Chapter 1: Bringing Out the Best

Of the top twenty-five industrial corporations in the United States in 1900, only two remain in that select company today. One retains its original identity; the other is a merger of seven corporations on that original list. Two of those twenty-five failed. Three others merged and dropped behind. The remaining twelve have continued in business, but each has fallen substantially in its standing.

Figures like these help to remind us that corporations are expendable and that success—at best—is an impermanent achievement which can always slip out of hand.

One may speculate at length as to the cause of the decline or fall of a corporation. Technology, changing tastes, changing fashions, all play a part. But the fact remains that some companies manage to flourish while others in the very same industry may falter or fail. Normally we ascribe these differences to such things as business competence, market judgment, and the quality of leadership in a corporation. Each one of these is a vital factor. No one can dispute their importance. But I question whether they in themselves are decisive.

I believe the real difference between success and failure in a corporation can very often be traced to the question of how well the organization brings out the great energies and talents of its people. What does it do to help these people find common cause with each other? How does it keep them pointed in the right direction despite the many rivalries and differences which may exist among them? And how can it sustain this common cause and sense of direction through the many changes which take place from one generation to another?

These problems are not unique to corporations. They exist in all large organizations, in political and religious institutions. Consider any great organization—one that has lasted over the years—and I think you will find that it owes its resiliency, not to its form of organization or administrative skills, but to the power of what we call beliefs and the appeal these beliefs have for its people.

This, then, is my thesis: I firmly believe that any organization, in order to survive and achieve success, must have a sound set of beliefs on which it premises all its policies and actions.

Next, I believe that the most important single factor in corporate success is faithful adherence to those beliefs.

And finally, I believe that if an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except those beliefs as it moves through corporate life.

In other words, the basic philosophy, spirit, and drive of an organization have far more to do with its relative achievements than do technological or economic resources, organizational structure, innovation, and timing. All these things weigh heavily in success. But they are, I think, transcended by how strongly the people in the organization believe in its basic precepts and how faithfully they carry them out.

IBM, I think, offers some evidence of how an organization's beliefs can help it to grow and prosper. Not one of the beliefs I shall talk about is unique, though IBM's approach to them may be unusual. At any rate, I offer them for whatever value they may have for other organizations. Initially I shall examine these beliefs to see how they have been developed and applied. Thereafter I shall expand the thesis with some views on the broader responsibilities of American business.

Some may say that our experience has been unique, that IBM has been successful only because it has had an unusual market and because it has been in that market long enough to establish deeper roots than some other organizations. As a consequence, this argument goes, even befuddled management could have moved a company to the point that we have moved ours. Obviously we don't believe this.

It is true that we have enjoyed more than the usual measure of success. Of course being in the right place at the right time with the right product has helped a lot; yet I do not think this has been the decisive factor. I attribute our success in the main to the power of IBM's beliefs. This is not to say for a moment that our philosophy is the only one for business. Although I hope that it may prove useful to others, I have no gospel to spread outside IBM.

During the early period of IBM's development—from 1914 to 1945—while its beliefs were being formed, tested, and put to work, they helped sustain the company through its struggles and raise it to a position of leadership in its industry and prominence in American business.

During the second period of IBM's development—from 1946 to the present—they have made it possible for us to take sweeping technological changes in stride and grow at a rate that has won IBM a place as one of the prime growth companies of the nation.

Let's take a look at this growth.

Within a period of two generations, we have expanded from an awkard combination of three small companies into an international company whose revenues in the United States and abroad exceeded $2 billion in 1961.

In 1914, when my father joined the company, its products consisted of butcher scales, meat slicers, coffee grinders, time clocks, and a primitive assortment of punched card tabulating machines. Today IBM computers are in the forefront of a new technology which some say will have a greater ultimate impact on society than any other invention of the past fifty years.

During the last forty-eight years, IBM has grown from a company of 1,200 people to one of more than 125,000—two-thirds of them in all fifty of the United States, the remainder in ninety-four countries overseas. Domestic revenues alone have increased more than 400 times over the $4 million a year the company grossed in 1914. Not once during those forty-seven years did the company fail to make a profit. Not since 1916 has it ever had to pass a cash dividend. In all, it has split its stock a total of eight times, five times during the last ten years. In addition, the company has declared twenty-five stock dividends.

During the same period, profits after taxes rose from about half a million to more than $200 million. The company had almost 800 stockholders in 1914; today we have more than 225,000. If an individual had bought 100 shares of our stock in 1914, it would have cost him $2,750. And if he had left those shares untouched, they would have been worth $5,455,000 by September 30, 1962. One hundred shares, bought for $21,300 as late as 1950, would have been worth almost $333,000.

All this occurred in forty-eight years, about the working lifetime of most businessmen.

In appearance, IBM today is quite different from the company it was in 1920, 1930, or even in 1940. Its products have changed from tabulating machines with Queen Anne legs to high-powered computers, some of which can perform at the rate of more than 600,000 calculations per second. The starched collar is gone, along with our company songs, trade marks of the 1920s and '30s.

But in its attitude, its outlook, its spirit, its drive, IBM is still very much the same company it has always been and that we intend it shall always be. For while everything else has altered, our beliefs remain unchanged.