International Business Machines

January 1, 1940, 9:00 AM UTC
IBM feature: January 1940 issue
Inside a bank proof machine, which sorts and then lists and adds checks on the tape. Now on the market six years. it was developed by the Engineering and Research Department. the only department not on a budget. "I don't want to put any limit on imagination," says Mr. Watson.

MOST enterprises, when they would dream of the exaltations of a golden age, roll their eyes backward; the International Business Machines Corp. has beheld no past so golden as the present. The face of Providence is shining upon it, and clouds are parted to make way for it. Marching onward as to war, it has skirted the slough of depression and averted the quicksands of false booms. Save for a few lulls that may be described as breathing spells, its growth has been strong and steady. Today everything and everybody in the organization, down to the lowliest sweeper, is surrounded with the aura of an immense and everlasting success. Its miraculous factory, situated at Endicott, New York, in the Valley of Opportunity, is partly air conditioned and wholly immaculate. Its 4,000 workers shave their faces and shine their shoes daily, are never without a haircut and whenever possible wear white shirts. Resembling feebly disguised executives, they are almost unspoiled by union influence and average $1,874 a year apiece, with two weeks’ vacation and six holidays on the Company. They disembark from glossy cars in the morning and leave for home in the evening to the tune of sweet music issuing from the steeple of the Company’s laboratory building across the way. They almost unanimously hold membership, at a dollar a year, in the Company country club, where they play golf and further act the part of successful men. Their foremen are considered to be executives; as elegantly clad as floorwalkers, they move cheerfully on the balls of their feet and speak with quiet determination. On no countenance, high or low, can be detected a sign of debauchery or loose thinking, or even of a silent skepticism: all glow with a discreet pride in their ability and superior lot, with the rapt fidelity of a few who have been chosen from many.

Among the 700 employees in the World Headquarters Building in New York City the same sense of selected, controlled, and durable well-being crowds the atmosphere. Perfectly barbered and equipped with clean and regular features, every head nods and beams over a stiff white collar, as if a halo had been placed around the neck. No sinister mustache defiles a single face. Each suit is as conservative and well pressed as it is free of dandruff; each sleeve is cut short enough to display the white half-inch badge of sartorial competence, the protruding shirt cuff. Everybody is better than well paid, and the recipient of generous insurance policies. Department heads and crack salesmen make as much as $25,000 a year; a Vice President gets as high as $86,000.

DESPITE this almost anachronistic opulence, this visible perfection in a painfully imperfect universe, I.B.M. suffers from mankind’s most glorious curse—it refuses to be satisfied with itself. The world it contemplates, so far as business machines are concerned, is still largely a wilderness, thickly populated with prospective customers. Even the U.S., the most mechanized nation of all, has not been sold anywhere near its capacity to absorb the products of I.B.M.’s ingenuity. That ingenuity has broadened the Company’s field of conquest faster than its army of handsome, galvanized salesmen, thinking, eating, working, and dreaming I.B.M., can charge in to make the kill. Ten years ago professional statisticians were estimating that the Company’s line of accounting machines had reached about a third of its potential U.S. customers. Today, thanks to I.B.M.’s munificently endowed research and development, so many new uses have been found for the machines, so many new functions built into them, that no man dares circumscribe his prophecies with specific figures.

Obviously such a picture is no more complete without a guiding genius than a conquering army is without a general. A nation does not expand and proliferate without a leader. A great orchestra is flaccid and amateurish without a maestro, a great cause blushes unheard without a prophet. The Leader of International Business Machines, during the past twenty-five years of golden growth, has also been the Company’s prophet, maestro, inspiration, and protector. “We know you and we love you, and we know you have our welfare at your heart,” the employees’ chosen representative declares. “We sing your praises from our hearts,” ratifies one of the several songs dedicated to the Leader. “Next to Mr. Watson himself, it [the I.B.M. Spirit] is the greatest asset that I.B.M. possesses,” testified his first Vice President at the last annual feast of supersalesmen. “His personality and force have saturated the I.B.M. until now the personality of the man and the personality of the corporation are so closely identified as to be practically one and the same.” He was speaking of President Thomas John Watson.

The real Leader is an Assistant first … Thomas J. Watson

MR. WATSON learned how to be an assistant under no less a leader than John Henry Patterson of the National Cash Register Co., who may be conservatively described as an amalgam of St. Paul, Poor Richard, and Adolf Hitler. It required many years, however, for young Watson to become a real Assistant. Born in Campbell, New York, in 1874, he attended academy until he was seventeen. His father, a lumber dealer and a strict Methodist, wanted him to go to Cornell to study law, but Tom itched to get a job and make money right away. They compromised on a year in Elmira School of Commerce. After that the boy spent two more humdrum years as a clerk in a piano-sewing-machine-organ store in Painted Post, New York. Then he saw a larger vision. He took the Erie to Buffalo, and eventually landed a salesman’s berth with the local office of National Cash Register. Young Watson was a lanky, earnest youth, given to rationalizing his actions and ruminating upon his experiences. His general appearance and behavior were those of a somewhat puzzled divinity student. His career began in a depressing fashion. While the average salesman was selling two registers a week ($200 apiece at 15 per cent commission), young Watson pounded the pavement for ten days with nothing but pathetic memories of a hundred polite and impolite refusals. He pondered his job at length and took earnest counsel with his sales manager. Fortified by the instruction he received, he set out methodically and untiringly to meet and conquer his fate.

Mr. Watson’s dreams were not invested with the charm of vagueness; they did not pass “before him with a heroic tread.” Like Thoreau, he left his castles in the sky and attended to their foundations. He knew precisely what he wanted to do and with the facility of a born homilist began to confect the aphoristic rules of thumb that have since guided his life and policies. “Ever onward,” he told himself. “Aim high and think in big figures; serve and sell; he who stops being better stops being good.” Mr. Watson’s thoughtful gregariousness went well with his tremendous energy; they proved to be a winning combination. Within fifteen years he was sales manager, in which capacity he sat in the offices at Dayton, Ohio, upon the right hand of John Henry himself.

