Chapter 4: The New Environment

IBM came out of World War II a large corporation, the largest in our industry.

During those first thirty-two years between 1914 and 1946 we had tested and put to work our strong corporate beliefs. Now we were to be faced with the task of adhering to those beliefs while the organization—as well as the world around it—faced new challenges and changed radically to meet them.

In the maintenance of our beliefs through change we were to experience problems vastly different from those we had known before. It was one thing to adhere to our beliefs when we were a relatively small company with only a few thousand employees, a company where the product line shifted slowly over the years and which was run, essentially, by a few executives. It was another to live by those same beliefs through a tumult of change which was to bring with it new techniques, new products, new markets, and a staggering increase in the company's size.

First, there was the matter of growth alone. From domestic gross revenues of $115 million in 1946 IBM went on to increase them by a factor of fourteen, until in 1961 they stood at $1.7 billion. Employees in the United States went from 17,000 to almost 80,000. During these same fifteen postwar years our data processing customers grew from 6,000 to 19,000. On the manufacturing side, we had been largely a New York State company, with major plants in Endicott and Poughkeepsie. Since 1950, we have built eleven new plants in nine states—all the way from Vermont to California.

In 1946 our overseas operations were relatively small. They were run as a department of the domestic company. Last year the many companies that make up our wholly owned IBM World Trade Corporation had a gross revenue of just under half a billion dollars. This was in addition to our $1.7 billion of domestic revenue. From West Berlin, where a new IBM office has just been completed, to Bangkok, where an IBM installation is housed in the royal palace, IBM World Trade is growing at a rate faster than that of the domestic company.

In technology, too, we have experienced vast changes. Before the war there were many major similarities between our machines of 1918 and those of 1938. To be sure, there were more of them and their capacities had been increased, but they operated very much in the same way and on the same old principle of the electrically sensed punched card. Now the equipment is changing so rapidly that a substantial part of our data processing revenues comes from machines announced only six years before. Whole new generations of electronic computers come along in rapid order.

The shift from electromechanical punched card equipment to electronic computers with magnetic tape inputs and high-speed printers was as revolutionary, in its way, as the advance in the aerospace industry from DC-3s to Titan missiles. These changes had a wide-sweeping effect on our people and on everything they did. To design and build the new computers, we had to create large engineering and technical forces and retrain many of our production people. To sell the new systems and put them to work, we had to expand and retrain our sales staff. We helped to create whole new professions, such as programming and systems engineering. And to install and maintain the equipment, we had to recruit and train a nationwide force of skilled customer engineers.

In the 1930s the engineering people we hired had conventional electrical or mechanical training. Now we had to look for scores of new disciplines—many of them in critically short supply. Our laboratories began to fill up with specialists in areas of electronics and physics, with chemists, metallurgists, and mathematicians. Our operations now demanded basic research in a number of important areas. We went heavily into applied research and engineering. We needed theoretical thinking of the highest order.

These changes had profound effects on our operations in the field. Salesmen trained to market relatively simple accounting machines suddenly found themselves responsible for enormously complex million-dollar computer installations. Customer engineers entered a strange new world of electronic testing equipment.

The magnitude of this changeover can probably best be illustrated by the advances that have been made in computing speeds during the last two decades. The first large-scale computer, the Mark I, built by IBM in collaboration with Dr. Howard Aiken and presented to Harvard University in 1944, was capable of three calculations per second. The first commercially available large-scale IBM computer, the 701, in 1952 did 16,000 a second. Today machines capable of more than 225,000 calculations a second are commonplace in the industry.

Other features of the data processing operations have also been speeded up. Punched cards used to enter data into the machines at the rate of 133 characters a second; now magnetic tape can feed data into computers at the rate of 170,000 characters a second.

These concurrent explosions in technology and growth put severe strains on our organization, but I think we have come through them with a reasonable degree of success. There were many problems, to be sure, and most of them were new to us. Some we have solved, others are still with us, but in almost every case we've learned some hard lessons along the way. And many of them have to do with our beliefs.

During the period prior to 1946 it was quite easy for us to make everyone understand how interested we were in the well-being of our people. For one thing we had relatively few of them. For another, we added to them slowly. When a man joined the company he would, in time, learn of its traditions from his manager and others with whom he worked.

But with the rapid changes that began to take place as a result of technology and growth in the years following 1946, we found it harder to convince the individual employee that we still looked upon him as the most important asset in the corporation.

Prior to 1946 our sales growth rate averaged more than 12 per cent a year. During the early 1950s we grew at the rate of 24 per cent a year. If the company's beliefs were to count for anything, we would have to make it very clear to new employees what IBM stood for.

