Top 10 lessons from IBM’s first 100 years

IBM, which turned 100 this week, has come a long way from its roots as a manufacturer of mechanical calculators.

In corporate history terms IBM is still in short pants, however. Japan has the world's oldest corporations, with some businesses dating from the eighth century, and even here in the New World there are companies that have been in existence since the mid-1600s.

But what a century it's been. IBM was in at the start of the counting revolution that swept the business world and was one of the key drivers for the technology industry. The ability to use machinery to perform calculation quickly and flawlessly, as opposed to relying on a tired clerk working with pen and ink, revolutionised business, and ultimately society as a whole.

IBM has pioneered some of the world's biggest computing projects, and is still doing so with its work on machine learning and artificial intelligence. The company kick-started the enterprise PC revolution and has been a huge, and sometimes unwelcome, influence on the development of modern information technology.

So this week we'll look at what we can learn from IBM's first 100 years. The old adage from Spanish philosopher George Santayana that "those who cannot remember the past are condemned to repeat it" comes to mind, because one of the things that gives us great hope for the next Big Blue century is that the company is better than most at recognising its mistakes and learning from them.

 
Honourable Mention: Avoid presentations

Iain Thomson: IBM became infamous for the overuse of the presentation, and it's a lesson far too many organisations still haven't learned.

IBM was one of the pioneers of the business presentation, with its salesmen becoming early adopters of novel technology like overhead projectors to make their point. Later on software filled this role, and the company took to PowerPoint like a duck to water. It's still very difficult to have a meeting with someone from IBM without a presentation being made.

Presentations have a useful role in guiding the discussion, but IBM and others fell into the trap of letting the presentation be the discussion.

Things are getting better on this front, at IBM and elsewhere. But until companies learn how to use these tools properly they will become less and less effective.

Shaun Nichols: Things are getting a bit better, but companies are still falling into the trap of having every meeting and presentation be a wholly scripted slide show format. That sort of thing might work for keynote addresses, but not for weekly meetings or pitches.

Having done more briefings than I care to count in this job, I can say that few things will get a person to zone out like endless droning while slide after side flashes on the screen. When people feel they are being talked to, they don't feel involved in the conversation and they start to lose interest.

The best way to conduct a presentation or meeting is to keep an open dialogue. Rather than read from the script, make a few points and invite your audience to chip in with questions or comments. Even if nobody asks a question, it at least gets them thinking about the subject and keeps them engaged.

Honourable Mention: There's nothing wrong with being dull

Shaun Nichols: When you try to explain to people just what IBM does, you generally get a lot of yawns and glazed-over eyes.

The company doesn't make high-powered gaming devices like Sony or slick tablets and handhelds like Apple. But that doesn't mean IBM doesn't have an extremely solid and profitable business model.

As its very name indicates, IBM specialises in business machines – the type of hardware and software that people rarely notice, but rely on every day to do their jobs. In those areas, you don't want rapid development and seismic shifts in the market every few months. You want a system that will work, and will continue to do so over the years as your business grows and evolves.

This is why so many companies choose IBM, because it's less about flash and more about function

Iain Thomson: It's sad in a way, but very true, that IBM is a very dull place.

Maybe it's because IBM's been around for so long, or because management is stuck on the stuffy old East Coast while the hipsters flocked to Silicon Valley. When you hear the name IBM you just don't think of excitement.

In many ways this was deliberate. Presenting a sober, studious face helped reassure a lot of companies that they were in the hands of a respectable company, not some fly-by-night California operation. Companies liked the image, and it paid dividends, for a while.

In his book Outliers, author Malcolm Gladwell postulated that one of the reasons Steve Jobs, Woz, Ballmer and Gates all got to their positions in the PC industry was because they were the right age. They were just in their 20s, and so old enough to know what they were doing (broadly) but not so young they'd taken a corporate career with IBM and weren't willing to take a wild risk. In fact, Woz did work at HP, and offered the Apple designs to his employer, who turned them down.

