IBM
The hardback edition
and the Japanese one
9412 IBM1 - INTRODUCTION - life & death
The story of IBM, with its gradual rise to riches beyond the conception of most managers - to be more recently followed by its dramatic fall from grace, is worthy of a soap-opera. The 'actors' in this drama, especially those from the Watson family dynasty, were indeed larger than life; matching the scale of the events which occupied their business lives. Even so, it is the story of the business which is ultimately important as far as the outside world is concerned. Accordingly, the prime objective of this book is to give an insight into the management style that for a number of decades made IBM the most successful company in the world; and then in less than one decade virtually killed it. From this literally life and death process - for, make no mistake, the IBM that dominated the computer industry in previous decades no longer exists - the book attempts to draw out some lessons that are more generally applicable, to other companies.
It has now become fashionable to decry IBM for its truly monumental failures, and they are gigantic by any standards. Managers will now often invoke IBM as a cautionary tale; 'we must avoid the fate of IBM'. Yet only a decade or so ago, it was just as fashionable to praise IBM to the heavens for its just as monumental successes. This book, unlike others of the 1990s, sets out to find the balance between these. As it is looking for lessons which will be useful to other managers, this balance tends to fall in favour of the decades of success; since these offer the most important lessons - and ones we are, in the 1990s, in danger of forgetting. More of the text, therefore, looks at the past rather than the present - very much unlike other recent books - but, in any case, it is impossible to understand the present IBM without understanding its past. Equally, though, it is just as impossible to fully understand the lessons of its earlier success, without appreciating the dangers inherent in many of these - which eventually destroyed the success they had earlier created.
Much of the book is, indeed, intended as a "model". In particular, the first half of it is a relatively detailed description of how IBM operated in the 1980's; when it was generally recognised to be the most successful corporation in the world. Equally, much of the book is descriptive; since it is possible to deduce many detailed lessons from what is, in this way, offered as a very "rich" set of data. Indeed, it is now possible - for the first time - to describe the whole life - from birth to effective death - of the company. My belief, implicit in this approach, is that most managers probably learn best, in relation to their own specific needs, by reading about how other managers have handled their problems; and by occasionally recognising that the other manager's solution could also meet their own needs. I hope, therefore, that - in this way - this book offers several hundred such solutions in search of a need.
As a management theorist, though, I have also tried to highlight what I think may be the most important, and hopefully useful, ideas; and put them into some sort of more formal framework. These diversions from the historical story-line are made more obvious by being in italics and framed by boxes. If you want to make up your own mind about what is important to you, then please ignore them; or, better still, use your critical faculties to dispute my ideas - a lack of critical analysis was one of the things which led to IBM's final failures. As an academic I also was interested to see what existing theories might help explain what was happening to IBM. I have, accordingly, included footnotes - in these boxes - explaining the relevant theory. The outcome of this particular exercise was, to me at least, fascinating. Very few, indeed, of the ideas were covered by management theory. Most of what happened to IBM was, thus, outside of conventional theory. It might be argued that this would explain why IBM failed - but the problem is that whilst it was outside of the scope of theory IBM was a success. Its failure only came when it adopted conventional management principles! The clear implication would seem to be that you don't have to be an MBA to be successful (though Frank Cary, one of IBM's most successful CEOs was); and there is a hint of a suggestion, perhaps, that knowing all the theory which MBAs are taught may even get in the way of success. As an academic teaching the largest group of MBA students in Europe, I hope that the theory I teach is useful, but the story of IBM must be seen - in this context - as a cautionary tale.
As I have said, it is impossible to understand the modern IBM without putting it in the context of its history, The book is, therefore, arranged in four historical sections - each inevitably linked to the individuals who dominated that era - into which the developments most easily fall:
The Father of IBM - Thomas J Watson - who built the company into the world-wide model copied by the Japanese.
The Sons - especially Tom Watson Jr - who took the company into the computer age, and developed its unique culture.
The Bureaucrats - in particular Frank Cary - who turned IBM into a modern corporation.
The Johns - John Opel and John Akers - who between them destroyed it!
As you can see from this list, the 'punch-line' comes in the last section. If you want to read the more sensational elements first, you should go straight to the end; and find out 'whodunit'!
The book also looks in some detail at the different functions within IBM; since, while it is the grand philosophies which in the end made and then broke it, there is much to be learned from the details. IBM undoubtedly was a great company - and it did many things, in detail as much as on a world scale, right (and sometimes wrong, and you can learn from both!)
