2   THOMAS J. WATSON SR. AND THE CREATION OF IBM, 1914–1924

There is a future for every man in this building.

—THOMAS J. WATSON SR., 1920S

BETWEEN 1914 AND 1924, C-T-R evolved into IBM. The three little firms acquired a new culture, team of executives, and updated products that put it on its path to becoming an iconic American company. IBM’s experience demonstrates that small companies sometimes transform slowly in response to changing economic conditions because they are fraught with internal politics and buffeted by complex market circumstances. It was not clear in 1914 what IBM’s transformation should look like. George W. Fairchild and other managers across C-T-R resisted changes. Similar battles occurred throughout IBM’s history, too.

Transitions represent an important theme in IBM’s history and serve as measures of how the company was able to operate for a long time. IBM’s ability to change, while not always as effective as one might want, was sufficient to sustain the firm. Thus, we must understand the nature of its transitions, and the first one is the subject of this chapter. Each transition took at least a decade to accomplish. In the process, careers were made and broken, and new product lines were created and discarded, while customers encouraged the firm to change. As IBM became larger and its customers more dependent on its products, its transitions became public affairs, drawing the attention of government regulators and even other nations and their political leaders. Each of these transitions occurred when senior executives saw the need for change. Until that happened, it seemed that most employees and stockholders viewed these changes as potentially dangerous for themselves and left well enough alone. Each transformation also affected the next one. The evolution from C-T-R to IBM remained in the firm’s memory well into the 1950s.

As the twenty-first century approached, interest in how companies survived for over a century attracted considerable attention among business executives.1 Managers learned that changes in corporate cultures affected the survivability and success of firms. Historians like Ken Lipartito suggest that survival was often made possible by an existing group of employees who already embraced a shared set of new values and practices.2 However, that was not the case for the first transformation into IBM. In 1914, C-T-R did not have a unified culture.

The first person to see the need for change at C-T-R was Charles Flint, and the second was Thomas J. Watson Sr. Flint took a cautious view; he wanted a general manager to improve the productivity of the firm. C-T-R’s president, George Fairchild, wanted that too, but also dividends more than growth. Watson proved bolder, because he wanted to build a large business. Flint understood enough about what C-T-R needed for him to support incremental changes, while Watson presided over a far more aggressive transformation than any of the senior leaders of C-T-R had anticipated. Both Flint and Watson experienced enormous stress-filled challenges, while Herman Hollerith and Fairchild were marginalized as support for Watson grew. The emergence of IBM is the story of Watson Sr. taking control of C-T-R and infusing it with new ways.

We proceed through this unfolding story by explaining Flint’s immediate tactical problem of finding a general manager. We next meet Watson Sr. and introduce his view of managerial practices. Unlike founders of many start-up firms, he came to C-T-R with a fully developed view on how a business should operate, which was just what one would expect from an experienced executive, and he immediately put those beliefs to work. The central discussion of this chapter is a description of what he did, and it argues that he introduced new strategies, changed organizations, and hired and fired executives and managers. He implanted the sales culture that had served him well at NCR. His sales management reforms remained intact for nearly a century. In this chapter, we see the earliest foundations of what came to be known as IBM. Chapter 3 will explore how IBM took shape, explaining the implications of Watson’s accomplishments as they unfolded in the 1920s and 1930s.

BUT FIRST, FLINT SOLVES C-T-R’S PROBLEM

Flint’s problems were minor in comparison to those faced by future generations of IBM managers, but had they not been solved there would have been no IBM. Watson would have turned up at some other company.

Recall that when Flint created C-T-R with its sketchy financial underpinnings, he needed to give it a patina of credibility. One of his first steps had been to recruit George W. Fairchild (1854–1924) as C-T-R’s president, later chairman of the board. Fairchild presented a good image of C-T-R to the financial community. He was a one-time newspaper editor in his hometown of Oneonta, New York, had been a member of several corporate boards in the New York area, and had been an early and successful president of International Time. He was handsome, well connected, and “vigorous” at 57 years old.3 In 1911, he was experienced in business matters. He had served on and off for six terms as a Republican congressman from 1907 through 1918, which distracted him from the day-to-day operations of C-T-R. President William Howard Taft appointed Fairchild special minister to Mexico in 1910 for an assignment that literally kept him out of the United States.

Flint intended that Fairchild would be only a figurehead to appease bankers and stockholders. Flint still needed a hands-on manager. In 1912, he selected Frank N. Kondolf (1863–1944), who had served as the chief operating officer at ITR, and elevated Fairchild to board chair. Kondolf, although amiable, proved insufficiently forceful or clever to improve operations. Flint was not impressed with him, but Fairchild was and had recommended him for the role. Flint’s disappointment with Kondolf became an early wedge between himself and Fairchild, which expanded. Neither Fairchild nor Kondolf demonstrated leadership in developing new products, in aggressively adding customers, or in promoting sales of Hollerith’s tabulators. They did nothing to integrate the three firms, eliminate redundant operations, or improve productivity, but ITR generated sufficient profits to keep the firm above water.4 The inactions of both Fairchild and Kondolf help to explain why the board could pay out dividends in 1913 instead of investing in the future of the business. That state of affairs worried Flint enough that he sought out a new leader, and when he found Watson in 1914, he let Kondolf go. Kondolf went on to become president of the Remington Typewriter Company in 1915, serving in that capacity until 1922, when he was elected chairman of the board.

INTRODUCING THOMAS J. WATSON SR., THIRD FOUNDER OF IBM, AND HIS COMPANY CULTURE

Following Flint and Hollerith, Thomas J. Watson Sr. was the third founder of IBM. Watson did more to create IBM than any other individual did, although his son—arguably a fourth founder—ran a very close second. Born in Campbell, New York, in 1874, near the Finger Lakes region in the northern part of the state, he grew up on his parents’ farm. His father also ran a lumberyard. Watson dabbled with the two businesses and disliked both. As with so many of his generation, he was educated locally but never attended college. As a young man, he found bookkeeping uninteresting and soon after took a job as a traveling salesman, selling pianos and organs off the back of a wagon. Watson joined the National Cash Register Company (NCR) in 1895. He rapidly moved up the organization, becoming its senior sales manager before World War I. Watson was at NCR when it was developing the paradigm of professional sales operations.

Because Watson’s experience at NCR played an enormous role in shaping IBM, it is worth understanding his role at “the Cash,” as it was known. NCR had a forceful leader, John H. Patterson (1844–1922), who hired and fired at will but also commanded loyalty and generously rewarded successful employees. For example, he gave Watson a house in Dayton, Ohio. In the late nineteenth century, Patterson was considered one of the country’s most imaginative and effective executives. He trained dozens of others who went on to run companies in his mold, including Watson. He was also impatient, intolerant of poor performance, and put everyone under pressure to do well. He dressed conservatively and expected his executives to do the same, to be lean and energetic, and to live respectable personal lives. He started his business by buying the rights to a cash register and from there grew NCR into the largest manufacturer of this technology.5

Figure 2.1

John H. Patterson was the creator of NCR and had a reputation for being an innovative and successful executive. Photo courtesy of IBM Corporate Archives.

