Building international agility.

Welcome to the global M&A dance. Check your pride at the door and sidle up to that nervous character on the other side of the room - your competitor. But out on the floor, be nimble. Your survival may depend on it.

You may be forgiven a yawn as you read of yet another "strategic alliance." Particularly in the information technology industry, players seem to be constantly embarking on such moves - often banding together in groups of three or more, sometimes in areas outside IT, such as telecommunications. Look more closely, however, and what you often see are large, formerly lumbering organizations compelled to change their stripes. Alliances can be the only way to gain a foothold in a new market, or access to someone else's technology or products.

In forming alliances, large and small companies alike frequently are forced to swallow a healthy helping of humble pie. But they also may be required to develop a culture of international agility to accommodate new executives and employees because of offshore mergers or acquisitions; to integrate their supply chain, exchanging information, products, or services with competitors; and to tap the latest information technology to speed ordering and distribution, and bolster customer service.

In recent years, ICL has worked in such areas with a range of partners, including Japan's Fujitsu and Sun Microsystems in the U.S. Our experience enables us to conclude that companies do not have to become global players to survive in a global market, but they do need to be nimble enough to compete with these players or they face an erosion of their domestic base. Toward that end, agility is key. The payoff may be higher productivity, greater market share, and faster response to customers and market conditions.

GEOMETRIC EVOLUTION

It is stating the obvious that the IT industry is undergoing profound changes. Some observers pronounced our industry to be in a state of terminal decline, while others interpreted developments as a more subtle transition. In Europe, for example, in the early 1980s there was a proliferation of national champions. Many were strong in their domestic markets and exported some goods to other European markets - markets that even then were fragmented and offered poor economies of scale. That pattern has shifted gradually. Through acquisitions, mergers, and restructuring in the industry - involving companies such as Siemens, Nixdorf, Philips, and ICL - the landscape changed to one dubbed "variable geometry." Essentially, the IT industry has evolved into a genuinely global business, one in which national and regional boundaries are dissolving. Various factors account for the change.

* American success: Large American IT companies continue to heavily influence all the European markets, despite the success of European companies in increasing their share of these markets.

* Open architecture: The move toward "open systems" in computing, which started during the 1980s because of customer demand, has hastened globalization. Open systems enable hardware and software from different suppliers to be inter-connected. Customers everywhere do not want to depend on one supplier for all their IT needs. Some indigenous European suppliers were slow to respond to this demand.

* Speed of change: Ever-more-rapid technological development is a fixture of the IT industry. New multimedia technologies already are blurring the distinctions among telecommunications, cable, home entertainment, business processes, and computing.

* Power of choice: To remain competitive in a global industry, companies seek their technology from the most advanced and efficient supplier. In Europe, when adequate technology was not available locally, companies sought it elsewhere. Before Fujitsu's 1990 investment in 80 percent of ICL, the two companies had a long-standing technological collaboration. It began in 1981 and continues today: Fujitsu manufactures complex semiconductors for ICL's mainframe computers to its design specifications. As the relationship has strengthened, the collaboration has extended into other areas.

On closer inspection, all major European-based companies have links with Japan - further evidence of the industry's global nature. Groupe Bull of France, for example, has two overseas shareholders - Japan's NEC and IBM of the U.S. Siemens' relations with Fujitsu predate ICL's and contribute to Siemens' mainframe operations. Olivetti sells Hitachi mainframes and has several joint ventures with Japanese suppliers.

With international collaboration on the rise, the origin of a product has become less important. The nature of companies inevitably will change, and the composition of their shareholders will become secondary. In European markets, subsidies to state-owned IT firms continue to be a fact of life, largely because of the industry's strategic nature. But in general, sponsorship neither fosters corporate flexibility and speed nor guarantees success.

The phenomenal growth and reach of global communications means that a highly focused competitor - even one that isn't a "global" manufacturer in the traditional sense of the word - can easily afford to target markets in other countries. It does not even have to set up a base in that country. Chrysler, for example, approaches the world as a place to sell - not necessarily build - cars. With North America as a development and manufacturing base, Chrysler recently announced plans to increase overseas sales by 20 percent annually to some 300,000 units by the year 2000. "We think of ourselves as a regional company with an international viewpoint," the company's chairman and CEO, Robert J. Eaton, recently told The New York Times.

In the IT industry, as the cost of developing technology increases, companies are forced to develop applications and services for global markets that can be easily and readily customized to meet local requirements. These offerings must have global characteristics - international standards are particularly important - built in from the start. It is no good trying to force one's national or proprietary standards onto overseas customers who can choose from plenty of other potential suppliers.

ICL ON THE MOVE

It is apparent that no one company can supply all the technology or products the modern customer needs. It is essential to invest heavily in research and development to stay current with the technology. At ICL we have spent more than $1.5 billion on R&D over the last five years. Despite this, it is never enough and, like others, we have long acknowledged the need to collaborate.

Currently, ICL has about 40 major collaborations underway - including some with competitors - and we have introduced into the commercial arena several software and hardware products that originated from collaborative research. Some of this research is funded by the European Union.

We have worked closely with universities and research institutes for many years, particularly in the U.K., where we have developed a university partnership scheme. But our links with universities stretch from Europe to Southeast Asia, where we are now drawing upon the talent in Malaysia, Singapore, and India.

