Here is an excerpt from an article written by Nancy Koehn for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.
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Apple, Google and Facebook generate a lot more buzz in the tech space than IBM these days, but Big Blue’s track record outshines all of these younger players when seen from the wide-angle lens of history. In fact, IBM’s is one of the greatest (and, yes, less well-known) stories of American capitalism. At its 100-year milestone, IBM shows us what it takes to outlast depression, war, and intense competition in order to remain a market leader in the midst of ongoing technological innovation. Here are several lessons worth sharing.
[Here are the first two of four that Koehn suggests. To read the complete article, please click here.]
Be nimble and quick to adapt in a world of disruptive change
IBM began as a computing and tabulation company, selling an array of products, including meat slicers, scales, employee time-keeping systems, and other goods. However, from the start, IBM was a company built for change. From his first days at the helm, Thomas Watson Sr. had big plans for the company. Throughout the 1920s, and even in the midst of the Great Depression in the early 1930s, he kept the company focused on what was then cutting-edge tabulation — the punch card machine — pouring profits back into research and development. When the Social Security Act of 1935 created a huge demand for record keeping, IBM was ready, landing an enormous government contract to keep employment records on 26 million people. World War II then brought additional information-processing needs, as the U.S. military began using IBM cards to keep track of supplies, personnel and casualties. During this period, company sales grew from $40 million in 1939 to $142 million in 1945.
In the late 1940s, IBM took its first big step to becoming a world-class computer company by investing in mainframes. By 1955, IBM’s revenues were $564 million and it led the world market in making computers. In the early 1960s, the company placed a huge bet on compatibility and scale in computing by investing $5 billion — about three times annual revenues at the time — in what became known as the System/360. This innovation came to market in 1964 and quickly became a smash success, setting the standard for the industry and greatly expanding computer use around the globe.
Know your customers intimately
By 1980, IBM was a leading manufacturer of mainframes, selling to some of the largest businesses in the world. Never settling, IBM management charged a taskforce with developing a personal computer to compete in the young, growing market for smaller, more versatile machines. The deadline for the IBM PC’s introduction was Fall 1981. Pressed for time, the taskforce decided IBM would build its personal computer with components made by outside suppliers, and the new machine would be based on an open architecture, meaning system specifications would be made public. Launched in August 1981, the IBM PC was an extraordinary triumph — in the first full year of production, the company’s microcomputing revenues topped $500 million. Three years later, they had skyrocketed to $5.5 billion, the fastest recorded revenue growth in industrial history. Sold heavily by IBM’s famous sales force, the company’s product created the first truly mass market for the personal computer.
Within a decade, however, IBM had fallen behind in the market it did so much to create. Faster, cheaper and more nimble competitors had eaten away at Big Blue’s market leadership. By the early 1990s, financial analysts estimated the company was worth more broken up and sold than it was as a whole. Newly appointed CEO Lou Gerstner logged thousands of hours visiting customers, industry experts and analysts. He then set about transforming the company to rekindle IBM’s historic commitment to customer intimacy, to make the organization much more integrated, and to streamline operations. The overarching strategic goal was to create an enterprise that could understand its customers wide-ranging IT needs (in some cases before they did on their own) and to deliver on these demands more effectively than any rivals. By 2000, IBM’s Global Services had become the world’s largest IT consulting and web services organization, providing almost 30% of the company’s revenue. Nine years later, IT services accounted for 42% of IBM’s $95 billion in sales.
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No company lives more than a decade or two without reinventing itself. IBM has kept up with the white hot speed of technological change, evolving from a tabulating company to IT consultant powerhouse. Because IBM leadership understood the imperatives for thriving in turbulent times, it has managed to stay on top. In the intensifying volatility of today’s global environment, companies from many sectors would do well to learn the lessons of IBM’s first century.
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To read the complete article, please click here.
Nancy F. Koehn is the James E. Robison Professor of Business Administration at Harvard Business School.