Stuffy and sober has its upside, but it does mean the slightly wacky creative types often don't want to work there. IBM paid a price for its approach, even if it also had business benefits.

10. Watch out who you do business with

Iain Thomson: This is a good rule of thumb in any business, but one that has turned round and bitten IBM.

In 2001, a book was published detailing IBM's apparent involvement in the Holocaust. IBM's German office was accused of helping the Nazi regime identify Jewish residents via census data, and designed a system that could be used for keeping tabs on camp inmates via a punch-card system.

As it turns out the evidence of direct collusion is speculative and murky at best, and any legal cases quickly fell apart, although IBM Germany has since paid around $3m to Jewish charities. In practical terms companies like Ford did a lot more to aid the Nazis, but it just goes to show how these things can come back to haunt you.

I sometimes wonder what future generations will think of companies like Cisco that helped build the firewall that encloses China and other countries, or Microsoft and Yahoo for handing in customers to the police. Quite a lot of nasty regimes are helped by the technology industry and sooner or later the chickens usually come home to roost.

Shaun Nichols: IBM maintains that the subsidiaries that worked with German officials were cut off from the parent company and were under the control of the authorities. The company also did very extensive work with the Allies, but that didn't prevent the Holocaust smear from being a public relations disaster.

Over the past century, governments have become some of the biggest consumers of IT hardware, software and services. Even developing nations are spending billions of dollars to equip themselves with infrastructures. While it may not be fair to blame the tools, a company that does not make efforts to distance itself from some governments can come under fire when they do terrible things.

This is all about image. Companies need to be aware of who their clients are and how that can reflect on their public perception down the line.

9. A suit and tie never goes out of style

Shaun Nichols: To paraphrase the great ZZ Top: IBM's crazy about a sharp-dressed man.

Every shot of IBM executives, managers and salespeople seems to feature a man or woman in formal business attire. They aren't really a company that you associate with polo shirts and khaki pants. This is actually a big part of why the company has had such success in the business world.

As much as we like to associate modern computing with the legacy of the pony-tailed, sandal-wearing free spirits of Silicon Valley, psychology and appearance still play a major role when choosing a vendor. For IBM, the suit and tie has always symbolised professionalism and reliability.

Blue jeans and turtlenecks may say "style and creativity", but the suit and tie says that, at the end of the day, the job is going to get done in the most efficient and professional manner possible.

Iain Thomson: ZZ Top, deary, deary me Shaun. I had no idea you were a fan.

IBM was famous for its dress code. Hair never falling below the ears (for men) and no facial hair, and never anything other than a white shirt and sober suit. Some have suggested the name Big Blue actually derived from the colour of the suits of its staff.

Many companies still take IBM's stance that a suit is the only proper attire for conducting business. Steve Jobs and Sergy Brin (who is infamous for wearing Vibram Five Fingers shoes everywhere) may disagree, but that's because they are not on the customer side of the business.

IBM has been correct in assuming that if a company is going to sign multi-million dollar contracts, then it doesn't hurt to look professional. Things may have changed a little, and "business-casual" is the new look, but any new hire by IBM better have a couple of suits on hand if they are going to fit in.

8. Beware technology fixation

Iain Thomson: IBM has made some very good corporate decisions over the years, but it has had problems with rapidly changing markets.

This is a long-term problem for the company. Legendary company president Thomas Watson Sr was famously attached to punchcards as a core IBM business, and failed to devote the proper resources to electronics after the Second World War. Thankfully his son took over just in time and reconfigured the company for an electronic future.

The same thing happened in the 1970s and 1980s. IBM was wedded to mainframe technology and refused to take the PC seriously as a platform until almost too late. In its rush to market it missed things that could have made it two or three times the size it is today.

It's easy to get fixated on a business model or plan, particularly if it's very successful. But nothing is forever, particularly in the IT industry, and missing the next big thing is something IBM has form on.

Shaun Nichols: It can be very easy to become fixated on a single platform, especially when that platform is driving the lion's share of revenues. But a smart company is always looking long-term and planning to expand and shift its business, even when those shifts don't seem to make a ton of sense at the time.