The lessons will probably be of most direct value to managers in the private sector (most likely in the larger companies), and are primarily concerned with management style - for it is in its role as the giant multi-national business corporation that IBM contributes most to management theory. In essence, IBM has long held a unique position of importance in business dealings, on a global scale. It is in its own right one of the largest companies in the world, ranking 13th. overall in 1984; behind only the oil companies, car manufacturers and Japanese trading companies. Its performance in terms of profitability was even more impressive - in both directions. Also in 1984, it posted the largest profit - $6.582 billion - ever made by any company and its market value was $91 billion, making it by far the most valuable company in the world. Less than a decade later, 1993, it posted one of the largest losses ever ($8.1 billion) and was on its was to a much less illustrious future. Even if it does not actually die, and even that is no longer inconceivable, everything it stood for - its much admired culture with its unique ethical values - has died.
Its even greater psychological impact comes, though, from two other factors. In the first place the specific business area it operates in and dominates, that of computers, has now become central to the efficient business operations of virtually all other companies; and in, particular, central to their growth into the so called "Information Revolution". The second is that IBM has become a business myth in its own lifetime, first setting business standards that not just its competitors aimed to follow, but on an even wider canvas it became the "model" that sophisticated companies in almost all fields (and not just the Japanese) sought to emulate. At the same time it became, in the popular demonology, the archetypal multinational monster that even governments feared would overpower them. Eventually, almost as if in retribution for its previous monopoly power, it has become the archetypal failure - the subject of cautionary tales - of the 1990s.
Indeed, it is - more than the reality - the myth which forms the picture that the business world holds of IBM, and indeed on a large scale tried to copy in the days of its greatest successes. Now everyone hopes, even more fervently, they can avoid the mistakes which have brought it down again.
At this time I should admit that I too have a history. In 1987, based on my time at IBM, I wrote a previous book about it. I prefer to remember the title of the US edition, 'The Global IBM' (though, perhaps as a portent of what was to come, its publisher went into Chapter 13 in the middle of the launch!). I try to forget its title in the rest of the world (where it was a best-seller), 'IBM: How the World's Most Successful Corporation is Managed. I hasten to add that this title was chosen by my publisher - my own suggestion was IBM: Excellence Achieved (which, to be fair, would still be seen - when IBM is now thought to be anything but excellent - as almost as dubious a claim). At the time, however, IBM was at the peak of its success. In that earlier book I did sound many notes of caution, and predicted many of the things which have since been so damaging to IBM; but the non-US title does give a genuine flavour of that book. At the time, despite the problems I observed, I too thought IBM was probably indestructible; and dismissed my own reservations as being too pessimistic.
On the other hand, that book was originally intended to address the myth then held, of IBM's overwhelming superiority. In some ways it primarily set out to debunk it. This "debunking" did not however show IBM as any less important at that time; it simply showed that its real importance was subtly different to that enshrined in the public image. Paradoxically, though, it was even then only the Japanese corporations, surely the most consummate plagiarists, who had taken IBM seriously enough to create a copy that encapsulated some of its real essence; arguably IBM's greatest legacy lies in the Orient!
This current book sets out to go far beyond the limited objectives of the first one. Paradoxically, what has happened, in terms of the lessons which may be learned, is that IBM's later failures have highlighted its earlier successes. As a result, what has now emerged from my latest research is a coherent "model", which is indeed very different from the myths; and which - balancing success with failure - now encapsulates many of the true strengths and subsequent weaknesses of IBM. In particular, it is now, for the first time, possible to see the whole life of IBM - from its birth to its effective death - since the IBM which exists after the watershed set by the arrival in 1993 of Louis Gerstner - IBM's first CEO brought in from outside - is very different to that of earlier years. It can be reasonably treated as a totally different company - with few of the features which distinguished its predecessor, and almost none of its values! Accordingly, I believe this coherent - life and death - "model" can be used to derive some powerful lessons. These should be just as applicable in many other large Western companies and bureaucratic organisations.
In many respects it is still complementary to the model derived from the McKinsey & Co investigations of 20 multinationals, undertaken at the beginning of the 1980's; and most popularly reported in the book "In Search of Excellence", by Peters and Waterman. On the other hand, I believe that the reader may find that the greater depth of this present book, albeit based on the narrower front of just one corporation (IBM), reveals some new insights which go beyond that McKinsey material, to further challenge some of the more conventional assumptions of management theory, as well as offering a more meaningful explanation of the Japanese successes. It may also rehabilitate Peters & Waterman (not that they ever needed this!), since their book - albeit (justifiably) still an international a best seller - has since been unfairly rubbished by many critics, because it focused on the success of IBM which then very visibly became an abject failure. I believe that this book shows quite clearly that IBM's later failure was because it abandoned precisely those things (many of which were documented by Peters & Waterman) which had previously made it such a success. Had it still been a success then Peters & Waterman might have been vulnerable to such censure; but it is perverse to criticise them for being right!
