Focusing on 50 Growth Markets:
IBM's Global Treasure Hunt
The 97-year-old IBM is trying to look beyond its glorious history: as IBM stepped out from the personal computer business and reallocates resources to services business, the Big Blue is now venturing into the growth markets with its sophisticated approaches and unconventional talent training.
IBM's Global Treasure HuntBy Isabella Wu
From CommonWealth Magazine (vol. 399 )
In a typical IBM outfit – white shirt, dark business suit, and necktie, IBM Chairman, President and CEO Sam Palmisano gets on the stage of Forum on Global Leadership to announce IBM's latest initiative – Corporate Service Corps.
To carry out this program, 100 IBM employees have been selected from its 350,000 staffers worldwide. These members will not receive their leadership training course at the headquarters in New York; instead, they will be grouped to several task forces to station in Romania, Turkey, Vietnam, the Philippines, Ghana and Tanzania.
Their objectives: to cooperate with international non-profit organizations and to help these countries fight digital divide.
And their methods: to name a few, familiarize local housewives with computer using, or help raise the efficiency of small and medium enterprises.
"It's just like a corporate version of the Peace Corps, and it's unprecedented," said Stanley Litow, Vice President of IBM's Corporate Citizenship and Corporate Affairs.
In the past, IBM sends its employees abroad to build up international perspectives only after they got promoted to the management level. But the progress now seems slow and the productivity is low since only one or two talents joined the program.
"Now," Litow said, "we choose to dispatch them in teams and earlier, so more employees can join and gain experience in global operations in early stages of their career."
The Corporate Service Corps requires every participant to take at least six months of training. In three years, at least 600 employees will undertake the training. They will reward the Big Blue with invaluable edges in the growth markets.
Joining IBM right after graduation from university, Palmisano had seen the worst days of IBM – its annual revenues shrank by US$8 billion. The near-death experience inspires Palmisano to sell IBM's personal computer division to China-based Lenovo and redirect the Big Blue to concentrate on services business.
Palmisano, who has been with IBM for more than 35 years, is leading the company to face yet another revolution – a global reengineering work.
As an industry giant covering 170 markets worldwide, why is the reengineering necessary?
In 2008, IBM will celebrate its 97th anniversary – a time to reach another zenith.
For IT services, IBM is the largest supplier in global market; for enterprise software, IBM is only second to Microsoft. IBM generated revenue of $98.8 billion in 2007, which is little less than its biggest competitor Hewlett-Packard; however, IBM's income reached $10.4 billion, exceeding HP's by nearly $3 billion.
HP merged Electronic Data Systems Corp. (EDS) in the first quarter of 2008 to enhance its competitiveness against IBM. EDS is the second largest IT services provider in the United States, but being 100 positions behind IBM on the Fortune Top 500 list.
Increasing Revenue from Growth Markets
Even though IBM has long been labeled as a "100% U.S. company," two-third of its revenue comes from outside the United States, especially from the growth markets.
In 2007, IBM's revenue in the BRIC countries – Brazil, Russia, India and China – increased 26 percent. Compared to Mumbai-based Tata Consultancy Service (TCS), IBM is of appalling less U.S. flavor – as a low-end IT services provider while the Indian company TCS earns more than half of its revenue from the North America.
These figures indicate the growth markets' contribution to the Big Blue, as well as the future niche of the company.
According to International Data Corp. (IDC), the total value of IT spending in the US would only rise by 5 percent from 2007 to 2011 while in the BRIC countries and other 13 growth markets – including Turkey, Vietnam and Argentina, IT spending would rise by 12 percent in the same period, exceeding $83 billion.
In other words, if IBM can capture the opportunities of the growth markets, its revenue could be doubled in years to come. This is such a tempting opportunity but also a tremendous challenge.
Software, Software, Software
IBM has been concentrating on software development in these years, as the demands in growth markets surge.
"It's a strategic choice for IBM to focus on software business," said Willy Chiu, Vice President of IBM's Software Group. "Not only was the gross margin of IBM software business as high as 85%, but we had rapid development in the growth markets.”
"The Internet-related business is expanding fast," said Chiu, "many governments concentrate on developing services economy, fading out from the manufacturing Industry that might be harmful to the environment; the service and network relies on software."
Chiu just returned from Vietnam. Citing what he learnt in Vietnam, Chiu said that the Vietnamese government is now mulling to connect two major cities, Ho Chi Minh City in the south and Hanoi in the north, with optic fibers, strengthening the communications and commercial development between the two cities. "It represents huge business opportunity for IBM," he noted.
To strengthen its software capabilities is IBM's first step into growth markets.
"It is not the first time we experience geological shifts in global economy," said Frank Kern, Senior Vice President & Group Executive of IBM Sales and Distribution Division.
Kern is an IBM veteran with 30 years of field experience. In his office displays the photos of him and top government officials, as a reminder of his experience in expanding IBM market share in Sydney, Paris, Tokyo, Shanghai and other cities.
Kern understands neither distance nor language barriers would hinder the expansion; but lacking of business connection and failure to meet customer expectations would. Who make decisions? Who is the policy-maker? What kind of market a company is targeting? And, how to help increase the profitability of clients?
