Thomas (Tom) Watson Jr. took big calculated risks to transform International Business Machines from a stodgy maker of tabulators to the driver of computer technology.
His father, known as T.J., co-founded IBM in 1914 and turned it into the world's leading maker of punched card tabulating machines. But the company's market began to stagnate. Eventually, Watson Jr. (1914-1993) took over as CEO in 1956. And in his tenure until 1971, he not only outshined his dad — he generated a technological revolution.
"He was a brilliant innovator, continuous learner, great organizer, and out-of-the-box strategist," said Ralph Watson McElvenny, his grandson and co-author with Marc Wortman of "The Greatest Capitalist Who Ever Lived: Tom Watson Jr. and the Epic Story of How IBM Created the Digital Age."
"In our view, he had more enduring impact than any other business leader past or present," McElvenny said.
How did Watson Jr. reinvent his father's company without taking foolhardy gambles?
Start At The Ground Floor Like Thomas J. Watson Jr.
Watson Jr. struggled in school due to dyslexia. He took six years to graduate from high school at 19. His father had to call in a favor to get Watson Jr. into a college. Despite poor grades, Watson Jr. earned a degree in 1937.
At IBM, Watson Jr. turned out to be a super salesman. This role showed him how to spot new products customers would need, but didn't know to ask for. Despite feeling overshadowed by his powerful father and many rivals, he took the helm when T.J. Watson died in 1956. That year, IBM had racked up $892 million in annual revenue (equivalent to $21 billion today).
When Watson Jr. retired in 1971, IBM had reached $8.3 billion in revenues (equal to $63 billion now).
Prepare To Become A Great Leader Like Tom Watson Jr.
By taking smart risks, Watson Jr. turned IBM into a much different company than his father created.
Born in Dayton, Ohio, in 1914, Watson Jr.'s father was managing director of the Computer-Tabulating Recording Co. He changed the company's name to International Business Machines in 1924.
Meanwhile, Watson Jr. began reinventing himself. To gain self-confidence, at a college prep school he became a champion rower and later sailor and pilot. He later used that experience and his IBM tech sales skills to help the military promote the use of new flying simulators in World War II.
After leaving the military as a lieutenant colonel, he rejoined IBM at the start of 1946. He and his father visited the engineering department and saw a punch card machine powered by radio tubes that calculated payroll in one-tenth the time of a mechanical one. The potential "impressed me as though somebody hit me on the head with a hammer," he recalled.
Watson Jr.'s dad was skeptical. But in September 1946, they launched the IBM 603 Electronic Multiplier. The risk paid off with a hit, so Watson Jr. rose to vice president. The company increased engineering R&D from 2% to 10% of sales. The culture of smart risk taking was on.
Take Big Calculated Risks
Watson Jr. took over as president in 1952. IBM developed even more sophisticated computers, including hard drives in 1956. That year, Watson Jr.'s father died and he became CEO. More risks followed. In 1961, IBM launched the SABRE airline reservation system and its computers also began filling stock trades in real time.
"In spring 1964, Tom Watson Jr. was widely esteemed as the most successful head of a major corporation, who made bold decisions and communicated his reasoning clearly," said McElvenny. "IBM owned every market it was in, including 70% of the nascent computer industry."
Then on April 7, Watson Jr. announced the biggest risk yet. It would develop the IBM System/360 mainframe computer, which would incorporate high-speed memory, reliable semiconductor chips and universal programming languages. But instead of being proprietary, it would set the standard for industry compatibility. All prior products by IBM and its competitors would become obsolete.
IBM, though, took two years to deliver this revolutionary computer. That brought the company to the brink of bankruptcy. "But my grandfather had planned this carefully with the smartest minds at IBM, who concluded that the safest course was the most daring, and they launched the digital age we live in today," said McElvenny.
Empower And Communicate With Your Entire Organization
In 1954, T.J. Watson approved Watson Jr.'s splitting the company into semi-autonomous product divisions.
When Watson Jr. took the helm two years later, he created a new research division to "give the 'wild ducks,' as he liked to call the experimenters and theoreticians, freedom to fly," the authors wrote. "A culture of invention flourished, which resulted in IBM leading all other firms in total patents."
He kept corporate management lean. Watson Jr. focused managers on policy, review, marketing, operations, finance, personnel and strategy. He pushed decision-making down the organization. He also urged teamwork everywhere, rather than competition, so IBM could respond quickly to new challenges.
Instead of being a micromanager like his father, Watson Jr. freed up time to roam the company, listen to feedback from the front line, think about big goals, and share his views in companywide memos. "One of his greatest strengths as a leader was that he looked for people who would tell him he was wrong," said McElvenny.
Redefine Success Like Watson Jr.
IBM was the first large industrial firm to put all workers on salary (270,000 in 1971). And Watson paid high wages. His own annual pay was kept at a very modest $100,000, even though IBM became the most profitable company in the world. IBM shareholders gained enormous wealth.
"He disagreed with executive pay spiraling upward far faster than line-employee salaries and watched with dismay in later years as his successors' pay rose to many times what he was paid," said McElvenny. "I'd say the least appreciated aspect of his legacy is what is called humane capitalism, that you can pay high salaries and reasonable executive compensation, pursue business ethically, and still become the most valuable company."
After a heart attack he stepped down in 1971. Once recovered, he devoted himself to sailing and flying around the world and being an active philanthropist. Then in October 1979, President Jimmy Carter appointed him to the critically important position of ambassador to the Soviet Union and he served until January 1981.
Stay Involved To Ensure Your Legacy Like Watson Jr.
Watson rejoined the IBM board. He met with each new class of management trainees to show the power of smart risks. But the company began to stumble again in the late 1980s with the dawn of the personal computer. When the first outsider was brought in to rescue it, Lou Gerstner, in April 1993, Watson met with him, urging him to take bold action and emphasize service. It would eventually work, but Watson was not around to see the turnaround. He died in December.
"Today, he would have been excited by artificial intelligence and made sure IBM put it to good use, but with strict regulations to try to prevent anything nefarious from happening," said McElvenny.
In 1987, Fortune magazine designated him as "the greatest capitalist in history, if creating wealth for shareholders is the best measure of a businessman's success." It later ranked him as one of the four most important business leaders of the 20th century (the others being Henry Ford, Alfred P. Sloan Jr., and Bill Gates)."
"I believe my grandfather still deserves a place on it because of the management principles he formulated and values he lived by, which are timeless and a road to success for virtually any business," McElvenny said.
Tom Watson Jr.'s Keys
- Successful CEO of IBM from 1956-1971. Credited for sparking business' embrace of technology.
- Overcame: The near bankruptcy of IBM due to his massive investment in computer innovation.
- Lesson: "Make mistakes, all you can, because you'll find success on the far side of failure."