Naturally we had recourse to all the usual company communications. But the key to helping our people understand lay with the individual managers. Unfortunately, most of our managers in the middle and later 1950s had been with the company a very short time, and it was difficult for them to explain our traditional philosophies.

We attacked the problem by setting up two management schools—one for junior executives, another two years later for line managers. These schools were not only to teach general management, but—most important—they were to give our managers a feeling for IBM's outlook and its beliefs. After a time we found that the schools tended to put too much emphasis on management, not enough on the beliefs. This, we felt, was putting the cart before the horse, so we changed the curriculum. We felt it was vital that our managers be well grounded in our beliefs. Otherwise, we might begin to get management views at odds with the company's outlook. If this were to happen, it might possibly slow down our growth and change our basic approach to the management of our company.

But even assuming that the individual manager has been soundly grounded in IBM's beliefs, there is always the possibility that the pressure of his job may cause him to compromise them. This is a natural tendency, I suppose, especially for the manager rated on the profitability of his operation. At what point, for example, does the pressure he puts on employees begin to violate the company's belief in respect for the individual? In 1956 we reorganized the company into divisions and started to emphasize profit as the measure of each division's performance. At that point we began to see clearly that some division managers might become so profitminded that they would lose track of our beliefs unless constantly reminded by top management.

In one instance our customer engineers were spread too thinly across customer installations. This was good for profit, but the morale of the overworked customer engineers began to sag. Our high standards of service were certainly in jeopardy. Corners had been cut on two beliefs—respect for the individual and service to the customers, We quickly righted the imbalance and looked for other ways to hold the cost line.

While the beliefs may be clear enough, practicing them is not always a matter of course. For example, for years we had operated our plants on the basis of a fair day's work for a fair day's pay, no piecework, no individual daily quotas. This practice proved a great shot in the arm when the company needed it most—in its early years when morale was being built. But later, injustices crept in. I first got wind of what was happening when a young man came down from our Poughkeepsie plant to make use of the Open Door and tell me he thought he had been fired unfairly.

He had complained to his manager that although he was one of the highest producers in his department he was drawing one of the lowest wage rates. When his manager gave him no satisfaction, he went to the plant superintendent.

The latter listened and then replied, "It sounds to me as if you don't have any faith in the management of this plant."

"You're darned right," the young man said, "I don't."

The superintendent fired him on the spot.

When I looked into the situation I found that the young man was justified in his complaint—and there were probably others in the same fix. For what constitutes "a fair day's work" may mean one thing to one manager, another to the manager in the next department. In some instances low performers had climbed to the top of the pay scale, primarily because of their attitude and appearance. In others, high performers found themselves at the bottom of the scale. This was obviously unfair. What had started out as a program to raise morale had been changed so much by intermediate management that morale was actually lowered.

At the same time we found ourselves in an increasingly competitive situation, making it necessary for us to improve production and cut costs. To do this, we had to give managers bench marks against which they could measure performance. We began to introduce new techniques for the measurement of performance. Since we were still in a semi-inflationary period, it was possible to slow down raises for the low producers and speed them up for the high producers so as to correct the imbalance in pay-production ratio.

Traditionally IBM had been opposed to such things as time and motion studies, so when we decided to introduce some of these procedures the change had to be carefully planned. In some IBM divisions and plants the job was well done. In others, unimaginative managers took the attitude—"Well, it's a new and tough regime; you had better shape up or ship out." I began to get an increase in complaint letters and Open Door visits from our plant employees.

Many of these complaints were justified, for in many instances our people were irked. We learned a lot about some of our managers and employees as a result of these difficulties. Where necessary, the pressure was eased.

The problem is by no means entirely solved, but we feel that most people are now working in a more productive atmosphere. Morale improved, and this improvement enabled us to cut costs with less strain.

The mistake was the same one we had made in the instance of the customer engineers—we had let some managers in their zeal override human relations. As long as new programs of this kind are properly explained, there's seldom any trouble. Try to do it without sufficient explanation or without selling the idea, and you usually have trouble.

Although we might be said to have gone conventional on this matter of work measurement, we went off in the other direction on our compensation plan in 1958. In that year we eliminated the hourly wage and put everyone in IBM on straight salary. That move eliminated what had been the last distinction between our blue- and white-collar employees. I think this has meant as much to our people as any innovation we've made in human relations since the end of World War II.

On the question of fair treatment, I'm reminded of the lesson we learned about the transfers of our people in the field. With nearly two hundred branch offices and rapid company growth, a certain amount of moving was inevitable. But when people began to say that IBM stood for "I've Been Moved," we naturally looked into what we were doing in that area.