Watson joined the company in 1895 at age 21, already an experienced salesman and, like Patterson, disciplined in his work and private life. He did well in central New York, coming to Patterson’s attention. In 1899, Patterson appointed Watson manager of a branch office in Rochester, New York, a region yet to be saturated with NCR’s products. There, Watson faced competition from the Hallwood Company, but he quickly turned things to NCR’s favor through aggressive and creative selling efforts.

In 1903, Patterson had Watson set up a company to sell secondhand cash registers at low enough prices to put rivals out of business. Nobody was to know that the operation was being underwritten by NCR. Watson set up stores next to competitors, hired their salesmen, and underpriced products in places such as Philadelphia and Chicago. He successfully competed against NCR’s rivals for four years. It is not clear whether Watson knew that this kind of activity was illegal. In 1907, NCR announced that Watson was now in charge of all secondhand sales, working out of Dayton and therefore able to learn how corporate headquarters functioned and the role Patterson played. Watson was only 36 years old when in 1910 he began to run into major problems.

The American Cash Register Company, the second-largest company in the business, accused NCR of violating the Sherman Antitrust Act. Two years later, the U.S. Department of Justice joined in the legal case against NCR. Most of the company’s top executives were charged with violating the Sherman Act, were tried in federal court in Cincinnati, and were found guilty on February 13, 1913. The case turned on the testimony of Hugh Chalmers (1873–1932), the NCR executive to whom Watson reported while running his secret operation. Watson and Patterson were fined $5,000 and sentenced to one year in jail, the maximum sentence the judge could hand out. Meanwhile, Watson had become engaged to marry Jeanette M. Kittredge (1883–1966), the daughter of a prominent local businessman.

Then, Mother Nature came to the rescue. In late March, Dayton experienced a massive flood, leaving 90,000 people homeless. Patterson quickly ordered his entire local workforce to help the citizens. They built boats in the factory to rescue people, fed them, and allowed them to shelter in NCR’s buildings, located on high ground. The company helped thousands of people. The press lionized Patterson as a national hero. Pressure mounted on President Woodrow Wilson to pardon NCR’s executives because of their humanitarian work. Patterson made it clear that he wanted simply to be cleared of wrongdoing by an appeals court. In 1915, that court ruled the original case defective and ordered the U.S. Department of Justice to retry it. The government prosecutors never did. Watson denied having done anything wrong, saying, “I do not consider myself a criminal” and “my conscience is clear.”6 Was he guilty? Probably, but he spent the rest of his life avoiding even the hint of impropriety. Before the case ended, in April 1914, Patterson fired Watson over a minor disagreement about sales strategy. Watson was 40 years old. He walked out the door as much an NCR employee as any the firm had groomed. Everything Watson knew about how to run a business he had learned at NCR.

What kind of person was he? He was alert, energetic, clear thinking, enormously confident, and always decisive. Watson had a sense of humor he rarely revealed; by nature, he was serious, with business always on his mind. Unlike Flint, and more like Hollerith, he had no interest in exercise or sports. He feared airplanes and was not personally adventuresome. He insisted that his buildings be conservative, too. For decades, their interiors were painted in two tones of green, darker below chair rail height, lime green above it to the ceiling. His son found him ill-tempered and formal, even with his family. Known for decades at IBM as “the Old Man,” he insisted that everyone call each other by their last name, such as “Mr. Jones.”7 By the 1960s, it had become more customary to call one another by their first names. “Mr. Watson” wore starched collars, and his son recalled that his father came out of his bedroom every morning wearing a suit, white shirt, and tie, even for breakfast.8 The Old Man prohibited consumption of alcohol on IBM property or with customers—a rule that remained company policy until the late 1980s.

One IBMer who worked on Watson Sr.’s personal staff in the early 1950s, Bryson H. Ainsley (b.1928), observed that Watson was critical of anyone who used the word “small” when identifying a strategy or action; he wanted “big.” Ainsley recalled that Watson was a simple-talking man who never used large words; texts of his speeches confirm that observation. Watson was autocratic, confident, and sensitive. He could be harsh and demanding but was always optimistic. His picture hung on the walls of offices, conference rooms, and lobbies of IBM’s buildings around the world. If Watson heard that an employee suffered a personal tragedy, he responded immediately with assistance, a well-phrased little note, or flowers. IBM was all about outstanding people properly trained as members of the “IBM Family” and with a clear understanding that much was expected of each.

Watson learned at NCR that clarity of purpose was essential. At NCR, he observed the power of frequent communications about goals and purposes and the effectiveness of having specific numeric measures of performance, such as establishing sales quotas and measuring performance against them. He brought these practices to IBM, making them central to its culture. It seemed to employees that “everything” was measured with targets compared to results achieved in sales, expenses, and production of machines. This feature is discussed in more detail later.

Watson had some of his own ideas, too. The most important involved his attitude toward failure, which he usually tolerated if lessons could be drawn from the experience and applied in a positive way. Unlike Patterson, Watson avoided firing people who made mistakes, although it was not uncommon to put someone who had failed into the “penalty box.” That person either did not receive promotions or had them delayed. Ainsley witnessed Watson saying that IBM’s success was because of people, not some elegant business strategy. He heard Watson frequently make the points that “people make the difference” and that “people make things happen,” and Watson admonished IBMers in speeches and in meetings that “you make the difference.”9

For decades, stories circulated about Watson’s views on failure and on how he dealt with them. These included not firing someone who lost a large piece of business, because that person and IBM had just learned a lesson equal in value to the amount of revenue of the lost opportunity. So why not take advantage of that training some poor salesman just received? As in a hockey game, all employees could see the player in the penalty box. A young executive on his way up the organization might suddenly be pulled from his job and be assigned to a lateral or slightly less attractive position, have his job change posted on bulletin boards, and then six months to a year later be assigned to a more attractive role, also announced on bulletin boards, signaling that he could play again. This practice continued until the 1990s. Patterson, by contrast, was simply cruel. He was famous for cleaning out someone’s office and putting a new name on the door without informing the executive that he had been fired. One fired executive found his desk on fire on the front lawn of corporate headquarters. That was not Watson’s style.

IBM corporate mythology held that Watson established the company as the brilliant young sales executive brought over from NCR in 1914. Watson did not establish IBM; rather, he molded it out of the conglomeration of the three firms. So large was his influence inside the company that for nearly a half century tens of thousands of IBMers knew little about the origins of the company other than the story that Watson single-handedly turned the three firms of C-T-R into IBM. They heard nothing about the fact that it took him and a close coterie of long-serving handpicked executives nearly two decades to do that—or that he nearly failed.