Mr. Watson knew a leader when he saw one, and Patterson could have been hardly less than delighted with his assistant. The list of today’s business leaders who learned the fundamentals under Patterson is resplendent as a roll call in the House of Lords. None of them, save perhaps Patterson’s successors, however, has drunk so deeply in the Pattersonian springs as Thomas J. Watson. It was Patterson’s invariable habit to wear a white stiff collar and vest; the habit is rigorously observed at I.B.M. It was Patterson’s custom to mount on easels gigantic scratch-pads the size of newspapers and on them to record, with a fine dramatic flourish, his nuggets of wisdom; nearly every executive office at I.B.M. has one. It was Patterson’s custom to expect all employees to think, act, dress, and even eat the way he did; all ambitious I.B.M. folk respect many of Mr. Watson’s predilections. It was Patterson’s custom to pay big commissions to big men, to meet every depression head on by increasing his selling pressure; these are part of the I.B.M. technique.

Such an inventory could be extended indefinitely. Does it then imply that Thomas John Watson, who had to be a kind of carbon copy of his leader, was never anything more? Personally they were poles apart, with the difference all in Mr. Watson’s favor. But they were two minds with a remarkably uniform, not to say identical, way of looking at many things. Only the accidents of time and circumstance made one the leader and the other an assistant. Mr. Watson simply paid Patterson the supreme compliment of holding fast to that which he found good in his leader, and Patterson paid Mr. Watson the supreme compliment of appropriating the younger man’s ideas. Mr. Watson, for example, coined that sententious motto, THINK. It happened at a morning sales meeting one day in 1911, when he became incensed at the lethargy of the congregation. Bouncing to his feet, he rapped out: “The trouble with every one of us is that we don’t THINK enough. We don’t get paid for working with our feet—we get paid for working with our heads. Thought has been the father of every advance since time began. Knowledge is the result of thought, and thought is the keynote of success in this business or in any business. Any man on the selling force today could make two dollars where he now makes one, if he would but THINK along the right lines. ‘I didn’t think’ has cost the world millions of dollars.” Having unloosed this bombshell of thought, Mr. Watson caused the word THINK to be hung all over the factory and offices. And when he left National Cash Register to assume the leadership of what is now International Business Machines, he took the talisman along with him. It graces the most conspicuous wall of every room in every building owned or rented by I.B.M. Generally it is framed, sometimes graven on pediments in imperishable granite or marble, again embossed in brass, yet again lettered in gold on a purple banner, but always and everywhere it is there. Unceasingly it exhorts men to the Spirit of I.B.M. It is the universal password for a new day; the single commandment of 11,246 Assistants united under a single Leader.

Mr. Watson, moreover, built into I.B.M. the kind of reputation that National Cash did not always enjoy. In 1909 the state of Michigan brought a suit charging unfair competition against National Cash, resulting in a $10,000 fine. Early in 1912, Patterson and twenty-nine other officials including Mr. Watson were indicted under the Sherman Antitrust Law. They were charged on three counts with creating a monopoly by unfair competitive methods. Convicted, they were fined and sentenced to jail. But the conviction was reversed on appeal, and all counts save one were dismissed. This one the government agreed to forget if the defendants would sign a consent decree in another suit then pending, agreeing to an injunction against National’s practices. Mr. Watson and two others refused to sign, maintaining their innocence. Their case was then dismissed.

MR. WATSON fell out with Patterson in 1913 and left National Cash that year. Early in 1914 he was offered the job of running the Computing-Tabulating-Recording Co., as I.B.M. was known at that time. An ineffective, struggling outfit, it had been incorporated in 1911 by Charles Ranlett Flint as a holding company of four business-machine builders. One was the Bundy Manufacturing Co., founded in 1889 by an Auburn, New York, time-clock maker named William Bundy. Another was the International Time Recording Co., which was formed in 1901 with Time-Clock Makers Daniel M. Cooper and Dr. Alexander Dey of Rochester, New York. Third was the Computing Scale Co. of America, a holding company for several scale manufacturers, dating back to 1891 and a Gallipolis, Ohio, inventor named Julius E. Pitrap. The fourth and most important was the Tabulating Machine Co., which marketed the truly great punch-card tabulating contrivance invented by Dr. Herman Hollerith, a statistical engineer, when he was listing the results of the 1880 census. Dr. Hollerith’s idea was not to print or write figures on ledger cards, but to punch holes in them, so that other instruments could add up the totals and sort them in any desired categories. Tried out on the 1890 census, the punch-card system saved $5,000,000 and two years of hand-and-head compilation. It was marketed commercially for a score of years but did not meet the success it deserved. A laborsaving device comparable to the cotton gin, the reaper, and the locomotive, the Hollerith tabulator was comparatively obscure. What it needed was improvement and the right kind of merchandising. Not in all details the kind that had made National Cash, but the kind that would employ the most honorable and efficacious of National’s techniques, injected with thoughts and ideas of a new Leader.

Even in the most judicious retrospect, with a deaf ear for the voluptuous cadences of his Assistants’ praise, it is hard to think of a human being better equipped than Mr. Watson for the job. When he sat down to his mahogany desk at 25 Broad Street, New York City, that bright day in the spring of 1914, C-T-R employed 235 people, boasted that 40,000 of its machines were in use, was grossing $2,200,000 and turning a profit of around $500,000. Said Mr. Watson, “We need more men, machines, and money.” He got them. Today International Business Machines Corp., as the company has been called since 1924, pays salaries to and provides a Goal in Life for 11,247 souls (7,598 in the U.S. and 3,649 in seventy-eight foreign lands). In 1938 it earned $8,700.000 on a gross of $34,700,000 in the U.S. and Canada, and $1,560,000 on about $10,000,000 gross abroad. About 290,000 machines are in use. With but occasional falterings, the line connecting 1914 and 1939 has gone ever onward and upward. The record is simply one of a great salesman, with a messianic fire in his eye.

