Are we reaching an inflection point of business globalization?

I can't help feeling we are entering into a critical phase of business globalization, due to a convergence of factors.   We have seen these global dynamics in play for the last 30 years, but we are now in an economy where today's CEOs are aware they need the tools at their disposal to become truly integrated global enterprises.

I was privileged to have a preview of IBM's new study of 1100 CEOs this week at its analyst event in New York, and, while the findings are under embargo until next Tuesday's public release, I can say they reinforced one thing for me:  the vast majority of today's CEOs recognize the need for change, and are more prepared than ever to be bold and adopt measures that can drive rapid change through their organization.   So why is now different from that of 5 years' ago, or 25 years' ago?

1) Many enterprises began rationalizing and optimizing their infrastructures in 2001 during the last downturn, and they need to look further outside of their organizations to find further business efficiencies.

2) The Internet and global communications revolution have created unprecedented access to global talent, where you can have your mainframe computers managed from Brazil, your general ledger consolidated in Hungary and your logistics analytics performed in India.

3) Enterprises are moving ever-closer to developing common standards to support processes that can enable them to operate and compete as global entities.  When you have rapid access to your global financial, HR, supply chain, customer and product information, you are in a position where you can make quicker informed decisions to enter new markets, sunset dwindling product or service lines and mobilize your resources and partners accordingly to respond to your existing and future customers.  ERP platforms are far more globally-integrated now than they were a decade ago, which provide a crucial backbone for supporting global business initiatives, and developing technology standards such as SOA are helping firms re-use and optimize a lot of what they already have.

4) Global services providers are going through a marked phase of healthy growth despite a flagging econom:  look at the latest quarterlies from Accenture, EDS, Genpact, Infosys, IBM, TCS , Wipro, at al.  This is enabling them to develop further their global delivery infrastructures to accommodate talent across Asia, Europe and Latin America.  The majority of today's CEOs realize they do not have all the talent they need internally to take full advantage of global resources, and they are increasingly turning to services firms for support, whether it's large-scale outsourcing of business and IT functions, or augmented staff support to provide them with scarce skills.

5) The current economic downswing has upped the ante for global companies.  Business leaders are becoming increasingly knowledgeable about what they need to do to rationalize costs further, develop common business standards and integrate their businesses on a more global basis.  Their challenge is executing, and they are realizing the exigence to make braver decisions to achieve the change they need on a more rapid track, as opposed to making slow, painful, tentative steps.   

Bottom-line, the current downturn is magnifying the scarcity of managerial talent with the experience to manage offshore resources, develop metrics and service levels, possess the process acumen that eliminates waste and drives ongoing quality, and the global business intelligence to move into new markets.   Yes, some of these are age-old issues for improving business performance, but the reality is that today's CEOs need support like never before, and many are increasingly willing to make more radical decisions to avoid seeing their business underperform or sink in a troubled economy.   Today's leading service providers are becoming critical players in providing the assistance CEOs need to become globally integrated businesses, however, as we have mentioned many times before, while services providers provide the tools and skills companies need, ultimately it's how effectively enterprises engage their services partners to develop their own talent inhouse to acquire the experience and tools they need to make their enterprises successful.

Comments

[Ken Kaufman]

This is a global economy, and sourcing to the most effective bases of knowledge only make sense. As CEOs consider improving their business process efficiences and making radical changes to improve their firms, they need to build an executive team that collectively buys into the overall vision and can hammer out how to implement the best strategies. This is often easier said than done.

[Manish Mehta]

Phil,

If you look back in time, not just today, businesses have alway sought to gain an advantage in the marketplace. Either from arbitrage opportuniities or by removing inefficiencies & reducing costs, or, for example, exploring new geographies/new models of working/new products/services.

The pace has accelerated but the basics are the same....the choices for the CEO have widened as well as the execution options that he can now take.The risks are higher and the global market is quite unforgiving.

All this makes for an interesting time ahead. I suspect this will also mean a lot more 'accidents' in the markets, a lot more 'radical decisions gone wrong' kind of events along the way.

Manish Mehta

[Stephen Getty]

I believe that the inflection point is a valid perception of what is happening. However, while I do think that the points Phil mentions are valid, there are additional meta-environment aspects that really help push the businesses into globalization large scale.

1) It has been just over a generation since outsourcing really entered the field. This is given time for an entire crop of workers and talent to ramp up to provide skill sets necessary for developed organizations to be able to make use of them. Prior to now, the talent in low cost centers was simply not there.

2) Similarly, the lower cost of resources in offshore facilities combined with the increase of skills has led to resourcing of talent locally rather than paying the higher costs associated with ex-pat resourcing. This has been very prevalent in established energy supply chain and manufacturing entities. Getting a new ex-pat job now is extremely difficult compared to the 1980's.

3) The US has been a huge engine of economy in the 1970's through 2000. However, the doubling of the economic debt of the US in the past decade and the erosion of the dollar should lead to re-insourcing of US activities rather than increased globalization. We need to account for the US capacity to acceppt debt though. Individual US citizens will not accept lower pay for roles unless they are literally bankrupt and starving. As such, the US workers are themselves helping to continue pushing US companies into further globalization through their refusal to accept a decrease in lifestyle willingly. This will continue until further economic stagnation occurs in the US and maintainable living standards are accepted. As the Gini index shows, wealth is being consolidated in the hands of fewer people in the US, so this will occur, but is still likley to take a good 10 to 15 years.

Wild cards certainly exist that can impact globalization, but I think that while we have a LOCALIZED upward inflection point now, we will see a homogeneity and localized decrease inflection point within 10 years.

[Phil Fersht]

Mark,

Couple of off-the-cuff thoughts from your comments:

1) The closest we are to a form of standardization globally is with our ERP friends SAP and Oracle. Global firms are constantly upgrading their ERP infrastructures to the point that their operational managers are not well-versed in business processes. I recently chaired a user group discussion and was blown-away with the deep level of process knowledge today's global ERP managers possess. This is not consistent across many processes - payroll, for example, is still a long way from attaining global single instances in the vast majority of companies today - however, for several core ERP areas such as general ledger consolidation, we have seen significant progress is recent years. We are seeing more and more firms moving into BPO-type environments off the back of ERP upgrades - a few big deals are currently out there right now being structured in such a vein. The key is to maximize IT transformation with business transformation to build commonality across regions and systems. Smart companies are doing this and leveraging third-parties for the skills and tools to do so.

2) There are three worlds within an organization that the CEO needs to integrate better to take advantage of globalizations: those are the worlds of the CIO, the CFO and the Chief Supply Chain Officer. The better the integration and alignement between these three worlds, the greater the global opportunity. I will be discussion more in this upcoming report.

Phil

[Mark Stelzner]

I'm looking forward to the report Phil. I personally would also like to see more published studies regarding the dynamics of this global ecosystem in the context of the value-added supply chain.

In other words, how are business leaders at the highest level properly leveraging this assembly of assets (internal and external) into a systemic approach for solving real-time business problems? If standardization is truly available, one should be able to interchange service offerings much like a parts supplier, thereby procuring the best product/service (with acceptable quality levels) at the best price. This unfortunately assumes commoditization. But if, in fact, the transactional nature of many of these offerings continues, that's exactly where we should end up.

Thoughts?

[Stephen Cohen]

Phil,

You've hit the nail on the head. Most of today's businesses simply do not have the experience or talent to take advatnage of the global economy. We're clearly in a "survival of the fittest" scenario with this downturn, and the winners will be those which can embrace change and have the courage to take on disruptive solutions that shock their business. It means taking risks to change quickly and being unafraid to ask for help from third parties,

Stephen