Nobody ever lost their job for recommending the purchase of IBM products.
—COMPUTER INDUSTRY FOLK WISDOM
MORE THAN ANY other company since World War II, IBM has shaped the way the modern world goes about its business. Large corporations and governments began to use IBM’s products before 1900. Its computers served as global computing gearboxes for decades before the public “discovered” the Internet in the 1990s. Many of IBM’s computers had been part of the Internet since the early 1970s and part of even older networks since the 1960s. The U.S. census of 1890 was the first in the world to be done using automation tools—the punch card—and that too came from what would come to be IBM. For a long time, the company has been at the center of much of what makes a modern society function.
By working in conference rooms and data centers for over a century, IBM made this achievement possible. For that reason, few people outside those two places knew what it did, or how. They just knew that it was big, important, and usually well run. What they understood was largely the product of a century-long marketing and public relations campaign by IBM to manage carefully what we imagine when thinking about the firm. Its influence proved so powerful for so long that whenever there were problems at IBM—and there always seemed to be—the information technology world was affected, including the operation of large enterprises and government agencies, stock markets, and even how national governments armed themselves for global wars.
So what? We live in an increasingly dangerous world, profoundly influenced by computing, so understanding the role of one of the world’s most important providers of such technologies is crucial and urgent. We face three problems: ongoing acts of terrorism; a cyberwar involving the United States, Russia, and China but also affecting other countries caught in the crossfire, evidenced by cyberattacks on German elections, Chinese hacking of companies, and Russian influence on the U.S. presidential election in 2016, for example; and a global political and economic environment that is becoming increasingly uncertain as nations flirt with trade restrictions and efforts to keep jobs from migrating to other countries. In the thick of all these conditions, information processing plays a profound role, and in the middle of that role stands a few technology companies, notably IBM. Which would be more important for the security of a nation under a cyberattack, IBM or Netflix, IBM or Apple? For decades, commercial enterprises and government agencies in the United States and in other nations considered IBM a national treasure.
When the West needed computing for national defense, it turned to IBM. In World War II, IBM provided the Allies with machines to organize national economies for the war effort; in the Cold War, it implemented a national air defense system, assisted in making space travel possible, and did intelligence work. IBM has nearly a century of experience dealing with Russian counterintelligence operations—today’s hacking and intelligence operations are not new to it.
We again face a time when many countries need the skills long evident at IBM. Nevertheless, it is a company that has suffered chronic problems, a malaise that while it tries to shake it off leaves open questions about its long-term viability. Understanding what this company is capable of doing begins by appreciating its history. Such insight helps employees, citizens, companies, and entire industries and nations understand what they can do to ensure that IBM is there when they need it. The company is too important to do otherwise. That is what led me to write this book.
IBM is a company that has a century-long history of not being generous in explaining how it interacts with the world. Like most large multinational corporations, it works to control what the public knows about it, including its global practices. Why, for example, several years ago, was IBM willing to share with China the guts of some of its critical software in exchange for being allowed to sell in that country? Why does it have a history of also doing confidential work for the U.S. intelligence and military communities? During World War II, when it was a tiny company, the Allies and the Axis used its products. Is IBM as American a company as it was 30 or 50 years ago? With an estimated 75 percent of its workforce now located outside the United States, some tough questions have to be asked. Such national security interests are addressed in this book and head-on in the last chapter, because this company may be one of those too critical to allow to fail.
Business historians, economists, and business management professors have their own concerns as well. Scholars and journalists have studied IBM for decades. Historians are interested in how large corporations function, why they exist for decades, their effects on national economies, and how they influence their own industries. A crucial question raised by IBM’s experience is how it became an iconic company yet also experienced periods of severe business crises that nearly killed it. Across all of IBM’s history, nearly lethal troubles accompanied its successes. How could that be? What lessons for other firms can IBM’s story teach? What can be learned that scholars and managers can apply in their explorations of how other firms flourished, failed, or are floundering? Answering such questions is central to this book.