Watson inherited a mess when he became C-T-R’s general manager. Let us recall the situation he faced. The individual parts of C, T, and R were limping and hardly collaborated. In investigating whether to join the firm, Watson would have easily uncovered these facts. He must have scratched his head about how one could expand sales of meat scales, although time recording equipment fit with the basic function of collecting data. The tabulating machine business resembled cash registers that collected information of value to large organizations. Hollerith was difficult to deal with, proved less successful in selling his services, and took suggestions poorly. Years earlier, Watson had seen Hollerith’s machines work at Eastman Kodak while visiting its headquarters in Rochester, New York. Kodak employees showed him how they used this equipment to track sales activities and explained the benefits obtained. At NCR, Watson reached out to Hollerith to do the same at his company. Watson began to track what his district managers were doing.10

Probably not anticipated by Flint was how Fairchild would work within C-T-R. He was supposed to be a figurehead to please the company’s bankers and stockholders in ITR. Fairchild expressed most interest in enhancing the stock’s value, reducing debt, and paying dividends. Watson wanted to plow profits back into expanding the business. Part of the dynamics of the relationships at the top of the business resulted from Flint’s decision to bring Watson in as a general manager rather than as president. Recall that in 1914 Watson was a convicted federal felon, his case pending appeal. Flint, the board, and Watson struck a deal that if Watson were cleared of charges he would be named president, which happened the following year, shortly after his conviction was dismissed. Watson and Flint had already negotiated salary and profit-sharing terms. Because his original contract with C-T-R included provisions for sharing profits—not just stock and salary—when IBM became a large firm, he became one of the richest men in America.

Watson’s experiences in sales and his basic optimism influenced his priorities and ways of working. The best salesmen and sales managers share a sense of optimism, the ability to envision a field of apple trees where others only see a field of grass. That was Watson’s attitude. Watson had various options available to him when looking for a job. There were many executives John Patterson had fired for becoming too influential, who then scattered across many companies. But Watson also wanted a share of the profits, and that he wrangled out of Flint.

C-T-R’s businesses held possibilities, with Hollerith’s business desperately needing a professional sales force and new machines, too. Watson tapped other engineers besides Hollerith to develop them. Watson had learned at NCR how to develop a sales force and how high-tech machines were developed. ITR seemed poorly managed, but its products were in demand, and it had facilities outside the United States. Watson concluded that the scale business should be left alone for the time being. What made C-T-R attractive to Watson was the combination of applying his sales experience to an existing market and the opportunity to create personal wealth. His decision to join C-T-R turned out to be one of the best he made in his life, for it put him on the path to developing one of the iconic firms of the twentieth century and in the process made him a wealthy and highly respected businessman. That C-T-R had serious operational problems, while not to be ignored, represented challenges to overcome. Watson’s fundamental problem was to generate sufficient sales to keep the business going, and when he realized that two parts of C-T-R, ITR and Tabulating Machines, made data processing equipment, he had to create new products attractive to the market. Hollerith was not effective in fighting competitors, most notably James Powers (1871–1927) and his company, Powers Accounting Machines. Powers never went away; his efforts became part of Remington Rand in 1927.11

When Watson decided to prioritize the tabulating equipment market, he shifted resources to Hollerith’s side of the business, brought in new people to develop tabulating equipment, created an effective professional sales force, and expanded placement of tabulating equipment worldwide. Watson began to implement the NCR culture. Already a stern, self-disciplined, sober man, he projected his personal values and behaviors on C-T-R more thoroughly than Patterson had at NCR, because he had a fully formed view of the business world. It is an important point to make, because the cultural evolution of a firm usually takes time and yet it happened so quickly at C-T-R/IBM. The speed with which this happened can be explained by a combination of Watson’s preexisting practices and beliefs and his determined will and confidence.

Later in this chapter, I describe the wholesale adoption of NCR’s approach to sales operations. Watson injected NCR’s approach to sales by bringing in new salesmen and teaching them NCR’s way of doing business. Watson often quipped that he enjoyed “collecting salesmen,” and he continued to do so at C-T-R. For decades, it was common for an unsuspecting IBM branch manager to get a phone call from New York headquarters telling him that Watson had hired a salesman in that manager’s city who would soon be showing up to work. That manager quickly had to figure how to fund his salary, get him trained, and carve out a territory for him, all unplanned, of course.

Watson reshaped budgets and personnel practices into NCR’s model. To create synergies across the three divisions, he implemented a Quarter Century Club to celebrate the twenty-fifth anniversary of an employee’s tenure at C-T-R, posting pictures of these people together, regardless of which part of the business they came from. Salesmen from each division underwent common training. Watson Sr. personally ran the first of what famously became known as “Sales School,” a training program that continues to the present, where one learned about IBM’s values, selling techniques, internal operational procedures, and products.12 A salesman was not allowed to “manage” a sales territory without having “graduated” from Sales School. It took several years to implement these selling and sales management techniques. There seemed to be no significant exceptions to Watson’s wholesale borrowing. NCR’s sales culture became IBM’s, tailored to sell the more complicated tabulating products. In the process, IBM’s corporate culture also became a sales culture.

Watson made other appropriations from NCR’s engineering and product development, hiring engineers from his old employer, notably for punch card tabulating. To improve efficiencies, he situated product developers and manufacturing staff in the same buildings. They could borrow talent from one part of a plant site to help out on problems and designs. IBM honed collaboration among designers and manufacturing staff, such that it was able to nearly mass-produce tabulating and, later, computer products.13 IBM’s production methods brought yet another form of NCR’s discipline to the company. Extensive training of customers in how to use IBM’s products took place at factory sites, giving engineers opportunities to receive feedback and ideas from users of their creations.14

Just as important as operational improvements were the values Watson implemented, again over many years but so thoughtfully that for many decades they remained core to any understanding of how IBM functioned. A new CEO, Louis V. Gerstner Jr., when faced with a “mess” of his own in the early 1990s, found that he could not change the firm’s values and culture as much as he wanted. Watson had brought to the company a philosophy, an ethos almost spiritual in form, which had helped to guide decisions and ethical practices of IBM’s employees for generations. By the 1930s, employees had embraced the opinion that if everyone shared common beliefs and practices, individuals could make decisions and take actions confident they were doing the right thing. When IBM became large, this feature of its culture increased in importance. IBM had over 400,000 employees by the 1980s; over 1 million people had worked for IBM during its century of existence, in some 170 countries, so they could not run to management every time they faced a conundrum. Too often, they had to make their own decisions. That is where a shared system of values and practices proved its worth.15 It would be difficult to exaggerate the importance of the worldview Watson implanted in IBM.16

Of course, there were countercurrents. Managers wanted to control activities. That impetus for control and management of potential risks led to the rise of bureaucracy, characterized by highly defined processes. Generations of executives micromanaged people all the way down the organization while fighting the growth of paperwork and “signoffs.” Such behavior also originated with Watson Sr., who exhibited such contradictory behavior. A vast number of decisions came to him, so many that when his son Tom took over the business in the mid-1950s, one of the first things he did was reorganize IBM to move decision making out of headquarters and into the broader organization.

Yet, simultaneously, the Old Man admonished employees to take individual responsibility for running their “piece of the business,” a phrase used frequently by executives with their staffs. Reflecting back on his first ten years at IBM in 1924, Watson Sr. told a class of the company’s executives that, “It is our policy not to burden any one man, or any group of men, with the responsibility of running this business.”17 He gave thousands of talks to employees extolling these themes and a positive philosophy about IBM sales. By the early 1920s, this eternal optimist had begun telling salesmen that only 5 percent of all business information was handled by data processing, leaving 95 percent yet to be seized, a magnificent sales opportunity. He spent more time talking to his employees around the world than most future CEOs at IBM would. He met continuously with customers and public officials, far less so with the media.

