International Isn't Just IBM's First Name

Big Blue has built a global network for client services and in the past three years has hired 90,000 people in low-cost countries

by Steve Hamm

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Big Blue, with 375,000 employees worldwide, used to focus on developed markets. Now it’s hiring fast in emerging countries, where many of the new employees perform services for global clients. Here’s a sampling of its staffing levels. Alberto Mena/BW

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When Rogerio Oliveira strolls through the vast IBM (IBM) service delivery center in Hortolandia, Brazil, the contrast between the old and new IBM is stark. What was once a factory for mainframes is now crowded with hundreds of Brazilians on a different sort of assembly line. Their output is information, and they sit in rows of cubicles that stretch the length of a football field under a soaring, metal-trussed roof. A few years ago, the factory work performed here was just for Brazilian customers. Today, 100 clients for the facility's services, which range from software programming to financial accounting, come from 40 countries, including Canada, Mexico, South Africa, and the U.S.

Oliveira, a 35-year IBM veteran and general manager for Latin America, stands at the heart of IBM's effort to transform itself into what it calls a "globally integrated enterprise." IBM has talked about its new global vision for two years. But only recently have managers like Oliveira turned that vision into a practical and solidly profitable business.

This is not the IBM of the 20th century, when Big Blue defined what it meant to be a multinational. Back then, its subsidiaries in 160 countries behaved like mini-IBMs—essentially, standalone operations serving their local customers. But replicating itself became too costly for IBM. So now the company is reorganizing around the principle that it will perform work for customers where the jobs can best be done—tapping the right talent at the right price.

That philosophy has produced a monumental shift in how IBM operates. In the past three years, the company has hired some 90,000 people in low-cost countries including Brazil, China, and India. These people, working in so-called global service delivery centers, provide a wide array of services for clients. The work goes beyond software programming to include data center operations, help-desk call centers, financial accounting, and benefits management. Initially, cheap labor was the big attraction of this move, with pay in India 70% to 80% lower than in the U.S. But these days, tapping the abundant talent pools—and new ideas—in emerging markets such as India and China is important as well.

Many of those global service employees report both to local supervisors and to managers thousands of miles away. Pressure is most intense on those managers who run countries or regions, like Oliveira. "My worst day was the last day of the quarter," he says of his job as the Brazil country manager, which he held until he was promoted in late 2007. "I was measured for producing sales in Brazil, and at the same time, I had 6,000 global service delivery people with a different way of measuring. It was schizophrenic."

The task may be complex, but IBM is committed to it. "IBM is making real some new ideas about what it means to be global that were just a lot of talk before," says Rosabeth Moss Kanter, professor at Harvard Business School. The results are starting to come in. You can see them most clearly in the performance of IBM's $50 billion global services business, the focal point of the effort, which represents about half of IBM sales. In the third quarter of 2007, global services revenues grew 14%, to $13.7 billion, and pretax profit margins topped 10.7%, up from 8.2% three years earlier.

But there's still plenty of work to be done before IBM, with 375,000 people on six continents, is a smooth-running global machine. Says Chief Executive Samuel J. Palmisano: "The big issues for us are: Where do you put them? How do you retain them? How do you develop them? How do you move work to them or them to work?"

Palmisano began this journey almost three years ago. After getting the top job in 2003, he focused on innovation in high-end computers, chips, and software, and rapid expansion in emerging markets and services such as back-office information processing. Yet Palmisano's rise coincided with that of a handful of aggressive Indian tech services companies, which, thanks to their low-cost labor force, were able to undercut IBM's pricing.