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IBM defines the globally integrated enterprise, how electronics companies that embrace this model are achieving significant benefits. Moving electronics companies from global to globally integrated.
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The globally integrated enterprise
Executive brief
Moving electronics companies from global to globally integrated.
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Rethinking what it means to be global in the electronics industryJust when most electronics firms thought they had a handle on what it means to be a global enterprise,
the scope of the opportunity—and the challenge—is expanding exponentially. Like many companies
in the electronics industry, IBM has been operating globally for years. So what’s changed?
Through its own experience and that of its clients, IBM has found
that trends in global trade and technologies are demanding—
and enabling—a new approach to global operations. During the
last three decades, important changes played out across the
world economy. First, economic nationalism declined, so trade
and investment barriers fell. Liberalization of trade and invest-
ment flows changed the perception of what’s permissible. More
than at any time in history, the global marketplace is now open to
players from all parts of the world.
Second, a global IT and communications infrastructure and
advances in technology altered the perception of what’s
possible. And now, the possibilities are limited only by imagi-
nation. Low-cost and virtually instantaneous communication
and data transfer are making the world smaller, and compa-
nies can now reach out in new ways around the globe.
And, third, lower barriers to and costs of entry into new mar-
ketplaces dramatically increased competition, changing the
perception of what’s predictable. Today, new competitors can
spring up in all sorts of unexpected and unlikely places. And
old competitors can change the rules of the game.
None of this is news to electronics companies. What’s news is
an emergent concept of how enterprises are organizing and
operating in the global marketplace. This executive brief defines
what IBM refers to as the globally integrated enterprise, and it
highlights how electronics companies that embrace this con-
ceptual model are already achieving significant benefits. It then
describes obstacles to adoption and offers a transformational
approach that is helping companies address these challenges
to accelerate the move from global to globally integrated.
Perception: The electronics industry is already globalElectronics companies have global brands that are recognized
throughout the world. Electronics marketplace leaders serve
worldwide marketplaces with global supply chains that span
continents. For example, an electronics company may have
development centers in Europe, chip manufacturers in North
America or Southeast Asia, component suppliers for cables
and connectors in Eastern Europe, contract manufacturers in
China, and sales basically everywhere in the world. In addition,
human resource functions may be performed in the Philippines
and IT support in India.
According to the Interbrand Best Global Brands 2007 list,
20 of the top 100 global brands are electronics (including
the Philips, Sony, Nintendo, Nokia, Intel®, Cisco, Samsung
and Motorola brands) compared to 12 in automotive and 12
in financial services.1
In terms of revenue and size, electronics is clearly global. Forty-
one companies in the Global 500 are electronics companies.
Five of the leading electronics brands (Nokia, Ericsson, Philips,
Alcatel-Lucent and Intel) generate more than 85 percent of their
revenue from outside their home countries. And electronics
products have a global ecosystem of partners for media con-
tent (YouTube, Google, iTunes), advanced hardware (Skyworks,
ARM, CSR, Broadcom, Texas Instruments) and network con-
nectivity (AT&T, Deutsche Telekom, Vonage).2
More important, because electronics are the enabling com-
ponents of a diverse range of products and processes, the
electronics industry has a unique opportunity to participate in
innovative revolutions in industries far beyond its own.
The result is a wealth of new possibilities, which is the upside.
The downside is that this global presence intensifies chal-
lenges to individual company success—and survival.
It’s not surprising then that the electronics industry is one of the
first industries in which a new global business model is taking
shape. And it’s happening fast. Why? Because many electron-
ics companies are nowhere near as globally integrated as they
need to be in order to ensure their continued success.
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Reality: Electronics companies are not nearly as globally integrated as they need to beHaving global brand recognition or ranking among the largest
companies in the world is not the same as being globally inte-
grated. Global integration allows companies to take advantage
of talent and resources regardless of time zones and delivers
value to customers regardless of geography. Global integra-
tion allows companies to operate as a single enterprise with a
purposeful approach to its worldwide reach rather than just as
a set of loosely connected local offices.
An electronics firm may operate globally. But how globally
integrated is it?