IBM’s influence on our lives is significant, but the company remains little appreciated. Occasionally we hear about it, such as when its stock goes up or down, in the 1980s when it introduced the world to the term “personal computer” and in the process made it now “O.K.” for corporations, not just geeks and commercial artists, to use PCs. Did you know that selling computers is now the tiniest piece of IBM’s business? Did you know that it is the world’s largest software firm, or that it operates in 178 countries? Did you know that it almost went out of business several times, including as recently as 1993? Or that as this book was being written in 2017, observers thought IBM was on a slow march to extinction while still generating billions of dollars in profits each year? It is time to pull aside the veil to see how this fascinating and powerful company was able to thrive for over a century while being both respected and disliked, and to understand what essentially has been its positive impact on the world while at the same time it demonstrated toughness against its enemies and in its constant battle to survive and thrive.
Today IBM functions under ugly storm clouds, but let a blogger friendly to it describe what I mean: “International Business Machines might be the most iconic company in the entire multitrillion-dollar tech industry. For decades, its name was synonymous with technology, to the point where ‘IBM’ was all but shorthand for computing hardware. Its century-plus history might even make it the oldest tech company in a world where tech titans rise and fall every few years. It’s also one of the world’s largest tech companies, trailing only a handful of others in the global market-cap rankings.” Here is the clincher: “But it’s probably bound to be the worst-performing tech stock on the Dow Jones Industrial Average for the foreseeable future. High performance isn’t a requirement to remain in the Dow, but if IBM can’t do something about its flatlining revenue, it might eventually force the Dow’s handlers to do the unthinkable and replace it with a more appropriate company.”1 What is going on?
One of the important, little understood findings presented in this book is the profound influence of prior events on what the company does today. Some of its long-serving senior executives are aware, for example, that our grandparents received Social Security payments because of IBM, since nobody else at the time could calculate and print checks quickly enough, or in the millions needed, permanently assisting millions of older Americans out of poverty. Many are aware that IBM could radically define and then build computers that do what one expected of them, thanks to a “bet your company” life-threatening decision in the 1960s that led the majority of the world’s large organizations to finally start using computers. IBM employees wrote software and managed its implementation so that humans could go to the moon for the first time and be brought safely back to earth. They are aware that it was IBM’s introduction of the PC in 1981, not Apple’s introduction of the Macintosh, that led the world to finally embrace this technology by the hundreds of millions. It is a company taking the half-century promise of artificial intelligence and turning it into actions that smartly do things humans cannot do, such as advise a doctor based on all human knowledge of a medical condition or calculate more precise weather forecasts. This is happening now, and IBM is making millions of dollars providing such capabilities. We do not know whether IBM is going to be around in 20 or 100 years, but we do know that it is a large, technologically muscular company in the thick of what is going on with computing. Generations of managers, economists, and professionals, and tens of millions of customers, knew about the role of this company during the twentieth century. Now the rest of us should, too.
The purpose of this book is to introduce a new generation to IBM’s role by telling the story of its long history, its culture and values, and, most important, explain how it helped to shape the world in which we live, a process still unfolding. I argue that it is essential to understand its corporate culture, one that academics and reporters found difficult to describe but that they recognized was essential to describe. Published accounts of IBM offer insufficient insights. IBM is also a multinational company operating around the world, so we need to understand its role in international disputes. Is it an American corporation or is it so globalized that only its senior leaders are U.S. citizens? What are the implications for Russia, China, Germany, the United States, the Netherlands, Saudi Arabia, Taiwan, Australia, and so many other countries?
What made IBM iconic included technological prowess, enormous business success, massive visibility, and hundreds of thousands of aggressive, smart, ambitious men and women used to success and always fearful of failure. It was the “IBM Way.” For over a half century, it was said no worker ever lost their job for recommending that their firm acquire IBM’s products, because those products normally worked. IBMers would make them work, and “everyone” seemed to think IBM was one of the best-run firms in the world. They joked about IBMers as too serious, focused, polished in their presentations, and facile in dealing with all manner of technology. Competitors feared and hated them; customers accepted them as the safe bet.
