IBM: 100 Years of Innovation

By Darryl K. Taft  |  Posted 2011-06-05

IBM: 100 Years of Innovation

It's rare to last 100 years in a business, but to last 100 years in the technology business is next to impossible. Well, IBM will officially pull off the impossible in mid-June when the company celebrates 100 years in business.

When the company was formed as the Computing-Tabulating-Recording Company (C-T-R) in 1911, its founders probably never dreamed that it would last 100 years. Yet, when the company was merely 13 years old, its leadership sought a name that signaled a global presence, so C-T-R became International Business Machines (IBM) in 1924.

And IBM has done more than survive-it has thrived. As IBM Senior Vice President and Group Executive for Software and Systems Steve Mills told eWEEK, IBM is still standing while former industry darlings-including Digital Equipment Corp., Wang, Prime and Data General-have vanished.

IBM has managed this seemingly impossible feat by adapting to the demands of the times and adopting new technologies and new approaches to the marketplace. Even more important, IBM has focused on its customers, Mills said.

"IBM's great achievement from my perspective is that it has been able to morph and change based on understanding its customers and partnering with those customers," said Judith Hurwitz, CEO of Hurwitz & Associates, who has watched IBM for decades. "When IBM had its near death experience, that was the period of time when it lost touch with customers."

To ensure that it never again takes its eye off its customers, IBM has made them an integral part of its strategies, including its 2015 road map. That plan for the future includes four primary areas: growth markets, analytics, next-generation data centers and the cloud, and the IBM Smarter Planet strategy.

Sharon Nunes, vice president of Smarter Cities Strategy & Solutions,at IBM, said the Smarter Planet initiatives-particularly the Smarter Cities-draw buy-in because the results impact people where they live and work.

That's certainly true of Roy Buol, mayor of Dubuque, Iowa, who told eWEEK: "In 2009, we chose IBM as our partner to develop the tools our residents need to make better decisions about how they use resources like water, electricity and natural gas. The goal of -Smarter Sustainable Dubuque' is to create policies and programs that address environmental and ecological integrity, economic prosperity, and social and cultural vibrancy to create a community that is viable, livable and equitable. "The individual building blocks of this strategy relate to energy, water, mobility, air, resources, nature, green economy, eco-literacy, food and shelter."

IBM addressed these building blocks in September 2009, when the company and Dubuque announced a new collaboration aimed at making the city of 60,000 one of the first "smarter" sustainable cities in the United States.

The partnership is already paying off. Buol said the IBM analytics and cloud computing technology his city deployed in 2010 helped reduce water utilization by 6.6 percent and increased leak detection and response eightfold. 

IBM's formidable push into business analytics seems prescient given the recent performance of the Watson system on Jeopardy! IBM is currently looking for additional applications for the system's DeepQA technology, and health care seems to be the next logical step. Dr. Eliot Siegel, professor and vice chairman of the University of Maryland School of Medicine's diagnostic radiology department, said he hopes to see Watson-powered physician's assistants in the near future.

Where It All Began


Of course, IBM wouldn't be where it is today without another Watson: Thomas J. Watson Sr.,  who joined C-T-R as general manager in 1914 and later became IBM's first-and arguably most impactful-chairman. Watson shaped the company and established a culture and core set of values that continue to stamp IBM today.

In the new book on IBM's 100 years in business, Making the World Better, by Kevin Many, Steve Hamm and Jeffrey M. O'Brien, Hamm wrote: "Since its early days, IBM has been operated based on a set of core beliefs. IBM would distinguish itself with its respect for the individual, its pursuit of excellence in all things and its commitment to providing the best customer service.

"These values were baked into the core DNA by Thomas Watson Sr., who built the near-failing organization of 1914 into an industrial giant with staying power. And that DNA has taken hold in millions of employees over the course of 100 years."

Watson Sr. also adopted a one-word mantra: THINK, which-written in block letters-appeared in IBM facilities around the world. That mantra encouraged IBMers not only to think, but to think big. And, led by Watson Sr. and later by his son, Thomas Watson Jr., IBM launched a culture of thinking big and making big bets.

One of Watson's first big bets was to remain aggressive during the Great Depression and to keep up the company's pace of building its tabulating machines. The bet paid off when, coming out of the depression, President Franklin D. Roosevelt signed the Social Security Act, and businesses began buying IBM machines to handle the information processing requirements of Social Security.