Where and how are new products designed?•
How is the supply chain managed?•
How is the salesforce organized?•
What percentage of the workforce is based outside the •
headquarters country?
What percentage of the people working with the company •
on a daily basis aren’t even employed by the company;
rather they’re from partner and customer organizations?
Do the demographics of the company’s top management •
reflect the demographics of the workforce, partners and
customers?
Answers to these kinds of questions can help gauge how well
a company can operate in the global business environment.
For example, the global IBM workforce grew 17 percent in the
past three years. The majority of new jobs were in emerging
economies such as India, where IBM added 37,500 new employ-
ees to take advantage of lower labor costs, a hard-to-find talent
pool and proximity to customers in vibrant economies. IBM has
also been diversifying its leadership and management ranks so
that the IBM executive profiles are representative of the demo-
graphic changes among employees and customers.
A new approach to meeting tough challengesElectronics CEOs are recognizing that industry leadership—
even survival—is determined not only by how companies
innovate but also by what they choose to change. Product
and service innovation remains a high priority, but relentless
competition, intense margin pressure, greater operational com-
plexity and changing sales channels are prompting electronics
firms to look at other areas of innovation—such as their global
business models.
Global integration is a key way to achieve the business model
innovation that is needed to survive in the electronics industry.
It means actively managing different operations, expertise and
capabilities to open the enterprise up—focusing outward to
connect more tightly with partners, suppliers and customers.
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The emergent globally integrated enterpriseIn an article in the May/June 2006 edition of the policy journal
Foreign Affairs, Sam Palmisano, CEO and chairman of the board
at IBM, introduced the concept of a radically new business
design—the globally integrated enterprise.3
While still an emergent model, the globally integrated enterprise
is already being defined by several major attributes. Think of an
enterprise that shifts its focus from:
What it makes to how it makes it•
What services it offers to how it delivers them•
What types of employees it recruits to how it identifies and •
resources required skill sets
What it offers targeted customers to how it supports targeted •
lifestyles
What it markets to how it consistently represents its brand in •
every facet of the business.
IBM calls this emerging business model the globally integrated
enterprise and defines it as having an integrated strategy and
operations across geographies, functions and organizations. It
has globally shared services and assets that can be deployed
worldwide, allowing it to respond to marketplace demand quickly
and efficiently—with global synergy and local effectiveness.
Moving beyond the multinational
Often seen as a primary agent of globalization, the multi- national corporation is taking on a new form. Until recently, the multinational typically operated as a collection of country-based subsidiaries, business units or product lines. Over the past decade, however, shared business practices have spread, along with shared modes of connecting business activity. Multinationals are handing over to outside specialists more and more of the work they had previously performed in-house.
When everything is connected, work flows to where it can be performed most effectively and efficiently. The global enterprise, then, is emerging as a combination of various functions, processes and skills — some tightly bound and some loosely coupled. It integrates these components of business activity on a worldwide basis to deliver goods and services to its customers. Borders between organiza-tions and functions define less and less the boundaries of corporate thinking or practice.
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Execute flawlesslyBecoming a globally integrated enterprise requires a major
shift in thinking about how to acquire, allocate and manage
resources. Globally integrated enterprises embrace shared
business and technology standards that let businesses plug
into global systems of production—from sourcing, design
and manufacturing to distribution, services, marketing and
sales. In turn, the spread of shared technologies and busi-
ness standards creates unprecedented opportunities for new
ways of organizing work. With access to a worldwide network
of available skills and resources, the globally integrated enter-
prise is better positioned to execute flawlessly on its strategic
business objectives.
Nintendo: Core staff focuses on core competency by leveraging global production systems
Nintendo’s stock price has soared more than fivefold in the past two years. It is now the third most valuable Japanese company — ahead of Sony. Led by an outsider recruited from another company in 2002, Nintendo has achieved this success by competing against consumer indifference, not against specific competitors. The company sells active play aimed at a wider demographic than the typical teenage-boy-on-the-couch gamer. Its focus is on providing a lifestyle and entertainment experience. Because Nintendo consigns production to outside companies and has no factories, it is able to operate with a workforce only 2 percent the size of Sony’s. It spends much more on research but still exceeds Sony’s net income per employee by a factor of 50.
