IBM opts for globally integrated model

Very few serious panel discussions start with a quiz on triangles, circles and squares. But Hiritaki Takeuchi, the moderator at the IBM panel discussion started by doing just that. The topic of ‘Global Integration – Challenges and Implications,’ was put on hold as members of the audience were asked to identify their personalities with each shape – square, circle, triangle or Z.

The square drew some twenty odd responses, and Takeuchi described them as intelligent people. Z drew some thirty odd responses, and Takeuchi said they were creative gentry. The triangle had some forty odd people, among them the telecom Czar Sunil Bharti Mittal, and they were described as leaders, people who wanted to reach the top.

And lastly, some 60 add people raised their hands for the circle and Takeuchi dramatically looked around, and announced gleefully that they liked booze and sex. As the room boomed with laughter, there was one particular red faced gentleman who wore a sheepish grin, and whose hand was raised the highest in the room – since he was perched on the panel platform.

And that’s how the high profile IBM panel discussion featuring heavyweights like IBM Chairman and CEO, Sam Palmisano; Harvard Professor, Pankaj Ghemawat; Bharti Chairman, Sunil Bharti Mittal; Lenovo head honcho, Yang Yuan Qing, and of course, the moderator, Dean Takeuchi, from Hitotsubashi University, Tokyo, got off to a rocking start.

Corporate Dossier, naturally, was the only publication allowed into the closed-door discussion — along with the IBM top brass, and bluest of blue chip IBM investors — to get a ringside view of the discussion. And for the curious cats, who want to know more about the tall guy with the raised hand, the answer is at the end of the story. Here are some excerpts of the intellectual pow wow.

Moderator: The World Economic Forum was held in New York five years ago, as an anti-globalisation movement swept the world. IBM then held its global briefing in New York. Today, globalisation is in vogue again, and the meet is in Bangalore. Companies are going from national to MNC to globally integrated model. Sam, what is the difference between MNC and one having a globally integrated model?

Sam Palmisano: In early part of this century, especially the war years, market access was important. Some global operations were multinational operations. The shift in today’s world is that it’s much less industrialised and much more service oriented. Globally there is phenomenal intellectual capability, and talent in the entire global community. The potential to tap that is huge. If you don’t take advantage of this now, you will be seriously disadvantaged in the future.

Pankaj Ghemawat: In the last two hundred years, globalisation was driven by the differences between countries. There was one way flow of products, and goods were shipped from countries with abundance to countries of scarcity. More recently, the differences have lead to some arbitrage. But to maximise the benefits of globalisation, you have take advantage of the similarities, and the differences too.

Moderator: Mr Yan Yuan Qing, you have taken Lenovo from being a Chinese player to third largest PC manufactures in the world. How have you done that?

Yan Yuan Qing: I believe that companies with global ambitions should take advantage of globalisation. We use our highly efficient manufacturing base in China to produce low cost PC but also procure sales and support in Brazil, or get intellectual property from US or Japan. Companies can keep some functions with themselves and outsource functions which aren’t its core competencies. We leverage the IBM relationship for so many things globally.

Moderator: Sunil, you started as an entrepreneur at 18, and have come a long way from selling cycles parts to telecom. Does globalisation affect small and medium companies as well?

Sunil Mittal: Small companies may believe that globalisation doesn’t affect them, but they are affected the most. The market dynamics are very different today, and a lot of companies will have serious issues.

In 1976, when I was started my business, I experienced shifts in the economy and realised that globalisation was the way to go. I spent 3 years in Suzuki motor company in Japan and I learnt about discipline, quality, and inventory management. At that point of time we had to look for small policy openings to do business.

Moderator: Sam you have spoken about senior IBM executives being moved to China. Aren’t IBM-ers resisting such change?

Sam Palmisano: IBM has a unique culture, and most executives in senior positions have lived abroad. 65% of our revenues are non-US, so people are ready to work all over the globe. They find it a great experience. Some of our most creative work is done in a collaborative way.