FOR so eminent and persuasive a salesman, Mr. Watson is astonishingly at variance with what is regarded as the go-getting seller. He has no dental smile. He does not pump your arm or indulge in aimless jocosities to warm up the atmosphere. A moment of dead silence does not dismay him. At first his cordiality seems somewhat austere and appraising, as if he were looking over a fairly well recommended applicant. He dresses with relentless conservatism—a dark suit of expensive worsted relieved by a timid stripe, a decorous tie of moiré so heavy it seems made of wax, knotted perfectly in a dazzling collar. On his mahogany desk a heavy chrome paperweight says REFLEXIONE. On his left a mahogany tripod supports a scratch-pad two feet square. On the wall facing him, standing out boldly against the stately mahogany paneling, is a framed sign saying THINK. When he begins to talk, he is the kind of slightly bashful, dignified gentleman who would be the last person on earth to try to sell you anything. Therefore you lose consciousness of your sales resistance. The lines of his face have accented the tenuousness of his lips, giving him a somewhat presbyterian cast. As he continues to speak, however, his whole face lights up with the vaguely wistful sincerity, the slightly imploring earnestness that can be noted even in his sternest photographs. He uses “without” when he means “unless” in an intimate way that pleases you greatly. His right hand describes a simple gesture or two, and his words flow evenly, with assurance and conviction, as if each phrase had been inspected beforehand. Whether you particularly agree with them or not, you listen to them. Mr. Watson’s monumental simplicity compels you to do so. What has happened is that he has buttonholed you as effectively as if he had hurdled his desk and offered you a ten-dollar gold piece for fifty cents. Let him discourse on the manifest destiny of I.B.M., and you are ready to join the Company for life. Let him retail plain homilies on the value of Vision, and a complex and terrifying world becomes transparent and simple. Let him expound the necessity for giving religion the preference over everything else, and you could not help falling to your knees.

MR. WATSON is paid as a salesman too, on a kind of salary and commission basis. Ever since he joined the Company he has been under contract for a share of the profits. His fixed stipend is $100,000 a year plus a few hundred dollars in Director’s fees. His present five-year contract, expiring in 1943, rewards him with 5 per cent of net profits after a $6 dividend has been paid on the stock outstanding. This amounted to $341,700 in 1938, bringing his total compensation up to $442,500; it will be even more in 1939. In addition, Mr. Watson owns 7,300 shares of I.B.M. stock, which in 1938 paid $6 per share plus a stock dividend of 5 per cent. Considering what his management has done for the stockholders, he thinks his commissions have not been immodest. In 1914 there were 104,600 shares outstanding, with a market value of around $3,000,000. Today they have been expanded to 855,400 shares worth about $148,800,000, and they have paid a total of $182,600,000 in dividends ($61,200,000 in cash and the rest in stock). Mr. Watson’s Directors, their sales resistance broken down by such caressing facts, do not quibble about the terms of his contract.

In return, Mr. Watson has given his life and Ideas to I.B.M. It has not been exactly a sacrifice, however. Mr. Watson has enjoyed it more than anything else he could have done. He never takes a vacation, is journeying abroad half the time, works about sixteen hours a day, and spends many an evening at the functions and celebrations of his innumerable employees’ clubs. He relishes talking with employees not as a curious superior but as an old friend. He does not hail them with a customarily ambiguous greeting, but with an accurate and genuine reference to their individual interests. Mr. Watson’s family, moreover, is almost as much a part of I.B.M. as he. His wife, a beautiful woman with a presence as fetching as his, attends most of the company affairs and has received from the employees countless mementos in the form of honorary memberships in the clubs. His son Thomas Jr. joined the sales force of I.B.M. a couple of years ago, is now a crack salesman, a member of the select Hundred Per Cent Club. Another son, Arthur, still in Yale, and two daughters, Jane and Helen, are not strangers in the I.B.M. oases. Mr. Watson belongs to twenty-six clubs, is active in twenty-seven organizations, and has seven honorary degrees. Everything he has said, thought, or done, has consciously or unconsciously contributed to, dovetailed with, or adorned his high function as the Leader of I.B.M. And the Company, in turn, is expected to reflect, as if in 11,246 mirrors, every flicker of his oxyacetylene-like flame.

This is aided by a careful selection of all employees, whether for the factory or for the sales department. Mr. Watson never hires an office boy, but always a potential Leader, or at any rate a potential Assistant. Everyone addresses every man as “Mr.” The company publications never refer to any man without prefixing a “Mr.” to his name. Everybody in the organization is expected to find the ubiquitous THINK sign a constant source of inspiration, as the weary travelers of old found new strength in the wayside crucifixes. Everybody carries a THINK notebook in which to record vagrant ideas and inspirations. Company stationery, scratch-pads, and matches bear the inscription THINK; pad holders exhort the owner to MAKE THINGS HAPPEN. For negative thinking is not allowed, either in speeches or in the Company’s publications; there must be no tearing down till something better is offered. But these adjurations to Thought and Action (“Man was born for two things—thinking and acting,” maintains Mr. Watson) do not complete the visual stimuli to the Company Spirit. Almost as frequent as THINK is the plaintive word PEACE, expounded in a long footnote taken from a Watson speech on peace and world trade delivered before the outbreak of hostilities. Moreover, all employees are expected to have a copy of Men, Minutes, and Money, Mr. Watson’s apothegmatic Masterwork, a collection of his speeches and essays, and the Holy Writ of I.B.M. But the most palpable influence is a fairly recent photograph of Mr. Watson that hangs in every room. Neither serene nor agitated, neither inviting nor forbidding, his visage in it seems in a state of attentive suspended judgment. Generally it is flanked on either side by smaller prints of his two chief Assistant Leaders, Vice Presidents Frederick W. Nichol and Charles R. Ogsbury. There are also oil paintings and bronze plaques of Mr. Watson in appropriate spots. For the Spirit of I.B.M. is no wraith floating languidly into a man’s consciousness; it is the sharp, eternally focused gaze of the Leader himself, the positive, inescapable inspiration of what his enthusiastic followers have described as his magic words.

