Monday, June 12, 2006

Globally Integrated Enterprise

IBM boss Sam Palmisano has written an article for the Financial Times saying that "Multinationals have been superseded". [news report, article (subscribers only)] and portraying "the emerging business model of the 21st century".

Firstly, he restates the vision of the component-based business. (See my post on Project Catalyst from November 2003.)
"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 judgements about which operations the company wants to excel at and which are best suited to its partners."
And includes a plea for new models of trust.
"We need new ways of establishing trust based on shared values that cross borders and formal organizations."
Palmisano doesn't explicitly mention IBM's recent announcement of increased investment in India, but his denial that the new business model merely involves exploiting cheap labour will undoubtedly be linked to this deal.
"These decisions are not merely a matter of off-loading non-core activities, nor are they merely labour arbitrage - that is shifting work to low-wage regions. ... The consideration driving most business decisions will be securing a supply of high-value skills."
James Martin said something similar in his BBC radio interview last week, which I reported elsewhere.
"Sometimes the reinvention is going to work best in countries which are not rich countries today. So India for example is creating software which is measurably better than in the United States or Britain. ...

[Describing a company he was involved in] ... In the beginning we thought it was just better programmers, but then it turned out that the Indian CEO was better than the American CEO, so the finance people replaced the American CEO with the Indian CEO."
My interpretation of this model is that it leads a power-to-the-edge strategy. You don't reserve the high-skill jobs (such as research-and-development and product design) to the centre, or to the home country.
"The globally integrated enterprise ... fashions its strategy, management and operations to integrate production - and deliver value to clients - worldwide."

For further commentary, see Colin Barker at ZDnet.

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