Talking Talent

When IBM Chief Executive, Sam Palmisano, called on major corporations to become ‘globally integrated enterprises’, some companies believed it sounded the death knell of the twentieth century multinational.

While some historians trace the multinational back to the days of banking under the Knights Templar in 1135, the structure we know today emerged when nineteenth century firms set up sales offices abroad to gain access to local markets and resources, with big business establishing mini versions of itself across the globe. And for decades, it was a very successful model.

However, what looked like efficiency has become redundant. Multinationals simply replicated or duplicated their businesses in every country. Each multinational outpost developed its own models for distribution and supply chain optimisation, procurement and marketing.

And while these corporates traditionally built factories overseas, they tended to base high-end functions such as research and development in their home countries.

With technology dismantling geographical borders, the goal of world class and sustainable competitive advantage can no longer be achieved in isolation. Everything is connected, the barriers that once blocked the flow of work, capital and ideas is diminishing and work can move to the place where it is done best.

New model corporations, built on collaborative innovation, integrated production and outsourcing to specialists, are beginning to reshape geopolitics, trade, leadership, workforces and education. Big business has realised that a more integrated approach to organising business activity is inherently more profitable and benefits both developed and developing worlds.

Today, the globally integrated enterprise can locate functions anywhere in the world, based on the right cost, skills and environment. IBM now has more than 50,000 employees in India and plans for further expansion there. And while India is now IBM’s second largest operation outside America, head of procurement has moved from New York to Shenzen in China.

China and India are already moving up the value added chain. One study suggests that between 2000 and 2003 foreign firms built 60,000 manufacturing plants in China. While some of these factories are directed at the local Chinese market, others target the global market.

The shift from multinational corporation to globally integrated enterprise has meant the ‘where’ and ‘who’ of production have changed. In the past, companies usually produced goods close to the market that purchased them. Today, enterprises are spreading strategies, production capacity and management around the world in order to be close to markets and customers.

Dutch banks open savings accounts for customers in New Zealand. American radiologists send x-rays to Australia for interpretation. Customer service centres in India handle telephone billing enquiries for English customers. Around the globe, economic activity is embracing shared business and technology standards and plugging into a truly global systems of production.

Australian business leaders across the spectrum of industry - from technology to tourism and from mining to manufacturing – need to decide on our nation’s value proposition. Is Australia just about beer, prawns and sunny beaches or do we need a more sophisticated value proposition to compete on the world stage?

If the film The Graduate were remade today, writes Director of IBM Research Dr Paul Horn, the word of career advice whispered in Dustin Hoffman’s ear might well be ’services’ instead of ‘plastics’.

Today, we exist in an economy where the services sector is the economy.  Services – everything from fast food to brain surgery - accounts for about three-quarters of Australia’s GDP and an even larger share of employment, with around 8.8 million, or 85 per cent, of Australians working in the services sector (according to the Australian Government’s Services Report, released in June 2007).

Deloittes research tells us that our best performing manufacturers generate 50 per cent of revenue and profits from services.  IBM’s rapid revenue growth can be directly attributed to services.  And IBM is not alone - services are fastest growing part of many businesses.  Despite this, less than 20 per cent of CSIRO’s R&D is classified as ’service related’.

The drivers of growth an innovation in the services sector can be attributed to the following factors:

• Outsourcing; 
• Changes in manufacturing (whereby manufactured products are the basis of a service rather than an end); 
• Consumer demand resulting from increased discretionary spending; 
• Globalisation; 
• And through the deployment of new technology. 

At the Australian Institute of Company Directors conference in Shanghai last year Professor Michael Enright, Director of Enright, Scott and Associates broke down the costs of your average Barbie doll.  If a Barbie doll costs $10.00, he argued, then:

• Manufacture parts costs $1.00 
• Assembly costs 0.35 cents 
• Logistics costs 0.65 cents 
• Retail costs $4.00 
• Brand (such as design etc) costs $4.00

So, we can see that Australia needs to be in the design end of goods and services.

Sometimes in order to effect change we need to see a dramatic and dire view of the consequences of our actions.

An Inconvenient Truth and The Stern Report moved the world to debate.  Because they were so ‘in your face’, both motivated people around the world to combat climate change and accept personal accountability for living an environmentally sustainable life.

I hope that those people who read the Living Longer Living Better Report will feel the same, as the ageing population could precipitate Australia’s economic and social decline.

This report, developed in conjunction with IBM, is intended as a contribution to the debate around the challenges of an ageing population and how they can be dealt with.  It’s aimed at policy makers, business leaders and social commentators and while it reflects a world position, it draws particular attention to the issues in Europe (although its author, Dr Chris Gibbon, has been in Australia talking about the impacts here).

With declining fertility and regressive employment practices in operation for decades, the solutions to these challenges will not take effect overnight. The economic and social (metaphorical) ‘super-tanker’ will take years to be turned around, so we need to change course now.

The issue of an ageing workforce is particularly pertinent in the recruitment industry, as it affects the quantity and quality of skilled people available. We know now that the problem is not a skills shortage - it is a population shortage.  Finding ways to tap into the global talent pool is an imperative.

When I joined IBM in 1981 the hit song was “My baby takes the morning train.  He works from 9 to 5 and then he takes the train back home again…”

Thank goodness work isn’t like that anymore!

Work is not a place.  It’s not time bound. It is all about mobility and connectedness, anywhere on the globe.

Sensis’ 2007 survey of teleworking reveals that just 22 per cent of Australian businesses have employees that teleworked. Positively, in terms of business performance, SMEs that had teleworking employees reported significantly higher levels of confidence than those that did not embrace teleworking. Apart from business confidence, teleworking businesses also performed higher in other performance indicators, most notably sales and profitability.

However, this figure must increase.  The use of flexible working arrangements and telecommuting provide opportunities for increasing participation of women in the workforce, governments growing productivity and communities reducing their carbon footprint as fewer cars hit the road and large buildings burn lights and air conditioning plants.