As these bets paid off on an ongoing basis, "The company has continued to remake itself over time," Mills said. "The strategy is to keep shifting and adapting." He added that over the last few decades, IBM has transformed itself from a hardware business to one that's more focused on software and services.

A Near-Death Experience

In the mid-1980s to early 1990s, a combination of complacency, weariness from battling antitrust claims and missing the boat on client/server, among other things, caused IBM to lose focus, market share and revenue. Marie Wieck, the company's general manager of application integration middleware and WebSphere, said IBM's focus on the mainframe at the expense of being late to the client/server game hurt. 

"IBM misread the client/server architecture," added Amy Wohl, an industry analyst who has followed IBM for many years. "While Compaq was selling a server or two into mid-market and large companies and then coming back to sell some more, IBM missed this [market] until the 1990s, missing an important business opportunity."

The company eventually ousted then-CEO John F. Akers and brought in Louis V. Gerstner Jr., a former McKinsey consultant and CEO of RJR Nabisco. Gerstner quickly slashed headcount and spending, and reset the company's focus on the customer.

Samuel J. Palmisano, IBM's current chairman and CEO, followed Gerstner, and quickly established three new values for the modern IBM company: "dedication to every client's success; innovation that matters-for our company and for the world; and trust and personal responsibility in all relationships."

Betting on System/360


Change was certainly at work when Watson Jr. made one of IBM's biggest bets: setting its engineers on a course to build the System/360 mainframe. That system was a risk because it would cannibalize IBM's existing product and require greater investment from customers, while also costing $5 billion to build-$34 billion in today's dollars.

Watson Jr. later called the System/360, which launched in 1964, "the riskiest decision I ever made." But it paid off  handsomely, enabling IBM to dominate that space for the next two decades.

Jeff Frey, an IBM Fellow and director of System z architecture and design, said the System/360 "set the stage for large system computing." The System/360 also saw "the introduction of virtual memory and massive virtualization and brings us to where we are today," he added.

Moreover, the System/360 introduced OS/360, the mainframe operating system that evolved into the z/OS (the operating system for the new system z mainframes) and "has evolved over time more than any single piece of software in history," Frey claimed. Delivering software for the System/360 led to other software advances, such as transaction processing monitors and databases: IMS and relational databases, he said.

In the late 1980s, IBM had to decide whether to continue using bipolar technology to build its processors for the mainframe or to move to CMOS. The company placed another big bet and moved to CMOS, which led to IBM restructuring its software. That enabled the company to deliver Parallel Sysplex, which, in turn, allowed a cluster of IBM mainframes to act together as a single system image with z/OS.

Like IBM, the mainframe keeps reinventing itself. Last year, IBM introduced the zEnterprise System, which can manage a virtual collection of heterogeneous hardware as if it were one system, Frey said.

Hardware has always been the foundation of IBM, pointed out Rod Adkins, senior vice president of IBM's Systems and Technology Group, adding that it will continue to be a critical building block as the company evolves-particularly for the cloud, Big Data and analytics.

Opening Up to Linux


IBM also placed a bet on Linux when it put the open-source operating system on its mainframes in 1999. Bob Sutor, IBM's vice president of open source and Linux, likes to tell the story of how Linux and open-source software gained a foothold at IBM. In 1999, he said, Gerstner was focused on enabling IBM to compete "in this amazingly heterogeneous world."

Sutor added that Linux "started to get the attention of our senior execs, people like Sam Palmisano and Irving Wladawsky-Berger. It had the chance of breaking down silos, and it fit in with the general ideas of the time. We had Java for application portability, XML for data portability and then Linux for hardware portability."

IBM also began to contribute to the open-source community, primarily by delivering software in support of open standards.

For Java developers, IBM played Santa Claus by pulling from its VisualAge product and leveraging its acquisition of Object Technology International to deliver the Eclipse IDE (integrated development environment). IBM then open-sourced the IDE in 2001 and spun out the Eclipse Foundation in 2004. Eclipse has since fostered a massive ecosystem.

Focusing on Software

In 2010, IBM earned $22.5 billion in revenue from software. According to some industry reports and an analysis of the financial statements of leading software vendors, if the IBM Software Group were an independent entity, it would be the second largest software company in the world, behind Microsoft.