IBM’s iconic role thus left IBMers, their customers, and the public in dozens of countries ill prepared for its near-death experience in the early 1990s. A fired CEO, John F. Akers, almost went into hiding; he never spoke publicly of IBM for the rest of his life. His successor, Louis V. Gerstner Jr., observed the IBM culture as a customer and now had to face a depressed yet combative workforce. He had worked at Nabisco as a turnaround leader and came into IBM as the butt of cookie jokes but with the hope that he could save the firm. He brought the company back to iconic status. Afterward he reported that the biggest problem he faced was IBM’s culture, invented by Thomas Watson Sr. and his son Thomas Watson Jr., remade partly by Charlie Chaplin’s character the “Little Tramp,” and battered by hundreds of competitors, including Steve Jobs at Apple. To any IBM employee, the company always felt small, because it was a firm filled with characters, more a collection of fantastic personalities than a faceless corporation, an ecosystem with its own culture.
IBM’s corporate culture is central in understanding much about “Big Blue.” That is also a clue for answering a central question about IBM: How is it that a company viewed as so stable and reliable for decades had so many ups and downs over the course of its 130-year history? The company’s history from its origins in the 1880s to the 1970s was essentially a story of repeated successes, despite enormous difficulties. By the end of the 1970s, however, the company had entered a new era in which it was now large, difficult to run, and slow to make decisions and to take timely actions, and so its subsequent history took on a very different tone. It continued to grow, shrink, reconfigure itself, grow again, and spin off vast sums of profitable revenue while laying off tens of thousands of employees almost without the public hearing about it. How could that be? Observers had been predicting its demise since the mid-1960s, loudly in the early 1990s, and again after 2012. Yet there it stood as this book was being published: bloodied, anemic, slow to move, and grey around the cultural temples but also vigorous, employing vast numbers of young employees around the world while having shed tens of thousands of older ones, financially sound, and still a major player in one of the world’s most important industries. Again, how could that be? Our purpose is to answer that question.
I provide a history of IBM from its origins to the present. I discuss its sales, marketing, product development, and manufacturing, and its evolution from its U.S. origins into a global enterprise. IBM’s history represents a departure from prior accounts of the firm in several ways. Although IBM thrived in most periods, the story I tell is one of intense uncertainty about its success. It always faced competitors, changing technologies, government lawsuits, national economic policies, wars, and those hostile to “big business.” This is a tale of constant stress and tension. IBM’s future was never certain, its long-term survival a surprise, never inevitable. My history places into broader context topics such as product innovation and managerial practices. It tells the story of individuals who made dramatic contributions to the successes and failures of the firm, its industry, and its customers. I demonstrate that IBM was not some anonymous monolithic entity. It was and is an ecosystem made up of communities, much like a midsize city has neighborhoods and political and social factions. IBM’s CEOs were often like mayors: they had to persuade internal factions to do their bidding. They could also be authoritarian and were always demanding. While historians have retreated from earlier notions that individuals profoundly affected affairs—the idea of the great man on horseback—this book demonstrates that they may have gone too far. At IBM, individuals made a difference, authoritarian CEOs (in particular) but also others situated in circumstances that leveraged their experiences, authority, and influence to affect how the company and its customers performed. I also engage in the growing interest in how large firms operate as ecosystems, as communities.
I argue that IBM’s presence, prestige, successes, troubles, and failures reflected the behavior of large twentieth-century enterprises that emerged in the United States and Western Europe. IBM became an iconic example of how these enterprises developed and evolved with a heavy American stamp but were also international. Since historians, journalists, and economists have paid inadequate attention to the influence of corporate culture on the evolution of IBM, I describe the firm and its business practices worldwide. I contend that one reason for IBM’s importance is that it quickly became a hub for a large ecosystem of business activities. IBM engaged with tens of thousands of companies and hundreds of government agencies for over 13 decades. Its (our) data processing ecosystem included the exchange of information, employees, and business practices. This book gives IBM’s customers and government officials a larger role than in previous accounts, because IBM’s evolution and accomplishments were shaped by how they interacted with the firm. It succeeded and failed in public, despite the company’s wish to keep its operations opaque.
