The Tom Watson, Jr. years

(1974 retrospective) - page 2


The Tom Watson, Jr. years

Watson announcing the System/360 in Poughkeepsie.

Even before he had succeeded his father as IBM's head, Watson was intrigued by the computer's potential, and helped bring IBM, somewhat belatedly, into this field.

The ideas that fueled the company's rise came from many sources. But Watson seemed to have an uncanny knack for knowing what was right and what wasn't, what was pure and what was puffery. And he was a risk-taker. "I think," says Watson, "that a continual willingness to restructure, change, and promote was probably my greatest contribution." Whatever it was, it worked.

In 1956, most of IBM's revenue came from punched card machines. Computers were expensive, bulky, vacuum-tube affairs, and there were a relative few throughout the nation. But customers liked them. In the computer business, IBM was discovering, the demand always seemed to exceed the forecast. Modern society was choking on paperwork. And this new kind of machine could help. Orders came in at a steadily increasing rate.

To cope with both company growth and a changing marketplace, Watson met with 110 key IBM executives in November of 1956 for three days in Williamsburg, Va. "We went into that meeting a top-heavy, monolithic company," he says, "and came out of it decentralized."

The company was divided into six autonomous operating divisions, supported by a corporate staff of specialists and supervised by a corporate management committee.

The IBM World Trade Corporation, established in 1949, would continue to operate independently as a wholly owned subsidiary, soon to be joined in this status by The Service Bureau Corporation. SBC was formed to comply with the provisions of the Consent Decree into which IBM had entered early in 1956.

Later, when growth and product characteristics demanded, the company was able to realign itself accordingly, modifying and remolding divisions, adding others, dropping a few, altering and redefining missions. In 1964, IBM acquired a third subsidiary, Science Research Associates, Inc., a creator of educational materials. Last year [1973] it sold SBC to the Control Data Corporation as part of the out-of-court settlement of a lawsuit.

From its beginning until now, the basic soundness of the Williamsburg plan has endured the freedom and quick response of decentralized operations, the support and management guidance of a corporate group.

Organizational reforms were important, and so were the people of IBM. In 1958, IBM became the first major corporation in America to place on weekly salaries all employees still working on an hourly wage basis. It was an enlightened move which Watson described as making IBM truly a one-class company.

"We've spent more time worrying about human resources and human kinds of procedures than we have on electronics or sales procedures over the past two decades," Watson told an interviewer recently. "I think that as long as we remain a relatively personalized company we'll move ahead with good morale in the future."

The late 1950s and the 1960s were extraordinary times for IBM, a period of increasingly sophisticated products, frequent stock splits, explosive growth, and exciting technical breakthroughs.

Many of these breakthroughs came about following a recommendation by Al Williams (who later became president of IBM) to plow back a larger percentage of the company's revenue into research and development.

"Al Williams ... came in one day to discuss something pretty important," recalls Watson. "He pointed out that most well-run companies in high-technology fields were spending seven to eight percent on R&D, and we were only spending three percent.

"That didn't make sense to us, especially when we were trying to carry this business out of punched cards and into computers. So we hired Dr. Emanuel Piore as director of research and began to push more and more into R&D until we now have a fantastic capability."

It was Watson and Williams who also combined for an across-the-board edict that IBM start making machines with transistors instead of vacuum tubes. "It was a liberal arts kind of decision," says Watson, "a pretty broad decision for a couple of nonscientific types to be making on the basis of being impressed by a couple of Japanese transistorized radios. But it turned out happily."

That it did. One of the results of the switch was the second-generation IBM 1401 data processing system announced in 1959 compact, much faster than its predecessors, and relatively inexpensive, a machine aimed at customers who had never thought "computer" before because of the cost. The orders poured in.

By 1962, computers were beginning to take on much more than the "super-clerk" tasks to which so many people had consigned them. Teleprocessing the transmitting of machine-readable data over long distances was moving from a concept to a reality. This happened to be another area where Tom Watson, Jr., had felt IBM should be making even more of an effort.

A key to IBM's continued excellence in its field was the growth of systems and programming expertise within the company, a growth expedited, for example, by the development in the 1950s of the large-scale SAGE computer for the government's air warning system.

In 1964, SABRE, American Airlines' real-time reservations system, became fully operational. It was a new dimension for data processing keeping track of operations as they happened, not after the fact.

It was also in 1964 that a large contingent of writers, reporters, and editors traveled by special train from New York City to IBM's Poughkeepsie facility for the announcement of what many people consider the company's most important product System/360.

System/360 has been said to represent the most crucial business judgment in recent years. Certainly, it reversed an industry trend toward a proliferation of different, special-purpose computers, a trend that was making life increasingly difficult for computer users. System/360 was a family of multipurpose, third-generation computers in different sized models that could grow with a customer and would require a minimum of expensive reprogramming.

Watson announcing the System/360 in Poughkeepsie.
"A lot of people thought it was a kind of heads or tails thing, that we could have lost everything we put into System/360," says Watson. "That's an overstatement. We could have come out in the red. We could have not made a profit. But, insofar as losing the total gross value of the thing, we couldn't. Because we knew enough by that time to know pretty much what was going to work and what wasn't . . . It did prove to be one of our great, great victories."

Great is an understatement. It was a stunning success. System/360 sold even better than expected. And, although there were problems in programming, circuitry, and deliveries, proved to be an outstanding family of machines with outstanding support.

And it provided a tremendous impetus to the already dynamic IBM company.

Between April 7, 1964, when System/360 was announced, and the end of 1967, IBM increased its personnel by more than a third. It opened five new plants in the U.S. and abroad. It became one of the world's largest manufacturers of integrated circuits. It became a truly international corporation, with research, development, engineering, manufacturing, and sales and service capabilities worldwide.

And that other part of IBM's business, represented by the Office Products Division [OPD], was doing fabulously in the 1960s, helping to balance drooping computer sales at the end of the decade. Started in 1933 as the Electric Typewriter Division, OPD sparked by exciting new products and the concept of word processing has become one of the fastest growing segments of the company.

"Some people say all we can sell is computers," Watson told a reporter from Nation's Business last year. "But in electric typewriters we have . . . become a world leader. And we have become one of the leaders in dictation machines. We've also gone into copiers, and we're doing well with them."

In addition to OPD's remarkable rise, there was the ascent of the World Trade Corporation, which went from a relatively modest operation at the time Watson became chief executive officer to a contributor of more than half of IBM's net earnings in 1970. In assessing WTC's success, Watson emphasizes the roles played by two people: his father, who saw the potential there, and his brother, Arthur K. (Dick) Watson, who served as WTC president, then chairman, from 1954 until 1970.


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