It wasn't always that way. In fact, IBM used to give software away as part of its hardware sales.

"Software was the incremental build off the deep domain knowledge," said Mills, who has been running IBM's software business since 1988 and heading the IBM Software Group since its establishment in 1995. In 2010, Mills was tasked with running the overall systems business as well.

Even though IBM was producing software in the 1950s, it didn't focus heavily on it until the late 1980s and only got serious about software in the mid-1990s. Meanwhile, the company began to adopt agile methods for developing its products.

During this timeframe, IBM had struck a partnership with Microsoft to develop a new PC operating system: OS/2. They struck the deal in 1985, but by 1990, Microsoft pulled out to focus on Windows, which left OS/2 to wither.

Needing a foundation for its new software business, IBM approached Lotus with aspirations to acquire the productivity software maker. The offer was rebuffed, but, after a hostile takeover bid, IBM got Lotus for $3.5 billion in 1995. IBM then acquired Tivoli in 1996 and Rational in 2002. The IBM Software Group now consists of five primary groups or brands: Information Management software, Tivoli, Lotus, Rational and WebSphere.

"IBM bet big on software in the late 1980s and early 1990s and decided to focus on a consistent set of services across platform," said Hurwitz of Hurwitz & Associates. "The company broke down stove pipes between organizations and started to focus on a holistic IBM that focused more on a customer-benefit view rather than technology business units. This has paid off well.

"IBM also made significant investments in big software plays in the infrastructure space, rather than in the traditional packaged applications market. This gave IBM the luxury of moving into what it calls Smarter Planet, which is focused on business best practices implemented in software. I think this was a very smart move."

The Business of E-Business


Microsoft saw Netscape's delivery of a browser to access the Internet as a threat to its Windows monopoly and moved to blunt it by integrating its own Internet Explorer browser into Windows. In contrast, IBM viewed the browser as an opportunity to help organizations conduct business over the Internet.

IBM then coined the term "e-business" and laid out a vision for how e-business could transform the world. "We saw the world shifting toward the browser and had to find a way to articulate that to the world, so we came up with the term -e-business,'" said Craig Hayman, general manager of IBM industry solutions.

The company began a massive marketing campaign: In 1998, it spent $28.5 million on Internet advertising. A year later, IBM had 10,000 e-business customers.

At the same time, IBM adopted open standards such as Java, created its WebSphere application server and adopted the Apache HTTP server.

With the success of WebSphere as a platform, IBM moved to adopt Web services as an integration technology and service-oriented architecture as an architectural model. Web services enabled it to bring together the distinct worlds of Microsoft's .NET with enterprise Java technology.

These moves set the stage for IBM's new Smarter Commerce strategy, a better way for companies to buy, sell and market their products by integrating operations and enhancing interactions through community, collaboration, process and analytics, Hayman said.

Serious About Services

Services has become the biggest piece of the IBM pie, followed by software and systems. Kerrie Holley, IBM's CTO for Global Business Services, said IBM's services unit has been advancing the use of technology in business and government for decades, citing IBM's support of early NASA missions as proof. But it wasn't until IBM acquired PricewaterhouseCoopers (PwC) in 2002 for $3.9 billion that the company got serious about services.

Holley believes three key differentiators make IBM's services organization stand out: the arsenal of PwC talent, IBM's deep research organization and the company's deep repository of assets, which he referred to as "Lego building blocks." Holley said IBM "can bring thousands of Lego building blocks to the table" to address all manner of engagements. He added that IBM has more than 1,000 researchers focusing on services.

"IBM's transition to customer focus and its strategic build-up of all three major segments of the tech industry-software, services and hardware-means that it is one of the companies able to provide end-to-end solutions in a unique way," said Al Hilwa, an analyst with IDC. "No other player has achieved the scale that IBM has across these fronts in tech today."

What is the foundation of IBM's success? "I think if you look back at its earliest days, this adaptation aspect of the company and its culture is perhaps the most important thing you can say about IBM," Mills said. "There are other hundred-year-old institutions where either their industries haven't changed or they haven't changed very much.

"IBM is at an all-time high value as a business, and that's a reflection of change and adaptation. You have to have a learning organization that's open to change. You have to keep learning and building knowledge.

"I think that positions IBM very well, and we need to sustain that kind of learning culture to get through the next 100 years."

Rocket Fuel