It invested in research and development, as well as management and a well-trained, highly motivated sales force in order to support the mission of providing the best in information processing.
Times have changed, the competitive environment and the characteristics of dominance, but the combined strength of those complementary elements continues to drive organizational success and the financial imperatives that drive economic sustainability. JL
Greg Satell comments in Digital Tonto:
More than 100 years after its founding, (IBM) last year earned $21 billion.A business is far more than a plan. IBM didn’t just build competing products, they built a superior organization, complete with a legendary sales force and research division as well as a commitment to information processing. It was that commitment that allowed it to attract the best talent, hone its model further and dominate the competition.
In 1914, Thomas J. Watson was hired to run the Computing-Tabulating-Recording Company, a far flung holding company strewn across several industries. Watson, sensing an opportunity, decided to focus the firm on something he called “information processing” and changed the name to International Business Machines.
More than thirty years later, after IBM had come to dominate the market for punch card machines, it faced an existential threat from UNIVAC, an “electronic brain” that far outperformed IBM’s products. Yet the company that owned UNIVAC, Remington Rand, failed to focus on the technology and IBM soon dominated once again.
Today, 100 years later, IBM Is a $136 billion company while Remington Rand is long gone, acquired by the Sperry corporation in 1955 (which is also long gone). IBM’s focus had a lot to do with the outcome. It’s easy for corporate strategists to point to greener fields and fabulous yonders, but truly great companies are the ones that are able to do one thing extremely well.
Why Mission Drives Strategy
All too often, strategists see their job as a game of chess. They think that by making all the right moves, they can outsmart their opponents and develop a superior business. So they go to work on Excel worksheets and PowerPoint decks, apply analytical filters, build 2×2 matrices, pyramid charts and and create a roadmap for success.
Inevitably, however, they find that all of the strategic assets they analyzed come with people attached to them. Even more troublesome is the fact that people have their own ideas and ambitions that must be accounted for. After things go awry, the chess masters sadly lament that “we had a great strategy, but fell down on execution.”
Yet viable strategies always take the ability to execute into account. As Richard Rumelt puts it in Good Strategy/Bad Strategy, an effective strategy is “brings relative strength to bear against relative weakness.” You can’t just wake up one day and decide that you are going to build “relative strength” in one area or another because it seems like a good idea at the time.
The truth is that your mission needs to drive your strategy, not the other way around. Genuine excellence requires passion, commitment and consistency. You can’t create that in a boardroom meeting or a strategy session. It takes focus over an extended period of time.
The Talent Advantage
The 1952 US Presidential election was historic in more ways than one. As a gimmick, CBS put Remington Rand’s UNIVAC on air to project election results. Very early in the night, the “electronic brain” predicted Eisenhower would win 438 electoral votes to Stevenson’s 93, a massive—and unlikely—landslide. The newsmen scoffed and refused to broadcast the result.
As it turned out, UNIVAC had it right, which meant an enormous coup for Remington Rand and a disaster for IBM. Information processing, a field that Thomas Watson had created, now belonged to its rival. In the years that followed, dozens of companies piled into the into the field once dominated by IBM’s punch card machines.
In theory, the field was wide open. The old punch card technology had little relevance to the new electronic computers. However, while competitors like Remington Rand pursued a variety of areas, IBM was single minded. It hired an army of engineers, developed superior machines and went on to dominate computing for decades.
If you’re a top level computer scientist, you’d probably be happy to land a job at IBM, Google or Microsoft. If you want to cure cancer, there’s no place better than MD Anderson or Dana Farber. McKinsey and General Electric are known for developing top level managers. These organizations are tops in their fields because their focus allows them to attract the best talent.
Continuously Innovating The Process
Remington Rand was able to jump out to a head start was that it bought the company started by J. Presper Eckert and John Mauchly, the inventors of the ENIAC, the world’s first general purpose digital computer (well, at least the first anyone knew about). At the time, they were probably better positioned than anyone else to build a commercial version.
Yet invention and execution are two very different things. A commercial product needs to perform consistently at a minimal cost. If it breaks down and needs to be serviced often, or is difficult to use, its value in the marketplace is greatly diminished. A big idea is important, but to execute it well you need to continually hone internal processes.
That’s where UNIVAC faltered and IBM thrived. It’s engineers were able to improve reliability and lower costs. Its formidable sales force was skilled in handling customer problems. By focusing on one area—information processing—the company was able to continuously improve its products and service.
To be a great performer—in any field—you simply have to do things better. That takes work. You need continually up your game over a period of years—or even decades—in order to get it right. That takes focus.
Forking Paths
Remington Rand looks incredibly foolish now. When you have a breakthrough product at the dawn of the greatest growth industry the world has ever seen, why would you waste your time with products as far flung as electric shavers? And if you actually thought electric shavers were such a big opportunity, why would you saddle yourself down with a capital intensive computer business?
The answer is simple. There are, at any given time, an uncountable number of opportunities that you can pursue. By choosing just a few of the most attractive, executives actually feel that they are being selective. They scrutinize business plans, compare them to available resources and, if it looks feasible, they pursue the opportunity.
Yet a business is far more than a plan. IBM and Watson didn’t just build competing products, they built a superior organization, complete with a legendary sales force and legendary research division as well as a commitment to information processing. It was that commitment that allowed it to attract the best talent, hone its model further and dominate the competition.
Of course, focus is no panacea. Through the years, IBM has been challenged time and time again. Mainframes gave way to minicomputers, which in turn gave way to PC’s. The Internet emerged, then mobile and now the cloud. At one point, the company was nearly broken up, but Lou Gerstner refocused it once again.
Today, IBM no longer dominates, but more than 100 years after its founding, it still competes ably against a strong field. In fact, very few companies can match its record of longevity or profitability.Last year, it earned $21 billion. Spectrum Brands, the company that markets Remington’s famous shavers, among other things, earned less than 5% of that.
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