I focus on the roles of management, strategy, and business issues. I include discussions about technologies and products. Scholars, economists, and journalists have insufficiently explored IBM’s sales and marketing practices; I do not neglect these practices or the profound role customers played in the success of the firm. I view the combination of various parts of IBM, customers, government officials, and the media as constituting the large, indeed massive, business ecosystem enveloping IBM. This approach promises to transform how we view the role of large enterprises. I end with a discussion of the implications of IBM’s current worldwide status.
In solid IBM tradition, this is a book filled with personalities from clock makers in upstate New York to 19-year-old programmers in India, from the first female executive to people with names like “Buck” and “T. V.,” and from some geniuses who won Nobel Prizes to others who quickly put the first PCs together, which then dominated their market for years. It discusses how they lived and worked, from not drinking alcohol to a few employees bribing officials in Latin America, from 100-hour workweeks to beautifully executed vacations for the top 1 percent performers. It is the story of over a million employees.
The adjective iconic in the title of this book is purposeful. Although the word is used far too loosely, the highly respected editor Harold Evans recently reminded readers that iconic “came to mean a representation of a model of virtue.”2 It is how I mean the word to be read, as IBM was considered a well-run, ethical company. As both a historian and a retired 38-year employee of the company, I argue that IBM’s iconic role goes far in explaining its long-lived success, but I also demonstrate that iconic status does not guarantee never-ending success.
IBM was and is in many ways similar to other large globalized corporations, so there are lessons learned by looking at this company’s history. Here, briefly, are several.
First and foremost, then and now, corporate culture determines the success and failure of an enterprise. The single most important reason IBM survived for over a century, and usually successfully, was because of a corporate culture that motivated employees to give their all to the success of the firm and to its customers. Once you have a culture, you must nurture, protect, and improve it as the central tool kit containing the guiding principles of management and employee behavior. When IBMers deviated from theirs, they stumbled.
Second, at least in IBM’s case, when it honored and nurtured its sales force and its sales culture, it was productive and successful. That statement may sound incredibly obvious. When their values prevailed, IBM did well. But beginning shortly after the new millennium, they did not always prevail. IBM, like many other corporations, in recent years has relied increasingly on what came to be known as “financial engineering” to improve performance. It was never enough to ensure success.
Third, remember the customer pays the bills and determines a company’s future. Almost from the beginning at IBM, the customer was king. That did not mean they received whatever they wanted; rather, they obtained whatever they needed. IBMers demonstrated they could fanatically support customers and generate a great deal of revenue for IBM, actually over one trillion dollars over the life of the firm.
Fourth, “shareholder value,” the current buzzword, is turning out to be a cancer. Companies succeed when they sell products customers want, when their employees are nurtured, encouraged, and prosper, and when the firm contributes to the overall welfare of society. All three elements must be in play.
Fifth, and perhaps more important than the first four lessons, IBM did well, even fantastically well, when it had its employees’ backs. They generated the value of a corporation even more than investors did, so they, too, needed a seat at the table. Employees need to be honored, protected, nourished, paid fairly, and not be treated, to use an ugly, fashionable term, as “resources.” They are the company.
Sixth, and crucially for the future of the world, IBM learned how to succeed, indeed coexist, in a globalized economy fraught with political, military, and economic dangers. Its ability to use a common corporate culture tailored to meet local conditions made it relevant to scores of countries, and its use of corporate culture has much to teach other international firms.
These are the six most important lessons learned from exploring the history of IBM and, by extension, the behavior of other successful firms. This book incorporates what a large number of people learned over 130 years.