Foster innovationThe globally integrated enterprise knows that “open” is the
new leveler—stimulating the free flow of ideas and new levels
of collaboration. It recognizes that the only way to differentiate
is on expertise and skills. Or to put it another way, becoming
a globally integrated company is as much about the global
sourcing of ideas as it is about the sourcing of labor.
Therefore, the focus is on tapping all available and emerging
forms of collaboration: from intercompany production and
distribution networks to commercial ecosystems to the open
source software movement—transforming the traditional model
of innovation. Innovation is no longer a secret activity. It’s the
product of a collaborative process across organizations that
can combine a wide range of skills—from technological,
business and marketing expertise to social science and art.
Apple: Better ideas through collaboration
Apple continues to create “metavalue,” where the integration of tech-nology, device, service and content creates much more than synergy; it creates but a completely different consumer value proposition. For example, through a collaborative partnership with Nike, athletic Apple customers can now buy iPod nanos that can help them with their sports training. They can get instant feedback by collecting data in their nanos and downloading it into a Web site for analysis to help improve their training results. Apple understands technology, and Nike understands the sports marketplace, so the two were able to come together beautifully.
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Take the long viewThe globally integrated enterprise expands its pool of skills and
resources well beyond its suppliers, partners and customers,
to encompass the larger nonbusiness community. By remain-
ing open to influences outside the world of commerce, the
globally integrated enterprise is well positioned to take the
lead in advancing both business growth and societal progress.
For example, addressing the climate change issue can lead
to questions like “Am I manufacturing in the right place?” or
“Are my data centers in the best locations?” or “Are there ways
to integrate to optimize energy use?” And the recent massive
recalls of toys manufactured in China has made it clear how
important it’s going to be to maintain the connection between
the supplier and the consumer. Only with integrated systems
can organizations assure provenance.
In short, the benefits of global integration are many, including
the ability of the enterprise to:
Seek out unique skill sets•
Operate on a 24×7 basis•
Choose from a more diverse set of suppliers•
Be closer to customers around the world•
Create new distribution channels•
Tap into new sources of innovative ideas•
Share best practices with business partners•
Keep better track of what global competitors are doing•
Leverage its own infrastructure for broader reach.•
Moving from incremental change to transformational business model innovationElectronics companies have already proved adept at incre-
mentally improving their business processes. But becoming
a globally integrated company will likely require some 90- or
180-degree turns. This means organizations will have to take a
transformational approach to change.
Companies will need to leave the comfort zone of familiar, top-
down, controlled change in which a sound business strategy
is defined at the top; consensus decision making is fostered
through task forces and meetings; and the primary focus is on
continual process improvement. They will need to adopt an
open, collaborative approach to change. This often uncomfort-
able approach requires:
Relinquishing control by going beyond consensus building •
to collaborative decision making
Being brutally honest about what must be accomplished•
Making tough decisions and focusing on speed of execution•
Demanding accountability through rigorous implementation •
monitoring and performance metrics.
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Mapping out a transformational pathThere’s no one right path to becoming a globally integrated
enterprise that applies to every company. The best way to get
started is with a clear and deep understanding of where the
enterprise now stands in its evolution toward global inte-
gration, and of how prepared and able it is to share and to
integrate its own assets—intellectual and otherwise—across
the enterprise and across the broader business ecosystem.
Based on the company’s existing marketplaces and growth
strategy, decisions must be made on what areas of the busi-
ness it makes the most sense to either centralize for global
synergy and economies of scale or to localize for greater con-
nection with customers.
Smart companies aren’t universally globally integrated in all
aspects of their business. They’re balanced. They are intelli-
gently global and local where it provides differentiation.
