Father, Son & Co.

by Thomas J. Watson

  I’d succeeded in changing so much about IBM—the way we were organized, the technology we sold, the actual look of the company—but the hardest task of all was what Williams and I called riding the runaway horse: keeping IBM coherent as it multiplied in size. Eventually I was able to distill into a simple set of precepts the philosophy Dad had followed in managing the business for forty years:

  Give full consideration to the individual employee.

  Spend a lot of time making customers happy.

  Go the last mile to do a thing right.

  I thought that to survive and succeed, we had to be willing to change everything about IBM except these basic beliefs. Dad had always conveyed his way of thinking to employees by personal visits, speechmaking, and the sheer force of his personality. Everyone understood his values so well that apart from the old slogans like “A manager is an assistant to his men,” he never got around to codifying them. I felt compelled to change that because IBM was now many times larger than when he was in his prime, and because we were hiring thousands of people every year and large numbers of relatively inexperienced IBMers were being promoted into management jobs.

  The most important thing for these young managers to learn was not the professional or technical dimension of their work, but the proper way to treat the people who reported to them. Dad called this day-to-day contact the “man-manager relationship,” and it was as essential to IBM as the family is to society. We depended on this relationship to help safeguard respect for the individual no matter how highly structured the rest of the business became. As long as workers and supervisors understood each other, unions were superfluous at IBM, but if we let that bond erode, sooner or later the business was sure to become a battleground.

  Our training methods at that stage were still surprisingly primitive. We had our sales school and machine school, but nothing to teach a person about how to be someone’s boss. A branch manager would call a salesman in and say, “You’re promoted to assistant manager. Be careful with people, don’t swear, and wear a white shirt.” Around the time of the Williamsburg conference I took one of our most gifted sales managers, Tom Clemmons, and put him in charge of executive development. He started a program that was taught at the Sleepy Hollow Country Club. At first he was using cases straight from the Harvard Business School. I took him aside one day and said, in my usual undiplomatic way, that if our company was really going to be unique, we had to teach something unique.

  He said, “I thought you wanted them educated to be good managers!”

  “You don’t understand,” I said. “I want them to be educated in IBM management: communications, supreme sales and service efforts, going to a guy’s house if his wife is ill and seeing if you can help out, making post-death calls.” You couldn’t read that in anybody else’s manual. They were the practices we’d built up over the years, and new IBM managers had to know them in addition to the technology. So Clemmons changed direction, and the training system became so good that eventually we made a rule that people could not manage anything in IBM unless they had been to management school. The courses lasted from two to six weeks, and I made sure that I or another top executive visited each group of trainees that went through, because it was crucial for them to see who they were working for.

  I never thought the proper place for a senior executive was sitting behind a bare desk looking at the ceiling, dreaming up great deeds for the future, and drawing new lines on the organization chart. I spent the equivalent of at least one day per week on employee complaints or walking through plants, talking to salesmen, and chatting with customers. I asked what was right and, more important, what was wrong. You don’t hear things that are bad about your company unless you ask. It is easy to hear good tidings, but you have to scratch to get the bad news. Working in this way, I uncovered shoddy and seamy things in IBM that we were able to fix before they became very serious.

  In 1964, for example, one of our branch managers staged a burlesque show at a sales conference in the Midwest. The skit was too vulgar to believe—about an Indian village, starring the manager himself as the chief and some scantily clad models as squaws. They even had live chickens running around on the stage. At the end of the skit the manager disappeared with one of these models into a tepee, and as he turned to go into the tent, the audience saw a sign on his back that said something like “Branch Manager: I do all things for all people.” Then he and the girl pulled the tepee flap closed behind them. There were families present, and somebody who witnessed the show wrote me a letter saying, “Is this what you call IBM dignity?” So I started a big inquiry. The manager in question was a top performer, one of IBM’s best men, but it was our policy to run a clean show, and I said he should be fired. His bosses tried everything to keep him, and even tried hiding him from me by transferring him to the West Coast. But finally he left the company because everybody knew that whenever his name came up I was going to raise hell.

  Any time I intervened in a matter of personnel policy, or spotted something I didn’t like at a branch office or plant, I’d write it down in the “THINK” notebook I carried in my pocket. Often I’d use it as raw material for a type of memorandum called a Management Briefing that was sent to every manager right down to the foremen on the factory floor. I put as much energy into writing those memos as Dad put into his editorials in Think magazine. When you are coping with a business full of new managers you learn to take nothing for granted. For example, one of my memos was a primer on how to hold a meeting without wasting time. (My advice was to keep it as small as possible, short, and to the point.)