MR. WATSON is strong for art and culture, which he regards as the natural handmaidens of business. He not only thinks that businessmen ought to give rein to their artistic bent by enjoying good art in private, but also in their capacities as traders and manufacturers. “The interest of business in art and of artists in business should be encouraged,” he says. “While business and industry seek new worlds to conquer through the medium of art, the artist can profitably continue to plumb the inspirational potentialities of business and industry.” His own interest in art dates to his young manhood, when he discovered the Little Journeys to the Homes of Good Men and Great of Elbert Hubbard, whom he admires, and whom he resembles somewhat, both mentally and physically. Mr. Watson was only twenty-four and was spreading the gospel of National Cash when he bought his first painting. It depicted a pleasant scene on a Maine farm where young Watson was spending a vacation. He paid the artist $40 for the canvas, and it still hangs in his summer home in Maine. Since then he has found time to acquire a fair number of creditable paintings, including several excellent ones by George Inness. Mr. Watson takes simple pride in the haphazard nature of his collection, which he discusses with the enthusiasm of a boy with a new mechanical train. At such times his natural salesmanship expresses itself most affectingly; you feel you would be bound to listen if he insisted on proving the world was flat.

About 1934 he began to feel that perhaps his employees were so busy improving their time in I.B.M. activities and education that they were missing out on the more abstract things. The company newspaper, Business Machines, was keeping them up in infinite deuil on happenings in I.B.M. and the business world touching I.B.M. Needed was a “clean and informative” publication to make them “think about thinking.” “If you ring only one bell,” says Mr. Watson, “you hear only one sound.” The result of his cogitation was the first issue of the monthly magazine, THINK, in June, 1935. About 70,000 copies are passed out to employees and friends of the Company; special editions run to 100,000. Eighty per cent of its feature articles are carefully bowdlerized excerpts from talks made by well-known leaders like Cordell Hull, whose foreign policy Mr. Watson approves; there are also book reviews, lectures on art, music, sports, etc. The hors d’oeuvre of each issue is a few hundred simple words on a notable salesman like Leonardo or Columbus, opposite the frontispiece reproduction of the man, and signed in the steady hand of Mr. Watson himself. The editor of THINK is paid about $15,000 a year.

Thus having officially shaken hands with culture, the Spirit of I.B.M. has since embraced it often. It had been many years, at any rate, since business had felt the thigh of culture so publicly as on January 18, 1938, when I.B.M. dedicated, “to the cause of world peace through world trade,” its twenty-story World Headquarters Building in New York City; or on Thursday, May 4, 1939, when I.B.M. Day and Mr. Watson’s twenty-fifth anniversary with the company were celebrated at the World’s Fair in New York City. As a part of the former ceremony (termed by Vice President Nichol “A Landmark in a Great Human Movement”), which lasted for hours, the I.B.M. Symphony, written especially for the occasion by Vittorio Giannini, was broadcast. The opus is somewhat programmatic in nature, the first movement suggesting excitement and the struggles of mankind; the second, its yearnings for peace and beauty, with the first six bars of the I.B.M. song Ever Onward identifying the world-movement-for-peace idea. The third movement mixes up the national hymns of the various countries with that of I.B.M., thus pointing to the day when international co-operation shall be the human race. The composition is gratifyingly short, and not hard to listen to. At the World’s Fair the Philadelphia Orchestra lent its talents to the occasion, playing a mixed program of Bach. Sibelius, and I.B.M.—the I.B.M. Symphony and the I.B.M. Anthem.

Mr. Watson believes in blending art and machines. A collection of modern paintings, one from each of the countries in which I.B.M. is represented, was hung at both the New York and San Francisco fairs. Picked by the culture ministries of the various nations at Mr. Watson’s request and paid for by I.B.M., they are a random assemblage with no common characteristic save a distinct lack of offensiveness. In addition, substantial prizes were awarded for the best ten at each fair. Eventually they all will hang in the I.B.M. Clubroom, which occupies the whole second floor of the World Headquarters Building, and has THINK carved over its portals.

Plan your work and work your plan … Thomas J. Watson

THE whole of International Business Machines’ technique is a rationalization of the I.B.M. Spirit, which in turn is a kind of apotheosis of the Leader’s precepts and maxims. But Company Spirit is a peculiar kind of ghost, demanding a rather substantial diet. Let us therefore take a quick look at the products that have provided the I.B.M. Spirit with such salubrious fare. At present the company may be divided into three important groups. Of these the least important, though thriving enough, is the Electric Writing Machine Division (an electric writing machine is an electric typewriter). The E.W.M. plant, located in Rochester, New York, employs 300 people and is running at capacity, 500 units a month, selling at an average of about $250 apiece. Thus they account for only some $1.500.000 or 4 per cent of the company’s U.S. and Canadian revenues, which were $34,700,000 in 1938 and perhaps $38,000,000 in 1939.

The Time Recording Division, which now includes the old International Scale Division, produces time clocks, time controls, fire-alarm and school-alarm systems, time stamps, sound distribution systems, etc., together with a very small line of commercial scales. In 1934 I.B.M. traded its Dayton Scale business, which included computing scales, meat choppers and slicers, coffee grinders, etc., to the Hobart Manufacturing Co. for 100,000 shares of Hobart stock. Since then the Company has not pushed scales, and is now making them mostly on order. Worthy of mention is the accounting scale, which not only weighs your bag of bolts or whatever you have but (provided they are uniform) counts them as well. Total sales of this division are almost double those of E.W.M.