Linksys: Streamlining the supply and demand chain to achieve operational excellence while fueling new business growth
The new Linksys integrated S&OP system went live in December 2006. Results to date show a 35 percent reduction in total inventory as well as a 40 percent decrease in excess and obsolete inventory. Expedited shipments went from 35 percent to 3 percent globally, resulting in a 90 percent decrease in costly expedited shipments. Supplier fill rates increased from 65 percent to 95 percent, reducing the number of SKUs experiencing retail stock-outs. The efficiencies brought by the new S&OP solution are significant, so much so that Linksys was the recipient of the prestigious Ventana Research 2007 Performance Leadership Award for operational excellence in supply chain.
Centralize for more effective, less costly backend processesIntegrating backend process is primarily a cost-driven strat-
egy. It allows a company to become more integrated in global
infrastructure by simplifying, standardizing and streamlin-
ing processes and improving shared services capabilities.
Actions to meet this objective can include:
An integrated sales and operations planning system that •
captures point-of-sale information at the SKU level for a
more customer-focused supply chain
A global ERP system•
Supply chain visibility, including a global dashboard for •
logistics and supply information and the ability to locate
product wherever it is, anywhere in the world
Enhanced global collaboration capabilities to speed resolu-•
tion of supply chain anomalies
Data center consolidation and virtualization•
Service-oriented technology solutions to enable modular •
business processes for more rapid and flexible response to
marketplace changes.
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Localize for tighter connections at the front endIntegrating front-end processes is primarily a marketplace-
and revenue-driven strategy. The focus is on understanding
and connecting with customers and enabling rapid response
to local conditions. It requires integrating sales, marketing and
product development so that brand perceptions are uniform
and global, yet local customers’ needs are met and they have
an easier time dealing with the company. Actions to meet this
objective can include:
Global salesforce alignment and multichannel management•
Marketing transformation•
Web 2.0 social networking and 3-D Internet solutions to •
reach new customers
E-commerce transformation to integrate and transparently •
manage the needs of customers across multiple channels
Collaborative innovation.•
LG Electronics: The power of local empowerment
Many multinationals have tried to penetrate the promising Indian marketplace, but few have experienced the level of success that the Korean durable consumer-goods maker LG Electronics has achieved. Contributing to its success has been the company’s commitment to local empowerment. Though many multinationals elect to use India primarily as a production hub and make engineering decisions at headquarters, LG Electronics has taken a different approach. Almost all decisions are locally made, including research and development (R&D) and marketing. With 200 local employees, LG Electronics India’s R&D organization conducts research for the domestic marketplace as well as for its Korean parent. The results are impressive. LG Electronics India is projecting US$10 bil-lion in revenue by 2010, up from US$2 billion in 2005.
Finding the right balanceIt’s tempting to focus on backend integration first because of
cost reductions. But lowering costs isn’t the only way to improve
profitability. Each company needs to carefully weigh which areas
of the business should be centralized and which should be local-
ized; what’s a priority and what’s not. Different companies may
well decide to approach the same function differently in view of
their core competencies, brand strategy, current operations and
marketplaces, and future business goals.
“[There are] various levels of being truly global. It is not always achievable, nor desirable, to go the full extent. Some form of local adaptation may be necessary, either in the product/service that is offered or in the positioning relative to competition.”
— David J. Reibstein, The INSEAD-Wharton Alliance on Globalizing: Strategies for Building Successful Global Businesses4
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Improving the odds of success with a global
transformation office
Timing is everything, and change must happen fast in the electronics industry. The global transformation office is a change mobilizer—keeping the transformation vision alive and initiatives moving at a rapid pace. Serving as a center of excellence, the office encompasses the fol-lowing elements:
•Theglobaltransformationmap•Aseniorleadershipprogram•Culturerealignment•Communication/marketingreinforcement
The global transformation office helps the organization communicate the transformation vision. It owns and man-ages the execution, fosters an intense sense of urgency and even breaks the rules when necessary to galvanize action. And it optimizes the return on investments in transforma-tional initiatives by monitoring progress and measuring results. A key aspect of this approach is identifying the organization’s best executive up-and-comers and putting them in charge of strategic change programs.
Essentially, the global transformation office enables the communications and governance framework that builds the capacity for transformational change into the fabric of the enterprise.
