A Business and Its Beliefs - The Ideas That Helped Build IBM

Thomas J. Watson, Jr. Former Chairman of the Board International Business Machines Corporations

McGraw-Hill

McGraw-Hill A Division of The McGraw-Hill Companies

Copyright 2003 McGraw-Hill

1963 by Trustees of Columbia University in the City of New York. All rights reserved. Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a data base or retrieval system, without the prior written permission of the publisher.

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"I firmly believe that any organization, in order to achieve success, must have a sound set of beliefs on which it premises all its policies and actions."

"The relationship between the man and the customer, their mutual trust, the importance of reputation, the idea of putting the customer first—always—all these things, if carried out with real conviction by a company, can make a great deal of difference in its destiny."

"To keep a company ethical and clean is the responsibility of top management. It can never be left to change."

PUBLISHER'S NOTE

A Business and Its Beliefs was first published by McGraw-Hill in 1963 and quickly became an important part of the management literature of the day. It is considered one of those rare books that is as relevant today as it was when it was first published four decades earlier. Not only were Thomas Watson, Jr. and his father prescient, but they also gave voice to many ideas and principles that other companies and CEOs would adapt many years later. It is for this reason that McGraw-Hill has decided to reissue this classic leadership volume.

When Mr. Watson, the son of the legendary founder Thomas J. Watson, Sr., wrote the book, he was chairman of the board of IBM, having also served as the company's president and CEO. The premise of this important work is clear and straightforward: that all great institutions require a set of principles and beliefs to guide them through good times and bad. And the most important determinant of a company's success depends on its "faithful adherence" to these bedrock beliefs.

At IBM, Mr. Watson felt that three core beliefs formed the foundation for the company's success:

• Have respect for the individual.

• Give the best company service of any company in the world.

• Pursue all tasks with the idea that they can be accomplished in a superior fashion.

Have Respect for the Individual

Thomas Watson, Jr. said that respect for the individual "was deep bone in my father." Both father and son believed that an organization owed a special responsibility to its people, and both spent a majority of their time making sure that employees were treated with dignity. This belief was born out of Thomas Watson, Sr.'s own experience. Early on in his career he was fired from a company called National Cash, but later he was called in to run a company called Computing-Tabulating-Recording Company, a series of three small companies that would become IBM a decade later.

Respect for the individual took many forms at IBM. It meant having an "open door" policy, long before other firms would adopt such a measure. Thomas Watson, Jr. "recognized that the individual has his own problems, ambitions, abilities, frustrations, and goals." As a result, managers were expected to work with employees, assist them on sales calls, and know how to train them. Also, Watson felt strongly that there should be "continual opportunity for advancement" and key management positions should be filled from within the company.

Lastly, Watson felt that IBM needed its share of "wild ducks." To better understand the origins of this philosophy, one will have to read the book. Suffice to say that Watson knew that complacency was the enermy of the organization, and he worked to make sure that the company had its share of wild ducks.

Give the Best Company Service of Any Company in the World

In its early years, IBM ran an advertisement that Watson felt summed up another key company philosophy: "IBM Means Service." To the IBM founders, this meant giving the "best service of any company in the world." One of the origins of this lofty and important goal was the early career of Thomas Watson, Sr. When he was 18, he sold pianos and sewing machines in the countryside. Farmers, almost always short of cash, traded farm equipment or livestock for Watson's goods. This embedded in him a keen understanding of how to please customers, even those incapable of "paying" for his products.

At IBM, granting excellent customer service was the responsibility of IBM's sales and service forces, but "that good service … requires the cooperation of all parts of the business." Thomas Watson, Jr. stated unequivocally "a reputation for service is one of the company's principal assets." He also said that ultimately service became a "reflex" at IBM.

Pursue All Tasks with the Idea That They Can Be Accomplished in a Superior Fashion

"IBM expects and demands superior performance from its people in whatever it does," proclaimed Thomas Watson, Jr. He added that this sort of environment is never easy, but aiming for perfection will put organizations on the proper path. Watson also added that it is incumbent upon corporations to aim for seemingly impossible tasks. We see, once again, that Watson was ahead of his time. Decades later, other CEOs attracted attention for establishing "stretch goals," something that IBM had been issuing since the first half of the 20th century.