A great example is the cell processor. It was a collaborative effort of Toshiba, Sony and IBM. We are blessed with people who don’t have a problem working away from home. In IBM, diverse groups engage in unique work, and it’s our culture. We have been doing it for 100 years.

Sunil Mittal: A demographic shift is happening globally, as resource reallocation happens world-wide, and that’s affecting the flow of work. Indian has a huge young population, more than 50 per cent of Indians are less than 25.

Western countries have been in a state of denial regarding the age factor, but they will have a large percentage of ageing population. So lots of Indians will be needed to service those markets either as doctors or call centre executives. Compelling demographics is also another reason why work will flow to India.

Yang Yuan Qing: Movement of people helps in the movement of skills and expertise from the developed countries to the developing countries.

Pankaj Ghemawat: This is part of the reason because of which globalisation is coming to India. But the upside also has a downside. If we miss this opportunity, we are going to have a difficult time to get such a win win situation again..

Moderator: Lets take the topic to integration and collaboration. Tom Friedman has asked, ‘is it the beginning or is it happening all over?’

Sam Palmisano: We don’t have enough scale to do everything on our own. There is tremendous pressure on companies to innovate, otherwise they will miss the opportunity. When we saw the PC industry move to consumers, it was best for us to partner with Lenovo.

We wanted to get into PC components. We wanted to create a collaborative model, so in spite of getting higher bids from financial players, we went with Lenovo. We wanted to participate in the China market. If you are not innovating, you are getting into what an author has described as ‘commodity hell’.

Moderator: Yang, Sam seems to be very gung-ho about Lenovo. Do you feel the same way?

Yang Yuan Qing: When IBM had a PC business, it was not very easy for them to enter the consumer business. They were no doubt very good in the enterprise business.

But PC is a volume business, so you have to enter the consumer sector to survive. After the acquisition we have brought in competitiveness in the industry. Now IBM and Lenovo have a win-win situation, we have common competition, and we have complementary businesses. Our teams work together in China.

Moderator: Sunil, you have outsourced your IT. If something goes wrong in the collaboration, won’t it be a very big issue, a potential business risk?

Sunil Mittal: It being given away is a big issue. It was a very big deal then. People told me you can give pieces of IT, not the entire thing. We said we are not a IT company, we are a telecom company. We are users of IT but don’t understand it.

We were always puzzled by the IT department demand every 12-14 months, to upgrade. Now the IBM comfort is very high, and they cover everything end to end. Though accountability was provided by various agreements, and documents, but in the end it was a leap of faith. It’s a solid working model. Today a supplier is linked strategically to the revenues.

Sam Palmisano: Sometimes there is a misunderstanding that companies working in emerging markets want tech that’s a generation back. Now they want to go all the way, they want the most sophisticated technologies.

Moderator: Sam, in your talk in the morning, you have spoken about collaboration and innovation being the way to go forward.

Sam Palmisano: Innovation is not about services and products, its about business models. Products and services can be copied, so what’s going to be different is going to be the differentiated business model.

By collaborating, you can learn quicker and do things faster. It’s a way to accelerate the speed. The faster you can innovate, the longer you will be able to sustain operating margins over a period of time.

Yang Yuan Qing: In the past products were important, now innovation is becoming important.

Moderator: Now we can take some questions from the floor?

Arvind Uppal, CEO, ABB, India: At what stage of evolution are India and China?

Sam Palmisano: The way evolution works is that in the beginning there’s demand for hardware and software, and as we advance, there is much more emphasis on services. As economies evolve, consumers spend more, so consumer credit demand increases and that creates more demand for crunching consumer data.

So more systems need to be created to support these activities. So as companies get sophisticated, they demand more sophisticated systems. It’s a big opportunity, and we have to make sure that we provide the entire set of solutions to companies, right from PC based support to back end.

For example, the Chinese banks are demanding extremely sophisticated stuff, so we have had to take Chinese people to US and train them in US banks, so that they could see and learn the very best.

And thus ended the IBM panel discussion. The red faced gentleman who likes circles, if you haven’t already guessed, is IBM chairman Sam Palmisano.

vinod.mahanta@timesgroup.com