6.5 From CTR to IBM, Part II

Watson’s sales strategy was a page out of Patterson’s book. He intended to create a well-trained and aggressive sales force in the NCR mold. His salesmen would lift the company to new heights on the strength of superior products and easy leasing terms, coupled with an efficient service organization and extensive promotional campaigns. It was a simple strategy (as the best business plans usually are); essentially, Watson was shifting emphasis from production to sales, marketing, and product development. But the scheme took a long time to put into effect, in part because of internal resistance from Fairchild and his associates. It wasn’t until 1918, four years after he had joined CTR and three years after he had become president, that Watson succeeded in uniting CTR’s three sales departments into a single unit. And it wasn’t until 1919 that Tabulating Machine produced a printing tabulator.

Watson delivering his "Men - Minutes - Money" speech at a sales convention in Endicott, New York, 1918

Watson tended to hire the same type of salesmen as Patterson – young, tall, well-groomed, ambitious, white Protestant males. They were required to dress conservatively – the standard uniform was a dark suit, white shirt, and quiet tie – and refrain from drinking alcohol on the job, even during business lunches or at company gatherings. (Smoking was also discouraged.) Trained at a company school, Watson’s recruits were taught how to approach potential clients and analyze their operations, demonstrating how the use of CTR’s tabulators and sorters would boost efficiency and cut costs. Since they were selling services, not machines, they had to learn a good deal about accounting procedures and cultivate a lasting rapport with their customers.

The first meeting of IBM's 100 Percent Club, then called the "Go-Getters," at the company’s Atlantic City, New Jersey, showroom in 1925

Watson used the same motivational techniques as Patterson: high commissions, guaranteed territories, excellent benefits, slogans (particularly THINK), and the Hundred Percent Club for top performers. The salesmen were the stars of the firm, and the company’s managers were drawn from their ranks. Watson even mimicked Patterson’s penchant for company sing-alongs. Every employee received a CTR songbook filled with well-known standards adapted to company purposes, and sales conventions and other CTR gatherings invariably opened with a hearty session of crooning. One of the tunes was dedicated to Watson:

Mr. Watson is the man we’re working for,
He’s the leader of the CTR,
He’s the fairest, squarest man we know;
Sincere and true.
He has shown us how to play the game
And how to make the dough.

And when CTR changed its name to IBM in 1924, employees sang hymns such as this:

Our products are known
In every zone.
Our reputation sparkles like a gem.
We’ve fought our way through,
And new fields we’re sure to conquer too,
For the ever-onward IBM.

Watson was an even more paternalistic employer than Patterson. Like his mentor, he believed that a loyal and dedicated workforce was essential to a company’s success, and he spent a great deal of money on employee benefits, bracketing his workers with high salaries, paid vacations, good working conditions, company cafeterias, and, later, medical insurance, educational assistance, and country club memberships. Due in part to his distaste for Patterson’s habit of firing people without justification, Watson rarely let anyone go. Instead, employees who didn’t meet his exacting standards or fell out of favor were given extra training and supervision or were transferred to less demanding positions.

Watson cultivated a familial atmosphere at CTR, one that was marked by a greater degree of respect between managers and employees, and employees and their peers, than was common at the time. Although he was not as creative as Patterson, Watson was more tolerant and civilized, a much better manager of men and women, and the policies he transplanted to CTR bore greater fruit. Yet Watson was almost as much of an egomaniac and benevolent despot as Patterson. Pictures of him were posted up all over the firm, and there was a good deal of whimsy to his promotions. “When IBM was under the old man,” said T. V. Learson, who served as IBM’s president from 1966 to 1971, “he had a system of picking people. It was very arbitrary – sometimes it was successful, sometimes not. If he liked the cut of your jib you might move up.” If not, you stayed still, slid sideways, or moved down. But at least Watson had a better eye for talent than most executives.

Watson’s ambitious expansion and reorganization plans were almost undone by the economy. As 1920 drew to a close, the country slipped into a recession – the slump that everyone had expected to arrive at the end of the war – and CTR took a drubbing. In 1920, the company realized a healthy $16 million in revenues and $1.9 million in net profit; a year later, the figures plunged to $10.6 million and $1 million respectively. Once again, it was International Time and Computing Scale that suffered the greatest reverses, while Tabulating Machine held up well. In any event, Fairchild and his associates on the board insisted on maintaining dividends, and the company doled out more than $500,000 to stockholders in 1921, leaving CTR about $200,000 in the red.

Watson had no choice but to crack down on costs. Wages were sliced by 10 percent, employees were laid off, debt was refinanced, and production of the long-awaited printing tabulator was halted. Fortunately, the economy picked up in 1922, and CTR began to recover, led by record sales at Tabulating Machine. The trip to the brink had a profound effect on Watson, who decided once and for all to concentrate on Tabulating Machine and to allow International Time and Computing Scale to wither away. He couldn’t have gotten away with this a few years earlier, but he had been running the firm for almost a decade and Fairchild, who was getting on in years, was spending less time at the company. In February 1924 Watson marked the new order by changing CTR’s name, which he had never liked, to the much more imposing, much more ambitious, International Business Machines Corporation. Ten months later, Fairchild died, and Watson was in full control of IBM.

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