Since this book is intended for multiple audiences, I purposely wrote it with them in mind. You do not have to read it cover to cover; it can be read in chunks, which is why I organized it into four parts. It is a big book but can also be a small one—you decide. The chapters within a part are integrated, so if you read a chapter, I recommend that you read the others in the same part to get a full picture of what was going on. One audience will be IBMers and industry watchers who want to know what happened recently at IBM and what is happening today. These readers should start with the three chapters in part 4, but for perspective I also recommend reading part 3. Those chapters are analytical and are oriented toward business management. For readers interested in modern business history and how IBM became such a major computer company, part 2 covers that and can be read without starting earlier or going into part 3. Finally, for the serious business, economics, and information technology student, part 1 discusses IBM’s origins, the development of its corporate culture, its role in World War II, and so forth. I wrote the book so that one can also read it cover to cover, building on events, ideas, and even language I introduced in earlier chapters as I moved along. The company’s history is remarkable, and aspects of a long-ago past still silently influence events inside the company today.
On purpose, I wrote the text using the vocabulary and tone more familiar to business professionals than to scholars, but I engage in issues of interest to both. For business and technology historians, I offer two features. First, as a lifelong employee of the company, I address issues that were of concern to employees, their customers, and their industry in the manner in which IBM employees would but in the way a professional historian could, too. A thesis unfolds that one could apply to the study of other long-lived enterprises: that corporate cultures influence events, social and political dynamics govern decisions and events within a firm, and information ecosystems are useful analytical tools, which have been the subject of a number of other books I have written. What you read in this preface, see throughout the book, and then encounter again in the last chapter present a perspective on the history of this large, multinational corporation.
I became an employee of IBM in 1974 and quickly realized that I had joined an iconic enterprise; IBM was constantly ranked as the most or second most highly respected firm at that time. It was the Google or Apple Computer of its day. Over the years, I had access to IBM’s archives, which I used in writing earlier books on the history of computing. I incorporate in this book what I learned from that prior research. I also consulted other archival materials held in various academic libraries. The Charles Flint Papers at the New York Public Library, the massive files at the Charles Babbage Institute at the University of Minnesota, and the U.S. National Archives and Records Administration provided answers to thorny questions.
This book represents a journey of discovery about IBM’s history that took four decades. I accumulated many debts, but a number are so important that they must be acknowledged. Saul Englebourg wrote the first history of IBM, in 1954. Bob Sobel, who wrote the second modern history of IBM, published in 1981, and Emerson Pugh, who wrote the third, in 1995, shared insights over a long period of time. Before writing my first book that incorporated a major account of the history of IBM, Before the Computer, in 1993, Bob walked me through many of the issues he thought I needed to explore. After Emerson wrote his book, I read everything he had written before and asked him questions about technology at IBM. In 2011, Jeff Yost assembled an anthology of historically significant materials on IBM that reminded me of the rich legacy of memoirs and other publications about this company. All three have been friends, colleagues, and influential in shaping my views about IBM. The late Al Chandler and the very much alive Walter Friedman—both historians at the Harvard Business School—spent hours helping me understand how to view business history and then invested years supporting my efforts and answering my questions. Three book editors over the years forced me to defend the importance of IBM: Jack Repcheck at Princeton University Press, and Herb Addison and the late Terry Vaughn, both at Oxford University Press. They taught me how to share my fascination with this company with a large audience.
While colleagues and retirees at IBM encouraged me to write this book over the years, I was particularly moved by the practical advice followed by materials from longtime retired IBMers, including those of two 100-plus- year-old executives, Luis A. Lamassonne, who worked in Latin America, and another, who preferred to remain anonymous. Retired senior vice president Chuck McKittrick, a second-generation IBM executive, just about ordered me to write this book, followed up by sending me materials he and his father had accumulated over a half century, and then patiently answered my many questions. For over four decades, IBM’s corporate archivists generously allowed me to study the company’s records. In particular, I want to thank Robert E. Pokorak, Paul Lasewicz, and Jamie Martin, and their staffs.