FROM C-T-R TO IBM: WATSON’S EARLY ACTIONS

With the federal charges behind him and the board having named him president, Watson moved forward with authority. His biographer Kevin Maney argued that Watson “had to prove to the world that he was a moral and straight-shooting businessman. To do that, Watson needed to build C-T-R into a great and admired company, instilled with the high moral values of an orthodox religion.”18 In other words, he wanted to do better than Patterson. He dove into C-T-R’s operations with energy, leaning on his executives for improved performance and information about their business. Soon after his arrival, World War I sharply reduced U.S. exports and demand for his equipment in Europe. Not until the United States entered the war in April 1917 would that situation turn around.

One of Watson’s first priorities was to scour C-T-R to see where in-house talent lay. He also recruited executives from NCR. He recalled years later that C-T-R’s three lines of business “were not disorganized—they were unorganized. There were plenty of ideas lying around, but many of them seemed too big for the organization to handle.”19 He needed managers who could integrate these operations. An early recruit to his management team, Otto Braitmayer, helped him navigate through C-T-R. Described by associates as loveable, chubby, thoughtful, and smiley, he had worked for Hollerith since age 15. He emerged as one of Watson’s favorite employees, serving as his secretary. As Watson became more serious and autocratic, Braitmayer remained approachable and likeable. Watson assigned him responsibility for improving engineering operations and later for opening offices outside the United States. In the early 1930s, he joined the board of directors of IBM. From Computing Scale, Watson found a second ally, Samuel Hastings, an older, highly skilled businessman. At ITR, Watson discovered A. Ward Ford, who had helped Flint find Watson and sat on C-T-R’s board. He became a confidant and friend of Watson’s.

Watson preferred to recruit his managers from within the firm, a practice brought over from NCR, but in the beginning of his tenure in 1914–1916, he sometimes had to reach out. He brought in Fred Nichol, his assistant/secretary when he served as general sales manager at NCR, to fill the same role: secretary, adviser, and “go-to” manager for ad hoc projects and crisis management. Maney described Nichol “as indispensable to Watson as Oxygen.”20 He brought discipline and order to operations around Watson as the new president became involved in all facets of the company’s operations. Some recruits did not work out, while board members often sided with Fairchild.

Watson also had to run the business, not just recruit executives and fight his board. Ford wrested engineering away from Hollerith, despite Fairchild’s hostility to an expensive R&D operation. Almost from the beginning, and increasingly as the years passed, Watson made it clear to anyone who would listen, or had to, that Hollerith’s side of the business represented the growth opportunity, to the consternation of management in the two other divisions.

ITR’s management never felt that Watson took them seriously enough, although they were profitable, and so sometimes they worked behind his back. Until Watson arrived at C-T-R, ITR was the flagship of the company. While Watson devoted less attention to ITR, its management dominated the board of directors, so they could challenge his requests to invest more in tabulating sales and manufacturing. Watson successfully cultivated Flint as an ally, especially after two bad years for C-T-R at the start of the 1920s. Remember, Watson had yet to become the absolute ruler at C-T-R. Flint backed Watson, having concluded that Watson’s energy and attitudes could improve business and that Watson would run a “clean operation.” Flint sided with him on funding for an R&D laboratory in 1916, an extra budget to train salesmen, sharing part of ITR’s factory space in Endicott to make tabulating equipment, and blocking payment of dividends so that Watson could invest in the firm. No dividends were paid in 1914 and 1915.

After Watson became president in 1915, he instructed engineering to develop new tabulators, time recording devices, and printers, pushing them harder at the end of World War I, when he anticipated expanding demand to continue. He wanted Computing Scale to generate profits to feed the rest of the business, wanted ITR to improve its performance, and began shifting resources to Tabulating Machine.

In the late 1910s, Watson increased the number of managers and replaced others to strengthen C-T-R’s capabilities. For example, Watson hired Joseph Rogers as the general manager of ITR, since Fairchild—its head—was spending much of his time in Washington, D.C. Watson and Rogers were the same age, had experienced the NCR lawsuit together, left NCR at about the same time, and shared a vision of how businesses should be run. Rogers played a crucial role in implementing Watson’s worldview, style of management, and corporate culture. Over in R&D, Ford brought in Clair Lake and Fred Carroll, two young draftsmen who went on to develop many tabulating products in Endicott. In the beginning, they acquired Powers equipment, taking them apart and coming up with their own versions with slight modifications or improvements. It was a quick way to develop competitive products. Once Watson was able to wrest funds from his board, his engineers began designing new products from scratch to gain technological leadership. Watson kept building up his capability to sell these new products. With new offerings, C-T-R could lease machines that were technologically competitive, priced lower than Powers’s, and could be offered on more attractive terms. The strategy worked.

Watson’s first national sales campaign came in the summer of 1915. Already he had imposed enough of the NCR way to push for increased sales, especially for tabulators. World War I created demand for C-T-R’s products, so his timing was good for improved sales operations and new products. It is difficult to tell if he knew how bad things had been at tabulating sales, as he received much of his information from Hollerith, but we have the memoirs of a tabulating salesman of the period, Walter D. Jones. He had joined Hollerith’s operations in 1912 as a salesman in Cincinnati, and other than for a short stint outside the firm between 1918 and 1922, he worked at IBM until he retired.21 He spent the bulk of his successful career in sales and exhibited good powers of observation. In Hollerith’s organization, he had already spent two years selling before Watson showed up. His perspective reflected Watson’s: “At the time when Mr. Watson took over the management of CTR in 1914, it is safe to say that every member of the sales force of the CTR thought that The Company was on the upswing of an unending period of growth,” Jones reflected. But Jones also recalled an ugly story that confirmed Watson’s negative suspicions about Hollerith’s inability to sell. Jones told the story of a potential customer he was calling on around 1912 who pulled “out of his desk a four- or five-line letter from Dr. Hollerith” that no salesman would ever want to see go out to a prospect:

To answer your letter of today relative to the use of our tabulating machines for our business: I can say only that your company’s scope and activity is not sufficiently large enough to warrant an installation of our machines.

Yet Jones reported in his memoirs that at the time he and all his colleagues thought the current pre-Watson product line could be sold to such customers, that they “would do the trick.”22

Sales in 1914 reached $4.1 million, but by the end of 1917, Watson had pushed them to $8.3 million. Earnings (profits) quadrupled, from $400,000 to $1.6 million, with all three divisions prospering. Even Computing Scale did well, because its products were adapted to new purposes, such as weighing nuts and bolts in shipyards and factories. ITR’s products were in greater demand because of increased wartime manufacturing. In 1917, ITR opened a factory and a sales office in Toronto, Canada.

