International Business Machines Summary

  • Last updated on November 10, 2022

IBM’s tabulating machines introduced American business to data processing. In the post-World War II era, IBM helped lead the United States into the computer age.

Herman Hollerith, HermanHollerith founded the Tabulating Machine Company in 1896 to produce and market punch-card data-processing machines he invented for use by the United States Census Bureau. Numbers encoded by punching holes on rectangular cards at designated positions were read by passing the holes though electric contacts; the cards could then be sorted, counted, and used to calculate various relationships. The 1880 census had taken eight years to complete; his invention permitted the Census Bureau to compile the 1890 census in one year.International Business Machines

In 1911, Hollerith retired and merged his company with one producing scales that calculated the price of items weighed and a second selling employee time clocks, to form the Computing-Tabulating-Recording Corporation. The merger was unprofitable until Thomas J. Watson, Thomas J., Sr.Watson took over as president in 1914. Watson concentrated the company’s efforts on selling punch-card tabulating machines. Watson trained and exhorted his sales force, motivating them to convince corporate leaders that using these machines to store, analyze, and retrieve data would drastically cut their accounting and control costs. Renamed International Business Machines (IBM) in 1924, the company became very profitable. Leasing rather than selling machines, and insisting that only IBM keypunch cards be used, assured the company of continually increasing income during the 1920’s.

Always paternalistic toward his workforce, Watson practically guaranteed lifetime employment. He risked bankrupting his company by refusing to fire anyone during the Great Depression. Record-keeping needs generated by the New Deal rescued the firm. Social Security and other governmental agencies leased thousands of machines and bought reams of IBM cards. Companies found they needed the IBM system to record and manage their operations.

During World War II, IBM operated weapons factories. In 1945, left with greatly expanded plants and labor forces, Watson again put his company at risk by retaining all his employees. He set new factories to remodeling punch-card machines returned by the armed forces and directed his salesmen to offer them to small businesses on easy terms, spreading electro-mechanical data processing over yet more of the business world.


Although Watson never owned more than 5 percent of the stock in his company, he treated IBM as if it were family property. He assumed his son would follow him as president of the company and made sure that he did. Although reluctant to yield control to Thomas J. Watson, Thomas J., Jr.Watson, Jr., Watson, Sr., assigned him to oversee the new area of electronics. Watson, Jr., built extensive research facilities and poured billions of dollars into developing computers.

Even before it became a technology leader during the 1960’s, IBM outsold its competitors. Watson, Jr., credited his salesforce for his success. Where other companies’ representatives often boasted of arcane technical advances to uncomprehending purchasing agents, salespeople trained by Watson, Sr., stressed what computers could do for the buyer. By the 1960’s, IBM had become the dominant manufacturer of mainframe Computer industry;IBMcomputers, and most of its early competitors had dropped out of the business.

Decline and Revival

A woman uses the new IBM personal computer and printer in 1981. IBM was an early leader in the personal computer market.

(AP/Wide World Photos)

The younger Watson suffered a heart attack in 1970 and retired the next year. Although his successors tried to emulate the Watsons’ success, the company went into decline. IBM pioneered personal computers in 1981, and the overwhelming majority of personal computers ever built were IBM-PC compatible, but the company fell behind and ultimately abandoned the field.

Company leaders imitated Watson, Sr., without understanding why he did certain things. Even during the 1990’s, the company insisted that salespeople wear dark-colored suits and white shirts. During the 1920’s, a decade when workmen wore work clothes and only managers wore business suits, salespeople wearing suits could talk as equals with their customers. By the 1990’s, however, as casual clothing became prevalent, the IBM salespeople’s dress code seemed anachronistic.

By 1993, the company was in distress. More than 100,000 employees were laid off, reversing a policy dating from IBM’s beginnings. Its mainframe computers were becoming obsolete, and critics asked whether the company was too big to compete in a fast-changing market. Rumors circulated that the company would be dismantled, with various divisions sold off separately. Instead, in April, 1993, the Board of Directors hired Louis V. Gerstner, Louis V., Jr.Gerstner, Jr., the first chief executive from outside the company. Gerstner had held senior positions at food company RJR Nabisco and American Express; like Watson, he understood how to sell services as well as goods.

Gerstner insisted on keeping the company together and refocusing its activities around its information-technology roots. Layoffs continued in the first years, as he restructured the organization. Research paid off, and IBM reclaimed its position at the leading edge of the computer world. The company got favorable worldwide publicity for its turnaround in 1997, when its “Deep Blue” chess machine, a supercomputer IBM developed using artificial intelligence research, defeated the reigning chess world champion. The champion wanted a rematch, but IBM retired the game-playing machine and concentrated on building business- and research-oriented computers. Like Watson, Gerstner had salespeople emphasize customer service first, technology second. When Gerstner retired in 2002, IBM was once again an outstanding business enterprise and a leader in its field.

Further Reading
  • Gerstner, Louis V., Jr. Who Says Elephants Can’t Dance? New York: Harper Collins, 2002. Examination of how IBM declined and then revived.
  • Maney, Kevin. The Maverick and His Machine: Thomas Watson, Sr., and the Making of IBM. New York: John Wiley & Sons, 2003. Using full access to IBM’s archives, Maney paints a nuanced picture of IBM under Watson, Sr.
  • Rodgers, William. THINK: A Biography of the Watsons and IBM. New York: Stein and Day, 1969. Unauthorized biography that Watson, Jr. calls the best life of his father.
  • Tedlow, Richard S. The Watson Dynasty: The Fiery Reign and Troubled Legacy of IBM’s Founding Father and Son. New York: Harper Business, 2003. Harvard Business School professor analyzes the impact of the Watsons on IBM.
  • Watson, Thomas J., Jr., and Peter Petre. Father, Son & Co.: My Life at IBM and Beyond. New York: Bantam Books, 1990. Describes his relations with his father and his work at IBM.

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Categories: History