IBM Corporation

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IBM Corporation

Although IBM holds many patents in computer-related technology, it did not invent the computer. IBM did, however, play a significant role in the development of commercial applications for emerging computer technology.

IBM's Beginnings

The history of the IBM Corporation can be traced to the year 1890, when a new process to record census information was developed by German immigrant Herman Hollerith (18601929). He developed a code that could be punched into holes in cardboard cards to represent data. These holes could then be sensed electrically by his punched card tabulating machine to sort or total the data represented by the punched cards . Hollerith's code was adopted by the U.S. Census Bureau and was still widely used into the 1960s. In 1896 Hollerith created the Tabulating Machine Company to market his product.

Hollerith's company merged with the Computing Scale Company of America and the International Time Recording Company in 1911 to form the Computing-Tabulating-Recording Company or C-T-R. In addition to Hollerith's tabulating machine, the new company also made time clocks, meat and cheese slicers, and a unique new calculating scale.

The Early Watson Years

In 1914 Thomas J. Watson was hired from the National Cash Register (NCR) Company as the firm's general manager. Watson was an effective leaderstern but compassionate, motivated yet ethical. He dramatically grew the company's revenues, consolidated its products, and expanded its operations internationally. In 1924 he formally changed C-T-R's name to International Business Machines Corporation (IBM). Watson's success was based on two key beliefs: that employees are truly a valuable asset and should be treated as such, and that his customers' success would be his number one goal.

Due to the high initial costs of his product, Watson leased his equipment to customers. This enabled IBM to enjoy a regular stream of income throughout the economic pitfalls of the Great Depression of the 1930s. While other companies were laying off employees and declaring bankruptcy, Watson was building a large inventory of data processing equipment based on Hollerith's system. This helped IBM land the massive data processing contract for the new Social Security Administration in 1935. Continuing production through the Depression was a big gamble, but it worked.

In 1937 Watson hired his son Thomas J. Watson Jr. as a salesman, and the next leader of IBM began his training. He would eventually become chief executive officer in 1956, the year his father died.

Early in his career, T. J. Jr. became enamored with the idea of electronic calculation as opposed to the mechanical approach. His dreams became reality in 1944 with the Mark I, a large-scale electronic calculating "computer" developed at Harvard with IBM support. This was followed by the 701 in 1952 and the RAMAC 305 in 1956. These early machines were experimental, rather than commercially viable units. They were built using vacuum tubes and relays, and were so expensive that only a few of the largest companies and the federal government could afford them.

Creating an Industry Standard

In the 1960s the computer industry centered on the development of the mainframe computer. IBM was the best-known name in the commercialization of the mainframe computer for business use, but it was not the only company developing computer technology. Other players in the mainframe computer industry in the early 1960s included RCA, Sperry Rand, Burroughs, and NCR.

No standardization existed for computer design and programming, so computers from each of these companies were incompatible with each other in both hardware and software. Often, even new computers released by a given manufacturer were not compatible with their predecessors. In this atmosphere of industry fragmentation, T. J. Jr. took a gamble as significant as the one his father made during the Great Depression. Betting on a technological evolution generically called the microchip , IBM developed Solid Logic Technology (SLT) and designed a bold, new commercial computer system, the System/360, around it.

Computers of the early 1960s were based on the transistor , which had been invented by Bell Labs. While the transistor was a major improvement over the vacuum tube, it still was a discrete component. Only a limited number of discrete components could be connected together to make a bigger computer that would still be reliable and as fast as its predecessors. In comparison, SLT chips could hold hundreds of transistors on a single 0.64-centimeter (0.25-inch) square silicone wafer, thus breaking through the discrete component limitation.

Although SLT was a significant hardware advance, the software was even bigger. OS/360 was developed as the standard operating system. It would remain constant through the evolution of the 360, 370, and 390 and would always be compatible with the versions before it.