"Moreover, many economies rise simultaneously, instead of a single country," Kern said. Currently, there some 50 countries enjoy annual GDP growth of 10 percent or more – all these markets should be the target of IBM.
Countries like Bulgaria, Romania, Egypt and Venezuela were once the invisible names on the scopes of global business operation, but now, they are the bright spots on IBM's radar.
No wonder why IBM senior executives are either returning from the growth markets or planning to visit there.
But relying only on few senior leaders is not enough. IBM decided to mobilize more resources to enter the new markets.
In May, IBM expanded the annual meeting of Business Partner Leadership Conference and invited thousands of business partners to Hollywood, Los Angeles – one of the favorite spots in the U.S. Thanks to the event, some of the attendees can see the U.S. in person for the first time.
Nine o'clock sharp, Ravi Marwaha – General Manager of IBM Global Business Partner – walks up the stage in encouraging music and proclaims to the crowd "Your goal is IBM's goal" – a gesture to emphasize how IBM values these business partners.
Palmisano later comes to the front stage to report IBM's performance and vision. Eric Schmidt, Chairman and CEO of Google, is also invited to announce with Palmisano the two companies' latest cooperation – cloud computing.
All these arrangements are not only aiming to help business partners around the world better understand IBM, also help strengthen their confidence in IBM and its vision. And only when the partners believe in the company, they can truly become the voice of the company.
Relocating Talents to Growth Markets
Moreover, IBM will deploy the Corporate Service Corps program to mobilize from the inside to inspire the mindset on “growth markets".
After the program is announced, IBM spent eight months to select the 100 members from over 5,500 applicants.
Pamela Chen, 31, is one of them. After graduation from Taiwan's National Chengchi University, Chen went to University of Pittsburgh and received her master degree in information science. Later she joined IBM as a software engineer.
This year, she became the only IBMer from Taiwan in the first batch of Corporate Service Corps. Chen and other members from the U.S., Japan, Australia, India, and Venezuela will team up for Romania. Their expertise includes software development, IT infrastructure, marketing, business management and consulting – all are vital to business operation.
"I'm so excited," said Chen. She and other members have been taking training programs and studying hard to understand the country, including its politics, economics, demographic trend and technology development.
"Romania is a typical growth market, where has stronger demands for cell phone than its for PC. This is the trend," Chen said. She is trying to combine her expertise, software development for smart phones, with the characteristics of the market, to blueprint a viable strategy.
"I will share my Romanian experience with my teammates and colleagues in Taiwan," Chen said, "It's part of the learning, a very important part."
IBM's Corporate Service Corps emphasized most the teamwork and personal network.
In the host country, the members have to evaluate the niche, as well as understand the government practices and build their business networks. A growth market will be very different from a developed economy in all above-mentioned aspects. It is also vital that these members continue to share their experience after returning to home country.
Although one-time visit is hardly to cover all dimensions, sequent visits by other members would push up the learning curve, hence the whole company's knowledge about the growth markets would increase continuously. By the help of the process, IBM could get ever closer to the market and make improvement according to the demands.
Lone Gunner No More
At Armonk, New York, where headquarters the IBM, the landscape is interlaced with rocky surface and tree lots. The buildings there adopt a zigzag layout to fit in with the environment – such adaptability can also be seen in the company's business strategy.
By noon, people enter the cafeteria, where all kinds of food are served to satisfy employees and visitors from around the world.
Fred McNeese, Director of IBM Corporate Media Relations was greeted by many colleagues at the cafeteria. As an IBM veteran, McNeese knows almost everything about IBM. But the world has kept changing for him and the company to catch up.
"More and more people use Blackberry," said McNeese while observing his colleagues. "In a growth market, almost all activities are connected with cell phones. That's why the mobile services is the most promising business for now and the future. But we don't know exactly how people use their cell phones."
Today, more than 70 percent of IC chips are not embedded in computers but devices. Most processing is no longer done by computers, either. IBM needs to step up its pace and expand technology applications to satisfy the growth markets by allowing in more partners, even competitors.
In East Fishkill, New York, IBM established a semiconductor foundry where staffers with identical outfits busily walk in and out of the rooms.
"They may all wear IBM badges, but not all of them are IBM employees. They may come from AMD, CSM, Sony, Samsung, or Toshiba," said Bernard Meyerson, IBM Fellow and Vice President of Strategic Alliances & CTO for IBM Systems & Technology Group.
"Technology become increasingly complex; any company could not independently afford the R&D cost and the progress would be too slow, so several companies may team up in the early stage of development and then independently apply the technology to their own products," said Meyerson.
For example, the chip in IBM's latest supercomputer Roadrunner also can be found in the popular game console.
All rules and existing boundaries are subject to change to meet the constant rising challenges.
"IBM can live on well because it is a survivor who can evolve itself according to the changes in the environment," said Annex Research analyst Bob Djurdjevic.
This time, IBM is trying to survive a brave new world and outshine its competitors hand in hand with more partners.
Chinese Version: 揭開IBM全球獵金地圖