Google does an excellent job of this. The company still makes the vast majority of its profits from its search and advertising spaces, but Google also puts its brand on everything from web browsers and mapping tools to mobile operating systems. The side projects might not make a ton of sense now, but down the road projects such as Android could become big money-makers should the right circumstances arise.

Likewise, Apple did an excellent job of this in recent years. Though the Macintosh line was bringing as much money as it ever had, Apple decided to shift its focus to the mobile space. The result was its iOS platform, which is now by far Apple's most lucrative venture and the driving force behind record profits.

It seems that other companies have learned from IBM's mistake and are now making sure to keep an eye open for emerging opportunities.

7. Explore new areas, but don't get carried away

Shaun Nichols: Big Blue has also seen its fair share of overhyped platforms fall flat, particularly in recent years. Thankfully, the company has also had a knack for knowing when something isn't going to work, and cutting its losses before things get too out of hand.

In the 1990s IBM, along with Apple and Motorola, looked to develop the PowerPC platform. The RISC chip was pitched as a more powerful alternative to the x86 architecture of the Windows PC space. But manufacturing issues, financial shortfalls and squabbling among partners soon made it apparent that PowerPC wasn't going to succeed and IBM pulled out of the venture (though arguably a year or two too late) and focused on turning the Power chips into server processors.

A decade or so later, IBM was one of the earliest large IT vendors to take an interest in 3D community Second Life. The company set up research and development plans for 3D worlds and purchased an "Island" within the system, but when it became apparent that the platform had little to no practical application in the business space, it reduced its presence.

The moral of the story: it's OK to gamble and lose, but know when to cut your losses and walk away from the table.

Iain Thomson: When Shaun came up with the idea for the list this was one he really wanted to do, in part because of Second Life.

Remember Second Life? It was going to be the online world equivalent of meat-space, and we were all going to live our lives there. For months there were excited headlines about how the population of Second Life was outpacing countries, and companies rushed in to set up their virtual stalls. IBM set up specific groups to interact on Second Life and build virtual operations centres. I wonder if those staff put that on their CVs now.

IBM may be one of the more conservative companies out there but it usually recognises a good idea when it sees one. When Thomas Watson Jr took over the company from his father he quickly banned the development of new systems using vacuum tubes, because he recognised that the transistor was the way ahead. Not a particularly hard call you might think now, but back in the 1950s it was a bold decision.

6. Trusting Microsoft is a recipe for disaster

Iain Thomson: The history of Microsoft and IBM is almost comedic, if it hadn't turned out so badly for IBM.

Microsoft wasn't IBM's first choice when it was looking for an operating system for its initial PC line, but it was the most compliant. Microsoft signed one of IBM's legendarily-constrictive non-disclosure agreements, sold an operating system they didn't really have, and then slipped a small clause into the agreement that let them own the software side of the PC business.

IBM wasn't that bothered initially, until it saw the revenue stream it was losing out on. Then, in the ponderous fashion of the time, it had a brainwave. It would develop its own operating system, OS/2, to compete with Microsoft's DOS.

So far so good, but what beggars belief is that IBM thought Microsoft would be just the firm to develop OS/2. Just from sheer logic you know there's no way someone's going to put much effort into developing a product for a direct rival, and sure enough OS/2 was late, poorly supported and constantly fell behind Windows. One has to wonder what IBM was thinking.

Shaun Nichols: IBM was essentially a victim of its own arrogance. IBM had a stranglehold on the market and it figured there was nothing to fear from some tiny company that was making something as trivial as software.

History would later repeat itself when Microsoft, content with its huge software empire, would let a few tiny companies down in Silicon Valley mess around with some novelty called the "World Wide Web". Oh, the poetic justice.

5. Don't try to force a new standard

Shaun Nichols: In the late 1980s, the personal computer was taking off in a big way, particularly in the business world.

To help take control of that booming market, IBM partnered with Microsoft to develop OS/2. The platform fizzled in the face of the booming success for Microsoft's own Windows platform.