Thomas Watson, Sr. used to tell his employees "It is better to aim at perfection and miss than it is to aim at perfection and hit it." This set a tone of "optimism, enthusiasm, excitement and pace." The company constantly strived to do things better, to find a way to improve on everything it did, from new products to slogans to sales contests. It was this optimistic tone that led the senior Watson to hire salesmen even during the Depression. He told a competitor that men of his age always do something "foolish." He added "some men play too much poker, and others bet on horse races … my hobby is hiring salespeople." When business conditions improved the following year and boomed after the war, Thomas Watson appeared to be not so foolish after all.

FOREWORD

It is now a commonly accepted truism that the corporation is more than a legal entity engaged in the production and sale of goods and services for profit. It is also the embodiment of the principles and beliefs of the men and women who give it substance. More particularly, the corporation is the expression of those who have given it leadership in its development and in the conduct of its affairs.

Perhaps no corporation is more illustrative of these characteristics than the International Business Machines Corporation. Engaged as it is in advanced scientific development, as an organization it is nevertheless governed in its daily affairs by the verities of human relations. Enduring truths of personal conduct learned early by the company's founder in an uncomplicated rural community setting have successfully served as management guidelines in the development of a highly complex business organization which operates in the most scientific areas of contemporary times.

The interesting story of this remarkable experience in the business world is told with perception and enthusiasm by the Corporation's present chief executive officer, Mr. Thomas J. Watson, Jr. Technological change in its field has been unbelievably rapid, and the growth of the company has been remarkable. In fifteen postwar years gross sales have increased by a factor of fourteen. It is one thing to hold firmly to guiding beliefs in a static situation; it is harder to do so in a dynamic and ever-changing one. Respect for the individual may be just as great, but it is far more difficult to assure that it is given expression. Dedication to service acquires new dimensions and takes new forms, and the task of convincing new employees of its prime importance is formidable. The effort to achieve superiority in all activities is progressively more challenged as the range of activity is extended. The manner in which management has adapted its basic beliefs to the company's rapid development serves convincingly to reaffirm their validity.

These essays have grown out of the lectures presented at the Columbia Graduate School of Business in the spring of 1962. Sponsored jointly by the School and the McKinsey Foundation for Management Research, Inc., they were part of the continuing series on the management of large organizations that has become so well known in recent years.

The thinking of a man with the inquisitive and vigorous mind of Mr. Watson would naturally extend beyond the boundaries of internal company affairs. His observations on the role of the modern corporation in the society that gives it sanction share equal place with his insights on business management. The reader of this volume will find it to be a forthright expression of the enlightened attitudes of business leaders in the Western World—attitudes that serve as our most effective defense of the free way of life.

COURTNEY C. BROWN
Dean, Graduate School of Business
Columbia University

ABOUT THE AUTHOR

The personalities of corporations and their founders are often inseparable; one is frequently an extension of the other. Certainly this was true of IBM and Thomas J. Watson, Sr. They combined to make an American business legend. This legend continued into a second generation under the firm hand of Thomas J. Watson, Jr.

A better than two-billion dollar a year global business, the present IBM is as different from the IBM of a relatively few years ago as the prewar America is from today. It was the younger Watson who played a large hand in fitting the company to the changed environment.

He was born in Dayton, Ohio in 1914 and made his first speech at an IBM sales meeting when he was twelve. After graduating from Brown University in 1937, Watson became an IBM salesman in downtown Manhattan. Fourteen months before the United States, entered World War II, he went on active service and became a B-24 pilot. An airplane enthusiast, he had been flying since his college years.

During the period before the war, Thomas J. Watson, Jr. had more than held his own in a company that prides itself on salesmanship. In 1946 he was made a vice president. He became president in 1952, chief executive officer in 1956, and continued in that latter post as chairman of the board until 1971, a year after suffering a heart attack.

Like his father, Watson's interests ranged beyond his corporation to wide areas of public concern. He served as a trustee of a number of organizations and was a member of the President's Advisory Committee on Labor Management Policy.

Watson died in Greenwich, Connecticut, on December 31, 1993 of complications following a stroke. He was seventy-nine.