  I wrote nearly a hundred of those memos, trying to teach how to handle everyday problems in an IBM way. For example, there was the issue of employee transfers. Being transferred was a standard part of white-collar life in the 1950s, but when people started joking that IBM stood for “I’ve Been Moved,” I realized our transfers must be getting out of hand. We looked into how we moved people around, and found that many transfers were being made solely for the convenience of IBM without regard for the employee whose family was being uprooted. That violated one of the basic tenets of IBM philosophy—consideration for the individual. So I wrote to our managers that no one should be offered a transfer without a substantial increase in pay and responsibility, and the number of transfers dropped right away. Another case typical of the time was the employee who got fired for refusing to shave off his beard; his manager told him his appearance did not fit in with the decor or with IBM’s corporate image. Many of the scientists and mathematicians we were hiring off the campuses were bringing their beards and informal wardrobes with them. I wanted IBM people to be well groomed, but I thought informality was fine in the research labs. So I insisted that we offer the man his job back, and sent out a briefing explaining that IBM’s corporate design program applied to products, buildings, and decor, but not people.

  Of course it’s true a conservative appearance had always been the custom at IBM. A whole folklore grew up about IBM conformity—the white shirts and dark suits. But there was a reason for it. In one way or another we were all salesmen in IBM, individually and collectively, and nothing distracts from a sale like an outlandish appearance. Conservative dress made sense as a marketing tool, just like a plant tour, an education program for customers, or a reputation for excellence. It showed we took our work seriously.

  The quality I looked for in a manager, and valued above practically everything else, was common sense. Dad put less emphasis on it—maybe because he had so much of it himself and what he mainly needed from employees was enthusiasm. But now that we were a huge corporation doing business with thousands of smaller companies, too much zeal could cause harm. For instance, we had a contractor who sold us milk for the company cafeteria in Poughkeepsie. The local IBM controller was trying to save some money, and he threatened to take this guy’s contract away unless he dropped his price. There’s a level below which you can’t sell milk without going broke, and we had that guy almost at that level.
He finally wrote to me and said, “You are using your economic power here to kill me.” I went to Poughkeepsie and talked to the controller and found out it was true, and I got terribly mad that any IBM employee could be that dumb.

  We had a similar problem with a customer in Providence, a small businessman who was using IBM equipment to send out his bills. His business was struggling, and he refused to pay for the installation, saying he wasn’t happy with the way it worked. The way our local office handled this defied all logic. They should have either satisfied the man or taken the machines out, but instead they began billing him in arrears and finally took him to court. I didn’t hear about this until the trial was ready to start, and the stupidity of what we’d done drove me wild. If anybody had used his head, he’d have foreseen what the customer’s lawyer would say to the jury: “Here is this colossus, making hundreds of millions of dollars a year, bullying this little guy who hasn’t paid because their machines won’t work.” That was not how I wanted IBM to look. I said “Settle!” and we ended up having to give him a couple of million dollars.

  I could set up all the guidelines in the world to try to avoid such situations, but I sometimes found that temper was the best way to get a management lesson across. In the fall of 1956 I learned of two young men who came to IBM headquarters to apply for jobs, got snubbed, and left with the impression it was because they were Jewish. One of them sent me a complaint, and after checking I found out that they hadn’t even been granted an interview. Instead somebody had labeled them “Obviously not the IBM type.” The more I thought about this, the angrier I felt, because IBM had a clear rule against discrimination in hiring. I’d written that rule myself in 1953 during the early stages of the civil rights movement. I brought the job applicant’s letter with me to the Williamsburg conference and interrupted the proceedings to read it out loud. “How do you expect me to represent IBM to the world outside when this sort of thing goes on inside?” I hollered to the executives gathered there. Then, I’m told, I pointed at Jack Bricker, our brand-new personnel chief who was sitting in one of the front rows, and ordered him to clean up the matter and discipline whoever had mishandled it. It was theatrical but I made a crucial point: I didn’t want there to be any difference between what IBM said and what IBM did.

  As time passed, I became increasingly intolerant of executives or managers who broke rules of integrity. A business is a sort of dictatorship. The antitrust laws tell you what you can do, and you don’t need anyone to tell you that you shouldn’t be a thief, but within those boundaries the top man has wide discretion. He can give unfair bonuses, he can suggest policies that are not right, he can run airplanes to golf resorts. I never criticized my contemporaries publicly, but there are a lot of things that IBM did differently from other businesses during my watch. I thought that the head of a business had responsibilities almost like the head of a government, without a supreme court and without checks and balances, except those that the marketplace and the annual report impose on his operation. One of the worst mistakes he can make is to apply a double standard to managers and employees. If a manager does something unethical, he should be fired just as surely as a factory worker. This is the wholesome use of the boss’s power.

