Depending on who's counting, the planet is home to approximately 194 countries. IBM, the die-hard blue chip and a leader in computer hardware, software, and services, maintains operations in more than 170 of them. Any way you slice it, Big Blue covers a lot of ground.
But not long ago, company leaders decided to cover it a different way.
During the last century, IBM concentrated on branching out into local markets around the world, hiring native workers and leveraging their talent to stake IBM's position in each country. The business model worked — so well, in fact, that by the turn of this century, IBM was logging nearly $90 billion in annual revenue.
In essence, the company had established mini-IBMs in many locations worldwide, each with autonomous departments for support functions, such as sales, procurement, finance, and human resources.
Upon closer inspection, leaders realized the structure held excess weight. "What once looked like efficiency is coming to look like redundancy," said Chairman and CEO Samuel Palmisano in a speech last fall. While the company had lived up to its moniker, International Business Machines, two of those terms were out of date: The company offered more than just machines, and it aimed to be global, not simply international.
The answer for IBM was to create a globally integrated company to supplant the "mini-IBMs" it had created in so many geographies. For instance, one global procurement department took the place of numerous country-based procurement organizations.
For its efforts, IBM earned High Achiever status in the Business Model Mastery category of Managing Automation's 2007 Progressive Manufacturing awards competition.
Maureen Steinwall, CEO of injection molder Steinwall Inc. and a judge for this year's awards, calls IBM's plan to remodel its worldwide operations "brilliantly simple." And yet, the simplest of plans sometimes can be the most difficult to implement, she notes. "IBM is living its vision of globalization through its actions. Leadership takes courage, and this award acknowledges the strength of commitment IBM has modeled."
Technology played a supporting role in IBM's efforts, says Tim Carroll, vice president of IBM's supply chain operations. Integrating business functions on a global basis, especially those that support more than 300,000 employees, presents a significant challenge, but it was one well-suited to IBM, which has grown into a worldwide leader in integration services.
Even so, the company's IT philosophy needed adjustment. The planners in one of the world's leading-edge technology companies, Carroll admits, had typically followed the thinking: "Lead with IT, and then make the processes fit the IT capabilities."
That changed as the concept of a globally integrated IBM took shape. In the supply chain — the first functional area to adopt the new business model — process optimization began to take center stage. Carroll says the priority became identifying gaps in a given business process, adjusting accordingly, and only then layering IT on top of the process to make it more efficient.
Using its own WebSphere service-oriented architecture (SOA) technology, IBM melded applications and their associated data to create a reliable information source. With WebSphere, says Chris Sciacca, manager of strategic communications for IBM Integrated Operations, "now you've got one baseline that, behind the scenes, is one standard way of pulling the data together and looking at the data."
WebSphere, Sciacca says, "acts as the glue" that brings together information from related applications, such as i2 and SAP, and produces real-time inventory information, for instance.
Asked who the project leader was for the business model transition, Carroll acknowledges the leadership of Palmisano, but points to the employees as the true drivers of the effort. They, after all, represent a significant part of the strategy shift. In raising the control of some functions to a global level, Palmisano also "lowered the center of gravity" in the workforce, dispersing decision-making power to more rank-and-file staffers.
"Now the power is not in the hierarchy; the power is in the matrix," Carroll says. "I think that's the biggest challenge, switching ourselves over from the strength of a hierarchy to the strength of a matrix."
Big Blue's 2006 financial results indicate that the initiative may be gaining traction. In a year when revenue inched up just 0.3%, IBM still scored a strong boost in the bottom line, growing net income by almost 20%.
More recently, second-quarter 2007 results showed improvements in all the metrics IBM is using to gauge the effectiveness of the effort. "Based on what you just saw with IBM's financial results, it's quite obvious that this strategy is starting to hit its stride and show up in terms of value," Carroll says.
But the road will be a long one, noted CFO Mark Loughridge in announcing the quarterly results. "Our business model success will be measured over the long term, not at any individual quarter or year," he told financial analysts. "The strategies we put in place, the investments we make, and the actions we take are all with an objective of optimizing our long-term performance."
"I think this was a bold move on IBM's part because it was a foreign concept to us," Carroll says. "I think we had a difficult time up front really understanding the difference between what international meant and running a global business."
But now that the new thinking has taken hold, he says, "everything says that ... we're on the right track, and that we're just at the beginning of the momentum with this."