But the big news came out of Tabulating Machines. By the end of 1917, it had 1,400 tabulators and 1,100 card sorters on lease with some 650 customers. Almost every large U.S. insurance company, many federal and state agencies, and numerous railroads used Hollerith’s machines. Tabulating Machines moved into ITR’s facility in Toronto to extend its reach into Canada. The card business was booming, too, with the Washington, D.C., plant producing 80 million per month, with even more from Computing Scale’s factory in Dayton, Ohio. The following year, production grew to 110 million cards per month. Historian Robert Sobel pointed out, however, that success was less the result of great salesmanship and more a result of Powers’s crippling inability to produce enough of its machines during the war. C-T-R simply seized the day.23 Part of C-T-R’s success was made possible by the war’s high equipment demand, which Watson and his senior managers expected would shrink with peacetime unless additional customers could be found, especially for tabulating products.

In 1918, Watson brought together under single management all three sales forces reporting directly to him in order to increase his ability to quickly shift salesmen to specific opportunities. Inventory would be coming back from expired leases. To lease this equipment again, he needed continued economic prosperity in North America and elsewhere. In 1919, C-T-R introduced a new printer-lister that printed data from tabulators and sorters. It was an important product because until then one could not see totals and printed reports. For years, auditors and accountants had requested C-T-R build such a machine. Watson priced it below Powers’s equivalent product. This machine signaled that Watson’s engineers, largely Ford, Lake, and Carroll, were on their way to building a new post-Hollerith generation of equipment. By 1923, C-T-R’s products dominated the market for punch card equipment with competitively priced offerings. Demand for the printer-lister exceeded forecasts, and both North American and European markets were expanding. Watson increased production and research at Endicott. To give a sense of the firm’s prosperity, in 1919 net sales and lease revenues had reached $13 million and profits (earnings) exceeded $2.1 million.

But all was not perfect. Available cash for expansion became a serious problem in 1920 as the nation entered a recession. That year, the business spun off barely enough earnings to finance Watson’s investment in manufacturing, product development, and staffing, but the Tabulating and ITR divisions were sustaining demand. European sales rose. Watson and most others in the company were optimistic as they worked their way through 1921, but they were wrong.

The following year, revenue fell by nearly a third and profits by 40 percent. Computing Scale became a colossal mess with shrinking revenue, which forced it to shutter a subsidiary at a cost of $216,000. Meanwhile Fairchild and other board members wanted dividends, while Watson still advocated investing in the business. He lost that argument. Dividends cost a half million dollars, which plunged C-T-R into an operating budget deficit of $100,000 that year. Watson had no choice but to start trimming costs. For the first time in the company’s history, he laid off workers and “furloughed” some salesmen. His R&D operations shrank to almost nothing; wages were slashed by 10 percent for everyone, including himself. He even had to stop manufacturing printer-listers, despite demand, to keep C-T-R solvent. So the early 1920s were hardly a period of healthy recovery. Watson’s quick retrenchment of costs and operations saved the firm, as did his ability to persuade creditors to delay debt payments. Flint’s old bank, Guaranty Trust, which had bankrolled C-T-R in 1911, allowed Watson to refinance the company’s debt, while Tabulating Machines kept coming through with sales and hence cash. Senior management in 1921 and 1922 had thought customers would pull back purchases during the U.S. recession, the main cause for retrenchment at C-T-R, but for the second time they were wrong, because this time customers were coming out of the recession.

Customers wanted equipment to control their own expenses as they, too, struggled through the recession. In hindsight, reducing production of the printer-lister had been a mistake. Even during 1922, when Watson restarted production of this and other equipment, ITR’s performance remained flat because of layoffs. Watson decided not to supply it or Computing Scale with an investment budget. Available funds had to be plowed into the successful tabulating business, regardless of what the two other divisions or the board wanted. Fortunately for Watson, his position within the firm was sufficiently strong to ward off critics, buttressed by his positive performance prior to 1922.

But Watson learned some lessons that stayed with him for the rest of his life. Never again would he allow the company’s supply of cash to drop below what the firm needed. He paid low dividends but always paid them. By the standards of his day, he maintained relatively high cash reserves, and always closely monitored all expenses, both capital and operating, even in boom periods. Future generations of IBM executives did the same.24

BIRTH OF A SALES CULTURE

The purpose of a sales force is to bring a company’s value proposition—its “deal”—to customers. That value proposition results in the development of a company’s “go-to-market” strategy, how it will implement that plan. Central to that activity can be a direct sales force, people who meet face-to-face with customers, a typical approach with complex and expensive equipment. For simple products, a catalog or store can suffice, and today even a simple website will do. In 1914, ITR’s and Hollerith’s products were complicated, and so one had to make a clear case about why customers should buy them.

There was considerable consistency across the decades about IBM’s value proposition.25 Watson explained to a new batch of executives that, “We are furnishing merchants, manufacturers and other businessmen with highly efficient machines which save them money.” For the larger IBM community, he followed with, “That is why we are going to make more money for this business.”26 He spoke about how IBM created value. By 1920, Watson was preaching that the way to accomplish C-T-R’s goals was “to serve better industry’s vital requirements—the need to conserve time, motions and money.”27 He introduced a signature for IBM sales literature, too, that delivered a sound-bite value proposition used for decades:

“Speed,

Accuracy, and

Flexibility.”

Watson established the first company-wide view at C-T-R, which continued to solidify after it became IBM. At its heart was what employees should believe, and what motivated them was their sales culture, even in such seemingly faraway places as the factory floor, development lab, or some administrative office. Watson implemented measures of performance, along with financial and career incentives aligned with objectives of the firm and its beliefs, a collection that remained remarkably intact for decades.28 Although difficult to explain to someone who has not worked at IBM, its culture could nevertheless be seen by looking at its values, already briefly introduced. They are worth expanding on, specifically the incentives and expectations placed on sales and, effectively, on the entire company. They shaped IBM’s information ecosystem, reinforced through its symbols and rituals. Between 1914 and 1924, many of the elements of IBM’s culture were solidly in place. In the first decade of Watson’s rule, it was unclear to customers and to other observers what C-T-R’s business was all about. Undoubtedly, its employees wondered, too, particularly as Watson went about the task of remaking the firm. But not Watson; he had a clear and confident view of what he was attempting to do. By the 1930s, executives in other companies were marveling at how quickly this strategy had occurred at IBM and how effective it seemed to be. Watson’s creation of C-T-R’s sales culture represented a giant step forward in making IBM an iconic company.

After barely six months at C-T-R, Watson was telling employees that the “factory force backs salesmen in spirit and in fact.” He encouraged cross-divisional collaboration to “be familiar with your own and similar lines” of products and procedures. “Cooperation” was key to success.29 Watson was already touting the importance of individual motivation, preaching that “every man works for the same thing—success.” He delivered these homilies thousands of times over the next 40 years.

