This Is A Fascinating Look Back At An Era That Has Now Passed But Was Really Formative.

This appeared last week and bought some memories back of the time I actually  worked – briefly – for “Big Blue”!

IBM changed history, and then couldn’t keep up with it

A new book, co-authored by the grandson of IBM’s mid-century CEO, sheds light on the unusual family dynamics that shaped the iconice corporation.

Deborah Cohen

Feb 22, 2024 – 9.55amBM is one of the oldest technology companies in the world, with a raft of innovations to its credit, including mainframe computing, computer-programming languages, and AI-powered tools.

But ask an ordinary person under the age of 40 what exactly IBM does (or did), and the responses will be vague at best. “Something to do with computers, right?” was the best the Gen Zers I queried could come up with. The history of IBM offers much more than an object lesson about complacent Goliaths. Michael Nagle In the chronicles of garage entrepreneurship, IBM retains a legendary place: as a flat-footed behemoth.

In 1980, bruised by nearly 13 years of antitrust litigation, its executives made the colossal error of permitting the then 25-year-old Bill Gates, a co-founder of a company with several dozen employees, to retain the rights to the operating system that IBM had subcontracted with him to develop for its then-secret personal-computer project.

That mistake was the making of Microsoft. By January 1993, Gates’ company was valued at $US27 billion, briefly taking the lead over IBM, which that year posted some of the largest losses in American corporate history.

But The Greatest Capitalist Who Ever Lived, a briskly told biography of Thomas J. Watson jnr, IBM’s mid-20th-century CEO, makes clear that the history of the company offers much more than an object lesson about complacent Goliaths.

As the book’s co-authors – Watson’s grandson Ralph Watson McElvenny and Marc Wortman – emphasise, IBM was remarkably prescient in making the leap from mechanical to electronic technologies, helping usher in the digital age.

Among large corporations, it was unusually entrepreneurial, focused on new frontiers. Its anachronisms were striking too. Decades after most big American firms had embraced control by professional, salaried managers, IBM remained a family-run company, fuelled by loyalty as well as plenty of tension (what family isn’t?), with its bosses frequently at odds.

Meanwhile, it served its customers with fanatical attentiveness, and, starting in the Depression, promised its workers lifetime employment. “Have respect for the individual” was IBM’s creed. Today, as we hurtle toward a future in which AI threatens to obliterate the individual both as employee and creator, much of the IBM story reads like a tale from a faraway world.

The company’s technological accomplishments are still recognisable as the forerunners of the digital era, yet its culture of social responsibility – a focus on employees rather than shareholders, restraint in executive compensation, and investment in anti-poverty programs – proved a dead end.

A mashup of progressivism and paternalism, communalism and cutthroat competition, the once ballyhooed “IBM Way” was, for better and worse, inextricably intertwined with the family at the top. 

The business of efficiency

For most of its history, and especially from World War I through the 1970s, IBM’s business was making business run more efficiently. During the late 19th century, the development of railways, the telegraph, and electricity created the conditions for a significant expansion in the scale and scope of American firms.

As companies produced and distributed goods to middlemen and consumers, they had to deal with ever more complex logistics. Firms required new ways of tabulating, storing, and recalling information. Enter the typewriter (patented in 1868), the cash register (1883), and the adding machine (1888).

At the apex of this information-machine ecosystem was the firm National Cash Register, which was where Thomas J. Watson snr, born in 1874 and raised on a farm near Painted Post, New York, served a 17-year apprenticeship.

At NCR, Watson found his calling as a salesman. At the behest of NCR’s dictatorial boss, he also ran a shady scheme to undersell secondhand-cash-register vendors to drive them out of the market. He was indicted for restraint of trade and then, deepening the humiliation, forced out at NCR.

By the time Watson landed on his feet as the new general manager of the New York-based Computing-Tabulating-Recording Company in 1914, he was 40 years old and newly married with an infant son, Tom jnr.

Watson soon renamed the company International Business Machines Corporation, a much more fitting description of his global ambitions. IBM’s embrace of punch-card technology, the state-of-the-art method for aggregating information, was his doing.

So was the creation of an evangelical company culture, equal parts moral uplift, corporate paternalism, and personality cult. Inscribed on the company’s walls were Watson’s favourite slogans: “A company is known by the men it keeps.” “Spend a lot of time making customers happy.” And “Think,” a dictum that to Watson (as the business historian Richard S. Tedlow has observed) likely meant “Think like me”.

If these injunctions call to mind “Don’t be evil” (Google’s former mantra) or “Do the right thing” (the current Alphabet slogan), those are the hollow echoes of what was at IBM an all-encompassing credo, anchored by the promise of a permanent job.