This agility and willingness to collaborate is an attitude of the mind. It requires a particular flexibility on the part of the people in any organization. It is a widely used cliche to describe human resources as the most valuable of all assets - what Tom Peters has described as "brainware" - but quite another thing to grow those assets and mobilize their capabilities.

At ICL, we encourage and support a learning organization marked by open minds, open markets, and open systems. Moreover, we recognize that learning is something much broader and deeper than "training." It wasn't easy to instill this open attitude. Until recently, ICL was seen as arrogant and insular: Despite its name, International Computers Limited, it was mainly the U.K.'s national computer champion with relatively little external business. In the early 1980s, however, we embarked on a cultural transformation that accelerated in the early 1990s.

This transformation resulted in part from mergers and acquisitions, such as ICL's 1989 takeover of Datachecker in the U.S. - a move that has made ICL the third largest supplier of in-store retail systems worldwide. Fujitsu's 80 percent investment in ICL in 1990 exposed us to Fujitsu's own global approach. This approach is essentially one of a family of strategic alliances. Fujitsu is a global company that respects local cultures and is keen to learn and pool the strengths of its family members. From the outset, the relationship has been one of arm's length: ICL's management is in the same European hands as before. Both companies now supply each other with their products, but on a pragmatic and commercial basis. As well as collaborating on products, we have been exchanging young company employees in two-year secondments since 1991.

Probably the biggest catalyst for change in ICL, however, was our 1991 controlling investment in the Finnish-based company Nokia Data. Indeed, in several ways the cultural impact of the merger was greater than the strategic reasons for which we invested in the company, namely its development and manufacturing capability of ergonomically advanced personal computers and office systems.

Nokia Data, with some 6,600 employees, was very much a Nordic company, dominated by Finns and Swedes. Compared with ICL, Nokia Data's style and culture were essentially pragmatic, more aggressive, and unbureaucratic, with little strategic or "HQ" overview.

We expended a lot of effort on "integration management"; we made key appointments based on "the best person for the job." This caused some surprise, as the acquired company expected to be subjugated, but the policy gave us a good balance. Before the merger, we completed a country-by-country analysis of the two organizations. This investment was just as important as legal and accounting due-diligence activities.

By moving the center of our personal computer business from the U.K. to Finland and Sweden, we radically shifted ICL's traditional balance. Much of our product development and manufacturing now is managed and run by Finns and Swedes. It has forced many in ICL to realize that Manchester, which certainly has claims to be the birthplace of the British computer industry, is not the center of the world. Of ICL's 24,000 employees, just under half now work outside the U.K.

We could see that in some ways Nokia Data was run more efficiently than ICL, so we adopted some of its management techniques. Culturally and organizationally, we have become much slimmer at the center following our Nordic influx.

SUPPLY-SIDE AGILITY

But agility is not confined to growth through mergers and acquisitions. Relationships with suppliers and partners are changing, too. In Europe, these were traditionally adversarial and short-term: The practice was to play one supplier off another. In Japan, however, it is a case of working with suppliers rather than treating them as enemies. This has been a vital part of Japanese companies' ability to reduce development time and eliminate quality problems early on.

Now, a growing number of companies in Europe - such as Kodak, IBM, Opel, Volkswagen, and U.K. drug manufacturer Glaxo, as well as ICL - have begun to treat their suppliers as partners. It has been termed "partnership sourcing." In ICL, this move began in the 1980s. We shifted the focus of supply negotiations away from price toward overall performance. Out of 6,500 suppliers, we identified the 200 with whom we did 70 percent of our business and, in 1992, brought in a vendor accreditation scheme to cement long-term relationships with them.

For ICL, the benefit is that accredited suppliers must conform to our quality standards. We expect them to link into our electronic trading systems to speed ordering and to deliver components directly to ICL's production lines. For their part, the suppliers can look forward to taking on a greater role in product development; they also will acquire more of ICL's business as less qualified suppliers disappear. With trust, our suppliers have begun to take responsibility for product development, and many now are working with our designers at an earlier stage.

WORKING ALLIANCES

All together, these strategic initiatives have ushered in a brave new world. IBM is working with Apple, and IBM holds a stake in Bull. In 1984, with Bull and Siemens, we established the European Computer Industry Research Centre in Munich to conduct advanced fifth-generation research; all three partners can take the results from this into the marketplace as products, and all have done so. Sun Microsystems competes with ICL, but this does not prevent us from making the printed circuit boards for some of Sun's workstations and receiving a Sun "Supplier of the Year" award.

Ultimately, we ask ourselves the question: Has this transformation come about through mere opportunism? To be sure, we've entered new markets, because it made good economic sense. But ultimately, the answer to the question is "no," because our evolution has been driven by a rigid pursuit of a consistent strategy. If you allow agility to become sheer opportunism, you risk fragmentation, loss of focus and identity, and eventual disaster. Above all, strategic agility needs to be harnessed and balanced with a clear sense of mission and core competence. You must invest and develop your core skills and competence and grow through a network of alliances around them.

Agile companies may have been reasonably good at managing change, not just reacting, but they must be geared to change constantly. They may know the direction their businesses are heading, but they also need to be increasingly swift to gain market share they can defend and grow.

Peter Bonfield is chairman and chief executive of London-based ICL PLC., a 2.6 billion pound company ($4 billion) that specializes in systems integration in selected markets.