An established global electronics company seeking to enter
emerging markets, for example, faces entirely different chal-
lenges as a new market entrant from a developing economy just
entering the world stage. Yet, they both must seek to become
globally integrated, in a way that is suitable for their business
objectives given their specific situations. The challenge to find
the right balance between cost-focused and revenue-focused
integration would no doubt be met with different approaches
by these two distinct types of electronics companies.
Accelerating execution of global integration strategiesBecause of the increased complexity, global integration
requires more careful planning than most other change
initiatives. IBM has developed an approach that can help
organizations accelerate execution of their global integra-
tion strategies. This approach is based on its own success in
integrating its global operations—as well as on working with
clients to implement their initiatives. Three critical factors for
success are to:
Develop a roadmap that identifies and prioritizes what •
needs to be done to move forward
Establish a common communications and governance •
framework
Monitor the execution effort and measure business results.•
If any of these success factors are missing, the organization
could be setting up its global integration efforts for failure.
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Heading in the right directionMoving from a global company to a globally integrated
enterprise is an ongoing process. It begins when companies
unlock the true power of global connection.
Electronics companies are at the forefront of such changes.
Some indications that a company is moving in the right direc-
tion include:
Diversity of roles and skills across geographies•
Worldwide rationalization of IT and ERP systems•
Balancing effective supply chain collaboration and R&D with •
protection of intellectual property
Global branding campaigns•
A network of local retail partners for new global marketplaces.•
Electronics companies are recognizing that real innovation
is about more than the simple creation and launching of new
products and services. It is also about how products are made
and how services are delivered. And how business processes
are integrated, how knowledge is shared and how the world
becomes more connected. By becoming globally integrated
enterprises, electronics companies can ensure their continued
competitiveness in the world economy.
Lenovo: Aspiring to be a global company with a Chinese soul
The first Chinese global computer manufacturer, Lenovo functions as a true global enterprise by being proactive at breaking down cultural barriers. The company helps its employees understand its heteroge-neous, worldwide customer set by focusing on cultural integration. For example, Lenovo maintains key operational centers in Beijing; Hong Kong; Singapore; Paris; and Raleigh, North Carolina. Creative initiatives help employees learn about one another’s cultures. Informal online discussions called cultural discovery cocktail forums allow Chinese employees to explore the business protocols and conventions of their Western colleagues. Obstacles such as language proficiency and communication style differences are addressed through targeted training. And, it’s no accident that the senior leadership team reflects the diversity of its employee base and the marketplaces it serves. Of the company’s top 18 senior executives, 28 percent are Chinese, 11 percent are women, 11 percent are European. And, 56 percent of the top senior managers have extensive work experience abroad.
For more informationTo learn how IBM can help you accelerate the move from a global company to a glob-
ally integrated enterprise, visit:
ibm.com/electronics
© Copyright IBM Corporation 2008
IBM Global Services Route 100 Somers, NY 10589 U.S.A.
Produced in the United States of America 04-08 All Rights Reserved
IBM and the IBM logo are trademarks or registered trademarks of International Business Machines Corporation in the United States, other countries, or both.
Intel is a trademark or registered trademark of Intel Corporation or its subsidiaries in the United States and other countries.
Other company, product or service names may be trademarks or service marks of others.
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References in this publication to IBM products or services do not imply that IBM intends to make them available in all countries in which IBM operates.
1 BusinessWeek, August 6, 2007, http://www.business-week.com/magazine/content/07_32/bc4045401.htm; Interbrand, “Best Global Brands 2007,” http://www.interbrand.com/best_brands_2007.asp.
2 BusinessWeek, July 2, 2007, http://www.busi-nessweek.com/technology/content/jul2007/tc2007072_957316.htm.
3 Samuel J. Palmisano, “The Globally Integrated Enterprise,” Foreign Affairs, May/June 2006. To access the complete article, visit www.foreignaffairs.org/20060501faessay85310/samuel-j-palmisano/the-globally-integrated-enterprise.html.
4 Robert E. Gunther, The INSEAD-Wharton Alliance on Globalizing: Strategies for Building Successful Global Businesses (Cambridge University Press, 2004).
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