The Mainframe: IBM's Greatest Gamble |
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Published June 8, 2021
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"I feel that I am the luckiest man in the business world … because every member … has always given to this business the best that he has had to give. It is that cooperation and coordination of effort on the part of the people in every department … that has built IBM."
Watson Sr., IBM Homestead, 1947
The Watsons were lucky, but they weren’t gamblers. They were businessmen. They practiced the business definition of luck: always seeking that point at which preparation intersects an opportunity. Watson Jr.’s type of luck left little to chance because he found a way to exponentially magnify his father’s very large but lone boatload of luck.
Watson Jr. created a decentralized work environment that encouraged employees to float their own boats; and, collectively, they created a corporation that—from the outside—appeared extremely lucky.
Watson Jr. created a decentralized work environment that encouraged employees to float their own boats; and, collectively, they created a corporation that—from the outside—appeared extremely lucky.
The 20th Century’s Greatest Business Success Was Luck but it Wasn’t by Chance
- Putting the 20th Century’s Greatest Business Risk into Perspective
- A High Stakes Gamble but not a Chance that It Was by Chance
- Corporate Luck Depends on Individual Thought and Action
- A Chief Executive Should Encourage Employees to Float Their Own Boats
The Greatest Business Risk of the Twentieth Century
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To deliver the mainframe in the ’60s, IBM invested two and one-half times what the U.S. Government spent on the Manhattan Project to build the atomic bomb. FORTUNE called Watson Jr.’s investment, “IBM’s $5,000,000,000 Gamble.”
For IBM to make an equivalent investment today, as a percentage of its net income it would have to spend $137,000,000,000 on a single product—so revolutionary—that it would obsolete by 2021 not only its entire install base of mainframes but the intellectual capital of every single one of its major competitors: the likes of Intel, Microsoft, Hewlett Packard and Accenture. It was a risk of outsized proportions unmatched by any corporation – even to this day.
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A High Stakes Gamble but not a Chance that It Was by Chance
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Kevin Maney in The Maverick and his Machine writes about the luck of Watson Sr., the traditional founder of IBM. He writes that “Watson [Sr.] had luck by the boatload.” There is a chapter entitled “Daring and Luck.” Watson Sr.’s favorite dog was named Lucky. Yet, the individual who manufactured even more luck than Watson Sr. was his son, Watson Jr. He delivered results on a scale that even his father would have considered unimaginable.
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In 1956, at the end of Watson Sr.’s four decades with IBM, corporate employment stood at 56,000, revenue at $700 million, and net income at $73 million. Instead of taking another forty-two years, Watson Jr. added on average: 56,000 employees every four years, $700 million in revenue almost every year and a half, and $73 million in net income almost every year. In a decade and a half, revenue per employee grew by 150%, net income per employee by more than 200%, and the number of stockholders by more than 2,000%. In 1974, while reminiscing in an interview with THINK Magazine about the success of the mainframe effort, IBM’s former Chief Executive Officer, Watson Jr., commented, “Of course, we had some luck.”
Watson Sr. sometimes used the word luck too, but neither he nor his son would have attributed their corporate successes to chance. They were always pushing their corporation to be prepared for its next opportunity. For Watson Jr., his opportunity was in computers, and his method of choice to deliver it was to encourage individual thought and embolden individual action.
Watson Sr. sometimes used the word luck too, but neither he nor his son would have attributed their corporate successes to chance. They were always pushing their corporation to be prepared for its next opportunity. For Watson Jr., his opportunity was in computers, and his method of choice to deliver it was to encourage individual thought and embolden individual action.