The firm had the makings of a working viewpoint to underpin collaboration among product developers, manufacturing, and sales, discussed earlier in this chapter. The numerous company-wide slogans, beginning in the 1910s, captured the essence of much of the sales thinking of both NCR and IBM: “Time lost is time gone forever,” “We must never feel satisfied,” and the most pervasive, “THINK.” Watson had used the last one with his sales force at NCR and transferred it to C-T-R nearly the day he arrived at his office at 50 Broad Street in Lower Manhattan, but he also said “Act.” He valued the good citizen salesman who was sincere, always exhibited absolute integrity, was loyal to the firm, and looked out for the best interests of the company’s customers. Watson spoke in slogans, a way of talking that pervaded many of his speeches: “We sell and deliver services,” and the often used, “A company is known by the men it keeps.” He paid particular attention to instilling his worldview among salesmen: “When practicing the art of selling use all your talents,” and “Put everything you have into your efforts; above all, put your personality into them.”30

To today’s readers and historians, these missives seem so obvious and simplistic, and THINK is seen as innovative. However, in Watson’s day, with a less educated workforce and with a limited body of codified best practices such as managers have today, his sound bites set expectations for performance that he considered essential for the success of the firm. These reflected his thinking, his “philosophy,” and he was not shy about spreading these messages.31

A closely related idea was his urging people to collaborate—today we call it teamwork. If a salesman ran into a problem with one of his customers, he was expected to go to his management or colleagues to collectively figure out how to resolve the issue. Failure to bring forward a problem that the salesman could not solve himself was a mortal sin to Watson and to generations of sales managers and executives; not being able to solve it individually was seen as less of a problem. Many of the issues a sales “rep” faced were complicated, such as how to use a tabulator in a specific accounting operation that perhaps someone else had already resolved in another account, or how to persuade a customer to pay a long overdue bill. Collaboration made sense. To collect information from salesmen and their customers, management brought them to Endicott to sit down with design engineers and manufacturing employees, a practice still occurring today. The need to work long hours in an increasingly cerebral business as products became more complex required commitment and loyalty to the firm on the part of large swaths of the company, from factory floor to corporate headquarters.

So, how was all this done? Following the practice of the day, Watson opened small sales offices around the United States, increasing their number to dozens over his first decade at C-T-R/IBM. He did the same in Europe, Latin America, Asia, and finally in Africa. These were called “branch offices” (figure 2.2), a term still used. They were small, often with less than a half dozen salesmen and a “branch manager.” Those in large cities like New York and Chicago grew to dozens of employees. Branches reported to district managers, who had geographic territories, and those also increased in number over the decades. In the period from 1914 to the late 1930s, all sales functions reported directly to Watson Sr., who managed them much as he had done at NCR. Every regional manager, then every branch manager, and then every salesman was assigned a “quota,” which when all rolled up equaled or slightly exceeded targets set by Watson for the company’s performance as a whole.

Figure 2.2

An early branch office (1927), this one located in Washington, D.C., with its staff. These offices were a combination retail outlet and training center. Photo courtesy of IBM Corporate Archives.

It is important to understand Watson’s quota system because it remained in use at IBM for over half a century. Unlike at most firms, quotas were not expressed in dollars (revenue). Watson’s measure of revenue was one point for every dollar of rent that came in each month. For example, if a machine rented for $200 per month, it was worth 200 points to a salesman. He was expected to keep that 200 points installed, and if it was replaced, it would ideally be with a machine that rented for more than $200 per month, or more than 200 points, because his quota was set in points that he was to add to the “install base” of points. If the salesman was assigned a quota of 200 points, and what was already installed was 1,000 points, he would be expected in the course of the year to “grow the account” by 200 points so that at the end of the year his customer was spending $1,200 per month, and he now had an “installed base” of 1,200 points. If some installed equipment went away because of a competitor’s good work, or was swapped out for newer IBM equipment, the salesman had to make up the loss, in our example ending the year with 1,200 points installed. He was paid a salary, commissions per point installed, plus bonuses if he sold specific items the company was promoting or exceeded his targets. IBM was emphasizing bonuses at any particular moment or for exceeding the salesman’s objectives. Watson’s point system kept a salesman focused on simple numbers and on building up his installed base. It worked.

It also worked at another level. Watson knew that to sell tabulating equipment, his sales staff needed to invest time in an account to deeply understand a business function. That meant maintaining relations with customers based on collaboration focused on improving a customer’s operations. As long as equipment was leased, the salesman’s success was tied to that of his customer and the point system, which debited equipment that left a client’s data center. The point system also focused the salesman’s attention on the specific increase in revenue at the exact spot of its creation (a specific machine, for example).

When a salesman, sales manager, branch manager, or district manager “made their numbers,” meaning “made quota,” achieved their targets, in our example the 200 points or more, he (decades later, she, too) joined the “100 Percent Club.” At NCR, it had been the “100 Point Club.” Over the decades, it became a crucial measure of how successful sales personnel were: the more clubs one had earned, the more prestige they experienced, and as the company grew in size, an essential set of targets was required for promotion. In Watson’s day, he would bring all the 100 Percent Club members together for a spring or early summer celebratory meeting. That gathering consisted of about 80 percent of the sales force, a percentage that remained fairly constant for decades. In the United States, in the C-T-R days, they came to a hotel, as they numbered around 20, which increased to a couple of hundred in the 1920s and to over 800 by the end of the 1930s.

Later, American salesmen came to “Tent City” at Endicott, New York, lived in military-styled white tents, ate in a larger one, and endured motivational speeches by Watson and other executives in humid June, all wearing suits. Plant personnel made presentations about new products and ideas, and Watson brought in famous speakers, too. Ainsley recalled that Watson liked his rustic tents; life was easier in the earlier 100 Percent Clubs. Watson and his wife stayed in a house on the IBM site, called the Homestead. When Ainsley attended Sales School in Endicott, he lived in a tent for eight weeks and later came back to the same tents for his 100 Percent Club meetings.32 The walkways between rows of tents were given names such as “Customer Circle,” “Prospect Road,” and “Demonstration Thoroughfare.” A bugle woke up the camp, and everyone was then given a glass of warm water.

But points, quotas, and 100 Percent Clubs were not enough to ensure success. Watson had learned at NCR that careful training of salesmen was crucial to their success. Because the company’s products were so essential to the operations of large enterprises, at C-T-R/IBM it likewise was necessary that his sales force know what they were doing. Failure to recommend and then implement equipment properly could put a customer at risk of severely damaging their own operations and shutting off future sales.33

Watson published a sales manual that used NCR’s as a model, which grew in size as the product line evolved. NCR’s manual had almost 200 pages by the time Watson joined C-T-R.34 These were loose-leaf binders that contained descriptions of every product, their technical specifications (such as how fast they processed cards and the amount of floor space they required), cost in points, and leasing terms and conditions. Updated pages were constantly mailed to salesmen, which they placed in their binders, throwing away earlier pages. A parallel group of workers, field engineers, had a similar set of materials, which included instructions on how to install and repair equipment. They worked closely with salesmen. Field engineers from around the world learned to set up and repair equipment in Endicott. Their binders, embossed with their names, served as their bibles.

