Father, Son & Co.

by Thomas J. Watson

  That night Al and I stayed late, figuring out how to break the news to stockholders without hurting the price of the stock. Our best bet, we decided, was a straightforward explanation of how the funds had been spent: on activities very necessary to IBM’s growth, such as developing new products, expanding the engineering force, and hiring and training new salesmen. The following morning I was waiting for Dad when he came to the office. “I’m embarrassed to have to tell you this,” I said as I showed him the numbers. “I got trapped by a lack of financial controls.” It was no surprise to Dad that we’d overspent—he’d been warning us all along, but he was letting us run things for ourselves, and we’d thought he was out of touch with the scale of the business. Dad became calm and grave as he sometimes did when confronted with a major problem, listened to the public statement I proposed, and said simply, “I think the shareholders will accept that.” He was right—the price of IBM stock held steady when we released the figures. All the same, I walked into the annual meeting that year filled with dread. Any minute I expected a stockholder to say, “I have a question for the younger Mr. Watson. Is this the kind of performance that we can expect from you as president?” Luckily nobody asked, but I felt shaken, as I have a few times after doing something stupid in an airplane and surviving by sheer chance.

  Generally I need to be hit on the head only once to learn a lesson—a trait I’ve come to think of as absolutely essential in business. Al and I set things up so that we would never be surprised again: we put budgets in all the departments, appointed the toughest-minded guy we could find as budget director, and had him report to me. From then on I always knew in June approximately where we were going to be financially on December 31.

  In spite of the mistakes we made, I couldn’t have run IBM without Al. He was my alter ego. He had the ability to be analytical while I was intuitive and to make sure everything was tightened up and done right while I was out in front setting the pace for the business. Without him my success would not have been possible and without me he wouldn’t have had as much success as he did. Our friendship was one of the few I had at IBM that extended outside of business hours. I would seek him out just for the pleasure of his company, and Olive loved him too. He and his wife Pat wanted to learn to sail, so Olive and I went down to their house once a month for twelve months and taught them the basics. One visit we worked on charts—how to plot courses, with all the variations and deviations; another day I tied the basic knots, tacked them onto a board, and took it to him. I made diagrams of how a boat works in the wind, how the forces of wind and drag and momentum act on the hull.

  The funny thing about Al was that he was terribly modest and didn’t like to promote himself, and yet if I gave him an opportunity, he always took it. I introduced him to the business community by nominating him as treasurer of the New York Boy Scouts; from there he was invited to join the board of a small bank; and eventually he ended up a director of the First National City Bank and Mobil and General Motors. I looked after his career within IBM as well, telling him he could never get promoted out of the financial department until he’d trained people to take his place. “You’ve got nothing but clerks in there,” I said. That was overstating it, because Al had two excellent men, Barney Wiegard and Herb Hansford, who were the cornerstones of the finance department but had to do practically everything themselves. Before I knew it Al had punch cards shooting all over and had identified everyone at IBM across the country who had been to business school. He brought the top young men to New York, and within a year not only had he gotten the finance department to run itself, but in the process he’d singled out some real leaders, including Dick Bullen, who emerged as the best organizational architect IBM ever had, and a future chairman, Frank Cary.

  Those were confused years at IBM. Even if Dad had been ten years younger and kept control of the operation himself, he couldn’t have made his one-man style of management work for very much longer. Important problems were taking too long to filter through to the top, and we had unmade decisions piling up in every corner. With notable exceptions like Learson, most IBM executives were so used to dancing at the end of Dad’s string that they didn’t dare think for themselves—in spite of our much publicized company motto. Just before I became president I saw a secret project with the Xerox Corporation ruined because of this. The idea was to couple their technology with our tabulating machines for printing at high speeds. It was a modest project but it interested me because I thought it might lead to an alliance between Xerox and IBM. Instead, their engineers and ours butted heads and by the time I heard there was any problem, the project had collapsed. That’s what was maddening about highly centralized power in a growing company.

  My first step in breaking that pattern was to surround myself with top-notch people, so that not every decision had to wait for the boss. To find even a half dozen executives who were qualified I had to dip into IBM’s second and third ranks. That shows how big a vacuum there was at the top: I’d inherited eight vice presidents from Dad, but apart from Williams and LaMotte, only two had minds of their own, and both of those were manufacturing specialists who were indispensable at the Endicott and Poughkeepsie plants. So Al and I set up an inner circle with men like Birkenstock, who by now was in charge of our patent department; McDowell, our chief engineer; Miller, who ran the typewriter business; Jack Bricker, the director of personnel; and Learson.

  I was able to push enough responsibility onto these men so that we began to make great strides. We got launched in the computer business, made good on our Korean War commitments, and expanded our punch-card sales by another 50 percent without having IBM disintegrate. But during the year I was busy landing the SAGE contract, our decision-making process bogged down again. I still had fifteen top officials reporting to me, counting the old guard and the new men I’d brought up, and I was shocked to find myself making people cool their heels outside my office just like Dad. Given the pace of change in our business, I didn’t think I could afford to do that.