In the book I have tried to specifically highlight those beliefs, or "Philosophies", that I believe were the critical elements of IBM's earlier successes; and indeed their later abandonment - and the resulting failures - provides even stronger evidence for their importance. I have, though, tried to provide a wider context; fleshing out this rather sparse framework by describing the range of its operations in most fields. In its totality IBM was, and is, a very complex and sophisticated model indeed, offering rich pickings for almost any political scientist, economist or business specialist; as well as for the working manager, to whom this book is primarily addressed.
In my last book I said that "I would, thus, hope that this book also tempts other researchers to explore the many facets of this apparently enigmatic, but ultimately fascinating, company. I would also hope that IBM allows such researchers in. I understand its right to protect its privacy (which it rigorously exercises). I hope, however, that IBM will recognise that as a model it has a unique place in the in the theory of business management (as well as that of economics and political science); and as such should be correspondingly willing, as a public service, to 'open the kimono' (a particularly apt expression in view of the Japanese connections) to serious scholars, as well as managers in general." Needless to say, IBM didn't do this; which is a shame because, if it had listened to them, it might now be several tens of billions of dollars better of!
The book covers the whole range of management theory - I am, after all, now an academic in Europe's largest business school - but it concentrates in particular on one aspect of management theory, that of "management style" (where IBM, the evidence shows, the lessons from IBM - failure as well as success - seem to have most to contribute). It does not, though, set out to be a general guide to managing a business. It is taken for granted that IBM still undertakes a wide range of basic business activities in a most professional manner. The book's task is limited to deducing those specific lessons, to be learnt from IBM's management style, which go beyond the basics to enable a company to become an outstanding performer; and, hopefully, not a failure on the scale of the later IBM.
Throughout this book I have frequently found myself using the word "unique"; for all my investigations have shown that IBM really is unique, not just in a few minor ways, but in many major respects. Not least was the manner in which it so successfully defied management theory. It has to be admitted, though, that this uniqueness is to a degree confined to the Western world; where the large Japanese corporations did succeed in copying a number of its earlier features - which, fortunately for them, offered some protection against the dangers of the last phase of its history. This comparison with the Japanese experience is perhaps best encapsulated in the recent moves in the West towards approaches based upon Human Resource Strategies (HRS), as well as in William G Ouchi's earlier "Theory Z", and these comparisons are explored as a sub-theme in a number of chapters. Even the Japanese, however, did not copy the later developments (up to the watershed of the mid 1980s) which were arguably just as revolutionary, and certainly were unique to the IBM at its peak.
There has always been one major problem in trying to unravel the reality of IBM from the myths, which has to date obscured (at least to Western audiences) the significance of its management style, and that is the choice of perspective. It would seem that there have conventionally been two alternative perspectives. The first of these, which has to date been followed by the journalist written books, has been from the outside looking in. This approach can still make for a very interesting, and sometimes insightful, read; and Paul Carroll's book ('Big Blue' which follows the trials and tribulations of the PC Group) is one of the most readable of these. This view has tended to present IBM as the supreme example of a conventional, but very successful (and then even more unsuccessful), company; only adding, anecdotally, some interesting but minor deviations. The other approach, that from the inside looking out, is usually limited by self imposed IBM censorship to a small selection of public relations brochures, and such material is of correspondingly limited value. The three exceptions to this rule are Tom Watson Jr's 1963 book, "A Business and its Beliefs" (which was largely definitive of IBM at that point in time) and his later autobiography ("Father, Son and Co.", which says rather less about IBM but provides a fascinating insight into his own life), and "The IBM Way", by Buck Rodgers (which was directed more specifically at sales management).
In general the two perspectives are so different, in many respects almost diametrically opposed, that it simply is not possible to obtain a true picture even when they are combined. The resulting confusions are very understandable because on the one hand IBM has long been almost paranoid in its pursuit of secrecy (understandably so when it has had so much to hide for the past decade), so outsiders looking in have very little to see, and on the other it does not (apart from its new CEO, and the new managers he subsequently added!) recruit senior management from outside, so the internal IBM view looking out is just as distorted; since it is heavily filtered by its own unique culture.