Perhaps this was just a mistake on IBM's part, getting its product to market a few years too late and failing to cash in before Windows really took off. Or, perhaps, OS/2 was one last desperate move by IBM to save its PC operation.

One problem with being in the personal computer market is that the more hardware vendors you have in the market, the more competitive prices are and the lower margins everyone makes on their PC operations.

If IBM realised that the market was tight and only getting tighter, the one thing it could do to regain its lucrative stranglehold on the market was to lure businesses to a new platform that only ran on IBM hardware.

Unfortunately for IBM, the effort was too little, too late.

Iain Thomson: The PC case was a classic example of overconfidence.

But it wasn't just OS/2 Shaun, but also the PS/2 itself. Sick of all of the clones stealing its profits IBM attempted to create a new PC standard based around its own micro channel architecture.

IBM had been used to ruling the roost for so long it had begun to believe its own PR. The old adage that "no-one ever got fired for buying IBM" became rooted in the company's attitude to the PC market. The rest of the PC industry ignored PS/2 and IBM still couldn't believe it had lost control years after the fact.

With new markets no one company can be relied on to set the standards and enforce them. Competition is unstable and disruptive, which is as it should be. Companies that try to dominate usually come to regret it one way or another.

When Microsoft sought to use its operating system position to push Internet Explorer it succeeded in the short term, but ended up reaping not only fines, but a malware explosion that has permanently tarnished the company's reputation. I suspect we're seeing something similar with Facebook trying to reset global privacy standards too.

Just because you're the 800lb gorilla on the block doesn't mean you get everything your own way. Technology, and particularly software, has a nasty habit of being more difficult to hold down than companies think.

4. Be ruthless in dumping failing divisions

Iain Thomson: A lot of companies are bad at this, either through inertia or cutting too quickly, but IBM actually pulled off some good moves on this front.

When IBM announced it was selling off its PC and laptop division to Lenovo there was a certain amount of head scratching. IBM might have been well behind market leaders like HP and Dell, but the ThinkPad was possibly the most desired laptop in the business world and one of the most highly priced. What was the company thinking?

In retrospect it was a very good move. IBM sold out at a time when it could get a decent amount of cash for the division, and before margins came crashing down on the hardware production front. Lenovo was keen to get into Western hemisphere markets and the deal gave it instant name recognition and a good user base.

Almost as importantly the deal enabled IBM to move on from an arena that it had largely failed in and transform the company into the server and services concern it is today. IBM hasn't always been so adept, but there are definate advantages to looking ahead and trimming the fat.

Shaun Nichols: IBM learned this lesson early on, and vendors such as Motorola would later follow suit, but others would forget and end up being dragged down by their unprofitable business branches.

Case in point: Yahoo. The search giant lost out not only because of Google's rise, but also because of its own unwillingness to consolidate its operations and dump failing divisions. As far back as 2006, Yahoo executives were warning that the company was overburdened with operations that were losing money and spreading manpower too thinly (famously likened to peanut butter on a slice of bread).

There is a fine line here. Obviously, no business wants the public relations and human toll of dropping entire sectors of the business, but executives also need to be aware of where the money is going and what their return is. The moment it becomes clear that a branch is going to pose a threat to the long-term sustainability of the company, plans need to be made to cut that operation.

3. Care for your staff and they will care for you

Shaun Nichols: IBM may appear to be a rather cold and calculating multinational corporation, but that doesn't mean the company sees its employees as faceless drones.

Dating back to the early 20th century, IBM has been known for treating its employees well. When the Great Depression hit, Thomas J Watson Sr reacted not by cutting costs to protect the bottom line, but by instituting a then-radical system of benefits for those working at IBM.

The company was among the first to offer employees such things as paid holiday time and life insurance, at a time when other businesses were turning employees away and life for many was getting desperate.

To this day, IBM inspires no small sense of loyalty in those who work for the company, and a large part of that is due to the value the company places on its employees.

Iain Thomson: I think this one may have saved the company during the dark years of the early 1990s. Enough IBMers loved the company that they stayed to fix it rather than jumping ship.