  So I took another step away from Dad’s vest-pocket management style. I told him I wanted to make executive vice presidents of LaMotte and Williams and have all the other executives report to them. LaMotte would oversee IBM’s sales and R and D, while Williams would cover manufacturing and finance. This would speed up my work, because the only problems that would come to me would be those that Al and Red couldn’t handle themselves. I’d picked them because they complemented each other. Al was the best of the new guard, and I wanted him there to help me navigate IBM through the sweeping changes I could foresee. Red, on the other hand, was almost sixty years old and stood for continuity in the business. When it came to motivating and managing people he could extract enormous amounts of work without ever seeming tough, like an unintimidating version of Dad. I thought of him almost as my uncle, and it was easier to take criticism from him than from anyone else.

  The idea of delegating so much power was totally antithetical to Dad’s personality, and for weeks he fought my plan to promote Williams and LaMotte. Once we’d been through all the rational arguments, he finally even tried getting Mother involved. I think on some level he must have been worried that I was throwing my patrimony away. I was at his house one weekend, and with Mother there in the living room, Dad started attacking my choice of men. It was pretty easy to ignore him when he called LaMotte careless—I knew Red irritated Dad because of his upper-class background and because he didn’t necessarily jump to attention when Dad came into a room. But what shocked me was the way he went after Williams, telling me point-blank that Al couldn’t be trusted. “Watch your flanks,” he said darkly. “Everybody is for you until they see an opportunity to be against you.”

  I didn’t know what to make of this and I would have lashed out, but Mother spoke up. She explained in her neutral way that Dad remembered losing his job at the cash register company through the treachery of Mr. Deeds. Her eyes locked on mine, and I realized she was trying to remind me that I was dealing with an eighty-ye
ar-old man. All the anger went out of me. I turned back to my father and said, “Dad, Al Williams is my best friend. If I’m wrong about the guy, then I deserve to lose my shirt.” Dad piped down after that, and when I went to present the promotions to the board, he and I walked into the meeting together.

  IBM’s growth was hard even for me to comprehend. It was 1955 and we were about to break the half-billion-dollar mark in sales. The bulk of our business came from punch-card machines and computers, but even our sidelines were becoming bigger than all of IBM had been before the war. We had a factory complex just outside Endicott making bombsights for the Air Force under contracts carried over from the Korean War; we had our electric typewriter business; we had a set of plants that did nothing but manufacture hundreds of millions of punch cards. Altogether IBM was expanding at close to 20 percent a year—and the billion-dollar mark was only a few years away.

  If I was scared when I first became president I was doubly scared now. IBM had already reached a size at which I felt it might be prudent to slow to a more sedate rate of growth that I was sure we could finance and manage. That summer I asked Al Williams to clear a couple of days on his calendar so that we could sit down and discuss the company’s future. He agreed that it was a good time to think about reining in IBM. The problem was that this failed to take the computer into account. Demand for those products was accelerating, and it seemed clear that the market wasn’t going to wait. If IBM didn’t grab the business, somebody else would, and we would never have this kind of opportunity again. Like every one of my father’s employees, Williams and I had been trained to think of even a single order lost as a disaster. So we decided to push IBM as rapidly as the market would permit—even though this would mean growing on a scale unprecedented in American business.

  We knew that as we neared the top of the Fortune 500, IBM would have to be totally transformed. Every entrepreneurial company, if it succeeds, must eventually face the transition to professional management. In our case, Dad had been so good at his job that this maturing process was long overdue. As big as IBM now was, it had almost none of the things that corporations count on to keep small problems from ballooning into big ones—such as a clear chain of command, large-scale decentralization, a planning process, or formal business policies. Our way of getting things done consisted mostly of wisdom carried in a few people’s heads. If we kept growing and tried to run a billion-dollar business that haphazardly, IBM would probably not survive. It would explode like a supernova and end up a dwarf.

  So Al and I began talking about how to organize IBM more scientifically. I remember the first thing we did was to break Dad’s taboo against organization charts. We got big sheets of paper, spread them out on a table, and put down all the segments of IBM the way they ran under Dad. In the early days the old man would have fired anybody he found doing this. We were absolutely amazed at the result. There were about thirty-eight or forty boxes, every one of them reporting to T. J. Watson. Then we did another chart that showed IBM under me and Williams and LaMotte. It was pretty much the same old chaos, except that we had divided Dad’s job into three.

  Finally we drew a new chart showing how a reorganized IBM might look. I wanted the people at headquarters free to concentrate on computers and punch-card machines. So we made our other operations—military products, typewriters, punch cards, and time clocks—into autonomous divisions, each with its own sales force, financial people, research, and its own general manager who would make the decisions and have the successes and the headaches. This was the beginning of a process of reorganization that went on for all the years I ran IBM.