About 74 per cent of I.B.M.’s revenues and the overwhelming bulk of profits are derived from the assortment of devices in the Electric Accounting Machine Division. Some of them are recent developments. Proof machines, now being turned out at the rate of about 600 a year, are used almost exclusively in banks, to sort and add checks, but can also be employed on other business documents. Test-scoring machines, for grading true-false type examinations, are comparatively recent: only twenty-five have been built so far. But a single person with a machine can do more work than ten can do manually, and with vastly greater accuracy. The company expects to place a lot of them in colleges and in civil-service departments of the government. Still newer is the transfer posting machine, which transfers whole lines of data from a master to individual sheets; for example, from a payroll sheet to a personal earning record. For it I.B.M. has great expectations.

All these, however, could not pay Mr. Watson’s traveling expenses, though they will doubtless be very lucrative in the future. The big thing in the E.A.M. Division is the electric accounting machine and auxiliaries of which a total of about 5.500 a year are being built. The direct descendant of the Hollerith tabulator, they give I.B.M. the nearest approach a company can make to a monopoly nowadays. While I.B.M. meets competition from other office machine makers on most of its orders, the only rival with comparable products is Remington Rand, whose Tabulating Division accounts for about 15 per cent of combined sales. I.B.M. gets and probably will continue to get the other 85 per cent. And because volume is now necessary to profitable operation, and because the most effective features are covered by patents, and manufacturing processes take years to perfect, and the builder’s reputation is worth a lot, it is unlikely that a newcomer will usurp the field so long as I.B.M. and Remington are on their toes.

WHAT are the functions and behavior of this technological gold mine? The essential principle is that of Dr. Hollerith’s tabulator: holes are punched into cards to record every conceivable kind of information: the separate items of this information can be arranged in an almost infinite number of combinations, depending upon the use they are to be put to. Let us assume we are in life insurance. First we buy cards, for each policyholder. Then an operator punches holes representing the pertinent data into the cards. Supplementing the punching machine is a verifier that checks the accuracy of the puncher, the only human, fallible factor in a completely mechanized installation. With a verifier the operator in effect punches the cards again; if a hole is in the wrong place, the verifier locks. Next is the sorting machine, which automatically shuffles the policyholder cards at the rate of 225 to 400 a minute and drops them into classification bins. Then comes the accounting machine. There are two kinds of big accounting machines: the older numerical type, resembling the console of an organ with an elaborate typewriter irrationally stuck on one side of it, which reads the cards and adds, subtracts, classifies, and prints in numbers. The newer alphabetical-type implement is used in new life insurance installations. Built to the tune of 1,500 a year, it is the greatest and most lucrative of all I.B.M. mechanical glories and looks like an appallingly complicated electric washer surmounted with a complex typewriter instead of a wringer. This not only does all the numerical machine does, but prints names, places, descriptions. In our case the machine takes the cards, makes out premium notices, dividend checks, and commission slips, selects mortality statistics and tabulates them, etc.

For small companies there is the “50” trio consisting of key punch, vertical sorter, and tabulator. For the large installations there is a long list of auxiliaries. In brief, such a setup files, reads, selects, calculates the records of all phases of a business. Though it often does work that no amount of labor or skill could do, its historic function, like that of the most memorable inventions, is to allow men to invest less manpower in drudgery, to save labor. In doing that it saves a good deal of money for business and makes a good deal of money for I.B.M.

All products of the Electric Accounting Machine Division save the cards themselves are rented and never sold: in 1938 rentals constituted $25,600,000 and the sale of cards about $5,000,000 of the $34,700,000 gross (the rest having been derived from the other two divisions). The practice of leasing the machines is accidental, dating back to the time when the government wanted the Hollerith tabulator for temporary census work only. As things have turned out, the practice worked perfectly, not only for the customer, who despite his misgivings about the size of I.B.M. rentals might not be able to buy the machines and do the work so cheaply, but for I.B.M., whose revenues thus are remarkably stabilized against depressions (which are yet unknown to the Company). And so the machines are thus being evolved and bettered, incessantly and enormously. Contracts are for one year, and most of them are continued with a ninety days’ cancellation clause. An average accounting assembly costs $325 a month. The cards are very profitable. They sell for eighty-five cents to $1.05 a thousand (they were $1.75 in 1920), and more than 4,000,000,000 are turned out a year. Together with 100,000,000 time-clock cards of the T.R. Division (averaging $1.40 per thousand) they add up to only some $5,000,000 but earn nearly a third of I.B.M.’s total U.S. and Canadian profit, which was $8,700,000 in 1938. A small but not ungainful portion of the E.A.M. revenue is derived from service bureaus, which are Company-staffed offices that take in accounting on a job basis, thus completing the whole cycle of I.B.M. service within the organization. In the opinion of the Company’s officers, this, like most fields, “has not yet been scratched.”

BECAUSE the big part of revenues is in the form of rentals, manufacturing costs are set up on the books as assets, and then depreciated every year, the percentage of depreciation depending on the kind and circumstances of the machine. Thus it is hard to set an exact ratio of manufacturing costs to gross revenues. But 1938 profits after all charges and before foreign and other income were 22 per cent; sales, development, and research were 43 per cent, and taxes 9 per cent; which leaves 26 per cent to cover everything else. I.B.M. never has reduced rentals, but has given the customer more for his money by making better machines. Still, the I.B.M. Spirit obviously hasn’t starved. From the standpoint of revenues or assets (some $77,800,000) I.B.M. is a comparatively small company, and it is surprisingly small for the noise it makes. That noise is another manifestation of a Spirit that has not been sustained on pinching pennies.

Keep on studying this business … Thomas J. Watson

SINCE the Company is both the producer and the consumer of its most consequential products, it has every incentive to keep on studying the business. It has spent about $12,000,000 on improvement during the last twenty-five years, and around $1,000,000 or about 3 per cent of revenues in 1938 alone. It has about 1,400 patents on machines with about 20,000 claims (on parts), and takes out around 300 patents a year. Most of the space in the new air-conditioned, colonial-style laboratory building at Endicott, New York, is given over to development and research. The basement of this building contains a room in which weather of sixty-five to ninety degrees and from 15 to 90 per cent relative humidity can be simulated, so that machines can be tested against the climatic inclemencies of each of the countries in which the Company’s products are sold. Here also was developed the “superedge” card, whose edges are sprayed with a mysterious solution smelling like banana oil that enhances their durability. The unique feature of this place, however, is negative: it is probably the only room (except a few lavatories) without the sign THINK. In the main testing laboratory is one of the most edifying wall displays in the Company. It is composed of a whole series of machine parts, before and after improvement. For example, there is a tiny spring that used to break after three and a half hours of testing. Next to it is one that lasts 400 hours. It is almost identical with the other except that it contains a wick saturated with oil.

