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What if the United States were a business? How would we size up its financial health and its prospects? Mary Meeker, a partner at the Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers, earlier this year explored this intriguing idea in a humongous 477-page slide show, called USA Inc., which was later published as a book.  She followed up with a more easily digestible YouTube presentation. In both pieces, her analysis is devastating: If the United States were a business, it would be on the road to going out of business.

Meeker’s work is a call to action that should not be ignored. But, what to do? It strikes me that the United States today bears a strong resemblance to IBM in 1993, when the once-mighty company nearly failed, and that IBM’s turnaround offers insights that could help the country get out of this jam.

IBM survived and now thrives again because it radically changed the way it operates. The new IBM has strong financial discipline, invests for the long term and welcomes collaboration with its clients and even with its competitors. It sees globalization as an opportunity, not a threat. It makes decisions based on facts, not emotions. It’s willing to change everything about itself except its core beliefs. And it’s committed to engaging in a continuous process of renewal. If you will, it’s becoming a smarter organization.

In the early 1990s, IBM had a near-death experience. This was a stunning moment in business history because the company had dominated the computer industry practically ever since there was a computer industry. IBM nearly collapsed because its leaders failed to recognize that the mainframe computing model the company had pursued for 40 years was out of date, they were inattentive to clients’ needs and they spent a lot of energy competing amongst themselves.

The parallels with the US today are obvious. The country rose to world dominance based on post-World War II economic advantages, a wealth of natural resources, tremendous military power and a dynamic entrepreneurial spirit. Today, its military and economic strategies are out of date, its natural resources have been depleted, the government isn’t meeting the needs of citizens for jobs and economic opportunities, and many elected leaders are focused primarily on defeating their rivals in elections rather than creating innovative solutions to solve the country’s deep and complex problems.

With the benefit of hindsight, it’s easy to see how people and organizations and countries screw up. It’s much harder to be smart when you’re trying to figure out the present. Still, the lessons from IBM’s turnaround seem to be spot-on relevant to the potential turnaround of the United States.

I explored the lessons from IBM’s history in my role as co-author of the company’s centennial book, Making the World Work Better, which was published in June. In this short blog post, I can’t detail the long list factors that contributed to IBM’s turnaround. Indeed, some don’t require explanation. The merits of financial discipline and fact-based decision making are abundantly obvious—even though they’re too often honored in the breach rather than in observance. So I want to focus on two of them:

View globalization as an opportunity. Since the 1920s, IBM has been a pioneer in each phase of corporate globalization. Now it’s leading the transition to what we call the globally integrated enterprise. Under the multinational model, companies operate mini versions of themselves in every country where they operate, with all the related overhead. In contrast, IBM now performs work on behalf of clients at the places in the world were it can be done most effectively and efficiently. That includes research, product development, manufacturing, and a whole array of centrally coordinated services performed both for IBM itself and its clients.

IBM embarked on this journey in response to the threat of the fast-emerging Indian tech services outfits, which offered roughly comparable services to IBM and other Western tech services companies at much lower prices. IBM had to respond–or risk suffering another near-death experience. It began hiring aggressively in Indian and other low-cost labor markets. But IBM didn’t stop there. Its idea of being truly global is much more expansive than simply capturing the benefits of labor cost arbitrage. India, China, Brazil and other fast-developing economies are IBM’s new growth markets. And IBM understands that it needs to tap the best minds of those countries to succeed there.

The US has not been effective in defending itself against the backwash of globalization. Its immigration policies are self-defeating. When the US blocks highly skilled immigrants from coming and working here, for instance, it weakens the domestic talent pool, and, therefore, US companies. At the same time, compared to other countries, the federal government does little to retain vital industries here—or to foster the development of new ones. Like IBM half a decade ago, the United States needs to wake up to the realities of globalization and develop a strategy for becoming much more competitive. Otherwise, its days as the dominant global economic power are numbered.

Be willing to change everything except your core beliefs: In 1962, Thomas Watson Jr., then IBM’s chief executive, told a university audience that to be successful for many years, an organization has to establish a core set of beliefs upon which it bases its day-to-day actions. Further, he said, it has to adhere to those beliefs, and it has to be willing to change everything except those beliefs in response to a changing environment. That approach to business was the basis of Watson’s decision to risk everything and reinvent the company in the 1960s, with phenomenally successful results.

A decade ago, IBM revised its set of beliefs—similar to the old ones but fine-tuned to today’s realities. They are: “Dedication to every client’s success,” “Innovation that matters, for IBM and the world,” and “Trust and personal responsibility in all relationships.” Perhaps the most important aspect of the new beliefs is that they were created through an online “jam” to which every employee was invited.

Those beliefs undergird the transformation journey that IBM has been on ever since.

IBM’s leaders believe that organizations must continuously transform themselves to survive and thrive for the long term. In fact, they have to anticipate changes that are coming and act decisively to get out ahead of them.

Over the past 15 years, IBM has transformed itself from a company whose fortunes were too closely tied to computer hardware to one focused on software, services and other higher-margin parts of the computer business. At the same time, it reshaped itself into a truly global company capable of serving its clients as they adapt to changes in the economy, markets, technology, competition and governmental policies. As expressed in the company’s Smarter Planet agenda, IBM’s mission is simple yet incredibly challenging: making the world work better.

Like IBM of the 1990s, many of the organizations and institutions that grew up in previous centuries are today in need of an overhaul. And, like IBM, the most forward-thinking of them have learned that it’s not enough to successfully complete an organization-saving turnaround. You have to keep the revolution revolving.

For more than two centuries, the United States was driven by a strong aspiration: to make progress, for individuals and society as a whole. Today, some fear change and seek to hold it at bay. They dream of the past, not of the future. Based on analysis of IBM’s experiences, that’s a deeply flawed strategy.

The country’s core values still work. As laid out in the Constitution, they are: “To form a more perfect union, establish justice, ensure domestic tranquility, provide for the common defense, promote the general welfare and secure the blessings of liberty for ourselves and our posterity.” Yet the mission is not accomplished.

During our research for the centennial book, one of my co-authors, Jeffrey O’Brien, identified a simple but profound truth: change comes easily; it happens by itself; but progress is difficult; it must be won, and won again.

It’s not too late for the United States to rededicate itself to making progress.

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October 2, 2014
6:15 pm

Appreiate this post. Will try it out.

Posted by: experienced small engine
September 9, 2014
1:08 pm

I tend not to comment, but aftesr reading some of the responses on this page Lessons for the United States from IBM’s Centennial Journey

Posted by: Maritza
March 7, 2012
5:44 am

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March 6, 2012
6:40 am

I guess changing core beliefs is among the hardest thing to do in your life.

Posted by: kaip numesti svorio
December 6, 2011
3:26 pm

Steve, this is a great article. Thank you for posting this!

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January 20, 2012
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[...] companies could learn from IBM’s near death experience and avoid the fate that history mercilessly doles out. But will they? Which brings us to Microsoft [...]

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