Like my first book, this one is, at one level, an attempt to bridge the gap. It tries to marry the two perspectives in order to produce a picture that goes some way to being understandable to both audiences, to those inside IBM as well as those without. In the process I believe a more realistic picture emerges which shows that IBM truly does have unique features that set it apart; and which offer correspondingly unique, and powerful, lessons for others. Needless to say, as I have been a business academic for most of the time since I left IBM, a third perspective (that of management theory) now also intrudes to a considerable extent; I hope usefully so. I believe that the lessons of IBM do have considerable validity elsewhere. Even so, the less 'involved' analysis, which now - italicised in the boxes - provides an 'academic' commentary on the events, is intended make these lessons more obvious; but not to detract from the lessons you might deduce as being the most important for your own organisation.
The other main difference of perspective, even in the purely descriptive material, comes from the fact that this book is intended to be an analysis of the business methods (and more importantly of the styles and "Philosophies") that formed the various stages (successful and otherwise) of the 'modern' IBM. It is this analysis that has led to the various 'lessons' I suggest in the accompanying theoretical commentary. Previous books, and even IBM's own brochures, have tended to be anecdotal descriptions, typically written with great panache by journalists, of the people who made (and broke) IBM. It is indeed impossible to ignore the influence of such people, especially of the Watson dynasty (which made it great) at one extreme and the John's (Opel and Akers, who presided over its downfall) at the other, but this book concentrates on their policies rather than their personalities. There are already a number of excellent books that flesh out the bare bones of the policies by descriptions of the individuals. These often include a deal of journalistic licence, but this does allow for a greatly enhanced entertainment value; and I would recommend them as excellent light, but still very informative, bedtime reading. In particular, "THINK" by William Rodgers gives a, somewhat scurrilous, account of the Watson family and early IBM, and "IBM Colossus in Transition" by Robert Sobel describes the IBM of a later - but still successful - period in a wider, if somewhat more academic, perspective. Paul Carroll, in 'Big Blues' which I have already mentioned, is perhaps the most interesting chronicler of IBM's downfall.
It has been my observation, across the spectrum of management theory, that it has become too divorced from management practice. I have accordingly, and perhaps somewhat mischievously, debunked - to a limited extent - a number of "classic" management theories; albeit that I have generally undertaken this by letting the 'facts' speak for themselves. In the main, however, it is the absence of relevant management theory which is distinctive, rather than its incorrect predictions. My view (and that of my colleagues) - independent of the IBM experience - is that if practice does not fit the theory (as much of IBM's didn't) then you should look again at theory - rather than (as many other academics might recommend) change the practice to fit the theory. As you will have already gathered, one of my sub-themes is that IBM finally failed precisely because its management took management theory too seriously, and actually tried to put it into practice. They distrusted their own experience, and that of IBM as a whole, and put their fate into the hands of the management experts'! Let that be a warning to you!
More important though, my observation, reinforcing that of the earlier McKinsey work, is that the most valuable lessons to be learnt from IBM are not in detailed deviations from established "functional" theory, they are in the real power that can be derived from the "simple" implementation of critical sets of philosophies and beliefs (summed up as IBM's "management style"); which in turn will usually generate many of the more detailed theories. Surprisingly, despite the popularity of the book by Peters & Waterman, these "philosophies" are still largely discounted in Western theory - which tends to be preoccupied (as is much of social science) with a search for a rigorous numeric, quasi-scientific, context. Perhaps the underlying assumption is that they are self-evident (and as such not worthy of further exploration); but if that is the case then it is also worth noting that to date only IBM, and the Japanese have made use of the evidence, and even IBM was finally persuaded to change its ways!
The book is also different to its predecessors in that it is not just based on a limited number of well documented interviews. It is, instead, a synthesis (using the skills and experience derived from approaching a decade of management teaching) of two decades of literally thousands of meetings; most largely undocumented, except perhaps in the archives of IBM! In general the comments are deliberately unattributed; partly because the original authors of some of the ideas still hold positions in IBM, but mainly because most of the views are not those of individuals but are a synthesis of the views of a number of IBM'ers and non-IBM'ers. I believe that the resulting composite is more enlightening than any of the single views.