Credit Al Chandler for shaping my initial intellectual worldview about how a business book should be written. British historian Martin Campbell-Kelly sparked my original interest in the business history of computing by writing a corporate biography of ICL, Britain’s great computer company, and then a slew of other histories. He provided the intellectual bridge from the grand strategy and big book mantra of an Al Chandler opus to the more tactical question of what a computing business history book should look like. Since the 1980s, Bill Aspray, a prolific author about information technology, has encouraged my work and routinely challenged my first drafts. I am a better historian for what he did. Tom Misa, who I think of as a hardcore historian of technology and steadfast supporter of a rigorous approach to any kind of history, did not destroy my desire to write a less academic history of IBM but instead insisted that my logic and evidence link tightly together. He read every line of this book, rarely leaving a sentence untouched.
Four other students of IBM’s history influenced my views about IBM. Lars Heide transformed how historians think about the use of punch card technology in the pre–World War II period, reminding us how difficult and competitive a market that was for IBM and its rivals. Geoffrey D. Austrian, an IBM media expert and longtime editor of the company’s internal magazine, THINK, wrote the standard book on the life of Herman Hollerith, an early critical protagonist in IBM’s history, calling him the “forgotten giant of information processing.” His view of Hollerith influenced my view of him to a large extent, while journalist Kevin Maney’s magisterial biography of Thomas Watson Sr., ultimately the primary thorn in Hollerith’s side, shaped my perspectives on the most important early leaders of IBM. Maney has never received credit for the sheer number of hours of research he had to invest to put that book together. Steven W. Usselman wrote several articles on crucial managerial issues facing IBM in the mid-twentieth century that I relied on to inform me on how to interpret the considerations facing the company’s management in those middle years of the 1950s and 1960s. To all four authors, I owe a profound debt of gratitude.
A new generation of historians interested in IBM’s role taught me about new issues, reminding me of the continuing interest scholars and others have about IBM. In this category, I thank Petri Paju, who has been mining the company’s archives for insights about its role in Europe for over a decade. Gerardo Con Diaz, a young historian who is shedding much new light on the legal issues confronting IBM in the post–World War II period, has influenced my work. Peter E. Greulich, a retired IBMer who is not a historian but is gifted in analyzing IBM’s financial performance, educated me on the company’s recent performance, grounding me in the harsh realities of modern management practices that might otherwise have been overlooked by financial analysts, business management professors, historians, and me. I owe a broader general thanks to many scores of IBMers who preferred to remain anonymous yet shared their insights, information, and support for this project. Three anonymous reviewers went over and above in their duties to critique the manuscript and suggest improvements. I am deeply grateful to them for a job well done, and even more for what was clearly their solid commitment to help me make this the best book I could write. I want to thank the Charlie Chaplin Estate for permitting us to reproduce the IBM PC advertisement, and also Billy Scudder, the actor who played the role of Charlie Chaplin’s “Little Tramp” in IBM’s advertisements.
The book’s dedication is not gratuitous. I believe it was informed with an insight that could not be extracted from documents and publications but had to come from being in the arena of the daily affairs of IBM and its customers. Unknown to them, but that I appreciated, is that they taught me much about the company. For their advice and support, I am profoundly grateful. The publishing team at MIT Press did much to make this book possible, from my editor, Katie Helke, to Deborah Grahame-Smith in production. I also want to thank the marketing team at MIT.
The views expressed in this book are my own and do not necessarily reflect those of my publisher or IBM. This book was not sponsored or supported by IBM, another quirk of its culture being that when you stop being an employee, the door shuts behind you if you are writing a book, no matter how good your ties were before within the company. A central figure of this book, Thomas J. Watson Jr., experienced the same when he was writing his book. I am in good company, and the company was none the worse for its practice.
JAMES W. CORTADA