Watson required salesmen to meet every Friday to review that week’s results, to discuss issues they faced, to learn about changes in company policy, to work out what they planned to do the following week, and to forecast how much additional business they were going to bring in; that is to say, what they were going “to close.” By the 1930s, they sang songs about IBM and how wonderful Watson and other executives were to the firm. Branch managers reported sales results, their information moving up the chain of command until landing on Watson’s desk in the form of consolidated reports by region and product, sometimes presented as low in the organization as at the branch level. By the early 1920s, salesmen were required to report in writing how many sales calls they made and the results, which Watson’s staff combined with forecasts and revenue gained, using punched cards to collate the data to inform senior management about sales activity. Watson read these reports with enormous interest, demonstrating to his district managers that he often knew as much about their business as they did. That information was shared with product development and marketing as well, adding another link to tightly connect field operations (sales and services) to other parts of the firm. Today this is a routine operation in any corporation, but in the 1910s or 1920s, only the most operationally advanced firms had begun to build this kind of information ecosystem.

Watson introduced a third practice that he had used both as a new salesman and later in his various sales management positions at NCR: the salesman’s “territory.” A salesman would be assigned a “patch,” consisting of one or more “accounts,” which constituted his territory. He was the lord and master over that “patch,” the “gatekeeper.” No other IBM salesman could “sell into” or “poach” in another’s territory. Many IBM people might come in and out of an account (defined as a company or entire agency, not an individual) to help a salesman, but only the assigned “rep” was paid commission on what was sold in that territory. The same applied to branch offices, which had territories comprised of the sum of those assigned to their salesmen.35

Watson added various measures, creating a culture of measuring everything. Some of his favorite measures included size of accounts, quotas and whether they were being attained, budgets, expenditures, number of employees, trends in sales, losses to competitors, and “wins,” the latter either the acquisition of a new customer or new large orders within an existing account. In the 1920s, branch office reviews began, a practice that quickly became routine. These reviews conformed to Watson’s style of management and how sales reviews were handled at NCR. Middle managers and executives listened to formal presentations made by branch management and salesmen about their account plans, activities, results, forecasts, and needs. We come back to these in later chapters because such reviews became major events in “the field.”36

Central to “growing” sales was expanding the reach of branch offices, because salesmen had to live in the same communities as their customers, belong to the same country clubs, civic organizations, and churches, and be members of the local social and political elite. That is largely why Watson insisted on conservative dress and behavior. To draw in entire families of IBM employees from across the company, not just the sales force, to be loyal to the firm, he instituted the practice of hosting Family Dinners all over the world. A branch manager would arrange, at the largest, fanciest hotel in his city, the dinner for wives and husbands, at which Watson and his wife, Jeanette, or a senior executive and his spouse, would attend as hosts, give a pep talk about the company, and thank the wives for being supportive of their husbands. These were elegant, dressy events with formal written invitations and elegant meals. In cities like New York and Paris, it was not uncommon for live music to be played and for many hundreds of IBM employees and their wives to attend. Local newspapers covered these dinners in their society pages.

At plant sites such as Endicott, there soon developed the additional practice of IBM hosting family picnics with children, held at Easter time, in the summer, and even as Christmas parties with presents for the little ones. Beginning in the 1920s, plant sites ran IBM country clubs where local employees could join for $1.37 Many practices came from NCR, where an extensive paternalistic approach toward employees and their families had gained the company much national acclaim. NCR and IBM fit squarely into the model of welfare capitalism described by Andrea Tone, for example.38 Watson understood very well what was required to offer such amenities and the benefits that accrued to the company by doing so.39

In trying to link together the three legs of C-T-R, recall that Watson devised the Quarter Century Club to recognize employees who had worked for the various divisions for a quarter century. He would send an employee a congratulatory letter, thanking him or her for their service, and welcome them to membership in the Quarter Century Club. In time, that milestone would be accompanied by a certificate and lapel pin, and after World War II by a Quarter Century Club logo on their calling cards. Later, an employee would also receive a gift. As early as the 1910s, when an employee reached this milestone, local management hosted a luncheon for the employee, spouse, a few old C-T-R friends, and relatives. Small speeches honored the individual’s contributions to the firm.

These various activities reinforced a common view of the firm’s objectives and culture around the world, with hundreds of small groups of IBMers. To foster a view of the business that was shared worldwide, from the earliest days, Watson and his senior executives spent the majority of their time speaking to groups of IBMers and meeting with customers and local public officials around the world. That helped to project a consistent image of IBM while ensuring that Watson’s messages reached the IBM community. Sales School classes, Family Dinners, and 100 Percent Club events were some of the most widely used occasions for Watson to spout his philosophy, including the quotations cited earlier. Sometimes his speeches were long and boring, but his wife would slip him a note to “sit down.” Nobody in IBM could ever say that to the Old Man, but Jeanette could do so. In his early years, Watson communicated frequently to individual IBMers and through mass mailing of messages. Newsletters came and went, but by the 1930s, plant general managers began publishing division or “site” newsletters, too.

IBM added layers of additional features and events onto Watson’s original system of incentives and rituals. By the start of 1924, Watson had laid down much of the groundwork for the sales and corporate culture that would endure for most of the twentieth century. By that time, manufacturing, development, and sales talked to each other, while employees understood much of the mission and goals of the company. The rudiments of the Basic Beliefs were emerging, along with how to implement them through the hiring of quality people, good and timely training, and a focus on customers and selling solutions rather than machines, which required a solution-minded selling process. Aligning organizational structures, incentives, and marketing in support of this strategy had been pretty much set on its trajectory by 1924. Much had been accomplished. Just a few months earlier, Watson had spouted that “everybody was a salesman.” Much remained to be done, of course, but future CEOs ignored these perspectives at their peril.

Did Watson’s innovations at C-T-R work? To what extent had he transformed the business to leverage synergies across the enterprise and improve productivity, two concerns Flint had when searching for a general manager in 1914? Besides measuring revenues and profits for results, another concern was situating branch offices. They needed to be near potential customers in fashionable business centers. IBM had to rent office space, fill it with equipment, have desk space for salesmen and storage space for parts, and everything had to look attractive. IBM had to build a staff and pay them, so their cost had to be offset by the prospect of gaining more business than if they did not have a local office. For example, in Nashville, Tennessee, IBM salesmen had been coming to the city from other locations to sell tabulating equipment to the state government and had started to do the same with local banks and insurance companies since the early 1920s. Business kept growing, creating a need for locally resident repair personnel and sales representatives, so in 1935 IBM opened a branch office in the city.40 While some branch offices later closed or were consolidated, IBM retained its presence in Nashville into the twenty-first century. A branch office therefore reflected a certain level of business already achieved before opening its doors and served as an optimistic statement of future prospects. They were expensive, because they had to look sharp and modern as part of the selling of IBM’s image, much like Apple stores today. Watson opened the first ones in large cities, such as New York, London, and Chicago, often personally selecting their sites and managers.41 By 1924, over one hundred operated worldwide, some as wholly owned subsidiaries or franchises. Almost all displayed the C-T-R or IBM logo. Figure 2.3 documents the expansion of branch offices during Watson’s first decade at IBM.

Figure 2.3

Number of C-T-R branch openings, 1914–1924.

