Globalization and Resilient Enterprises

Stephen DeAngelis

June 14, 2006

On Monday, the chairman and CEO of IBM, Samuel Palmisano wrote an interesting letter to the editor of the Financial Times [“Multinationals have been superseded,” 12 June 2006]. Palmisano didn’t exactly deliver the eulogy for multinational corporations, but he insisted that unless they change the dominant business paradigm used in the past they will suffer a slow and painful demise. He writes:

The emerging business model of the 21st century is not, in fact, “multinational”. This new kind of organization – at IBM we call it “the globally integrated enterprise” – is very different in its structure and operations. Many parties to the globalization debate mistakenly project the twentieth-century multinational on to 21st century global reality. This happens as often among free-market advocates as among those opposed to globalization.

What Palmisano calls “the globally integrated enterprise,” is what I have been calling the “Resilient Enterprise.” Whether you call it a globally integrated or a resilient enterprise, isn’t as important as the fact that what we are describing is a momentous shift in the global business paradigm — it’s not just a name change. Palmisano continues:

Let me describe this new creature. In a multinational model, companies built local production capacity within key markets, while performing other tasks on a global basis. They did this in response to the rise of protectionism and nationalism that began with the first world war and carried on late into the twentieth century. As an example, American multinationals such as General Motors, Ford and IBM built plants and established local workforce policies in Europe and Asia, but kept research and development and product design principally in the “home country”. The globally integrated enterprise, in contrast, fashions its strategy, management and operations to integrate production – and deliver value to clients – worldwide. That has been made possible by shared technologies and shared business standards, built on top of a global information technology and communications infrastructure. Because new technology and business models are allowing companies to treat their functions and operations as component pieces, companies can pull those pieces apart and put them back together in new combinations, based on judgments about which operations the company wants to excel at and which are best suited to its partners.

The key to this paradigm is the ability to “pull apart” business processes and “put them back together” as needs dictate. Of course, this kind of talk excites me because Enterra Solutions® is in the business of enabling globally integrated corporations and turning them into Resilient Enterprises. Tom Barnett and I spend a great deal of our time addressing multinational corporations about this subject. We talk about the need for the next generation Enterprise Architecture, which pulls apart business processes and turns them into automated rules sets that can be recombined as required in the corporate DNA. Because it utilizes a service-oriented architecture and a standards-based business process layer, the next generation Enterprise Architecture enables integration across departments and, as Palmisano notes, across the globe. You can almost sense Palmisano’s excitement as he writes:

This kind of innovation is much more than the creation of new products. It is also how services are delivered: three-quarters of most employment is in services. This kind of innovation changes how business processes are integrated, how companies and institutions are managed, how knowledge is transferred, how public policies are formulated – and how enterprises, communities and societies participate in and benefit from it all. Leaders in public and private sectors recognize that innovation is key to our future. Today, innovation is inherently global.

It’s not just the commercial sector that is making the leap into this bold, new environment. The federal sector and international organizations also realize that their twentieth century approach to twenty-first century challenges is falling short. For example, Kofi Annan, Secretary General of the UN, also writing in the Financial Times [“A moment of truth for the United Nations,” 11 June 2006], put it this way:

It is in all member states’ interest to keep the UN running and adapt it to the specific work they want it to do. That means both sides in the argument need to turn down their rhetoric and engage in serious negotiations to work out a sensible compromise now as a basis for more fundamental change later. It is not just the composition of the Security Council that is stuck in the mid-twentieth century. Both the management and the attitudes of many governments to the organization are caught in the same time warp. Neither has fully adjusted to the new reality of a UN that no longer simply holds conferences and writes reports, but is managing complex, multi-billion dollar operations to help keep peace and combat poverty and humanitarian disasters. As a result, we do not have the institutions that we need to confront this century’s global challenges. It is vital that we escape from this bind. [Emphasis added]

Organizations have to move to this next generation Enterprise Architecture because it provides a flexible framework that integrates people, processes, and data in innovative ways. Shortly, I intend to make a post talking about an emerging IT “singularity” that contains the building blocks for this Enterprise Architecture.

 

The reaction to Palmisano’s letter has been mixed. Some see it as a ruse to keep at bay governments determined to enact more restrictive regulations about how multinational corporations operate within their borders. Others see it as a duplicitous attempt to disguise outsourcing of jobs. Palmisano tried to preempt such arguments this way:

These decisions are not simply a matter of offloading non-core activities, nor are they mere labour arbitrage – that is, shifting work to low-wage regions. Rather, they are about actively managing different operations, expertise and capabilities to open the enterprise up in multiple ways, allowing it to connect more intimately with partners, suppliers and customers and, most importantly, enabling it to engage in multifaceted, collaborative innovation.

Palmisano admits that the bottom line for companies remains profits, but he also understands that economic growth depends on opening new markets as well as maintaining old ones. You create new markets by establishing a middle class in developing countries. That requires the kind of foreign direct investment about which Palmisano writes. The challenge, of course, is sustaining old markets when so many people believe that these new markets are being created with outsourced jobs. It is this tension between new markets and old that foment critics of globalization on both sides. Such critics, unfortunately, see globalization as a zero-sum game — it is not.

 

The problem is that the landscape is changing so fast we haven’t figured out how deal with it. As E.J. Dionne, Jr., wrote in his Washington Post column [“In Search Of a New New Deal: How Will the Good Jobs Of the Future Be Created?” 13 June]:

There is no sturdier liberal or Democratic slogan than “Jobs, jobs, jobs.” But liberals have a problem: The old capitalist job-production machine is not working the way it used to. The venerable promise that new (progressive) leadership will create masses of well-paying jobs is harder to make and even harder to keep. … No one is more aware of this than those Americans who are losing what had once been secure, well-compensated jobs. … For the past 15 years, progressive free-market politicians have offered an appealing mantra about how to save the middle class: What’s needed, they’ve said, is heavy investment in education and job training to allow people to make the transition from the “old” economy — those auto jobs — to the new. “What you earn depends upon what you can learn,” President Bill Clinton said over and over.There’s certainly some truth to that still, but in the global economy, competition is fierce even for high-end jobs requiring great skill and education. To think otherwise is to deny the obvious: that the people of India and China, to pick just the two obvious examples, are gifted, energetic, ambitious — and numerous.

Dionne offers no answers other than calling for a “New and Improved Deal” for the work force. If that sounds like the creation of a lot of federally-funded jobs, it’s not a deal at all. The answer remains with Resilient Enterprises that can make both new and old market workers more productive. Corporations understand that wiping out the old market middle class would be as devastating to their business as not becoming resilient in the first place. If Palmisano is saying anything, he is saying we are all in this together — let’s make it work.