Building Big Blue, Reinventing Business

By Spencer E. Ante


Thomas Watson, Sr., and the Making of IBM

By Kevin Maney Wiley -- 485pp -- $29.95

Who are the top business leaders of the 20th century? A few names inevitably pop up: Henry Ford, Jack Welch, and William H. Gates III, to name the obvious. Fewer people would cite Thomas Watson Sr., the creator of IBM (IBM ), who ruled the company from 1911 until his death in 1956. But as Kevin Maney shows in his new biography, The Maverick and His Machine: Thomas Watson, Sr., and the Making of IBM, Watson undoubtedly deserves off-the-top-of-your-head name recognition today.

Maney, a reporter for USA Today, scored an amazing coup: He is the first writer to have gained access to the Watson papers in IBM's archives. Tens of thousands of documents had been lying untouched for decades, including word-for-word meeting notes, scathing memos, and personal letters to U.S. Presidents. Although Maney's book loses some steam at the end, he uses this treasure trove to provide one of the most complete and lively accounts of an industrialist who helped pioneer the information-technology industry and created an institution that changed the world.

IBM's initial greatness grew out of a dark and near-catastrophic chapter in Watson's life. In 1912, the trustbusting Taft Administration went after the National Cash Register Co., where Watson was a rising star. NCR had monopolized the cash register business, thanks in part to Watson's efforts. Under the direction of his NCR bosses, he went undercover and set up an NCR-funded used-cash-register operation to undercut secondhand register shops. In 1913, a federal court jury found 29 NCR employees, including Watson, guilty of violating antitrust law. After a new trial was granted, most defendants signed a consent decree that essentially let them off the hook. Still, the desire to bury this episode now consumed Watson.

After the NCR debacle, Watson was recruited in 1914 to head a nearly bankrupt seller of scales and time clocks, the Computing-Tabulating-Recording Co. "He had to prove to the world that he was a moral and straightshooting businessman," writes Maney. "To do that, Watson needed to turn C-T-R into a great and admired company, instilled with the high moral values of an orthodox religion."

And that he did, transforming C-T-R into the world's most powerful technology company. Indeed, Maney shows that Watson recognized the power of information technology in society -- and figured out how to profit from that insight. Watson pioneered many of the industry's strategies, including the key positioning of patents, whose value he discerned while at NCR. His new company, rechristened IBM in 1924, created or acquired many of the patents on tabulating systems. Rivals were forced to invent technology or license IBM's patents -- and IBM didn't always agree to such licenses. Another linchpin was IBM's proprietary punch-card technology. Once customers had entered data onto millions of these cards, they tended to be locked into IBM machines, since the cost of transferring data to a new system was steep.

Watson was more than shrewd: Maney argues that his greatest achievement was discovering the power of corporate culture. Watson built an employee school and country club, lavished rewards on top execs, and instituted equal pay for women. He staged events such as IBM Day at the 1939 New York World's Fair and created a monthly magazine, Think, that came to symbolize IBM. It all added up to a culture that motivated employees and inspired lifelong loyalty -- a heritage that future execs drew on.

Watson's penchant for bold bets also became central to the IBM way. In 1932, at the peak of the Great Depression, he upped plant capacity by one-third and spent $1 million -- nearly 6% of company revenues -- to build one of the first corporate research labs. The bet nearly bankrupted IBM and almost got Watson fired. But it paid off after the Social Security Act was passed in 1935, creating a demand for innovative accounting machines that only IBM could meet.

Watson got most of the big decisions right, but he sometimes made egregious errors. In 1937, he was snookered by Adolf Hitler. On a trip promoting global trade, he accepted a Nazi medal and said Hitler had given him his "personal promise" that "there will be no war." Maney concludes that Watson "misread the Nazis, and missed an opportunity to make a difference. They were the biggest mistakes of his life."

Watson also erred by showing too much caution when it came time to push IBM into electronics. In the late 1940s, when he was in his early 70s, he grasped the potential of vacuum tube-powered computers. Yet Maney says Watson saw electronics as an add-on business, not the next wave that would wipe out his beloved punch cards.

He was smart enough, however, to delegate the electronics effort to his son, Thomas Watson Jr. Maney dutifully recounts the son's rise and how, in the 1950s, he boldly led IBM to create the 702 computer. Remington Rand's UNIVAC had humiliated IBM by famously predicting the outcome of the 1952 election on national television. But the 702 proved twice as fast and more reliable.

At this point, Maney's narrative flags. The bitter power struggles that ensued between father and son have been well documented in Watson Jr.'s poignant 1990 memoir, Father, Son & Co. -- a volume from which Maney draws too often in Maverick's final chapters. Still, Maney has written a timely and authoritative biography. Without lapsing into hero worship, he presents a great, if flawed, man in all his humanity.

Ante covers IBM from New York.

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