ON THE VERGE OF A TRANSFORMED COMPANY

By the end of 1923, Watson had finally gained control over a company with a bright future. Fairchild had lost much influence by staying so focused on his congressional and diplomatic career, and he died at the end of the next year. Flint was still vigorous at 73 years of age and solidly a Watson ally, and an ailing 63-year-old Hollerith had been sidelined, no longer influencing decisions and the direction of the company. Watson had his own handpicked team running sales, R&D, and manufacturing, and he was rapidly building a sales culture. He assumed the position of chief executive officer, the position of chairman of the board having been abolished. No one told him what to do but himself and his wife. Watson was 50 years old, vigorous, in great health, and in charge of an exciting company. The company’s financial picture was improving, too. In 1922, gross income had been a flat $9 million, just as in the previous year, but in 1923, the company turned in a solid performance, with income of $11 million. More crucial for the health of the business, net earnings doubled from $1 million in 1922 to $2 million in 1923. In both years, C-T-R employed over 3,000 people, hundreds of them new to the firm. A third of the total worked outside the United States. Table 2.1 summarizes the results of Watson’s first decade at the helm of IBM.

Table 2.1

C-T-R/IBM revenue, net earnings, and number of employees, 1914–1924, select years (revenue and earnings in millions of dollars)

Year

Revenue

Net earnings

Number of employees

1914

4

1

1,346

1916

6

1

2,529

1918

8

1

3,127

1920

14

2

2,731

1922

9

1

3,043

1924

11

2

3,384

Amounts rounded.

Source: Emerson W. Pugh, Building IBM: Shaping an Industry and Its Technology (Cambridge, MA: MIT Press, 1995), 323.

The number and diversity of IBM’s customers increased throughout the decade, as did the variety of new products. The 1910s and early 1920s were all about table setting: the unglamorous work of fighting competition and board members with conflicting agendas, and shaping a culture and purpose. In 1914, C-T-R was adrift and Watson was unemployed, but the world was rapidly embracing the mantra of information as a mechanism for running big organizations. If only someone could harness that energy underlying the expansion of so many “office appliance” firms and their customers, going beyond desktop calculators, adding machines, cash registers, and the humble typewriter. America was booming; Europe hoped to be soon. Watson’s in-house inventors were busy, as we will see in chapter 3.42 Powers remained a thorn in Watson’s side—a point overlooked by many observers. Hollerith still showed up to work. Yet the future “Old Man” was clever and calculating. None of his contemporaries doubted that, and neither did his biographers.

On the matter of business strategy—always the darling of business historians and managers—one normally begins by turning to Alfred D. Chandler Jr. for insights.43 He found that successful firms invested heavily in product development, manufacturing, and distribution; that is, they scaled up to meet market demands. However, our narrative suggests that C-T-R did not have a cohesive strategy before 1914. But within a year of Watson’s appearance, he had a “game plan.” He took many of the same methodical steps commonly evident in large enterprises after management and business historians had discovered the existence of strategy.44 Watson behaved like a Chandlerian manager. His plan involved creating a professional sales force, focusing on tabulating equipment, introducing new tab products, too, and expanding the set of customers he wished to sell to by focusing on large enterprises and government agencies in a dozen countries.

Anticipating our discussion in chapter 3, the 1920s and 1930s saw a solidified IBM emerging as an up-and-coming American enterprise. Its culture jelled; Watson found his voice. In the 1920s, Watson had cast aside “the impossible and absurd project of rendering ourselves universally agreeable,” to use Adam Smith’s description of a well-formed adult.45 Corporate culture proved important in the early years and even more so in the decades that followed, reinforcing arguments made by business historians such as Scranton, Fridenson, and Zeitlin that successful corporations were social institutions as much as economic ones.46 Watson did not precisely understand the concept of “corporate culture,” but he appreciated the need for shared values and rituals as mechanisms to impose order in how his company operated and dealt with the world. His tabulating machines extended the accountant’s penchant for numeric and operational structure, predictability, and rational views of their entire enterprise.

Business historians have long debated the nexus of strategy and management. Often the debate seemed to turn on pro-Chandlerian versus anti-Chandlerian perspectives. Watson’s early efforts at C-T-R/IBM suggest that all historians have a place at the table. Watson would have agreed with Chandler that the organization should be professionally run, focused on specific strategies, and operate with sufficient investments in product development, marketing and sales (what Chandler called distribution), and post-sale services and support of customers, but Watson also knew, as did Chandler’s critics, that a company was a social ecosystem.47 We follow both perspectives throughout this book.

Other historians argue that large enterprises were subject to “path dependencies,” meaning they followed preexisting technological, social, economic, and cultural paths.48 In Watson’s early years at C-T-R, such path dependency was less secure, as he was shaping a new way in emerging markets, but to secure our chronology, this alternative collection of interpretations, often contrary to Chandler’s, increasingly applied to Watson’s organization. Shaping IBM was a continual process of solidifying Watson’s view of how a great company should function. In subsequent chapters, we will see practices that lent themselves to historical interpretations of how large U.S. companies blossomed along alternative paths, such as path dependencies, or that viewed enterprises as ecosystems made up of many subcommunities but also not incompatible with Chandler’s focus on strategy, its implementation, and the role of well-informed professional managers. Indeed, a sociological view of IBM’s evolution makes perfect sense, along with doses of path dependency.49

All subsequent chapters will demonstrate that the various schools of thought regarding evolution of different-sized organizations have much to offer, and here I find value in combining them. To be clear about what I mean, first, I accept that Chandler was absolutely correct in saying that successful businesses had a strategy for implementing what they wanted to do and how and that they built organizations for the purpose of carrying out that strategy. Second, as Scranton and others have argued, both small and large enterprises were social constructs, and the behavior and evidence they offered in their own studies are reinforced and further demonstrated in this history of IBM. In other words, there is no pro or contrarian view of Chandlerian history. Both schools of thought are compatible and coexist, and this history of IBM offers evidence of how that occurred. Third, I demonstrate that IBM was an information ecosystem in which both information and a combination of employees, customers, and regulators interacted. The notion of an information ecosystem is relatively new to business historians and warrants more inclusion when studying the history of small and large enterprises, as the patterns evident in either are manifest. Thus, considering the combination of strategy, structure, social constructs and behaviors, and information flows offers a rich set of perspectives for understanding the life of a company.50

C-T-R’s early history offers an example of small firms thriving in an age when large enterprises seemingly dominated. Watson’s case reflected the successful effects of innovation and strategy combined.51 A few economic historians argue that economic performance is better understood within the context of culture, values, and innovation, behaviors evident at C-T-R as a result of Watson’s pivotal role.52

IBM thrived through the Roaring 20s and survived the Great Depression. At the height of the Depression, it seemed that many firms were shrinking or going out of business, but not IBM, despite the fact that 25 percent of the U.S. workforce was out of work. Watson saw opportunity, and enough IBMers believed him to make him right. IBM’s customers confirmed his vision by signing leases, while his board and competitors questioned his optimism, even as IBM ran on razor-thin margins. Time took its toll, as Watson read the obituaries of Patterson, Fairchild, Hollerith, Powers, and Flint. By then, he owned much IBM stock and had complete control of a prosperous business. The time seemed propitious for the change that came in February 1924—renaming the company—and we turn to that decision in chapter 3.

Notes