The enormity of the 360 project taxed IBM to the breaking point. At times, the junior Watson's dream took on nightmarish proportions. He had literally bet the company on the success of the 360. Eventually, his staunch belief in his father's business approach prevailed over the technical problems. The IBM System/360 was announced in 1964 and IBM became the predominantand, at times the onlymainframe computer manufacturer.

Eventually, the S/360 evolved into the S/390. The standard of the mainframe industry, S/390 has turned out to be one of IBM's most enduring and valuable products. There are only two major competitors, Hitachi and Fujitsu, both of which make clone computers which emulate the instructions of the S/390. These machines use the IBM OS/390 operating system, which provides IBM with a large amount of ongoing revenue.

IBM's strategies proved so powerful that its competition gradually disappeared. As IBM grew in size and became the dominant force in the industry, it achieved monopoly status and the government took action to rein in the giant. Three separate and enormously draining anti-trust suits were filed between 1932 and the 1980s. The U.S. Justice Department finally prevailed in undoing IBM's dominance. Although the final suit was settled as being without merit, IBM had become a victim of its own success.

Starting in 1914, the Watsons had built a vast, highly respected, and profitable company known for its ethics and honest concern for customers and employees. T. J. Jr.'s retirement in 1971 marked the start of a succession of CEOs and, some say, a general decline at IBM.

Birth of the IBM-PC

By the late 1970s, it was possible to make a functional computer that would fit on an individual's desktop. Great debates took place at IBM over the development of such a unit. The main detractors were the executives in charge of the mainframe program, who considered the development of individual computers a threat to the demand for mainframe computers.

In 1981 John R. Opel was named CEO. He ordered the creation of the personal computer. Internal opposition to this decision was so strong that Opel set up a separate lab in Boca Raton, Florida, to create and manufacture the device. This was geographically as far away from the mainframe and storage advocates as he could place it. Phil Estridge, the leader of the PC project, was given a great deal of autonomy to make decisions necessary to carry out his mission.

While IBM had a huge internal staff of programmers and processor designers, they were all too busy and their departments were too bureaucratic to help with the PC project. Estridge turned instead to two new startup companies for help: Intel and Microsoft. Intel would design and manufacture the microprocessors and Microsoft would develop the operating system based on DOS (Disk Operating System). In an attempt to foster acceptance of the IBM-PC, Estridge decided the architecture would be "open," thus fostering the development of complementary attachments. This was in stark contrast to the strategy of competitors Apple and PET. The result was that the IBM-PC was the most successful architecture of all the PC approaches.

Unfortunately for IBM, the company does not own any of it. Estridge failed to obtain the ongoing rights to the intellectual property IBM was paying Microsoft and supporting Intel to develop.

In 1992, during the John Akers administration, IBM finally crashed. It had amassed many more employees than it really needed. Facing losses for the first time in decades, IBM divested itself of more than 100,000 employees, mostly through generous early retirement programs.

Akers left IBM in 1993 as the stock price hit an all-time low. The board hired Louis V. Gerstner Jr., the former CEO of RJR Nabisco, Inc. and American Express. He immediately started to attack the entrenched bureaucracy and redefine the company. Gerstner inherited many problems stemming from decisions made by his predecessors; for example, in 1998, IBM's PC division lost more than $900 million dollars. However, Gerstner has worked to resolve the profitability problem and restore the stock price. Under his leadership, IBM may be expected to pursue growth in the professional, outsourcing, and Internet services businesses.

see also Hollerith, Herman; Intel Corporation; Mainframes; Watson, Thomas J., Sr.

Ken Doerbecker


Austrian, Geoffrey D. Herman Hollerith. New York: Columbia University Press, 1982.

Foy, Nancy. The Sun Never Sets on IBM. New York: Morrow, 1975.

Rodgers, William. Think: A Biography of the Watsons and IBM. New York: Stein and Day, 1969.

Watson, Thomas J. A Business and Its Beliefs. New York: McGraw-Hill, 1963.

Internet Resources

IBM Corporation. "The Story of IBM." <>