Still officially in an experimental stage, but actually nearly ready for production in a separate division of the Company, is the Radiotype, which has been practically perfected, after seven years of research, by Walter S. Lemmon and his staff. The Radiotype is similar to the teletype, but uses ultra-short wave lengths instead of wires, and can send or receive a hundred words a minute. Perhaps the biggest problem ahead is getting the wave assignments: with that solved Mr. Lemmon foresees the day when big companies will no longer take the trouble to post letters, but shoot them over Radiotype.

The most recently inaugurated department in the Company is known as the Commercial Research Department, which co-ordinates ideas for new instruments or gadgets therefor that come from customers, salesmen, etc., draws up a set of purposely tough specifications to be met at a stated price. These it sends to the Engineering Department, which tries its best to make price and specifications meet. Commercial Research also passes on all products before they are accepted for production, engages in methods research—that is, in studying various functions of commercial institutions with an eye for the installation of I.B.M. machines—and acts as general technical adviser for the Company. In the last-named capacity it parallels and works with the Patent Department’s James W. Bryce, who is a kind of liaison officer between the office and the research staff at Endicott. Mr. Bryce is doing quite a bit of noncommercial work on a very intricate calculator that Mr. Watson will present to Harvard University after it is completed two or three years from now. This instrument will be able to perform computations in a day or two that would take a man years. It will be even more spectacular, in its complicated way, than the special jobs Mr. Watson has donated to Columbia University to perform such esoteric tasks as computing the least-squares trend lines in Chebyshev’s polynomials and product moment correlations. This kind of thing has endeared Mr. Watson and I.B.M. to professors, most of whom admire his machines and impress the admiration upon their charges, the future businessmen of America. Thus the Leader’s generosity is returned manifold.

Close those orders… Thomas J. Watson

BY NOW the sales technique of International Business Machines should not be hard to grasp. It is nothing more than an application of the I.B.M. Spirit to the art and mystery of meeting and convincing prospects. Intrinsically, the sales force is not different from other sales forces, except perhaps for the rigorous standards it imposes on applicants to make sure they are the I.B.M. type. There is a sales manager for each of the three divisions of the Company, and the country is divided into four great territories. each with a manager who co-ordinates the representatives of the three divisions, and so on. The salesmen of the E.A.M. receive a salary plus a commission of 5 to to percent on new business; while the salesmen for the other two divisions operate as agents on a full commission basis of 20 to 30 percent. About this there is nothing extraordinary save for the manner in which the four territories are laid out. They used to follow the conventional north-and-south, east-and-west arrangement. Then Mr. Watson began to feel this isolation of the Solid South violated the Spirit of the Company, whose motto is “World Peace Through World Trade.” Last summer, therefore, the Company drew new boundary lines, dividing the U.S. into a Northeast, extending as far south as Virginia, a Central East from Mackinaw to Florida, a Midwest from Minnesota to the Gulf, leaving the customary West, about which nothing could be done.

THE Spirit of I.B.M. is applied to the salesmen in many ways, such as daily and weekly sales meetings, contests of numerous kinds, a constant drumfire of slogans, the weekly newspaper Business Machines, and odd premiums. But the great incentive, the golden goal, is the prospect of being a member of the Hundred Per Cent Club. Any salesman with a quota is eligible, the average quota being 1,200 points (or $30,000 worth of business) per year. A man who makes or betters his quota for the year automatically becomes a member of the Hundred Per Cent Club, is given an emblem and certificate, a check for $100, and the privilege and obligation of attending the annual Hundred Per Cent Club banquet. This is a resplendent formal affair in which generous doses of inspirational speeches, culture, clean entertainment, and thoughtful music by the I.B.M. orchestra, band, and glee clubs are administered. Intoxicating liquors are not used. Here the I.B.M. Spirit is more radiant and manifest than at any other time. Every employee must attend the showing of moving pictures made at the banquet.

The Hundred Per Cent Club is not at all limited to the American and Canadian sales force. It is thoroughly international and constantly emphasizes world peace through world trade. Like Patterson of National Cash Register. Mr. Watson has ventured abroad in force and in style. Unlike National Cash Register, however, no circumscribed market at home compels him to build up foreign sales to the point where they are greater than domestic sales. Mr. Watson took the Spirit of I.B.M. abroad out of sheer incapacity to do anything but move forward. As we have seen, it has sales offices in seventy-eight foreign countries. In addition to three factories in the U.S. (at Eudicott. Washington, and Rochester—another in Poughkeepsic is under contract) and one in Canada, it has two in Germany, one apiece in France. Italy, and England, I.B.M. owns 100 per cent of all foreign subsidiaries save the Deutsche Hollerith Machinen Gesellschaft, in which it has 92.35 per cent interest, and the International Time Recording Co., of England, in which it has a 58.46 per cent interest. But for quite a while now foreign profits have not kept pace with domestic net. At the time the war broke out. I.B.M.’s foreign investment, including stock, advances, and surplus, was about $12,000,000, mostly from plowedback foreign profits. Foreign gross in 1938 was about $10,000,000 (22 per cent of total revenues) and earned $1,560,000. The profit, however, was only slightly greater than in 1934, when investment was around $7,000,000, owing to the rapid expansion during the last few years. The size and revenues and profits of the German investment are nearly equal to all the others combined. So, although I.B.M. earned $1,560,000 abroad in 1938, blocking of foreign profits (from Italy and Spain as well as Germany) brought the figure down to $739,000. The blocked money in Germany has been invested in real estate.

