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The globally integrated enterprise

Executive brief

Moving electronics companies from


global to globally integrated.
Rethinking what it means to be global in the electronics industry
Just 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 And, third, lower barriers to and costs of entry into new mar-
that trends in global trade and technologies are demanding — ketplaces dramatically increased competition, changing the
and enabling —a new approach to global operations. During the perception of what’s predictable. Today, new competitors can
last three decades, important changes played out across the spring up in all sorts of unexpected and unlikely places. And
world economy. First, economic nationalism declined, so trade old competitors can change the rules of the game.
and investment barriers fell. Liberalization of trade and invest-
ment flows changed the perception of what’s permissible. More None of this is news to electronics companies. What’s news is

than at any time in history, the global marketplace is now open to an emergent concept of how enterprises are organizing and

players from all parts of the world. operating in the global marketplace. This executive brief defines
what IBM refers to as the globally integrated enterprise, and it
Second, a global IT and communications infrastructure and highlights how electronics companies that embrace this con-
advances in technology altered the perception of what’s ceptual model are already achieving significant benefits. It then
possible. And now, the possibilities are limited only by imagi- describes obstacles to adoption and offers a transformational
nation. Low-cost and virtually instantaneous communication approach that is helping companies address these challenges
and data transfer are making the world smaller, and compa- to accelerate the move from global to globally integrated.
nies can now reach out in new ways around the globe.

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Perception: The electronics industry is products have a global ecosystem of partners for media con-
already global tent (YouTube, Google, iTunes), advanced hardware (Skyworks,
Electronics companies have global brands that are recognized ARM, CSR, Broadcom, Texas Instruments) and network con-
throughout the world. Electronics marketplace leaders serve nectivity (AT&T, Deutsche Telekom, Vonage).2
worldwide marketplaces with global supply chains that span
continents. For example, an electronics company may have More important, because electronics are the enabling com-

development centers in Europe, chip manufacturers in North ponents of a diverse range of products and processes, the

America or Southeast Asia, component suppliers for cables electronics industry has a unique opportunity to participate in

and connectors in Eastern Europe, contract manufacturers in innovative revolutions in industries far beyond its own.

China, and sales basically everywhere in the world. In addition,


The result is a wealth of new possibilities, which is the upside.
human resource functions may be performed in the Philippines
The downside is that this global presence intensifies chal-
and IT support in India.
lenges to individual company success — and survival.

According to the Interbrand Best Global Brands 2007 list,


It’s not surprising then that the electronics industry is one of the
20 of the top 100 global brands are electronics (including
first industries in which a new global business model is taking
the Philips, Sony, Nintendo, Nokia, Intel ® , Cisco, Samsung
shape. And it’s happening fast. Why? Because many electron-
and Motorola brands) compared to 12 in automotive and 12
ics companies are nowhere near as globally integrated as they
in financial services.1
need to be in order to ensure their continued success.

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

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Reality: Electronics companies are not nearly Answers to these kinds of questions can help gauge how well
as globally integrated as they need to be a company can operate in the global business environment.
Having global brand recognition or ranking among the largest For example, the global IBM workforce grew 17 percent in the
companies in the world is not the same as being globally inte- past three years. The majority of new jobs were in emerging
grated. Global integration allows companies to take advantage economies such as India, where IBM added 37,500 new employ-
of talent and resources regardless of time zones and delivers ees to take advantage of lower labor costs, a hard-to-find talent
value to customers regardless of geography. Global integra- pool and proximity to customers in vibrant economies. IBM has
tion allows companies to operate as a single enterprise with a also been diversifying its leadership and management ranks so
purposeful approach to its worldwide reach rather than just as that the IBM executive profiles are representative of the demo-
a set of loosely connected local offices. graphic changes among employees and customers.

