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

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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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