Attached to IBM plants were IBM country clubs, which served dinner three nights a week. When Watson and his wife travelled to visit IBM offices in other cities, they attended meticulously planned employee “family dinners”. IBM men were clean-shaven and wore the regimental attire: dark suits, starched white shirts, and ties. Alcohol was forbidden at company events.

With the optimism of a true believer, Watson snr boldly expanded the business during the Great Depression, stockpiling tabulators, adding to the sales force, introducing the lifetime-employment guarantee.

A Democrat and (unusual for a corporate executive) a supporter of US president Franklin D. Roosevelt, he was perfectly placed to furnish the machines necessary to implement the Social Security Act when it passed in 1935.
‘A predetermined failure’

By the late 1930s, IBM was the dominant player in data processing. Young Tom had a front-row seat to both his father’s formidable ambitions and his vanities, including his 20,000-plus-square-foot mansion in Manhattan and the appreciative letters from FDR he carried in his pocket.

But even by the free-and-easy standards applied to well-heeled young men of the time, he was an underachiever. He got into mischief and flunked his classes; he spent weeks in bed suffering from bouts of depression. Despite his father’s money, Princeton refused to admit him: the director of admissions told Watson snr that his son was “a predetermined failure.”

Indeed, without World War II, what would Tom Watson jnr have been? A flying enthusiast, in May 1940 he joined the Army National Guard. Major General Follett Bradley, the commander of the First Air Force, made him his personal pilot.

During the war, Watson kept a diary for the first time, as if – at age 28 – his life was just beginning. After the war, he returned to IBM at Bradley’s suggestion.

His father was pleased. As Watson snr liked to say, nepotism was “good for business”: In a company run like a family, he encouraged the employment of fathers and sons, and expected that his own sons, Tom and his younger brother, Dick, would one day head IBM.

But Tom was stifled by his father’s rule, disgusted by the sycophants he thought his style of management encouraged. Their fights were frequent, titanic, and brazen – and often conducted in plain view of IBM employees: “God damn you, old man! Can’t you ever leave me alone?”

They agreed on IBM’s guaranteed lifetime employment, the importance of customer service, the need for a CEO to have an open-door policy, and the danger of complacency. Like his father, Tom Watson jnr was a political liberal; he refused to permit racial segregation in IBM’s southern plants and opposed Senator Joseph McCarthy’s witch hunts.

No computers

But they disagreed about nearly everything else, not least the direction of IBM’s core business. Watson snr forbade the term computer, worrying that it would antagonise people who feared that these novel machines would replace workers.

Curious as he was about the new “thinking machines,” he didn’t see the point of electronic speed, figuring that few companies would need it. They certainly weren’t business equipment.

Watson jnr, by contrast, was beginning to grasp their significance. By the early 1950s, the father, now in his 70s, started to withdraw from day-to-day management, naming his older son as president of IBM in 1952.

Watson snr had cultivated a patriarchal style, with 38 managers reporting directly to him. His son introduced an IBM organisation chart, and the company’s managers started to take down the photographs of Watson snr that had once decorated every sales branch’s showroom.

More important, he moved IBM decisively into computers; in 1952, the company opened a campus in San Jose, Silicon Valley’s first computer factory and corporate-research facility.

The company’s growth was extraordinary, and so was Watson jnr’s risk-taking. In the early 1960s, he made a bet-the-company gamble on the decision to produce a fully compatible line of computers, the System/360.

At that point, IBM was producing seven entirely separate systems with different levels of computing power. Each had a distinct internal architecture, so migrating data from one computer line to another was often impossible. Clients that wanted to upgrade their computers would effectively have to start from scratch. And IBM itself was saddled with inefficiencies in production, including 2500 distinct types of circuit boards.

The System/360 has been described as one of the greatest product innovations in 20th-century American history, next to the Ford Model T. Achieving compatibility across a wide array of processors was an engineering nightmare, requiring millions and millions of lines of code.

IBM’s investment was equivalent to $US50 billion today, more than twice the cost of the atomic bomb’s Manhattan Project. The new computer made every one of the company’s other lines obsolete, meaning that if the System/360 didn’t work as anticipated, IBM stood to lose its clientele to other firms.

When the System/360 line finally shipped after many reversals, including problems in both the engineering and manufacture, it proved an instant success. From 1964 to 1970, IBM added almost 120,000 new employees (for a total workforce of 269,000), and its revenues more than doubled, from $US3.2 billion to $US7.5 billion – unprecedented growth for a major corporation. Saying “let’s not be piggish,” Watson jnr had stopped taking his stock options, worth five times his annual salary, in 1958.

As the economist Theodore Levitt famously argued in 1960, businesses that bank on particular products, even very successful ones, are courting obsolescence. Hollywood’s moguls failed to see that their business wasn’t movies but entertainment; they let television, the greatest opportunity of the era, slip from their grasp.