To Be "Lucky," Encourage Individual Thought and Action
Watson Jr., as soon as he took over as chief executive, called what he meant to be a “constitutional convention” of his top leadership. He decentralized decision making; he replaced his father’s autocracy with autonomy and used his corporation’s greatest asset—its belief system—to avoid anarchy. He simplified the belief system of his father to three memorable words: respect for the individual; service to the customer; and the pursuit of excellence. Through this belief system, Watson Jr. enforced his authority without being autocratic, as he too was subject to its judgments. In 1962, he elaborated on the benefits of this belief system: it brought out the great energies and talents of IBM’s people, helped them find common cause, and kept them pointed in the right direction.
Watson Jr. invested $5 billion to make people more productive, processes more effective and products more valuable. He challenged every individual to be a wild duck—a man or woman who wouldn’t be tamed or shamed into being a “company man.” He told his management team that all of this autonomy would make them feel uncomfortable, but that encouraging individual thought and empowering individual action was the only way to achieve the growth they wanted to achieve.
One of the individuals who heard the call was William (Bill) W. Simmons. Instead of accepting the forecast that revenue growth would slow with the shipment of the System/360, Bill Simmons took independent action to ensure his corporation’s sales force was prepared to meet its new opportunity in computers.
Watson Jr. invested $5 billion to make people more productive, processes more effective and products more valuable. He challenged every individual to be a wild duck—a man or woman who wouldn’t be tamed or shamed into being a “company man.” He told his management team that all of this autonomy would make them feel uncomfortable, but that encouraging individual thought and empowering individual action was the only way to achieve the growth they wanted to achieve.
One of the individuals who heard the call was William (Bill) W. Simmons. Instead of accepting the forecast that revenue growth would slow with the shipment of the System/360, Bill Simmons took independent action to ensure his corporation’s sales force was prepared to meet its new opportunity in computers.
One Employee Manufactured His Own Luck
Simmons, an employee and author of Inside IBM: The Watson Years, conducted a pilot program and discovered that within 90 days after a sales representative received an industry-specific education there was a 20% rise in revenue. So, his sales organization (Data Processing Division - DPD) realigned its entire sales force within fifteen industries and sent them to industry-specific education.
In the insurance industry, for example, the sales reps received two to four weeks of Rutgers University training. By the end of 1963—just in time for the announcement of the mainframe—two out of every three sales representatives were trained and selling into their industry specialty. IBM gained market share in all industries. Its share of the insurance industry market grew to an incredible 88.5%.
Although Bill Simmons was exceptional, he was one of thousands who were similarly motivated by a corporation that encouraged, emboldened and rewarded individual action.
In the insurance industry, for example, the sales reps received two to four weeks of Rutgers University training. By the end of 1963—just in time for the announcement of the mainframe—two out of every three sales representatives were trained and selling into their industry specialty. IBM gained market share in all industries. Its share of the insurance industry market grew to an incredible 88.5%.
Although Bill Simmons was exceptional, he was one of thousands who were similarly motivated by a corporation that encouraged, emboldened and rewarded individual action.
Chief Executives Should Encourage Employees to Float Their Own Boats
"I feel that I am the luckiest man in the business world … because every member … has always given to this business the best that he has had to give. It is that cooperation and coordination of effort on the part of the people in every department … that has built IBM."
Watson Sr., IBM Homestead, 1947
The Watsons were lucky, but they weren’t gamblers. They were businessmen. They practiced the business definition of luck: always seeking that point at which preparation intersects an opportunity. Watson Jr.’s type of luck left little to chance because he found a way to exponentially magnify his father’s very large but lone boatload of luck.
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Watson Jr. created a work environment that encouraged employees to float their own boats; and, collectively, they created a corporation that—from the outside—appeared extremely lucky.
Watson Jr. and the employees of the ‘60s built a product that sixty years later—IBM z15™ System—still drives the lion’s share of IBM’s profits. The return from this investment in people, processes and products has spanned half of a century. |
Let your employees float their own boats
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Yes, it is true that building and delivering the System/360 was one of the greatest business risks of the twentieth century; and yes, it is factual that selling the System/360 involved the business definition of luck; but the success of the System/360 never depended on chance.
Never.
Never.