Naturally, Mr. Watson was very much disappointed in the war, which jeopardizes somewhat the I.B.M. foreign investment. Thirty months ago, when he went to Germany to be installed as President of the International Chamber of Commerce. Her Führer not only assured him privately there would be no war, but bestowed on him the second-highest decoration in the Reich, the Merit Cross of the German Eagle with Star, for his work in improving international economic relations and world peace. Mr. Watson is disappointed, but refrains from comment. The recipient of equivalent decorations from twelve other countries since 1934, he exhibits an admirable and unparalleled internationalism, never disparaging the regime of any nation. He is incessantly working for peace and an international square deal, which he feels are not far off. “I believe the world is going to improve.” he maintains.

FORTUNATELY, U.S. gross and profits thus far have been increasing enough to make up for any defection abroad. Fortunately, too, not all nations are fighting. The I.B.M. Spirit still expands in exotic lands. The Company’s policy of foreign penetration is intelligent and effective, placing as it does the management of branches entirely in the hands of natives. No better example can be found than Brazil, where I.B.M.’s affairs and 1,400 employees are directed by a man described by Vice President Nichol as the world’s greatest salesman, since he has set a record of no less than fourteen memberships in the Hundred Per Cent Club. That prodigy is Valentim F. Boucas, confidant of President Getulio Vargas of Brazil, good friend of the government that preceded Vargas, and doubtless of the one that will succeed him. He opened the Brazilian office in 1917 “with capital consisting mostly of determination and ambition.” Today a nascent foreign unit gets more in the way of help from the Home Office. I.B.M. no longer waits for aliens to come to New York, but is continually searching out the likeliest foreign fields. When it finds one, it organizes an office, transports the leading personnel to Endicott for a training course, and sends them back with the I.B.M. Spirit. “I.B.M. is not a company or a corporation,” says Mr. Watson, “but a world institution.” As if to carry out this idea, I.B.M. officials continually use the word “universal” in an impressively offhand way.

At the Hundred Per Cent banquet last spring Mr. Boucas presented to Mr. Watson the Southern Cross Decoration from President Vargas. “When we see Mr. Watson going from one country to another,” Mr. Boucas spoke passionately, “without paying attention to the rumors or headlines in the newspapers because he thinks that the people of the world should work together more than ever, we realize that Mr. Watson is not merely a citizen of the United States. He is a citizen of this great world of ours.”

There is no saturation point in education… Thomas J. Watson

JOHN HENRY PATTERSON started a company school to train his salesmen in the technical aspects of his cash registers, but it excited little more than amused curiosity until it seemed to work. Then it stimulated solemn and variously disguised imitations in other companies. Nobody has employed the concept more thoroughly or with a more professional grasp of its catholic possibilities than Thomas John Watson. He insisted on Education from the start, but it was unorganized until 1927, when he found time to work out a long-range plan. That year he brought in 140 college graduates aiming to be salesmen, selected for their character and manners, and put them through a short, intensive course in I.B.M. products and the Company Spirit. Since then systematic education has been extended 10 factory employees, customer service men and service girls, and to customers themselves. More than 10,000 people have been taught at Endicott, and around 500 abroad. In 1932, along with a colonial-type laboratory building, Mr. Watson caused to be erected an elegant moderne school that keeps a staff of sixteen full-time “instructors” busy. Leading into the lobby of the structure, which is illuminated by a bulky chandelier trimmed with THINK, is a flight of five steps. On their risers are engraved in gold the following inscriptions (bottom to top): READ, LISTEN, DISCUSS, OBSERVE, THINK. The walls of the classrooms are crowded with signs saying: AIM HIGH AND THINK IN BIG FIGURES, SERVE AND SELL, EVER ONWARD, BE BETTER THAN AVERAGE.

The salesmen’s class is usually composed of about fifty meticulously selected college men—selected, of course, mostly for personality and character, the prime requisites of Leaders and Assistant Leaders. Infused with the certitude that someday they all will be Leaders, first they receive preliminary training in a branch office. They spend three months at $75 a month reading about, and listening to, and discussing the Company’s machines and Spirit. Then they venture forth to learn by observing the Company in action for six months. After that they are shipped back to Endicott for a course of about two months in selling, and finally are turned loose as junior salesmen at about $150 per month. From then on everything depends upon the quality of their Thinking, the force of their personalities. Graduates from technical and engineering colleges are handled somewhat differently, being put through a straight five-month course in shop and classroom. They become customer service men (repairmen), and thence are insinuated into that phase of I.B.M. for which they show the most aptitude, About 180 men a year, in batches of about thirty, undergo this training. Since 1935. moreover, the company has been educating about twenty attractive college girls a year, to venture among the customers and teach them how to use the machines to their best advantage.

What I.B.M. expects of applicants is probably best summed up in a talk by Mr. Watson to last year’s graduating class of Oglethorpe University. He said: “In going into the world each of you should consider himself as a book in the world library. Pay strict attention to keeping the covers in good condition, because personal appearance and good manners are two of your great assets. Above all, keep what is written in the pages of that book pure and wholesome and of a constructive nature. If you do not give attention to these things, you will not be read but placed on the shelf. If you do these things, nothing can interfere with your success and your contributions to your country and to the world.”

DIRECTLY to Mr. Watson must go the credit for what is known as Customer Administrative training. This started after he expressed the idea that it might be both generous and visionary to admit a few customers to the courses at Endicott. His associates were very dubious, but the impasse was solved when a General Electric executive, thirsting for firsthand knowledge of the machines, asked for permission to attend. It was granted, and he went back to Schenectady so full of enthusiasm and the I.B.M. Spirit that General Electric sent another man. The result, in 1936, was the first customers’ school, which achieves the almost incredible sales feat of luring the quarry into camp and fattening it up before dispatching it. Customers merely pay their own fare to and from Endicott. They are put up free at the Company’s Homestead, a comfortable caravansary with a fine view of the Valley of Opportunity—until recently known as the Susquehanna River Valley. They spend two weeks studying hard, eating first-rate food, inhaling the pure air of the Homestead and the I.B.M. Spirit. Since their time is invariably improved and they are treated very well, these customers or customers’ representatives—who fall into such categories as insurance actuaries and accountants—are very enthusiastic about the Company. Whole groups come back for “class” reunions and dinners. One man from the Talon zipper people actually spent his vacation at Endicott.