Watson snr thought he was in the tabulator-and-punch-card business. Watson jnr understood that IBM’s actual business was information.

Why IBM made the shift from mechanical to electronic modes of data processing has presented something of a puzzle for scholars. The leap into the unknown, as James W. Cortada deftly explains in his recent history of the company, IBM: The Rise and Fall and Reinvention of a Global Icon, owed much to the ways in which the Cold War with the Soviet Union, and especially the Korean War, supercharged the federal funding available to private R&D efforts.

The company’s engineers, too, played a key role, initially in pressuring management to see the promise of the new technology, then in transforming complex computing systems into commercially viable products.

IBM’s customers began to demand the new machines. Still, it could easily have been otherwise. Despite a technological head start in computers, Remington Rand, IBM’s major competitor in the tabulator industry, chose to focus on electric razors, typewriters and office furniture. 

Family dynamics

The Greatest Capitalist Who Ever Lived, as is inevitably the case with biographies, puts the emphasis on individuals – Thomas Watson jnr, specifically, as well as the IBM executives who at various points served as his consiglieri, soothsayers and foes.

As Watson jnr’s grandson, McElvenny offers an insider’s assessment of familial dynamics, drawn from interviews and private papers.

Most notable, the authors go further than most scholars have in portraying the son’s embrace of computers as a repudiation of his father. The resentment, they explain, was mutual: When Watson jnr appeared on the cover of Time magazine in 1955, a marketing triumph for the company, the old man didn’t say a word.

The rivalry between them continued to spur Watson jnr on, even after his father died the next year. In a sense, Watson jnr was founding a new company when he took over IBM, and the need to prove himself meant that he ran the firm like an entrepreneur rather than an heir.

Instead of surrounding himself with yes-men, he preferred, he wrote, “sharp, scratchy, harsh, almost unpleasant guys who could see and tell me about things as they really were”.

He established a system of “contention management” that required executives and their subordinates to fight out disagreements in front of the corporate management committee. The guarantee of lifetime employment was supposed to encourage responsible risk-taking and make the inherent friction within the hierarchy productive for the company.

As Richard Tedlow has observed, Watson jnr wanted the dynamic he had with his father to “metastasise” throughout IBM. As profitable as this Oedipal conflict may have been for IBM’s bottom line, it was near disastrous for the Watsons.

In McElvenny and Wortman’s apt description, they were “the Kennedys of the corporate world,” complete with yacht racing, extramarital affairs, ski weekends with the actual Kennedys, and psychological breakdowns.

The story of the System/360 was also the undoing of Dick, Tom Watson jnr’s younger brother. Dick Watson was a much less rebellious character than Tom; he’d even permitted his father to accompany him and his bride on their honeymoon.

As young men, the brothers had been close, and Dick was able to cajole a depressed Tom out of bed when no one else could. Dick had been running IBM’s worldwide operations very successfully; Tom wanted his brother to follow him as CEO.

But Tom’s decision to put Dick in charge of the manufacturing and engineering of the System/360, and to task his rival for the CEO position, T. Vincent Learson, with selling the line, backfired badly.

As production delays mounted, Dick stopped coming to work; rumour had it that he was drinking too much. The brothers barely talked to each other, and after Tom effectively fired Dick, the estrangement was complete.

In 1970, at age 56, Tom had a major heart attack and soon resigned as CEO; he formally retired from IBM in 1974. Later that year, Dick died at 55 from a fall down the stairs at home.

Tom Watson jnr was in the Soviet Union, serving as President Jimmy Carter’s ambassador there, when IBM’s executives made the disastrous deal with Bill Gates. Watson went on to write an unusually frank memoir, Father, Son & Co., which in 1990 spent 14 weeks on the New York Times bestseller list.

By that time, “IBM – my company”, he still called it – was a wounded giant. Overinvested in the mainframe business during the 1980s, Watson’s successors failed to capitalise on the PC and its software, forfeiting a huge consumer market.

Much more here:

https://www.afr.com/work-and-careers/management/ibm-changed-history-and-then-couldn-t-keep-up-with-it-20240219-p5f5xc

Really a great article!

You would have to say letting Bill Gates wander out the door with MS-DOS was really a mistake but would have been so easy to do at the time.

Today IBM is the 72nd biggest company on the planet (Market Cap. Of $US 170 Billion) so it is hardly a tiddler!) (It is still bigger than BHP, but rather smaller than Microsoft!)

I came into computer awareness around the time of the introduction of the IBM=PC (August 12, 1981) and my first e-mail experience was with IBM PROFS! (At about the same time I was running a computer BBS which ran on IBM Clones – networked with Artisoft Lantastic – running e-mail using a client called Binkley!) Really takes you back!

When you think of where we are now with AI, Cloud Computing and so on things have sure moved on!

Do you have some ancient computer memories?

David.