As Shaun has pointed out, the company has been in the vanguard of hiring based on nothing more than ability, and this has been a core strength in terms of attracting diverse talents. The company has done an awful lot to advance equality in the world over the years. But there's more to it than that.

IBM successfully built an entire corporate spirit based around a codified set of rules. Employees became part of the "IBM family", as did their families for that matter, and the company fostered a sense of belonging that a lot of companies found very appealing. IBM expects a lot from staff, but in return it is generous in terms of benefits and a good work atmosphere.

So when things turned bad a lot of people stayed, even as mismanagement did its best to wreck the company. Enough people stayed to see the company through its rough patch, and many are there still. The old certainties may be gone, but IBM is still a place that attracts lots of people for its staffing policies.

2. Research, research, research

Iain Thomson: One thing that really makes a great company is research, and IBM has never really forgotten this.

Right from the earliest days the company was about making the best machinery possible, and then looking into ways to make it more efficient and extend it. No matter how lean a year it was business-wise, research went on, and at its peak stood at nine per cent of revenue.

This worked very well in the early days, but as its business moved from the mechanical to the electronic things started to change for the worse. The research ethic was still there, and the company funded it to the hilt, but in the fast-moving world of electronics the pace of innovation at IBM was too slow.

When IBM saw the PC was a viable platform it was already behind companies like Apple, and to its credit the company recognised this. It also saw that its researchers would be too slow, so assembled a scratch team who could work outside normal channels to build the first PC. They did the job quicker than would have been possible otherwise.

Research is the lifeblood of any technology company, but you need to recognise that sometimes it becomes ossified, and needs a bit of a kick.

Shaun Nichols: As we will see below, IBM hasn't always been hip to the direction the market is taking. But one thing that does keep the company near the cutting edge has been its research and development operations.

IBM has always been committed to research, and that commitment has served the company well. IBM is one of the few companies that can say that its products have been on the moon, and a large part of that is because the company has spent so much effort on making sure it was at the forefront of development.

These days, IBM's R&D operations are again winning it headlines. First, the Deep Blue cluster had its famous chess battles with Gary Kasparov, then the Watson supercomputer made its famous run on the iconic American game show Jeopardy, a truly remarkable feat in development and computing power.

Aside from benefits to IBM's own products and revenues from patents and licensing, the efforts have also brought good publicity for IBM.

1. You're never too big to be left behind

Shaun Nichols: Perhaps the biggest lesson we can learn from IBM is from the mistake that almost killed the company.

Through the 1980s, IBM was synonymous with business technology. The company was the de-facto vendor for everything from mainframes to printers to just about every piece of electronics short of the coffee maker and the telephone.

But that changed with the rise of the PC and the server. Suddenly, businesses didn't need to go to IBM to purchase their entire IT infrastructure. An enterprise could purchase servers from one vendor and PCs from another. Still trying to sell companies on mainframe solutions, IBM fell dangerously behind in the market.

The result was financial freefall for Big Blue. Throughout the early 1990s, the company saw its losses mount and soon it was teetering on the brink of extinction.

Eventually the company's innate business sense and research muscle were able to combine with a radical redesign and bring IBM back, but the company has never been the same, and the rest of the industry has realised that even the biggest names can be left in the dust if they get too complacent.

Iain Thomson: That's it in a nutshell Shaun; no-one stays on top forever.

There are industries where one or two companies can lock-up a market for a long period, but technology isn't one of them. Size is no guarantee of stability, and the biggest companies are not safe from a computer science graduate with a good idea and venture capital funding.

The technology field is full of companies that seemed invincible but got left in the dust. For every one company like an IBM that got to the top there are hundreds that failed along the way, and no-one is too big to fail. The problem is that everyone thinks they are the exception to the rule.

We're already seeing Microsoft sliding back down the ranks of technology companies, and Apple has gone full circle by falling and rising again to new heights. The only long-term successful companies are those that accept dominance is not a right, size is no protection and there's no such thing as a job for life.