An electronics firm may operate globally. But how globally


A new approach to meeting tough challenges
integrated is it?
Electronics CEOs are recognizing that industry leadership —

• Where and how are new products designed? even survival — is determined not only by how companies
innovate but also by what they choose to change. Product
• How is the supply chain managed?
and service innovation remains a high priority, but relentless
• How is the salesforce organized?
competition, intense margin pressure, greater operational com-
• What percentage of the workforce is based outside the plexity and changing sales channels are prompting electronics
headquarters country? firms to look at other areas of innovation—such as their global
• What percentage of the people working with the company business models.
on a daily basis aren’t even employed by the company;
Global integration is a key way to achieve the business model
rather they’re from partner and customer organizations?
innovation that is needed to survive in the electronics industry.
• Do the demographics of the company’s top management
It means actively managing different operations, expertise and
reflect the demographics of the workforce, partners and
capabilities to open the enterprise up — focusing outward to
customers?
connect more tightly with partners, suppliers and customers.

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The emergent globally integrated enterprise Moving beyond the multinational
In an article in the May/June 2006 edition of the policy journal Often seen as a primary agent of globalization, the multi-
Foreign Affairs, Sam Palmisano, CEO and chairman of the board national corporation is taking on a new form. Until recently,
at IBM, introduced the concept of a radically new business the multinational typically operated as a collection of country-
design — the globally integrated enterprise.3 based subsidiaries, business units or product lines. Over
the past decade, however, shared business practices have
While still an emergent model, the globally integrated enterprise
spread, along with shared modes of connecting business
is already being defined by several major attributes. Think of an
activity. Multinationals are handing over to outside specialists
enterprise that shifts its focus from:
more and more of the work they had previously performed
• What it makes to how it makes it in-house.
• What services it offers to how it delivers them
When everything is connected, work flows to where it can
• What types of employees it recruits to how it identifies and be performed most effectively and efficiently. The global
resources required skill sets enterprise, then, is emerging as a combination of various
• What it offers targeted customers to how it supports targeted functions, processes and skills — some tightly bound and
lifestyles some loosely coupled. It integrates these components of
• What it markets to how it consistently represents its brand in business activity on a worldwide basis to deliver goods
every facet of the business. and services to its customers. Borders between organiza-
tions and functions define less and less the boundaries of
IBM calls this emerging business model the globally integrated corporate thinking or practice.
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.

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Execute flawlessly Foster innovation
Becoming a globally integrated enterprise requires a major The globally integrated enterprise knows that “open” is the
shift in thinking about how to acquire, allocate and manage new leveler — stimulating the free flow of ideas and new levels
resources. Globally integrated enterprises embrace shared of collaboration. It recognizes that the only way to differentiate
business and technology standards that let businesses plug is on expertise and skills. Or to put it another way, becoming
into global systems of production — from sourcing, design a globally integrated company is as much about the global
and manufacturing to distribution, services, marketing and sourcing of ideas as it is about the sourcing of labor.
sales. In turn, the spread of shared technologies and busi-
Therefore, the focus is on tapping all available and emerging
ness standards creates unprecedented opportunities for new
forms of collaboration: from intercompany production and
ways of organizing work. With access to a worldwide network
distribution networks to commercial ecosystems to the open
of available skills and resources, the globally integrated enter-
source software movement — transforming the traditional model
prise is better positioned to execute flawlessly on its strategic
of innovation. Innovation is no longer a secret activity. It’s the
business objectives.
product of a collaborative process across organizations that
can combine a wide range of skills — from technological,
Nintendo: Core staff focuses on core competency by leveraging
business and marketing expertise to social science and art.
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. Apple: Better ideas through collaboration
Led by an outsider recruited from another company in 2002, Nintendo Apple continues to create “metavalue,” where the integration of tech-
has achieved this success by competing against consumer indifference, nology, device, service and content creates much more than synergy;
not against specific competitors. The company sells active play aimed at it creates but a completely different consumer value proposition. For
a wider demographic than the typical teenage-boy-on-the-couch gamer. example, through a collaborative partnership with Nike, athletic Apple
Its focus is on providing a lifestyle and entertainment experience. Because customers can now buy iPod nanos that can help them with their sports
Nintendo consigns production to outside companies and has no factories, training. They can get instant feedback by collecting data in their nanos
it is able to operate with a workforce only 2 percent the size of Sony’s. It and downloading it into a Web site for analysis to help improve their
spends much more on research but still exceeds Sony’s net income per training results. Apple understands technology, and Nike understands the
employee by a factor of 50. sports marketplace, so the two were able to come together beautifully.

