if we wanted to capture the benefits and step up to the challenges of a globally integrating economy.
As we stand here today, I think it's clear that American business and society must make some decisions, and take some actions, if we want to shape the future beneficially, for our organizations and regions, rather than be swept along by the changing tide.
One thing in particular has become increasingly obvious over the past year: The low-hanging fruit has been plucked. Winning used to be about low cost, but now that's running its course. Simply setting up a subsidiary in a high-growth market? Running its course. Relying on the belief that "a rising tide lifts all boats"? Running its course, too.
In other words, there are no longer any shortcuts. Now comes the hard part.
I believe there are four things all companies, countries and regions need to do.
The first is to decide how you're going to differentiate yourself, in order to get the world to invest in you, buy from you, hire you, locate in your community.
CEOs and other leaders are acutely aware of the urgency of these decisions. IBM recently concluded our bi-annual survey of CEOs—more than 1100 of them, from every region and industry around the world. We found that eight in ten expect significant changes to their industries, their economics and their basic business models in the near term. And they plan bold moves in response.
But they also said something else. They told us that their organizations simply aren't ready to carry out that change. In fact, in the two years since our last survey, this gap—between the need for and the ability to manage change—has tripled.
This is significant and troubling. As someone once said, "When the rate of change outside your company exceeds the pace of change inside your company, you're dead."
Of course, not every business views this dynamic environment with alarm. Our survey also reveals that the "out-performers"—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. And they make some of the boldest moves, in business models and global business designs, which in turn contribute to more change.
Second, the developed world must get its financial house in order. We may still be holding the strongest hand, but we are in a highly vulnerable position. Our economies have large deficits, with major dependences. And our demographics—namely, our aging populations—only exacerbate those problems. We need to do what the developing world has done—engage with the global economy in order to recapitalize our countries and regions. And we need policy approaches that ensure the United States continues as an attractive investment location, enhancing our competitiveness in the globally integrated economy.
One encouraging sign is found here in Pittsburgh: Did you know that this city is ranked first in America in venture capital investment growth over last decade? It has seen a 513 percent increase in new venture funding, with nearly $200 million going to new companies, up from $32 million a decade ago. If Pittsburgh can do it, so can America.
Third, we need to recognize that a global economy is not an opportunity for large enterprises only. Today, small businesses can be global players, too. Local entrepreneurs 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.
By 2030, the World Bank projects that the world's middle class will grow to 1.2 billion people in developing countries alone. That is 15 per cent of the world's population, up from 400 million today.
The new global reach of small businesses and entrepreneurs is important, because, as we know, they are the engines of job creation. And this issue of new job creation is at the heart of both the economic and political debate over global integration.
There is no existing mechanism to support this new kind of small global business and entrepreneur. That is one reason IBM and a number of partners are creating an online service, which we call the Global Entrepreneurs Exchange. It builds upon a program that IBM and the World Bank launched a couple of years ago, which already has 3.5 million subscribers in the developing world. I hope that many more such capabilities and services emerge.
The fourth challenge is the toughest of all: winning hearts and minds. And not only of the CEOs and heads of state, but also the other management layers, the people who make decisions at the regional and agency levels—and especially the public at large. I'm talking about communities, individuals and populations that do not yet see themselves as the beneficiaries of global integration.
I would bet, despite Pittsburgh's impressive economic rebirth, that there are a lot of people within a 50-mile radius of this room who feel that way. To make our case to them, we will need fact-based, reasonable, multilateral approaches.
And one other thing: We must recognize that the opposition to global integration really does have a point. They have a point when it comes to the environmental, economic and societal impacts of globalization. They have a point when it comes to job creation, education and skills. They have a point about the need for access to connectivity and other resources. And they have a point about the inherently global problems of crippling energy costs, unsafe drinking water and pandemic-scale disease.
Now, we may differ on the best solutions to these problems. But we can't keep arguing against a caricature of the anti-globalization position. We can't just keep saying, "Free trade! Free trade!" and think that will carry the day. We can't rely on arguments from 1990—or, for that matter, 1890.
And we especially cannot escape 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. 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 IBM we have begun an approach that we believe holds promise for addressing this challenge, based on the idea that the individual is in the best position to make decisions about his or her work, learning and career. We're offering our employees a suite of services to help enhance their expertise and resources in a global context. We call it the Global Citizen's Portfolio.
One of those programs is Personal Learning Accounts. Think of it as a 401(k) 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 is portable—even if the employee leaves IBM.
We've just launched this in the U.S. Based on what we learn about how employees use the program, we'll think about rolling out appropriate versions of the idea around the world. And we're especially encouraged that our program has inspired legislation in the US Congress—a bill sponsored by Representative Rahm Emmanuel of Illinois, to provide tax-favored status to employees and employers who institute such programs.
Another program is the Corporate Service Corps, modeled on the Peace Corps of the 1960s. Teams of high-potential IBMers from around the world come together for a month to lead projects in emerging countries. The first teams are now on the ground in Ghana, Tanzania and Romania. The team in Ghana, for instance, is helping to develop micro-lending programs to increase jobs and economic opportunity. Later teams this year will go to Vietnam, the Philippines and Turkey.
This is not traditional philanthropy or volunteerism. Our goal is to start building a new generation of global leaders. So a big part of their work will actually come into play after they return to their home countries—sharing their global experience and insights with their IBM colleagues.
I personally will be fascinated to hear about what they learn. And I would also be interested in your perspectives on the broader questions that these efforts tee up.
What more could businesses do to equip our people for a global economy and society? What more could governments and schools do? And what could chambers of commerce, community organizations and NGOs do?
What are the cultural barriers within organizations—and not just between them—that inhibit global integration?
This 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? As leaders of your communities, will you?
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.
With an economy that has softened, and with an upcoming change of government that promises to be quite consequential… now is the time for business people to assert the benefits to the US for engaging the global economy and society. And not just engaging, but leading.
We are trying to do this at IBM. And my closing invitation to you is to join us. Let's partner in this new "great game"—if you believe, as I do, that we are playing the strongest, smartest and most principled hand of any nation in the world.
Thank you.