  Once Al and I were happy with our charts, I locked them up in a cabinet in my office. Later that week I named my assistant Dick Bullen as director of organization, to map further changes. Meanwhile I explained our idea for new divisions to Dad. He approved this plan without any of the fuss he put up over Williams and LaMotte, but I don’t think the reorganization made him very comfortable. At one point he told a newspaper reporter that, looking at the new decentralized IBM, he’d be more interested in working as a divisional sales manager than as chairman of the board.

  The new structure we created left plenty of room for World Trade to operate separately from the rest of IBM. My brother Dick’s side of the business was becoming a great success. Because of Europe’s economic revival and Dad’s genius for coping with trade barriers, World Trade was growing just as fast as IBM Domestic; it passed one hundred million dollars in sales in 1954. Dad ran it, and Dick had worked his way up to where Dad made him president that summer. Right around then World Trade also moved out of IBM’s headquarters on Madison Avenue to offices across the street from the new United Nations building.

  Dick was thriving in his job: he knew French, learned Italian, German, and Spanish, travelled incessantly, and managed that complicated business extraordinarily well. When he became president World Trade was already operating in seventy-nine countries, with full-blown national subsidiaries in thirty-six and branch offices and sales agencies in the rest. There was no other company in the world like it. Of the sixteen thousand employees working under Dick, only two hundred were Americans, and almost all of them stayed in New York. Dad had the philosophy that Germans ought to sell to Germans, Frenchmen ought to sell to Frenchmen, and so on, so each major office was completely managed and staffed by citizens of that country.

  I had conflicting feelings about my brother moving up, and it is hard for me to know the truth behind those feelings even today. Like most chief executives, I felt the desire to be totally dominant in the company I was running. But I also loved my brother and knew that Dad wanted us to manage IBM in tandem. By this time Dad was more active on Dick’s side of the business than mine—no doubt partly because he was trying to stay out of my hair. But I also suspected he was acting out of competitiveness, turning to World Trade as if to say, “I’ll show you, young Tom. You don’t want to listen to me, so I’m going into business with your brother.” Whether he felt that way or not, there were strong business reasons for him to concentrate on World Trade. He wanted IBM to be a global force, and World Trade was the part of the company that needed the most work. Dad had been driving at this goal since he was forty, and the fact that he was now eighty only made him more impatient. As I look back, I can imagine how rough that must have been on Dick. But at the time I was jealous of the closeness he and Dad built up from working together day by day. It came out on one occasion, when Dad had some sort of cerebral spasm. He was in a Guaranty Trust Company board meeting and started to say something, but he couldn’t get the words out. That sort of episode isn’t uncommon in old people. It can be a prelude to a stroke but Dad didn’t have one. When he recovered his power of speech after a few minutes, he went out to a telephone, called Dick, and asked him to come and pick him up. I felt that as a real blow. I kept wondering, “Why didn’t he call me?” I thought maybe he had tried and I hadn’t been there. But I went and checked my secretary’s telephone log, and no call had come.

  Dad was extremely proud of Dick, and Dick was very close-mouthed about the details of his operation. There was nothing I could do but stay out of their way. Here I was, trying to keep IBM running with reasonable consistency in the face of vast growth, traveling constantly, dealing with tremendous numbers of people, and yet having to walk on specially marked paths when it came to business abroad. Dad wanted World Trade to be as independent as possible, but, as anybody could see, it could never be completely independent. The two sides had to be coordinated and issues routinely came up, such as whether World Trade would manufacture a new machine itself or simply get it from our U.S. plants. I couldn’t even get financial information about that side of our business. At one point I sent Dad an exasperated note:

  I couldn’t be more behind your plan of operating the World Trade Co. as an independent subsidiary. I will defend this concept & operation as long as I am in the IBM Co. because I realize the soundness of a separate team for foreign operations. Nevertheless
a minimum of financial data about World Trade results is vital in order that our financial department can reply intelligently to outside queries about our company. Whenever this matter comes under discussion between [domestic] IBM people & yourself, it appears that you feel we are trying to usurp power from World Trade. Nothing could be further from our minds. On the other hand, if you cannot believe this & have peace of mind, the only thing to do is change the IBM team to suit yourself.

  I don’t recall whether he finally released the information we were after, but the fundamental dispute never got resolved. Dad remained convinced that I was out to trip my brother up. I told him over and over that he was wrong, and that I hoped Dick would head IBM after me someday. I told my brother that his success was mine and mine was his. I believed these things, but as I look back I see a competitiveness in my attitude toward Dick that Dad was aware of and I wasn’t. It helps explain why in his old age he was working so hard to give my brother a sphere of his own.

  Dad must have felt as if IBM wasn’t entirely his anymore—but I didn’t feel as if it was mine, either. Often I’d wonder whether I was having any real impact on the company at all. It’s an odd thing, inheriting a one-man show from your father. When I traveled as president, groups of IBM people would often come to greet me at the airport, partly out of curiosity but mainly because that’s what they’d always done for Dad. It brought back scenes from my boyhood—large IBM crowds waiting for our family on train platforms or as we docked at Liverpool harbor. Dad thrived on that sort of attention, but it embarrassed me, so I told people not to do it.