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Take the long view Moving from incremental change to
The globally integrated enterprise expands its pool of skills and transformational business model innovation
resources well beyond its suppliers, partners and customers, Electronics companies have already proved adept at incre-
to encompass the larger nonbusiness community. By remain- mentally improving their business processes. But becoming
ing open to influences outside the world of commerce, the a globally integrated company will likely require some 90- or
globally integrated enterprise is well positioned to take the 180-degree turns. This means organizations will have to take a
lead in advancing both business growth and societal progress. transformational approach to change.
For example, addressing the climate change issue can lead
to questions like “Am I manufacturing in the right place?” or Companies will need to leave the comfort zone of familiar, top-

“Are my data centers in the best locations?” or “Are there ways down, controlled change in which a sound business strategy

to integrate to optimize energy use?” And the recent massive is defined at the top; consensus decision making is fostered

recalls of toys manufactured in China has made it clear how through task forces and meetings; and the primary focus is on

important it’s going to be to maintain the connection between continual process improvement. They will need to adopt an

the supplier and the consumer. Only with integrated systems open, collaborative approach to change. This often uncomfort-

can organizations assure provenance. able approach requires:

In short, the benefits of global integration are many, including • Relinquishing control by going beyond consensus building

the ability of the enterprise to: to collaborative decision making

• Being brutally honest about what must be accomplished


• Seek out unique skill sets
• Making tough decisions and focusing on speed of execution
• Operate on a 24×7 basis
• Demanding accountability through rigorous implementation
• Choose from a more diverse set of suppliers
monitoring and performance metrics.
• 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.

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Mapping out a transformational path Centralize for more effective, less costly backend processes
There’s no one right path to becoming a globally integrated Integrating backend process is primarily a cost-driven strat-
enterprise that applies to every company. The best way to get egy. It allows a company to become more integrated in global
started is with a clear and deep understanding of where the infrastructure by simplifying, standardizing and streamlin-
enterprise now stands in its evolution toward global inte- ing processes and improving shared services capabilities.
gration, and of how prepared and able it is to share and to Actions to meet this objective can include:
integrate its own assets — intellectual and otherwise — across
the enterprise and across the broader business ecosystem. • An integrated sales and operations planning system that
captures point-of-sale information at the SKU level for a
Based on the company’s existing marketplaces and growth more customer-focused supply chain
strategy, decisions must be made on what areas of the busi-
• A global ERP system
ness it makes the most sense to either centralize for global
• Supply chain visibility, including a global dashboard for
synergy and economies of scale or to localize for greater con-
logistics and supply information and the ability to locate
nection with customers.
product wherever it is, anywhere in the world
Smart companies aren’t universally globally integrated in all • Enhanced global collaboration capabilities to speed resolu-
aspects of their business. They’re balanced. They are intelli- tion of supply chain anomalies
gently global and local where it provides differentiation.
• Data center consolidation and virtualization

• Service-oriented technology solutions to enable modular


Linksys: Streamlining the supply and demand chain to achieve business processes for more rapid and flexible response to
operational excellence while fueling new business growth
marketplace changes.
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.

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Localize for tighter connections at the front end Finding the right balance
Integrating front-end processes is primarily a marketplace- It’s tempting to focus on backend integration first because of
and revenue-driven strategy. The focus is on understanding cost reductions. But lowering costs isn’t the only way to improve
and connecting with customers and enabling rapid response profitability. Each company needs to carefully weigh which areas
to local conditions. It requires integrating sales, marketing and of the business should be centralized and which should be local-
product development so that brand perceptions are uniform ized; what’s a priority and what’s not. Different companies may
and global, yet local customers’ needs are met and they have well decide to approach the same function differently in view of
an easier time dealing with the company. Actions to meet this their core competencies, brand strategy, current operations and
objective can include: marketplaces, and future business goals.

