Chapter 5: What Growth and Change have Taught Us


I said earlier that the great technological changes we have been going through have had a sweeping effect on our company. These changes have demanded a great deal of adaptability and versatility from our employees.

We have learned that a company must be prepared to make a commitment to internal education and retraining which increases in geometric proportion to the technological change the company is going through.

During the 1962 session of Congress the Federal government assumed broad responsibilities for a retraining program. This program is aimed particularly at the jobless work force. It was a constructive move, and one which was probably overdue. But it in no way relieves corporations of the responsibilities they bear for the retraining of their own people. When skill requirements change, it is the job of the corporation to train its people in those new skills. A good many are already doing so. Those that are not, ought to. It would be wrong for businessmen to use the Federal retraining program as a substitute for one of their own.

Our own manufacturing changed drastically as we moved from electromechanical to electronic assembly. The changeover came with great speed and cut deeply into almost everything we were doing. Our plant in Poughkeepsie, New York, is a good example, for during the war we made weapons there. Then it converted to the manufacture of electromechanical equipment—chiefly typewriters and punched card accounting machines. Along came the computer, and the plant had to shift into electronics—first vacuum tubes and later transistors. Every where we turned, there were new problems in manufacture, new problems in automated assembly. In all, we had about 6,000 manufacturing people who were directly affected—not only production workers, but managers as well.

The job is not over and, in all likelihood, never will be. For as soon as one generation of computers goes on the line, another is taking shape in the development laboratory. Some IBM departments may have as many as one-quarter of their people in retraining at one time.

This commitment to education and retraining is just as great in our marketing organization as it is elsewhere. For our salesmen, this business of school has become an everyday thing. And in our service group, customer engineers must constantly update themselves and learn new skills.

Technological change demands an even greater measure of adaptability and versatility on the part of management in a large organization. Unless management remains alert, it can be stricken with complacency—one of the most insidious dangers we face in business. In most cases it's hard to tell that you've even caught the disease until it's almost too late. It is frequently most infectious among companies that have already reached the top. They get to believing in the infallibility of their own judgments.

We had a bout with this disease soon after the war. It had to do with the introduction of the electronic computer—one of the most important single developments in the whole history of our industry. During the late 1940s it had become clear that many large engineering jobs and a good many accounting applications were being hampered by the relatively slow speeds of the calculating machines then available. At about that time J. Presper Eckert and Dr. John W. Mauchly of the Moore School at the University of Pennsylvania had built for the Army a large electronic computer—the Eniac—to make ballistic-curve calculations. Many people in our industry, and I was among them, had seen the machine, but none of us foresaw its possibilities. Even after Eckert and Mauchly left teaching to begin manufacture of a civilian counterpart to the Eniac, few of us saw the potential.

Their company was absorbed by Remington Rand in 1950, and the following year the first production model of Univac was delivered to the Census Bureau, where it replaced some IBM machines.

Throughout this entire period IBM was unaware of the fact that its whole business stood on the threshold of a momentous change. We had put the first electronically operated punched card calculator on the market in 1946. Even in those days we were well aware that electronic computing was so fast that the machine waited nine-tenths of the time of every card cycle for the mechanical parts of the machine to feed the next card. Yet in spite of this we didn't jump to the obvious conclusion that if we could feed data faster we would increase computational speeds 900 per cent. Remington Rand had seen just that—and with Univac they were off to the races.

The loss of our business in the Census Bureau struck home. We began to act. We took one of our best operating executives, a man with a reputation for getting things done, and put him in charge of everything which had to do with the introduction of an IBM large-scale computer—all the way from design and development through to marketing and servicing. He was so successful that within a short time we were well on our way.

How did we come up from behind so fast? First, we had enough cash to carry the costs of engineering, research, and production. Second, we had a sales force whose knowledge of the market enabled us to tailor our machines very closely to the needs. Finally, and most important, we had good company morale. Everyone realized that this was a challenge to our leadership. We had to respond with everything we had—and we did.

By 1956 it had become clear that in order for us to move rapidly with these technological changes we needed a new organization concept. Prior to the mid-1950s the company was run essentially by one man, T. J. Watson. He had a terrific team around him, but it was he who made the decisions. Had IBM had an organization chart at that time, there would have been a fascinating number of lines—perhaps thirty in all—running into his office.

In the early 1950s the demands of an expanding economy and the Korean War made it necessary for IBM to react more rapidly at all levels than we were able to with our monolithic structure. Increasing customer pressure—to say nothing of a few missteps like the one we made on the electronic computer—caused us to decide on a new and greatly decentralized organization.

We wasted no time in carrying our decision out. In late 1956, after several months of planning, we called the top 100 or so people in the business to a three-day meeting at Williamsburg, Virginia. We went into that meeting a top-heavy, monolithic company and came out of it decentralized.

