IBM Turns 100: The Company That Reinvented Itself

Contestants Ken Jennings, Brad Rutter and IBM's computer named Watson compete on Jeopardy! earlier this year. i i

Contestants Ken Jennings, Brad Rutter and IBM's computer named Watson compete on Jeopardy! earlier this year. Carol Kaelson/Jeopardy Productions/AP hide caption

itoggle caption Carol Kaelson/Jeopardy Productions/AP
Contestants Ken Jennings, Brad Rutter and IBM's computer named Watson compete on Jeopardy! earlier this year.

Contestants Ken Jennings, Brad Rutter and IBM's computer named Watson compete on Jeopardy! earlier this year.

Carol Kaelson/Jeopardy Productions/AP

A lot of companies try to instill loyalty in their employees. But it's safe to say few of them took it as far as IBM.

For years IBM employees had to learn company songs. Journalist Kevin Maney, who was commissioned by IBM to co-author Making the World Work Better, a history of the company, says it was part of the effort to build a corporate culture. That was something IBM founder Thomas Watson Sr. took very seriously.

"He also kind of realized that if a company is really based on its own set of values, based on what it is rather than what it makes, it allows the company to change with the times," says Maney, a former columnist at USA Today.

Under Watson's leadership, IBM employees went through lengthy training. They prided themselves on being obsessively focused on their customers' needs. To blend in with their clients they wore plain white shirts and blue suits. IBM was something more than a company. It was a mission.

"You know, we do not consider or think of the IBM as a business, as a corporation, but the IBM as a great world institution that has work to do," Watson said at the New York World's Fair in 1939.

A Corporate Powerhouse

IBM's first big break came with the formation of the Social Security system in 1936. Suddenly companies had to keep track of large amounts of payroll data, and only IBM's electromechanical punch card systems were really up to the task.

IBM poured a lot of the money it made into research and development, and for years its labs churned out a dazzling array of new products.

"We've done this over and over and over again," says IBM Vice President of Innovation Bernie Meyerson. "The magnetic strip on your credit card, guess where that came from? It was us. The bar code on everything you buy, that was one of our ideas."

But it was computer technology that really turned IBM into a corporate powerhouse. Under Thomas Watson Jr., who succeeded his father, IBM developed the first computer disk drive, the DRAM chip and computer languages like Fortran.

In the 1960s came the mainframe computer called the System/360, which was a staple of the corporate world for decades. When William Aulet went to work at IBM in the early 1980s there was no better place to work.

"You had to come out of a top-flight university," he says. "You had to know someone at IBM, and then you went through an extremely rigorous interviewing process. Then, when you were hired it was like an incredible day. You were welcomed into the Mafia."

Then Comes The Fall

But the seeds of trouble had been planted. Because it made so much money from mainframes, IBM failed to anticipate the personal computer revolution. And Maney says challengers like Microsoft and Apple were nipping at its heels.

"The IBM-ers were still showing up in their suits and white shirts, thinking that was part of being an IBM-er. Where the hot guns from the Silicon Valley companies were showing up in their Birkenstocks and jeans and T-shirts," Maney says.

By the early 1990s, IBM was losing billions a year, and for the first time it had to lay off thousands of people.

Today IBM has redefined itself as a kind of giant consulting firm. Companies and governments come to IBM with problems, and it uses technology to solve them. IBM still pours billions of dollars into research, and this year it made headlines when its computer named Watson beat two human contestants on Jeopardy!

Today IBM is the 18th-largest U.S. corporation, employing more than 400,000 people worldwide. But it has to share the mantle of leadership with younger companies ranging from Microsoft to Google.

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