We found that many of these moves were really being made for the convenience of the company rather than for the benefit of the employee. This called for a new set of requirements, the principal one of which made it mandatory that a person moved on individual reassignment be given a substantial increase in responsibility and pay. This change resulted in relatively fewer moves. To make certain we were fair to those being moved, we introduced an improved program to minimize the individual's out-of-pocket moving costs.

In all good human relations communication plays a very important part. People can be directed, but they respond best when they understand what they are supposed to do and why. Until there is under standing, there is no real basis for motivation. I believe management must seek consent.

Our problems here have been pressing. From 1946 through 1962, IBM's worldwide population increased by more than 100,000 people. We are more spread out than ever. Growth has brought with it thousands of new managers. Despite our efforts to contain them, there are many new levels of management. We have had to face the problem of how to implant and keep alive in these people a real feeling for the traditions and beliefs of the business,

• how to keep them pulling together despite their natural diversity in interests,

• how to shorten the distance between the man at the bench and his division manager, the president, or the board chairman,

• how to maintain the "small company attitude" that meant so much to us at the time we were growing up.

This small company attitude is a term we frequently use. We encourage it in every way we can. We want our people to feel that they understand one another, that they have some knowledge of each other's problems and goals. And we want them to feel that they always have access to management, that no one is so far down in the chain of command that he cannot be kept aware of what is going on.

In IBM today there are eight levels of management between the man at the bench and the president or the board chairman. There are seven levels above the salesman. This is more than we like, but we try to keep it down to that. And we do a number of things to help shorten the distance.

Some are conventional. For example, we have a question and answer program that draws some 300 inquiries or complaints a month, and few of them pull their punches. We have a suggestion award program that brings in more than 100,000 entries a year; annual employee appraisals and frequent attitude surveys; and eighteen plant, division, and company news publications.

Others are more unusual. One is a newsletter called Management Briefing. A few years ago we surveyed a group of managers and found we were falling far short of keeping them well informed. Today Management Briefing goes regularly to more than 10,000 managers—the majority of whom many companies would call foremen.

Management Briefing provides our managers with background information on company announcements and activities. It explains the "why" behind policies, and it covers actual case studies—or object lessons—in management to help us avoid making the same mistake twice.

For communications to executives on very important matters, we began three years ago to issue "President's Letters"—they are now called "Executive Letters." On the average we publish fewer than a dozen a year, and they are used to explain basic IBM policies when we feel that such explanation is in order.

One of our most unique customs is the IBM Family Dinner. At least once every two years in every one of our branch offices around the country our people—along with their husbands or wives—are asked to dinner with an officer of the corporation to learn what is going on. In telling his story he shows a half-hour filmed report on what the company has done in the past year. These Family Dinners keep our executives on the go, but they give us an occasion where we can get together informally, and they help keep our small company attitude alive.

We also write letters of congratulations on promotions and jobs well done. And when our people get sick, or when they lose a member of their family, we remember them with notes of sympathy or condolence.

When I have an important announcement to make I do it by a telephone broadcast, very often to all our domestic employees. I believe it means more to them when they hear these announcements directly from me. There are seldom more than one or two a year—we save them for things that personally affect most of our people.

Quite aside from these usual communication problems, there is one area in particular where we make a special effort to see that there is good understanding between management and our people. This is in the whole area of business ethics and the observance of antitrust laws—specifically in compliance with our consent decree.

About ten years ago we in IBM were considerably disillusioned to learn of some shoddy practices in purchasing. We had heard, of course, of such situations in other companies but thought it could never happen to us. We promptly and vigorously corrected the situation.

This breakdown, however, reminded us that people, after all, are people and that bringing them into IBM doesn't put any magic, protective cloak around them. To keep a company ethical and clean is the responsibility of top management. It can never be left to chance.

With all of these innovations we have introduced in company communication, the principal lesson we have learned, I believe, is that you must make use of a number of pipelines, upward as well as downward. Parallel communication paths may seem unnecessary to some. But we have found that any single path can be only partly successful, that certain information flows better over some paths than others, and that all employees do not react in the same way to a given medium. Management must have a wide selection of communication means at its disposal. And, probably even more important, the employee must have a variety of ways through which he can make his voice heard by management.

But before leaving this whole question of attitudes and communication there is one point on which I have some real concern. It has to do with the cautious attitude of so many young men in middle management today. They seem reluctant to stick their necks out or to bet on a hunch.

This is not always because they lack nerve. Sometimes they make the mistake of thinking that top management places a greater premium on following form than on anything else. I wish we could stir them up a bit and encourage a little more recklessness among this group of decision makers. Every time we've moved ahead in IBM, it was because someone was willing to take a chance, put his head on the block, and try something new.