• Global salesforce alignment and multichannel management “[There are] various levels of being truly global. It is not
• Marketing transformation always achievable, nor desirable, to go the full extent.
Some form of local adaptation may be necessary, either
• Web 2.0 social networking and 3-D Internet solutions to
in the product/service that is offered or in the positioning
reach new customers
relative to competition.”
• E-commerce transformation to integrate and transparently
manage the needs of customers across multiple channels —David J. Reibstein, The INSEAD-Wharton Alliance on Globalizing:
• Collaborative innovation. Strategies for Building Successful Global Businesses 4

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.

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Improving the odds of success with a global An established global electronics company seeking to enter
transformation office emerging markets, for example, faces entirely different chal-
Timing is everything, and change must happen fast in lenges as a new market entrant from a developing economy just
the electronics industry. The global transformation office entering the world stage. Yet, they both must seek to become
is a change mobilizer — keeping the transformation vision globally integrated, in a way that is suitable for their business
alive and initiatives moving at a rapid pace. Serving as objectives given their specific situations. The challenge to find
a center of excellence, the office encompasses the fol- the right balance between cost-focused and revenue-focused
lowing elements: integration would no doubt be met with different approaches
by these two distinct types of electronics companies.
• The global transformation map
• A senior leadership program Accelerating execution of global integration
• Culture realignment strategies
• Communication/marketing reinforcement Because of the increased complexity, global integration
requires more careful planning than most other change
The global transformation office helps the organization
initiatives. IBM has developed an approach that can help
communicate the transformation vision. It owns and man-
organizations accelerate execution of their global integra-
ages the execution, fosters an intense sense of urgency and
tion strategies. This approach is based on its own success in
even breaks the rules when necessary to galvanize action.
integrating its global operations — as well as on working with
And it optimizes the return on investments in transforma-
clients to implement their initiatives. Three critical factors for
tional initiatives by monitoring progress and measuring
success are to:
results. A key aspect of this approach is identifying the
organization’s best executive up-and-comers and putting • Develop a roadmap that identifies and prioritizes what
them in charge of strategic change programs. needs to be done to move forward

Essentially, the global transformation office enables the • Establish a common communications and governance
communications and governance framework that builds framework
the capacity for transformational change into the fabric • Monitor the execution effort and measure business results.
of the enterprise.
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 direction Lenovo: Aspiring to be a global company with a Chinese soul
Moving from a global company to a globally integrated The first Chinese global computer manufacturer, Lenovo functions as
enterprise is an ongoing process. It begins when companies a true global enterprise by being proactive at breaking down cultural
unlock the true power of global connection. barriers. The company helps its employees understand its heteroge-
neous, worldwide customer set by focusing on cultural integration.
Electronics companies are at the forefront of such changes.
For example, Lenovo maintains key operational centers in Beijing;
Some indications that a company is moving in the right direc-
Hong Kong; Singapore; Paris; and Raleigh, North Carolina. Creative
tion include:
initiatives help employees learn about one another’s cultures. Informal
• Diversity of roles and skills across geographies online discussions called cultural discovery cocktail forums allow
• Worldwide rationalization of IT and ERP systems Chinese employees to explore the business protocols and conventions
of their Western colleagues. Obstacles such as language proficiency
• Balancing effective supply chain collaboration and R&D with
and communication style differences are addressed through targeted
protection of intellectual property
training. And, it’s no accident that the senior leadership team reflects
• Global branding campaigns
the diversity of its employee base and the marketplaces it serves. Of
• A network of local retail partners for new global marketplaces. the company’s top 18 senior executives, 28 percent are Chinese, 11
percent are women, 11 percent are European. And, 56 percent of the
Electronics companies are recognizing that real innovation
top senior managers have extensive work experience abroad.
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.

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For more information © Copyright IBM Corporation 2008

IBM Global Services


To learn how IBM can help you accelerate the move from a global company to a glob-
Route 100
ally integrated enterprise, visit: Somers, NY 10589
U.S.A.
ibm.com/electronics Produced in the United States of America
04-08
All Rights Reserved

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or both.

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and other countries.

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References in this publication to IBM products


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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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