Thomas J. Watson Jr. was worried about how he could make his mark as a leader in the shadow of his famous father.
Watson Sr. had been named general manager of a maker of simple tabulators in 1914 and turned it into International Business Machines (IBM), which had $892 million in annual revenue by the time he died in 1956 (equal to $21 billion today).
Junior became CEO just before his father’s death and, despite resistance from other IBM executives, escaped his father's shadow by taking the company in a dramatically new direction. By the time Thomas Watson Jr. stepped down in 1971, IBM's annual revenue was $7.5 billion (equivalent to $43 billion now).
“He’s a good example of how someone can be entrepreneurial inside an already existing company, a corporate entrepreneur,” Mike Goldsby, author of the Teaching Company’s audiovisual course, “The Entrepreneur’s Toolkit,” told IBD. “He was very entrepreneurial in having IBM pioneer new directions in the nascent computer industry that others thought too risky."
In 1987, Fortune put him on its cover as “the greatest capitalist in history.”
Drifting And Depressed
Watson (1914-93) was born in Dayton, Ohio. When he was 5, his father took him on a tour of the local factory of Computing-Tabulating-Recording Co., where he had become president.
In 1924, Senior became CEO and changed its name to International Business Machines. By then, he had taken Junior to IBM conventions and on business trips to Europe.
“While my father was achieving phenomenal success at IBM, I barely made it through high school,” Watson wrote in “Father, Son & Co.: My Life at IBM and Beyond,” co-authored with Peter Petre. “It took me three schools and six years before I finally graduated at 19.… He knew I was drifting, but never gave up.”
Watson had visual problems probably related to dyslexia and suffered depression in his teens. Then while attending a college prep school, he became thrilled by competitive rowing, and his crew went to an international competition in England. He would go on to be an excellent sailor and pilot, but his grades improved only modestly, and he couldn’t get into top colleges until his father called in a favor and got him into Brown University. He graduated with a business degree in 1937, boosting his confidence.
By that time, IBM had moved its headquarters to New York City and received the contract to set up employment records for 26 million under the Social Security Act, using its punch-card machines. Young Watson worked as a sales rep, and by January 1940, he was one of the best in the company.
“Once he overcame his early challenges, he was a quick learner, very organized, very creative, very talented,” said Peter Tillou, an international art dealer who advised Watson’s father. “He was good at everything, and because of that and the way he was brought up, he had a lot of self-confidence, which was a key to his success.”
Ascending As A Pilot
As war in Europe looked inevitable, Watson, 26, volunteered to help the American military buildup through his 1,000 hours of experience as a civilian pilot, but he refused to go to flying school. He feared he would be disqualified because of his problems reading, so he joined the less-strict National Guard -- doing exercises until he could pass the Army Air Forces test.
Watson married Olive Cawley in 1941, the year America entered World War II, and they would have six children.
After attending staff and command school, Watson was assigned to visit bases in the U.S. to promote the use of new flight simulators. His work caught the attention of Maj. Gen. Follett Bradley, the inspector general, who tapped him as his aide and personal pilot and promoted him to lieutenant colonel.
“I worked for two great managers in my life,” wrote Watson. “My father was one, and the other was Bradley, one of the pioneers of the Air Corps, the first to make a radio transmission from an airplane to the ground.”
Meanwhile, his brother Dick, a major, was helping Army administration by placing IBM machines all over the world. Although profit didn’t increase during the conflict, sales tripled, from $46 million in 1940 to $140 million in 1945 (equivalent to $1.8 billion today), though much of this was due to manufacturing rifles for the government, along with bombsights and other war materials.
Achieving Dominance
Watson returned to the company as a vice president and worked closely with his father, sometimes conflicting over company strategy and how to manage people. In 1952, Senior raised Junior to president but continued to maintain strong control. And at the point Thomas Watson Sr. made way for his son's rise to CEO in 1956, he had only six weeks to live.
Thomas Watson Jr. thought the company was organizationally a mess and immediately began restructuring it. He "reinvented IBM into the archetype of what a modern corporation looks like through a multidivisional structure," Goldsby said. Watson established separate divisions for selling and servicing its data processing to commercial customers and the U.S. government. Other divisions included systems manufacturing, components manufacturing, and research.
Also in 1956, Watson hired architect and designer Eliot Noyes to pioneer a program that integrated the design of IBM’s products, logos, marketing materials and even its offices -- later declaring that “good design is good business.”
Despite the fact that most managers resisted the change from punch-card systems, Watson launched the 700 series of mainframe computers that same year, making IBM dominant for decades.
He urged his employees not to rely on the company's traditional ways of doing things, saying "the 'IBM way' ... is whatever way is most efficient, no matter how it was done in the past."
Watson is credited with moving IBM into the age of electronics at this time, taking it from a manufacturer of adding machines and typewriters to the forefront of the computer industry. In the 1950s, IBM not only invented the first electronic computer and the magnetic hard drive, but designed intercontinental missiles and developed the first artificial intelligence -- a machine that could learn from its own experience.
In 1957, IBM revolutionized programming with the FORTRAN language, and the next year it built the SAGE computer to run North American Air Defense. Watson also raised the company’s investment in research and development from 3% of annual sales to 6%-9%.
"He invested a lot of money on research and development," said Goldsby, "and it usually paid off."
The ’60s Revolution
IBM continued to soar under Watson's leadership in the 1960s, creating the SABRE system for airline reservations, working with NASA on the lunar landing and launching the revolutionary System/360. This offered a range of commercial and scientific uses with the ability to upgrade without having to rewrite applications. Fortune magazine called it “IBM’s $5 billion gamble,” and it was massively profitable, the major contributor to the 500% increase in company revenue and earnings through the decade.
In this era, IBM also changed its marketing approach from one that only sold hardware, services and software together as one package to one that offered them "unbundled" -- a model for later tech companies.
IBM was now the largest computer maker in the world, with 270,000 employees by 1970 and a corporate headquarters in Armonk, N.Y. But the next year, Watson had to step down because of a heart condition.
“I think I was at least successful enough that people could say I was the worthy son of a worthy father,” he wrote.
IBM continued to build on the foundation created by both Watsons, though it went in new directions as the high-tech industry evolved rapidly. Its stock rocketed 1,200% from 1993 to 1999. And in 2015, it reported revenue of $81.7 billion.
"If he hadn’t changed IBM into a very different company from the one his father ran, through innovation," Goldsby said, "it could have vanished like many other legendary business names. He was ahead of his time, and his imprint on business and computing is still felt today.”
Watson spent the early years of his retirement piloting helicopters and stunt planes for fun, as well as sailing around the world. Then in 1979 came a call to serve as the U.S. ambassador to the Soviet Union (he'd learned Russian while in the military), a post he held until January 1981. He died in 1993 at age 79.
As the 1990s ended, Time magazine named Watson to its list of the “100 most influential people of the 20th century.”
“I never varied from the managerial rule that the worst possible thing was to lie dead in the water with any problem,” Watson wrote. “Solve it quickly, solve it right or wrong. If you solved it wrong, it would come back and slap you in the face, and then you could solve it right. … Doing nothing is a comfortable alternative, because it is without immediate risk, but it is an absolutely fatal way to manage a business.”
Watson’s Keys
CEO of IBM as it established itself as a leader of the computer age, 1956-71.
Overcame: Difficulties at school; being overshadowed by his father, IBM's founder.
Lesson: Don't accept the conventional wisdom.
“If you stand up and are counted, from time to time you may get yourself knocked down. But remember this: A man flattened by an opponent can get up again. A man flattened by conformity stays down for good.”
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