This is a transcript of Ramji Raghavan’s podcast: Learning from the Mavericks: Tom Watson of IBM
. . .
It was the roaring twenties in America, a time of change and growth. A man went to a country fair to get a plane ride for five dollars. Flying then was new, exciting and dangerous. The man had never been up in a plane. He stood in line was next to go when his children asked him to get ice cream. He gave his place to go to the ice cream stand. The plane crashed, killing three people. The man decided never to fly. Luck, or karma, had ensured that Thomas Watson would live and go on to build IBM into one of the greatest companies in the world.
In The Maverick And His Machine, the author Kevin Maney describes how luck, madness and hard work created Watson and IBM’s incredible success. Watson came from poverty and worked his way up to the top rung of NCR in Dayton, Ohio. NCR’s questionable business practices led to an antitrust suit by the US government. Watson and the senior managers of NCR came close to going to jail.
Then Dayton experienced a massive flood, and Watson and his colleagues played a vital role in running relief efforts. Shockingly, NCR’s President Patterson fired Watson. The events left an indelible mark on Watson, at forty and without a job. Watson was driven to prove that Patterson had made a mistake and resolved to build a great company that would reflect high moral values.
Watson joined the computing, tabulating recording company CTR as President in 1914. In 1924, he renamed it IBM, becoming its effective founder. The rest, as they say, is history. A history that is worth exploring, in particular, two momentous and courageous decisions that Watson took during times of extreme crisis, which transformed IBM and the world’s information processing industry.
Like all great leaders, Watson had significant flaws. He was a tyrant. All decisions went through Watson. There was never a chain of command at IBM. It was a web with Watson as a spider. Watson became IBM, and IBM became Watson. In fact, Watson became more famous than his company. His dictatorial style ensured that for most of his long leadership of IBM, there would be no worthy successor in waiting.
Watson had no technology vision in the sense of today’s tech visionaries. He didn’t understand electronics and looked at every innovation through the lens of IBM’s punchcard business. Watson got into electronics initially to build a relationship with Harvard University. Ignoring in the publicity that followed the project, he took the plunge into electronics as revenge against Harvard.
Watson had several exceptional strengths. They enabled him to act with daring in the most challenging circumstances. While Watson did not have a tech vision, he was a great builder. He experimented vigorously and would often assign different people in IBM to work on parallel competing projects.
Watson thought big. “Think in big figures,” he told his executives in 1920 at CTR. It was a bad call at the wrong time. Still, Watson was always ready to make the big call. He dreamed of building a big giant like GM or ATMT. As Maney writes, at seventy he had a plan as big as the moon. Watson had unwavering optimism. An optimism which propelled him to take gigantic risks. His decisions to go against the tide, again and again, led IBM to greatness.
His colossal ambition led him to achieve near-impossible goals. One of his many sayings, which were often in the company, was “They can, who know they can.” Watson generously gave credit to his people. He made people want to be a part of the IBM. IBMers felt a sense of mission. They felt that they were building machines that had never before existed. As Kevin Maney writes, people hitched themselves to Watson like railcars to a locomotive.
Watson built a strong, cohesive and successful corporate culture around key institutions. IBM’s unique culture included an open door policy, loyalty to employees, company songs, institutions, and even a dress code: dark suits, white shirts, striped ties. IBM’s culture took it forward in ways its competitors couldn’t beat. Instead of being told what to do, people felt it. Peter Drucker said that culture eats strategy for breakfast. Watson practised it in spades.
The Romanian sculptor Brancusi famously said, “Simplicity is complexity resolved.” Watson had a genius for making the complex seem simple. IBM’s think slogan, which he coined at NCR, became omnipresent and entered popular culture.
In an essay titled “We Forgive Thoughtful Mistakes”, ex-IBMer Peter Greulich tells the story of an IBM salesman who explains the reasons for losing a much needed million-dollar sales deal during the Great Depression and offers to resign. Watson hands back the resignation saying, “Why would I accept this when I have just invested one million dollars in your education?” Watson’s concept of the industrial family placed the customer first, followed by employees and shareholders. Creating the IBM Culture, says Maney, was Watson’s brilliance. It saved him from his many flaws.