Of the 10,000-odd alumni of I.B.M. training, no less than 7,200 are factory employees, and about 75 per cent of the present factory personnel has completed at least one course. This figure is perhaps unmatched anywhere in the world, and is one of Mr. Watson’s biggest joys. Since enrollment in the school is purely voluntary, with no guarantee of promotion, it is eloquent testimony to the downright superiority of his workers.

Pack up your troubles—Mr. Watson’s here!

FOR his part Mr. Watson does everything he can think of to further the peace and prosperity of his workers, whether in factory or in office. There are doubtless few plants in existence so thoughtful of workers and so pleasant to walk through, as the one in Endicott. Each of the 4,000 men and women there works on an hourly basis, with a minimum wage of $26 for a 40-hour week. Mr. Watson eliminated piecework some time ago, and deprecates any attempt to assign his move to generosity with the statement that improved quality has more than paid for the decreased output.

So that workers will not have to patronize resorts of doubtful character he also believes in many employee clubs. One of the most astonishing in the U.S. is the I.B.M. Country Club, subsidized to the tune of $100,000 a year, which Mr. Watson says he gets back through better workmanship. For a dollar a year 3,800 employees enjoy its pleasant common facilities, and for exceedingly low charges indulge in any of twenty-six special activities like bowling and golf. Excellent meals are served very cheaply; Sunday and Thanksgiving dinners, for instance, are fifty cents. Mr. Watson himself comes up to the club for a meal or to try his aim at the gun range, whereupon a fake card with all holes in the bull’s-eye is pulled from behind the target and handed to him as his record. Pretending not to be aware of the deception, he proudly shows it around, and everybody laughs heartily. The library is well stocked, and the enormous and homelike lounge is adorned with THINK signs, and over the great mantel hangs a painting of Mr. Watson made by one of the men.

The same spare-time co-operation is extended to office employees and officials, who have their choice of a dozen organizations and who almost unanimously join the I.B.M. Club and attend, with their wives and families, all the doings at which the Leader is present. In such gatherings the good old I.B.M. Spirit is conjured up by rousing fellowship songs that have been composed by the office poets and are sung to the tune of old favorites like Marching Through Georgia and Pack Up Your Troubles. The last edition of the official psalter contains 100 entries, of which five tell of Mr. Watson, and the rest of the various other officers and department heads. One of the couple to Mr. Nichol is delivered to the tune of Tramp, Tramp, Tramp, the Boys Are Marching, and in part runs thus:

I.B.M. is his delight

Thinks it morning, noon, and night

He is always on the job and ever goes

In the cause of I.B.M., etc.

The chorus says:

V. P. Nichol is a leader

Working for the I.B.M.

Years ago he started low

Up the ladder he did go

What an inspiration he is to our men.

There is considerably more truth than poetry in these strophes, which could be appropriately sung to all the important officers of the Company. Mr. Watson is not a conscious slave driver. He simply expects his Assistants to keep up at his pace, which for all his apparent tranquillity is extremely and unrelentingly intense. To him nothing is impossible, and he sees little reason why anybody else should find anything impossible. Mr. Nichol, a short, furiously active $86,000-a-year man, who is given to luxurious prose, started as assistant secretary to Mr. Watson in 1909, at the age of seventeen. “I have been in his vest pocket ever since,” he says. Mr. Ogsbury, the other of the two Vice Presidents, is also forty-seven, short and energetic, endowed with a sense of humor, and often looking as if he were about to sneeze. Ever since 1914, when Mr. Watson dispelled his discouragement in a heart-to-heart talk and filled him full of “new vision and foresight,” he has served the Leader faithfully. Secretary and Treasurer is John G. Phillips, also short and hard working, who was hired by Mr. Watson ex cathedra in 1918. Riding an Erie club car one night, Mr. Watson overheard three men talking. The older two were panning the Erie, a favorite indoor sport in those days, while the youngest, who was chief clerk of the Erie’s Youngstown Division, had the temerity to defend his friendless employers. Impressed, Mr. Watson waited till the other two left and started a conversation with the young man, asking him to drop in and see him in New York City. The next day Mr. Watson hired Mr. Phillips at $175 a month, $40 more than the Erie paid him. Not everybody follows so straight and simple a path to success, of course; occasionally Mr. Watson has to use “lateral promotion” to warn a too individualistic official that his actions do not meet the approval of the Leader. And though I.B.M.’s employee turnover is unusually low, a few actually have to be dropped from the lower ranks because their ways cast discredit upon I.B.M. The Company cannot choose an Assistant Leader every time.

UNLIKE a great number of American companies, however, it can go on choosing people as if every one were someday going to be an Assistant Leader or a Leader. “The I.B.M. is a world institution,” says Mr. Watson, “and is going on forever.” He does not have to lie awake nights worrying about price cutting. He is not faced with the necessity of reducing costs to meet a rival who is not so benevolent or so sold on Education or so willing to pay enormous salaries or to spend money with such thoughtful extravagance. Since he does not have to anticipate an overproduction of accounting machines, he does not have to consider remotely the appalling possibility that his dynamic slogans, like those of many in the past, will be powerless to stop the downward trend of sales. Nothing is complex to him. A fact and not a theory confronts him: he knows he has a good thing. He knows that EVERY SALE PROMOTES PROGRESS. He knows that the Spirit of I.B.M. has been the greatest force in its progress. He knows that it pays to keep the world at peace. He knows that it pays to THINK.

This article first appeared in the January 1940 issue of Fortune magazine.

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