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MOUNTAIN VIEW, Calif. — IBM is relishing its celebration of 100 years in business in 2011, and with good reason. Few enterprises ever rise to the lofty level of respect the huge corporation has earned during the last century.
There aren’t many secrets about how IBM rose to the top, despite a couple of major economic depressions, two World Wars (and several somewhat smaller ones), thousands of competitors nipping at its heels, and the fickleness of the IT market. Big Blue made its mark through continuous investment in innovation, an amazingly consistent business plan, the identification and retention of highly qualified personnel, visionary leadership — and a little luck.
The company was born when financier Charles Flint created a new enterprise called Computing Tabulating Recording (CTR) Corp. as the result of merging four companies on June 16, 1911. CTR, based in Endicott, N.Y., originally made products that included cheese and meat slicers, weigh scales, time-keeping systems and punch-card machines.
The leading IT company in the world at the time CTR came into existence was Western Union, which was highly profitable but narrowly focused on wire communication. When the industrial revolution led to the digital revolution years later, IBM was the one that picked up on the trends first. The rest is, well, history.
Adding perspective to all of this, CEO Samuel Palmisano (pictured) spoke to an invitation-only full house Aug. 4 at the Computer History Museum in Mountain View. During a rare public appearance in Silicon Valley, he reflected on IBM’s first century and where he thinks it might be headed in the next one.
Plenty of Lessons Learned
“There are a lot of lessons you can learn from a company that’s been around for 100 years,” Palmisano, a 38-year veteran of the company, said. “You can see them in the museum here (in “Revolution: The First 2000 Years of Computing,” the current lead exhibit of computer hardware), for example.
“However, it does date you when you were trained on those products (in the exhibits)!”
Bucking the Odds for an Entire Century
Palmisano cited some statistics about a company being in business for a long period of time and remaining successful, despite the odds against it.
“Of the top 25 industrial corporations in the United states in 1900, only two remained on that last in 1961 (IBM’s 50th year), and one of those because it had absorbed six others from the original list,” he said. “Two companies had disappeared, and the remaining 15 had slipped far behind.
“Figures like this remind us that corporations are expendable, and that success at best is an impermanent achievement which can always slip out of hand.”
Palmisano cited a recent Harvard study of 6 million companies and how long they lasted in business. “Only 1 percent made it to 40 years, so you can imagine how rare it is for anyone to make it to 100 years,” he said.
Why has IBM succeeded for so long, while other talented and respected IT companies like Univac, Wang, Burroughs, DEC, Tandem, Apollo, Silicon Graphics and Sun Microsystems have come and gone?
“One reason is that we haven’t done the same thing for 100 years,” Palmisano said. “And another would be that we have done exactly the same thing for 100 years. That is the first lesson from our first century.
“To put it simply, this enterprise has always moved to the future. Continual forward movement is, in fact, inherent in IBM’s value proposition — it’s our business model. The frontier of what is truly innovative keeps moving, and you’ve got to move with it — you can’t sit still. If you sit still, especially in technology, the ramifications are disastrous.”
Change Has Been Constant
IBM has always changed its product line. It may have started by making cheese slicers (“I’m told that in 1914 it was a world-class cheese slicer,” Palmisano joked) and graduated to cash registers, typewriters, calculators, spinning disk hard drives, mainframe computers, supercomputers, portable computers, software, services and much more, but its business model never changed.
“We’ve thought about this constant balance between change and continuity, and I’d like to share three essential areas that are relevant to the Valley and to our industry. First is the importance of the ‘and’ in R and D. Sometimes we forget that they (R&D) are different. Most of the innovation IBM has experienced came from deep research. You need both R&D, and you need to keep changing both,” Palmisano said.
“Development is happening in ways that are increasingly collaborative — from open source, to social media, to crowdsourcing. The broader point is that a deep commitment to R&D means that it’s not only important to innovate, but it’s as important to innovate how you innovate.”
IBM Learned From Both Successes and Failures
Secondly, Palmisano said, IBM has been able to survive not only its failure, but its successes.
“The Valley is a bone pile of companies that had extraordinary initial success, but were not able to achieve a second act,” Palmisano said. “IBM, in the early ’90s, held on to the mainframe-based business long after the industry and market had changed in ways that rendered the model obsolete. The problem wasn’t the technology; the mainframe remains a highly valuable platform. The problem was the business and organizational models built around it.
“It took a very difficult struggle for IBM to change those. It is now, and has been for decades, a very healthy business for us now, thank you very much.”
Palmisano also explained the company’s strategy in selling the popular ThinkPad computer franchise to a Chinese firm, Lenovo, in 1992.
“It was by any measure the most recognizable brand for us, touching tens of millions of people,” Palmisano said. “Yet we knew that personal computers were becoming increasingly commoditized, and that’s not where we wanted to be. It’s a good product, but our financials are much better today without it.”
Don’t Confuse Charisma with Leadership
Thirdly, Palmisano said, IBM has survived the changes of leadership that can throw a company off course. Palmisano is only the ninth CEO of the company, yet he has led the company for 10 percent of its existence.
“We have learned not to confuse charisma with leadership. IBM has faced this challenge (of following a charismatic leaders in founder Thomas Watson Sr. and his son, Thomas Watson Jr.),” Palmisano said. “Many historians believe that Watson Sr.’s most enduring contribution to business was his intentional creation of something that would outlast him — a shared corporate culture.
“He showed that how the basic beliefs and values of an organization could be perpetuated — how they could become its guiding constant through time.
“This is why we have focused much attention over the years on building talent. Betting it all on one person, or a small cadre of stars, is the opposite of building for the long term.”