IBM at 100: The ‘Evergreen’ Lesson

June 28, 2011

Brian Kilcourse

Two anniversaries passed in the last few weeks. One was RSR’s fourth (see RSR partner Paula Rosenblum’s musing on that subject in Retail’s Turning Point: A Look Back). Another recent anniversary was a big one, IBM’s 100th year of existence. I couldn’t help but to think about how it is that some companies have a knack for not only weathering tumultuous times, wrong turns, and new competition, but also to turn those challenges into new energy to propel themselves forward. RSR is very young, and I personally hope someday to be that doddering old guy walking through a roomful of young and extraordinarily smart people who work for RSR Global. We’ll see — I’ve got an open mind about it.

Young companies could learn a thing or two from IBM. Big Blue has been around since 1911, and it has seen countless successes and some notable blowout failures (can you say OS/2?), but over the span of all those years, it has consistently kept its eye on the long view, and (by and large) has resisted the temptation to toss the long term vision overboard in favor of the short term gain. For a publicly traded company, that is incredibly hard to do. In these economically difficult times, it takes incredible discipline and fortitude to resist the bad deal that brings in some revenue this quarter syndrome.

Do You Believe?

To understand a little of how IBM through the years has been able to bend without breaking, it’s useful to look at its core beliefs. Tom Watson Jr. once famously said, “I believe that if an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself, except its beliefs”. The beliefs that a company espouses don’t change if they are real (perhaps that’s the litmus test!). Beliefs are the raison d’être — the thing that justifies the existence of an entity. They are the DNA of the company.

There is no one set of corporate beliefs that is right. Look at HP. I once had the pleasure of meeting David Packard of Hewlett Packard fame. Mr. Packard was kind of a rock star to me — a legend. And there he was, standing alone for a brief minute in the foyer of the HP executive briefing center in Palo Alto. So what do you say to a legend? Well… I blurted out the completely inane, “betcha didn’t think HP would ever get this big!” But the great man graciously answered (I paraphrase here, but it’s pretty close to his actual words), “well, when Bill and I started this business, we just wanted to build interesting things, and thought that if we did, then the market would find us.” In other words, Hewlett and Packard’s belief system was all about creating an environment where smart people could build interesting stuff, knowing that a market would develop around those creations- and they would make plenty of money.

Well, IBM creates stuff too. In fact, the company is extremely proud of the number of patents it has created. To prove the point, in January of this year the company announced “that its inventors received a record 5,896 U.S. patents in 2010, marking the 18th consecutive year it has topped the list of the world’s most inventive companies. IBM became the first company to be granted as many as 5,000 U.S. patents in a single year. It took IBM’s inventors more than 50 years to receive their first 5,000 patents after the company was established in 1911.”

Pretty cool! But that doesn’t have a lot (directly) to do with the company’s core beliefs (or as IBM calls them, Principles), which are[1]:

  • Respect For the Individual
  • Service To the Customer
  • Excellence Must Be a Way of Life
  • Managers Must Lead Effectively
  • Obligations To Stockholders
  • Fair Deal For the Supplier
  • IBM Should Be a Good Corporate Citizen

What is most interesting about this is that IBM’s Watson put the Individual at the top of the list, followed right away by service to the customer. That really is what IBM has always been about — giving their employees the potential to grow to their full potential within the framework of service to the customer.

By contrast, the HP Way (Hewlett and Packard’s statement of beliefs) is:

  • We have trust and respect for individuals.
  • We focus on a high level of achievement and contribution.
  • We conduct our business with uncompromising integrity.
  • We achieve our common objectives through teamwork.
  • We encourage flexibility and innovation.

HP’s founders put the individual at the top of the list too, but the customer isn’t even mentioned! But a high level of achievement, teamwork, and innovation figure prominently. IBM’s core beliefs don’t highlight innovation. For HP, it’s all about the employee in the context of the creative process, while IBM focuses on the employee in the context of the customer. Whereas HP’s success has a lot to do with the excellence of it’s creations, IBM’s success is built around the success of its customers.

One thing both companies seem to agree on: if their employees are successful, the owners will make plenty of money. IBM might be evergreen; the company has made through 100 years, and there really isn’t any reason it can’t make another 100 if it sticks to its beliefs. HP is still a young 72 years old — it will be interesting to see how recent changes at the top affect the company’s successes.

What’s On Your Office Wall?

Virtually every retailer that I’ve worked with or for has a statement of core principles or beliefs that says something like this: “We have an unwavering focus on complete customer satisfaction… Our employees are our most important asset”. But what retail leaders must ask themselves is, really? RSR’s recent studies have shown us a lot of things; for one, retailers in many cases seem almost surprised at the speed with which customers have adopted smart mobile technologies and social media to make better decisions about what they buy and where they buy it. And, many retailers are now struggling to get at least as much information power into the hands of their employees as their customers have.

The hard fact is that most retailers don’t believe in empowered employees. This shows up in so many ways. For example, even as recently as 2009, our studies showed that most retailers hadn’t implemented wireless network access in their stores, making employee access to real-time information on the sales floor a virtual impossibility. Now, retailers are exploring smart mobile apps for employees as well as customers, IP-to-cellular gateways, and social media — sometimes without a lot of clarity about what they hope to achieve once they have those capabilities. Retailers sense that consumers are now informed, empowered, and unforgiving.

Management guru Peter Drucker once said, “Suppliers and especially manufacturers have market power because they have information about a product or a service that the customer… does not need if he can trust the brand. This explains the profitability of brands.” The same holds true for retailers (or virtually any business). In retail, the employee represents the brand. Customers aren’t sheeple; if they believed that a retailer’s employees believe in the brand, then the compulsion to challenge everything might not be so strong.

Interestingly, IBM got caught in a similar customer backlash back in the early-1990’s. With the open systems revolution in full swing, corporate customers didn’t want to be force-fed high-priced proprietary IBM solutions. They had choices, and they revolted. For the next several years, it was painful to watch the giant company experience it’s first plant closures, layoffs, voluntary retirements, etc. It’s CEO was voted one of the worst CEOs of all time. But the company got refocused on its core beliefs, reorganized around developing great employees and servicing their customers needs, and achieved one of the great comebacks in recent history (and for stockholders, every dollar invested 20 years ago is worth $4 today).

In so doing, IBM demonstrated the power of core beliefs firmly held. It’s a lesson that every company can profit by. It’s an evergreen lesson.

[1] Thomas J. Watson, Jr. 1969

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