  When we first decentralized IBM, I simply assumed that all of our executives would apply the same high standards of conduct automatically. It took me a number of years to realize that a chief executive has to spot-check decisions made by his subordinates. On one occasion some managers in one of our plants started a chain letter involving U.S. savings bonds. The idea was that one manager would write to five other managers, and each of those would write to five more, who would each send some bonds back to the first guy and write to five more, and so on. Pretty soon they ran out of managers and got down to employees. It ended up that the employees felt pressure to join the chain letter and pay off the managers. I got a complaint about this and brought it to the attention of the head of the division. I expected him to say, at a minimum, “We’ve got to fire a couple of guys. I’ll handle it.” Instead he simply said, “Well, it was a mistake.” I couldn’t convince him to fire anybody. Now, you could admire him for defending his team, but I think there is a time when integrity should take the rudder from team loyalty. All the same, I didn’t pursue the matter any further, and my failure to act came back to haunt me.

  A couple of years later in that same division, a manager fired a low-level employee who had been stealing engineering diagrams and selling them to a competitor. Firing him would have been fine, except that the manager handled it in a brutal way. The employee in question had one thing in his life that he was proud of—his commission in the U.S. Army Reserve, where he held the rank of major. Instead of simply going to the man’s house and telling him, “You swiped the drawings and we’re going to fire you,” the manager picked a week when the fellow was in military camp to lower the boom. Somehow the military authorities got involved as well and the man was stripped of his commission. The humiliation caused him to become insanely angry, and for the next few years he devoted himself to making me uncomfortable. He sent pictures of Tom Watson Jr. behind bars to his senators and his congressman and to every justice of the Supreme Court. And he kept harking back to that chain letter, because he knew we had tolerated the men responsible for it. Eventually he simmered down, but the incident really taught me a lesson. After that I simply fired managers when they broke rules of integrity. I did it in perhaps a dozen cases, including a couple involving senior executives. I had to overrule a lot of people each time, who would argue that we should merely demote the man, or transfer him, or that the business would fall apart without him. But the company was invariably better off for the decision and the example.

  I knew exactly the attitude I wanted to cultivate in ordinary IBM employees: I wanted them to feel a proprietary interest, and to have some knowledge of each other’s problems and goals. I also wanted them to feel that they had access to top management and that no one was so far down the chain of command that he couldn’t be kept aware of where the business was heading. As the hierarchy grew to include five, six, and seven layers of command, this became a huge challenge. I was constantly looking for ways to maintain what I called a small-company attitude. One of the surprising things we learned was that to overcome the problems of change, we had to increase communication within IBM far out of proportion to our growth rate. We used a variety of channels for listening to our employees, including surveys, suggestion programs, and even a question-and-answer program—called “Speak Up!”—that incorporated bureaucratic procedures to shield the identity of the questioner from top management.

  Our most unusual method for shortening the distance between the salesman or factory man and top management was the Open Door, a practice of Dad’s that traced back to the early 1920s. This was primarily a system of justice, but it also gave me a measure of IBM’s health that I could not have gotten any other way. Disgruntled employees at IBM were first expected to take up their gripes with their managers. But if they got no satisfaction, they had the right to come directly to me. Nine out of ten such cases involved matters that should have been resolved further down, or where lower management had already made the right decision—but I listened anyway. I learned an awful lot about the problems of the working man, and I gained a visceral sense about IBM that enabled me to hear a complaint and say, “Something’s wrong here.”

  On at least one occasion, a single protest led to a substantial change in the way we did business. A machinist who was about to be fired from the Poughkeepsie plant came to see me. He said, “They’re not treating people fairly. I’m making more pieces than anyone in that shop, and I get the lowest pay.”

  “I don’t see how that can be true,” I told him. But I called the plant manager and told him what the man had said.

  “Well, you know, he is a very uncooperative employee. He doesn’t belong to the IBM club, he doesn’t participate in outside activities, and sometimes he doesn’t even dress neatly when he co
mes to work.”

  That wasn’t the question I was asking. I called the man’s foreman and said, “Does he make more pieces and get less pay?”

  “He doesn’t reflect well on the company. He has a couple of wrecked cars in the yard in front of his house, and he doesn’t take care of his children.”

  The machinist was up against what I called the IBM Protective Association, where local managers close ranks to cover up rough treatment of employees who may be totally blameless. Finally the managers admitted that the man was telling the truth. We gave him a raise, disciplined the managers involved, and then we went through every one of our U.S. plants and tied pay to productivity. This caused quite a commotion, because putting in a system that rewarded the best producers meant partly undoing my father’s decision twenty years earlier to abolish piecework.

  Many employees did not want to take a complaint all the way to me, but the very existence of the Open Door was a morale builder. It made them feel free to approach a personnel manager or the man running the plant when they had a problem. As IBM grew, we tried to take care of more and more Open Door cases at the division-chief level, with only charges of serious mismanagement that might reflect unfavorably on IBM coming to my office. But even so my office handled two or three hundred cases each year, with each case typically taking several days to resolve. The bulk of this work fell to my administrative assistants, who were chosen from among our most promising young managers. This was the best apprenticeship an IBM executive could have, because it tested his or her ability to handle highly sensitive matters, and required full comprehension of the company philosophy. Periodically I’d see complainants myself, so that word would get around that the head man was indeed available.