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The Making of International Business Machines

 

In ten years, from 1914 to 1924, Thomas Watson Sr. grew the Computing-Tabulating-Recording Company (C-T-R) from a US$4 million dysfunctional conglomerate into a US$11 million company with an operating statement showing occasional flights of double-digit returns. Watson, sitting in his president’s office on Broad Street in Lower Manhattan, started casting about for a new name. He wanted an enduring brand that would clearly signal the company’s ambitions and optimism.

The balance sheet still carried a lot of debt, but Watson had invested in products and factories. C-T-R’s salesmen had morphed, in the image of their new boss, into a cadre of well-dressed and well-trained men in fresh white celluloid collars. They were still selling meat slicers, coffee grinders and scales along with more high-tech tabulating machines. But now there were Persian rugs on the floors of the showrooms, and an expectation of bigger things to come. For Watson, the ten years had often been a management struggle. Some managers in each of the three companies brought together in 1911 to form C-T-R had resisted the merger. Watson opted for a management style of firm and steady encouragement—a cross between a flinty, old school headmaster and a tireless cheerleader.

Yet when he needed to, he could (and often did) lay down the law in very clear terms. In one 1917 meeting with thirteen of his executives, he reportedly told them: “I have just worn myself out trying to help you people, trying to make this a real organization, a big organization, and still I find that going around on the quiet there is this undercurrent of knocking and criticizing and fault-finding. Gentlemen, it has got to stop, and I want to say right now that I am prepared to accept the resignations of any men who can’t make up their minds today to cooperate with everybody else in this business.”

C-T-R had grown so fast with the post-World War I boom that by 1920, after an impressive business year, Watson incautiously ordered his senior managers to double the size of the company’s business in 1921. But that year, a sharp economic recession descended on the American economy, and C-T-R’s business fell dramatically. Having boosted production and hiring, they were caught with huge costs. Watson was forced to lay off employees and cut salaries and wages to keep the company afloat.

Also during these years, he’d watched with growing alarm as C-T-R’s tabulating machines fell behind competing products. This was particularly vexing as he saw the tabulating business as key to the company’s future. Scales and coffee grinders weren’t going to make CTR a world beating company. Watson saw that big companies were starting to experiment with tabulating machines to help run railroads, handle accounting at department stores, and keep track of production and inventories in factories. Collecting, sorting and disseminating information, he concluded, was going to be a big business.

Watson eventually coaxed the company into a cooperating team effort, ordering a merge of the experimental and engineering departments to better facilitate development in 1918. He also opened up a research lab and hired top engineers, led by James Bryce, to invent and build the best tabulating, sorting and keypunch machines. And by 1924, he’d put the company back on a more sustainable growth track.

That same year the chairman of C-T-R’s board of directors retired and Watson became the undisputed leader of C-T-R.

The second industrial revolution was now in full swing in America. Mass production, installment buying and a dizzying array of inventions—television, the cathode ray tube, frozen foods, electric sewing machines, dishwashers, vacuum cleaners, irons, stoves, refrigerators and toasters—all of this stimulated the Roaring Twenties economy and fired the imaginations of entrepreneurs. General Motors had just overtaken the great Ford Motor Company in car production. United States Steel was one of the largest companies in the world, and General Electric had teamed up with American Telephone & Telegraph to form RCA, which in turn would soon form NBC.

Watson knew he would sooner or later sell the Computing Scale part of his company, and perhaps even the International Recording Company. That would remove the C and the R from C-T-R. Also, it bothered him that C-T-R represented three divisions. He wanted a name like General Motors and US Steel, a name that would capture the grandeur and vision of his thinking.

He’d already opened several offices in Europe, and had subsidiaries in Canada and Latin America. Seven years earlier, in 1917, he’d consolidated three C-T-R subsidiaries in Canada under the new name International Business Machines. It now struck him that this should be the name of his growing company. And on February 14, 1924, he submitted an application to list International Business Machines on the New York Stock Exchange, using the initials IBM.

One C-T-R shareholder, a bank vice president from Hartford, Connecticut, wrote to Watson, saying: “The name Computing-Tabulating-Recording Company is to the writer much more euphonious, and would impress me as being a more impressive and substantial name than the one you have changed to, to wit: International Business Machines Company.”

Ten-year-old Tom Watson Jr. remembers watching his father return home from work that very day. “[He] gave mother [Jeannette Kittredge Watson] a hug, and proudly announced that the Computing-Tabulating-Recording Company henceforth would be known by the grand name International Business Machines. I stood in the doorway of the living room thinking, ‘ That little outfit?’”

Over time, Tom Watson Jr. would make IBM one of the most recognized brand names in homes and offices around the world.