Today we have eight operating divisions and two wholly owned, but independently operated, subsidiaries. All have a considerable degree of autonomy. Sitting over them and reviewing their longrange plans and major decisions is the Corporate Management Committee, made up of the board chairman, the president, and six other top executives. Available to advise both this committee and the divisions is a corporate staff of specialists in such areas as manufacturing, engineering, personnel, finance, communications, law, and marketing.

We decentralized in more or less the usual way and for the usual reasons—that is, to divide the business into more manageable units and to make sure that decisions would be made where and when they should be.

But in one respect we were quite different from most other companies. IBM is not the kind of business that textbooks say can be decentralized sensibly. We are not, as many large companies are, a grouping of unrelated or merely partly related businesses. We are one business and, for the most part, a business with a single mission.

Our job, and that of each division of IBM, is to help customers solve their problems through the use of data processing systems and other informationhandling equipment. There is a close relationship between all the parts of our product line. Any major technological move or marketing decision in any one division is bound to have a direct effect on other segments of the business.

This means that decisions are being made constantly, all the way down the line, on matters that involve two or more divisions. One might suppose that burdensome machinery would have to be set up throughout the business to settle the thousands of small differences that could be expected to arise among the divisions.

To date it has not been necessary. No matter what division they may be in, basically all our managers are company-oriented. They think primarily in terms of what is good for IBM rather than what may be good for particular divisions. This may be so because many of them were with IBM long before we became a divisional organization. Many of our higher executives have incentive plans in addition to their salaries. But the plans are based on overall IBM performance rather than that of any single division. The arrangement, we believe, has helped to keep everyone pulling together.

Much of this we owe to the company's beliefs. Our people so thoroughly understand the need to give superior service that their concern for the well-being of the customer often overrides whatever differences of opinion there might be among them. Of course I do not mean that we have no differences. It is my responsibility, as it is the president's and that of the Corporate Management Committee, to resolve the major ones. By and large it hasn't been too bad.

As I said earlier, at the time of reorganization we suddenly found that we had need for a great many more staff experts and specialists than were on our rolls. In nearly every case we "made" these experts simply by naming a man to the job. We had some failures, but on the whole our method worked pretty well. The reason, I think, is that these young and relatively inexperienced executives knew three things as well as their own names:

  • They knew that any decisions they might make and any actions they might take had to be right for our people.

  • They knew that the main aim of our business is service, to help the customer solve his problems no matter how many problems this may create for us.

  • And they knew that we will not settle for anything less than a superior effort in everything we do.

In other words, they understood our basic beliets, and this understanding enabled them to move into unfamiliar jobs and to overcome the shortcomings they may have had in technical skills. This emphasis on beliefs is not meant to downgrade the importance of technical skill. But from the time of our divisional reorganization we have found that an ingrained understanding of the beliefs of IBM, far more than technical skill, has made it possible for our people to make the company successful.

In looking back on the history of a company, one can't help but reflect on what the organization has learned from its years in business. In thinking specifically of the period since the war when IBM faced the twin challenges of great technological change and growth, I would say that we've come out with five key lessons. They may not be applicable to all companies. All I can do is attest to the great value these five lessons had for us.

  1. There is simply no substitute for good human relations and for the high morale they bring. It takes good people to do the jobs necessary to reach your profit goals. But good people alone are not enough. No matter how good your people may be, if they don't really like the business, if they don't feel totally involved in it, or if they don't think they're being treated fairly—it's awfully hard to get a business off the ground. Good human relations are easy to talk about. The real lesson, I think, is that you must work at them all the time and make sure your managers are working with you.

  2. There are two things an organization must increase far out of proportion to its growth rate if that organization is to overcome the problems of change. The first of these is communication, upward and downward. The second is education and retraining.

  3. Complacency is the most natural and insidious disease of large corporations. It can be overcome if management will set the right tone and pace and if its lines of communication are in working order.

  4. Everyone—particularly in a company such as IBM—must place company interest above that of a division or department. In an interdependent organization, a community of effort is imperative. Cooperation must outrank self-interest, and an understanding of the company's particular approach to things is more important than technical ability.

  5. And the final and most important lesson: Beliefs must always come before policies, practices, and goals. The latter must always be altered if they are seen to violate fundamental beliefs. The only sacred cow in an organization should be its basic philosophy of doing business.

The British economist Walter Bagehot once wrote: "Strong beliefs win strong men and then make them stronger." To this I would add, "And as men become stronger, so do the organizations to which they belong."




A Business and Its Beliefs  .The Ideas That Helped Build IBM
A Business and Its Beliefs .The Ideas That Helped Build IBM
ISBN: 71418598
EAN: N/A
Year: 2003
Pages: 13

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