Sam Palmisano had a great run as CEO of IBM from the start of 2003 to the end of 2011. The tech giant shifted investment into growth markets and dumped commodifying hardware (PCs) in favor of services, open-source software and a clever "smarter planet" marketing blanket for it all. Shares rose 125%. Pre-tax operating margins doubled from 10% to 20%. From 2000 IBM threw off more than $100 billion in free cash flow. His exit was well-timed, too. Business tech spending now is in a stall, and Palmisano’s successor Ginni Rometty has had to deal with seven straight quarters of revenue decline.
Palmisano has other concerns now, and he stopped by Forbes’ offices last week for an interview and video about his mission in semi-retirement to teach business leaders what he learned at IBM about doing business globally. In 2012 he formed a think tank called the Center for the Global Enterprise and just came out with an e-book called Re-Think: A Path To The Future. The book argues that multinational firms in a rapidly integrating world need to remake themselves into what he calls globally integrated enterprises (like he did with IBM). So-called GIEs are different than mere multinationals in structure and operating approach. Legal could be in Amsterdam, research in China and California, HR and accounting in New York. Talent goes where it’s needed. Work flows to where the customers are, not where the headquarters is. Country managers don't get to act like royalty of their own realm. Collaboration is digital and frequent. Palmisano says that IBM saw a total productivity gain of $6 billion from 2006 to 2010 by doing things like globalizing support services and the supply chain (fewer and bigger factories), freeing up local managers to focus on sales and relationships. IBM outgrew growth markets such as China and India at twice the rate of the tech industry.
Yet with Putin annexing Crimea, China’s growth slowing, the Middle East in perma-crisis, Washington in political deadlock and European economy in a funk, it feels like the world is pulling apart, not integrating. Palmisano shrugs off these realities as exogenous blips that always occur. The big trend is toward further integration, not less.
Companies can’t let political, religious or culture wars get in the way of the job at hand: growth and productivity and amassing talent. “When I lived in Asia in the late 1980s, there was always a coup going on in some Asian country but you understood how to adjust. These things will continue to occur, but that won’t be the inhibitor. The only thing stopping you is your own management team,” he says. IBM managed to meld disparate cultures into one global entity with values superceding those of the local market. “I’ve had heads of state tell me I’ll do anything for those eight blue bars [IBM’s logo] because it legitimizes them, but I wasn’t going to go there.”
The mere fact of being a global enterprise doesn't by itself shield a business from flaws in business model or strategy. Nokia, a globally integrated enterprise with a highly diverse board and efficient supply chain, missed the transition to the smartphone as a platform and lost its independence. “Being a globally integrated enterprise isn’t a strategy but it gives you the best operating model to execute. If you’re wrong on the direction you’ll only get there faster,” says Palmisano.
Check out our video interview. We touched on the ideas in the book, Palmisano’s record at IBM, and what might be holding the U.S. economy back from reaching its full potential. “America has the best hand to play. Capital structure, respect for intellectual property, great higher education and business schools, more competitive manufacturing, plentiful resources with low energy costs. Now, the question is will we play that hand?”
