IBM, Still Going at 100 Years 1

The Wall Street Journal honored June 16, 2011 as the 100th anniversary of the founding of International Business Machines, better known as IBM.  IBM is milking the occasion for all the publicity available, even setting up a special web site dedicated to the occasion.

Being 100 years old is no big deal for Asian businesses - there's a Japanese construction company that's been in business for 1,500 years which is 15 times as long as IBM has been around.  USA Today reports that in contrast to the Asian situation, Western business that old are "a special and rarefied group."

The numbers reveal just how rare it is. From the pool of more than 5,000 U.S. publicly traded companies, 486 are 100 years or older — excluding operating subsidiaries — according to an analysis by Standard & Poor's Capital IQ for USA TODAY. And just 23 private firms in the U.S. with audited financial statements are 100 years or older, Capital IQ says.

Staying on top of any industry is a feat. But adding to IBM's accomplishment is the fact it's one of the only major U.S. computer technology firms to become a centenarian.

Like many, USA Today thinks of IBM as a technology company.  This seems reasonable because IBM engineers developed the first hard disk drive and the floppy disk, they pioneered the use of bar codes to identify merchandise, and they supplied the mainframe computers which did the calculations needed to get the Apollo lander to the moon.  They invented the Personal Computer which became the foundation of Bill Gates' fortune, and they invented computer systems which became champions in both chess and Jeopardy.

It's really hard for technology companies to last a long time - there are always new technologies which come along to challenge the leaders.  Management expert Jim Collins asserts that one of the major reasons IBM has lasted a century is that IBM doesn't think of itself as a technology company.  Instead, it focuses on serving customers using whatever technology happens to be appropriate at the time, or even no technology at all if that's what the situation calls for.

IBM is a classic example of a company that had to get into entirely new businesses, without turning its back on what got it to where it is, Collins says. If you consider what IBM's mission is, it's not about computers or technology. It's about allowing its individual employees to create ways for its customers to solve operational problems, Collins says. Whether that's a task best done with scales, typewriters or computers doesn't matter; what matters is that customers' needs are answered, Collins says.

Even Big Companies Can Lose It All

IBM dominated the mainframe business so thoroughly for so many years that they got lazy.  Instead of focusing on customer needs well enough to catch new trends, they allowed themselves to became a technology company focused on selling mainframes whether customers needed them or not.  Although they made decent money selling PCs, the low-margin PC business didn't generate enough profit to support the rest of the company.  IBM had a near-death experience in the early 1990's when the spread of low-cost personal computers reduced the market for mainframe computers.

IBM lost its focus on the customer in the 1990s to such an extent that many thought Big Blue was doomed, Collins says. The company's reliance on sales of mainframe computers, a technology largely being supplanted by less-costly personal computers, looked like the end of the line for IBM. But after Louis Gerstner arrived as CEO in April 1993, he succeeded in saving the company from ruin in large part by understanding that if IBM stuck to its focus on customers, its core, it could survive, Collins says. Gerstner reversed the company's plans to break itself into several pieces, recognizing that corporate and government customers wanted one large technology firm, like an IBM, to do business with.  [emphasis added]

Note the emphasis on large customers.  IBM started working with the Social Security Administration back in 1936.  Big government and big businesses need a big technology vendor.  IBM prospered by getting back to its focus on its primary customers.

Like IBM, Microsoft became focused on its core technology products, Windows and Office, which are under attack due to technology changes.  It's using profits from these cash cows to attempt to focus on customers in other market areas, but they haven't settled on a mission statement as crisp as IBM's.  Although ventures such as gaming consoles cell phones, and internet search show signs of promise, their flat stock price suggests that investors don't believe that Microsoft will return to the explosive growth of its early years.

Customers Are Where It's At

Being focused on customer needs is business 1.01, 02, and 03.  It's so well known that every business in the world speaks of being "customer centered," but few businesses actually persuade their employees to think in terms of who their customers really are and what they really need.

It can be difficult to figure out who the real customers are.  Google products Gmail, Google Chat, Docs, GWT, Maps, and Google Voice are provided free to millions of people.  Are those people Google customers?  Nope - they don't pay Google a dime.

Google gives away the Android operating system for smart telephones.  Android is used by so many different phone manufacturers that it has become the leading smart phone operating system.  Are the cell phone manufacturers that put Android on their products Google customers?  Nope - they don't pay Google a dime.

Google's customers are advertisers who pay Google to get their messages in front of Internet users.  These other ventures - Gmail, Chat, Voice, YouTube - are ways for Google to offer free services which are so attractive that freeloading users won't mind having Google's real customers' advertising inflicted on their eyeballs.

USA Today published a list of  public companies which are 100 years old or older.  The fact that these companies have prospered "for richer, for poorer, for prosperity, for depression" shows that American businesses can compete in any world market.  The difficulty is that most American businesses have forgotten how to complete against really hungry competitors who have the same skills and technology we have.

We got fat, dumb, and happy during the boom years of the 1960's when American factories could sell anything they put out and our competitors were still recovering from WW II.

Now that the damage from WW II is long since fixed and the Indian and Chinese governments have decided to switch to capitalism, Asian competitors have placed major strains on American business over the past 20 years by selling hard into our markets.  The entire Pacific Rim is in the middle of an explosive business expansion.  This means we have a lot of hard-working, smart competitors who get our latest technology hot off the Internet.

We're no longer fat, we're no longer happy, but we're still dumb.  We've had it our own way for so long that we've forgotten how to handle serious competition.  To survive competitive pressures and to take advantage of new opportunities, American businesses need to get back to sound business strategies that served IBM so well in the past.

The next article in this series introduces some well-tested business strategies which all long-lived companies have internalized.  Any company on USA Today's list of 100-year-old firms has internalized most if not all of these principles - if they hadn't, they wouldn't have lasted that long.