Watson was a great salesman. He even attracted presidents. The employees he loved the most were salesmen. I remember experiencing the powerful IBM way of selling at a restaurant in Miami in the early 1980s. I was in charge of selling electronic banking products for Citibank to corporate customers in Puerto Rico. The IBM trainer had explained to the Citibank team new to sales the futility of the features based approach to selling. “By selling technological features, you are losing your customer,” he said, “Instead start with your customer’s objectives. Explain the benefits of your product and then describe the relevant features. Let me show you,” he said and asked the waiter to take us through the elaborate menu. As the waiter poured through the menu, our eyes began to glaze over. The IBMer asked the waiter to stop and start again, this time focusing on items of special interest. With gusto, the waiter spoke directly to each one of us. We were engaged now. He had our attention. It was a lesson that I have never forgotten.
Watson used his remarkable qualities to take to all or nothing bets on his company. Bets that propelled IBM to greatness. Bets that any other man or woman might have hesitated to take for fear of destroying their company. During the Great Depression, starting in 1929, when America’s and the world’s economies were crashing, Watson almost insanely kept his factories running, adding employees and increasing IBM’s R&D funding. Unsold inventories piled up at the factories, and IBM came close to insolvency. Only a miracle could save it. The miracle came in August 1935 in the form of the social security act. Overnight demand from the government and the private sector for IBM machines soared, leading to the biggest operation of all time. And only one company could meet the demand, and that company was IBM.
IBM’s slingshot led to forty-five years of success and prosperity, unmatched by any industrial company in history. Amazingly, Watson told management guru Peter Drucker, he had never anticipated the Social Security Act. To quote Maney, “Watson did not foresee that the act combined with IBM’s readiness would not only save IBM but propel it towards tremendous growth.
Watson’s second bet the company gambled was enacted during the second World War. Watson used government money to cheaply and quickly expand IBM’s factories to produce military weapons and equipment for the war effort. By 1943, war production had helped increase IBM’s factory space by two and a half times. Watson invested in hiring new engineers and created new products to be ready to offer to his base of large customers. But post-war demand for IBM machines was expected to collapse in the recession that most experts predicted would follow the end of the war. Exposed, IBM would be staring into the abyss.
Watson decided he would create new markets for IBM by converting the higher grade machines on rent to the government, that would be returned after the war, into lower speed machines, and offering them to small companies in the US and to Europe, which would grab these machines to drive its post-war recovery. Post-war, instead of a recession which everyone expected, the economy boomed, and with it, IBM took off like a rocket.
It is said that fortune’s expensive smile is earned. Watson took gigantic risks to earn IBM’s great fortune. What did Watson see that most others did not? He admitted he had no foreknowledge of the huge upsides for IBM of the great events that occurred. What drove him then to take such hugely courageous, verging on madness, decisions? Perhaps it was his exceptional and unwavering optimism. An optimism that came naturally to the one that media called the world’s greeted salesman. Perhaps he needed to experience the thrill of letting his contrarian views flow. Or perhaps, it was his faith in the US economy and his belief in IBM’s capacity to bulldoze through the darkest hours of first the depression and then the war. Perhaps it was his Messianic goal and ambition, a magnified spirit born of an outsized ego to dominate his industry. Or his stupendous capacity for long-term thinking.
Watson, Richard Tedlow writes, was the longest of the long-term thinkers. Watson’s humongous gambles coincided with apocalyptic events, not unlike in severity to the one the world currently faces. He must have calculated weighed the stupendous cost and risk of gearing up to seize an uncertain future, with the potential opportunity to transform IBM into greatness. Watson had prepared IBM for luck. Whatever drove him to go for broke again and again, his singular decisions made against a backdrop of madness, luck, and hard work created history.
At 82, on May 8th, 1956, Watson handed over IBM’s reigns to his son Tom Watson Jr. Tom Watson Jr. propelled IBM into the electronic computer age and became one of the most successful CEOs in history. Genetics, happenstance or luck appointing Tom Watson Jr, worthy son of a worthy father, as his successor, was another one of Tom Watson’s great bets. This last and most successful bet ensured that Watson’s legacy would shine well and long into the future.
. . .
The Learning From The Mavericks podcast pays tribute to some of the world’s greatest leaders and innovators, allowing us to learn from their lives and experiences. Find this episode of the podcast here: https://youtu.be/qBYo-eaG__g
