The IBM Global Leadership Formula
I had the chance to interview former chairman and CEO of IBM, Samuel J. Palmisano, on how he recommends business improve returns for shareholders while enhancing lives in the regions where they do business. His mantra is sovereign countries give you one chance to do globalism right.
Jeff Cunningham: Global business is in trouble. You believe that if global companies employ the kind of practices you discovered at IBM, the perception will improve. Have I missed anything?
Sam Palmisano: It may sound incredible, but I witnessed this at IBM, where I spent 39 years, which quite literally was my laboratory for global experimentation. The experience gave me a bias that business does a tremendous amount of societal good and society wants business to be successful, and on the flipside, a business can do some unfortunate things from that hurt credibility. So we need to understand how to operate more effectively in different cultures.
Can you give us the CliffsNotes version of a globally integrated enterprise?
I believe companies need to go far beyond merely building a global supply chain and offshoring product manufacturing, or what I refer to as the “hub and spoke” method. Instead, we believe in developing a new type of global operation, one that is structured to cross borders both culturally and operationally, placing teams and divisions where they make the most sense. Driving cohesiveness is the challenge, not necessarily finding the cheapest market for labor.
Where do you propose business leaders start to think about how to build a global business enterprise?
Start by changing how you lead. Second, consider how business schools prepare future leaders, especially at the CEO level. To do that properly, you will need to have a global mindset and a value system that transcends geography.
What made you shift from an old-school multinational approach?
If you bring a legacy mindset to the modern business climate, I don’t think you’re going to be in the game very long. Sovereign countries simply aren’t going to give you the freedom to operate that business enjoyed, say, 25 years ago.
A major industrial company with a huge labor component has to toe the line, but what about Silicon Valley, will they have the same challenges?
There may be misperceptions in certain industries that they are excused from transforming, as in “Our company is flying. We are far beyond these kinds of things.” But my argument is that you are only in Act One. You will have to get to Act Two, and when you do, you’ll be globally integrated along the lines I am suggesting, or you may learn the hard way that nothing lasts if it doesn’t adapt.
What inspired you?
The idea first came to me when I was in mid-career at IBM. I was heavily influenced by the time I spent working at IBM Japan, which was a truly Japanese company, and so I got to look at the world through a Japanese lens. I recognized that to be successful you needed to have more of a global perspective.
Did you have to fight the old guard in making this happen?
I saw that it would be useful to take an outsider’s objective view, and even be a bit of a contrarian. This view was what led me as CEO to sell the PC business at a time when everybody thought that was crazy.
What made IBM Japan such a good role model for global integration?
IBM Japan was never a joint venture, and that’s the main takeaway. It was a country operation in the global IBM, and it was very successful, representing nearly 17 percent of the earnings of the company. So I asked myself the question, why? It turns out the reason was because we were fully integrated and we were committed to and embedded in Japanese society.
What are the main practical benefits of operating as a globally integrated enterprise?
You’re going to be much more productive and, at the same time, you should be faster. Now, someone asked me, “What if you got your strategy wrong?” I said then we get to the wrong place faster.
What about corporate controls and risk management?
I say, get over it. You have to lower the center of gravity by moving decisions to where the local intelligence resides. You have to trust the people, let them operate, and hold them accountable to a set of values and standards beyond those required by regulators.
Help me understand just what’s wrong with command and control then.
In today’s world, it’s too slow and redundant. You are engaged in a replicative process that might make headquarters feel warm and fuzzy, but in fact what you get is mirror versions of IBM headquarters in 100 countries. I also think it does not really control anything, which is the greater problem.
Is there a CEO management style that best suits the global enterprise?
It’s not about your reputation for brilliance in the corner office. It’s about your team and about having the best people you have in the critical functions of your business, anywhere in the world, and letting them run their show.
Does training play a role in building the right culture?
It takes training, to be sure, but it’s on behalf of something very potent, a standard of behavior and comportment. I think all companies should have a standard we call the value system. And at IBM the highest of those values was integrity.
Does training mold people, or does it, like the SEAL team boot camp, weed out those who can’t hack it?
IBM’s secret was its onboarding program. When you join IBM, part of the onboarding process is to learn the value system, what it means to be an IBMer, and what the brand stands for. And you learn you can’t compromise the brand identity regardless of the temptations. I don’t care how strong a performer you are.
Did everyone get the value system?
Most, yes, but not all. Those that don’t quickly decide they don’t want to work in a place like that, which is why we never had a problem with people leaving during onboarding.
To some this probably sounds great for companies with a legacy of good behavior, but does it work for companies in industries with ethical challenges?
Jeff, we had people in 170 countries, and one thing I have learned is that the United States may be culturally different but not culturally superior. People have told me more times than I can recount, “Sam, really, it’s different there.” I’ve got news for you, it is not. You have to teach your value system all over the world. The U.S. doesn’t have a monopoly over integrity and trust.
You had a 39-year career at IBM and rose to CEO. What inspired you most?
I was the eighth CEO in 100 years, and I learned that I was a steward of a wonderful enterprise for a defined period of time. I found it was important not to try to be defined by what I’ll call charisma, or make yourself the brand or the headline. I’m not knocking CEOs who favor that approach, I’ll just say it wasn’t for me. To me, as a CEO, you are given the opportunity to be a steward of an incredible legacy. It’s not about yourself, it’s not about how much you got paid. It’s about the value of that enterprise and was it stronger after you left.
But sometimes things go wrong.
Yes, stuff happens, as the expression goes. The question I ask myself is: “How did you react when it did? Were you totally transparent? Did you ’fess up and deal with the financial implications? Were you out front taking responsibility and staying on the case until it was solved?” I really still have a bias that you’re much better off standing up and speaking factually. But don’t hide behind public relations, lawyers, and allow rumor to set the agenda.
Sometimes we find American companies have trouble operating in countries where rules are more ambiguous.
You have to choose your countries of operation, that’s for certain. It’s not just where there is growth and we will go there and figure out how to do business. There has to be a fit in the value systems. To the country, I would say, “We want to do business, but we are not going to legitimize your behavior until you have a rule of law, you’re going to agree to the international arbitration, you’re going to have stronger intellectual property regulation, and so we’ll come back when you’re ready, when your society is ready to enter into what we will call global international compliance.”
Is it about a country’s fundamental ideologies?
At IBM we were OK with whatever ideology a country had. And frankly, it wasn’t any of our business. We never got ourselves confused by ideology.
Are there new sets of stakeholders for the global enterprise?
At the end of the day, you work for your shareholder and you have to serve your clients or you don’t have any revenue. And then if you did those two things right, you should reward your employees and give back to society.
What made you start the Center for Global Enterprise?
I thought about that as I was getting ready to retire. There are lots of different ways to spend your time. I was looking for something that would provide the same involvement as a professorship but at more scale. So the CGE sort of appeared from that thinking. Our plan is to engage global CEOs to help us guide the research, and then expand the primary data so that future generations of leaders are better prepared than I when I became the CEO of IBM.