International Business Machines (IBM) history

IBM has been a worldwide leader in data processing for more than a century—first in electromechanical punched card tabulating machines, and then in digital computers and associated peripherals, software, and services. The firm had its origin in engineer and U.S. Patent Office employee Hermann Hollerith’s invention of a punched card tabulator in the mid-1880s and the subsequent use of a refined version of this machine on the 1890 U.S. Census.

Hollerith’s machine, which beat out others in a competition held by the Census Bureau to boost the tabulating efficiency over the prior census, greatly reduced the time and drudgery of this unparalleled data processing task. Based on this success, in 1896 Hollerith formed the Tabulating Machine Company to market his machines to government and industry. Though there were some difficult periods in the firm’s early years, it soon achieved steady success, and Hollerith retired to significant wealth in 1911, when he sold the firm to industrialist Charles Flint. Flint immediately combined the company with several other firms and renamed it the Computing Tabulating Recording Company (C-T-R). Though Hollerith continued to actively consult for C-T-R for a couple years, he took a less-active role as soon as the firm hired a powerful new leader, Thomas Watson Sr.

Thomas Watson Sr. was a gifted manager who had learned from one of the nation’s best executives as a salesperson at National Cash Register (NCR) during the first decade of the 20th century. NCR president John Patterson was legendary for creating a world-class sales organization and building his firm’s dominance as the international leader in cash registers. Watson moved up the ranks to become Patterson’s top sales manager before conflict with the president led to Watson’s forced departure. C-T-R soon hired Watson as general manager in 1914, and the following year he became president of the firm. Watson immediately instituted an unwritten, but very real, formal dress code of dark suits for managers, the use of team-building company songs, and a meritocracy of sales based on quotas and incentives. The latter was taken directly from his experience at NCR. Watson’s long reign as the leader at International Business Machines (IBM), the firm’s new name (to reflect its global reach and diversification of products) after 1924, helped the firm to surpass NCR, Remington Rand (formerly Remington Typewriter), and Burroughs as the world’s leading office machine producer during the 1930s and early 1940s. IBM achieved this position through its domination of the tabulation field, its excellent marketing and service network, and its consistent revenue streams resulting from punched card sales and machine rentals (its competitors primarily sold rather than leased machines). These factors proved critical during the unprecedented decade-and-a-half downturn of the Great Depression, when few organizations could afford to buy new office equipment.

University of Pennsylvania Moore School researchers J. Presper Eckert and John Mauchly completed the first digital computer for the U.S. Department of Defense in 1946. While the future business possibilities for computers were uncertain at this time, IBM nevertheless began to position itself to potentially enter this emerging new trade by investing heavily in electronics research by the end of the 1940s. Remington Rand had established a commercial lead by taking over the two pioneering digital computer firms, the Eckert- Mauchly Computer Corporation (developer of the UNIVAC) and Engineering Research Associates. Unlike Remington Rand, which sold its expensive UNIVACs in very low volume, IBM’s strategy was to continue to build on its capabilities in electronics, and enter the COMPUTER INDUSTRY only when it had either a major government contract or a commercial computer that could lease or sell in volume.

IBM, successfully implementing this strategy, entered the computer industry in the mid-1950s after receiving the primary computer contract on the Department of Defense Semi-Automatic Ground Environment project to create a computernetworked command and control air defense system. Over the next decade this brought in hundreds of millions of dollars in revenue to IBM. The firm also came out with a modest IBM 650 computer that rented, for several thousand dollars a month, in substantial volume. By the end of the 1950s, with Thomas Watson Jr. now president after his father’s retirement, the firm announced its more powerful IBM 1401, a machine that took advantage of solid-state technology. Over the succeeding decade this machine would have more than 10,000 installations and establish IBM as the leading firm in the computer industry. Meanwhile, IBM’s punched card tabulation machines continued to be very profitable in the 1950s and 1960s and greatly aided the company’s computer business, as punched cards became the primary inputoutput device for early digital computers.

Despite IBM’s success, by the beginning of the 1960s it faced a slow and steady challenge from competitors as a result of the lack of compatibility of its line of computers. IBM’s customers had to invest substantially in purchasing custom software or developing programs internally, an investment that was lost each time they traded up to a new IBM computer. A special committee at IBM (the Spread Task Force) decided the best course of action was to develop an ambitious set of new computers, the IBM System/360 series. The series would cover a wide range of price points, and all would be compatible to run the same software. The number 360 was chosen to refer to 360 degrees, or the full circle of applications in science and business that the series would facilitate. IBM’s investment in the project was massive, and its risk considerable. Thomas Watson Jr.’s announcement referred to the System/ 360 series as the most significant event in IBM’s history. The project included a major effort to program a new operating system, OS 360. Despite the operating system being late in delivery and having cost overruns, IBM System/360 series was a phenomenal success that led to the firm gaining 70 percent of the domestic computer market by 1970. Another part of the adopted Spread Task Force strategy, IBM’s further integration into internally manufacturing components, was far less successful.

The IBM System/360 (IBM CORPORATION)

In the 1970s, IBM’s growth led to even greater bureaucracy and slower reaction to market change—problems that were in part concealed, but would become increasingly apparent in computing’s new era. During the 1970s, IBM successfully entered the minicomputing field and rose to gain significant market share against industry segment leader Digital Equipment Corporation. Minicomputing, however, would soon give way to personal computing. The firm introduced a personal computer, the IBM PC, in 1981, several years later than Apple and others. While the IBM PC soon propelled the firm to the top of the personal computer sector, there were some inherent structural problems. First, even though IBM was the largest software producer in the world, the firm lacked the skills to quickly develop an operating system for the PC. The company initially approached Digital Research but soon went with Microsoft to design the system software. Second, IBM was highly integrated and had a history of internally producing most hardware components. This proved the wrong model in the fastchanging personal computer field, in which a number of computer assemblers quickly jumped into the market or switched from their own systems to sell IBM clones for less than the computer giant. While IBM’s reputation and customer base led to the rapid legitimization and acceptance of the PC as standard office equipment in the business world, and the IBM platform remained dominant, the firm had inadvertently set up other companies to reap most of the longer-term profits from personal computers and associated software products. Apple was the only company that stuck with its own platform, adopting a differentiation strategy, rather than cost-leadership. Apple achieved its success by developing better systems software, particularly on its new Macintosh line of the early to mid-1980s.

Over the past decade, IBM has adopted a mixture of playing to traditional strengths and boldly changing its strategy. In 1993, IBM broke with tradition and named the first chief executive officer from outside the firm, hiring away RJR Nabisco CEO Louis Gerstner to turn around the struggling company. Rather than break up IBM into a number of pieces, as some analysts supported, Gerstner made strategic cuts in personnel and then focused on and enhanced the company’s long-established ability to offer integrated solutions in numerous areas of data processing. In 1995, it acquired the Lotus Development Corporation, and the following year Tivoli Systems, Inc. With the growing importance of the World Wide Web by the 1990s IBM became committed to software and services to meet customers’ ebusiness technological infrastructure and needs. This included competing in enterprise software fields against software powerhouses Oracle and BEA Systems. While IBM had built and extended its industry leadership by leasing and selling hardware and using strong after-sale services to further this primary goal, by the start of the 21st century, it was increasingly reversing this strategy to focus on selling high-margin software and services. IBM, long a firm with a major international presence, also extended its global services division, particularly in developing nations of the world.

International Business Machines (IBM) history

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