These individual views are, in any case, further complicated by being located within the context of a moving target. In the 1980s the nature of IBM was that everything changed at least every two years; initially, at least, under IBM's control. In the 1990s the changes have come even faster; and, more significantly, have no longer been under IBM's control! Only by abstracting the essence of the views can, therefore, any sense be made of the constantly shifting kaleidoscope that was and is IBM. Otherwise by the time any specific view can be enshrined in print the function being described will most probably have been renamed, reorganised, relocated and (quite possibly) replaced; certainly to the extent that it will no longer be recognisable. Possibly even IBM will no longer exist - at least not in any of the forms described in this book - but, happily, its lessons will remain for others to learn from.
This experience, and the related "interviews", were originally obtained as part of a career with IBM, spanning a decade and a half, that took me from the sharp end of mainframe sales to the relative tranquillity of administrative staff. In the process I worked for extended periods in Marketing Staff, including Product Line (IBM's 'new product group'), Education, Corporate Affairs and the Personal Computer Group. Most important of all, in terms of the content of this book and its perspective, for more than 5 years I ran the UK operations of IBM's first Independent Business Unit - IBM Biomedical Group - which was at the heart of the changes which eventually resulted in the downfall of IBM. In this capacity I worked from time to time, along with my opposite numbers, in each of the other European "Majors" (Germany, France and Italy), as well as in the European Headquarters and the United States. The lessons I gained during these years were consolidated by the time I spent as one of IBM's very few strategic planners, during which time I had privileged access to IBM's innermost secrets.
Thus, in a decade and a half I was in contact with literally thousands of IBM'ers, from across all the continents, ranging from ordinary shop floor workers to members of the corporate board. At the same time in relation to the outside world I was in touch, on behalf of IBM, with governments, occasionally at ministerial level but usually at senior civil servant level. Contacts also included board members of large corporations who were IBM customers.
This breadth, and depth, of experience was rare in IBM, where individuals' careers are normally contained within fairly tight departmental and national boundaries. The main exception is usually that made for the very high flyers; and the evidence will clearly show that I was definitely not one of these! The unique advantage I had, over even the high flyers, was that - while I had much the same privileged access to information - I was in positions where I was not irretrievably enmeshed in the management culture, that filtered out many of the external stimuli. This closely blinkered culture bred a remarkably insular viewpoint, albeit one that used to be very productive commercially. This was, for instance, evidenced by Buck Roger's book; which was a good description of IBM but without any obvious awareness of what really made it so different to the outside world. It has been, of course, best evidenced by IBM's signal failure to understand, let alone rectify, the reasons for its own later decline!
Thanks largely to the stimulation of the London Business School, with whom I worked for a number of years while I was still at IBM and who were as fascinated with IBM as I was, I was able to maintain an unusually detached appreciation of what was happening around me; a perhaps almost unique privilege within IBM, where total, blind, immersion in the culture was and (in spite of the scale of its problems) still is normally the rule.
Despite this wide (geographically as well as functionally) range of experience some of my more detailed analysis is inevitably based on the experiences of one country; the United Kingdom, where I was mainly based. On the other hand my later research has ranged across the whole of IBM, and the evidence that is available from the other countries shows that the "model" described was (and is) largely typical of IBM wherever it operates. At times, though, the narrower view did have the significant advantage in that the picture was more containable. In any case, much of the strength of the "model" is at the operational level. It does not matter what were, or are, Armonk's intentions. What is important is the de facto implementation at the operational level. The details may sometimes have been specific to a given part of IBM (though there is no evidence of this) but the philosophies behind them were certainly accepted across the whole of IBM.
Most important, in the context of "business journalism", the examples I have chosen are designed to illustrate the mode of IBM's "business as usual" - in both success and failure. Many of the examples in previous works have been interesting, in much the same way that the villain of a play is always reckoned to have the best part; but have been ultimately untypical. The pursuit of the sensational and salacious, albeit fascinating in terms of human (moral) frailty, would not have added anything to the theme of this book; which quite specifically aims to portray what was and is important and unique, in business terms, within IBM. This book is, therefore, largely about the things that IBM did well. It also talks about the later mistakes which, in fact, highlighted the lessons of its earlier success. But, above all, it is intended as a description of a working model; in which the most useful lessons are to be drawn from those elements that worked best.
The original insight, that is at the heart of many of the ideas I put forward in this book, first came during my work - in the early 1980s - putting together the business case, on behalf of the UK and then EHQ (IBM's European Headquarters), to close down IBM's first Independent Business Unit. The justification for this difficult decision was surprisingly not the lack of IBM' expertise in this very different area of business, for at least in the UK we had clearly demonstrated our ability to operate more effectively than any of our competitors; and indeed had achieved, in less than 5 years, a greater than 70% share of business in the target markets. The reason was ultimately the impossibility of running such a small scale (around $30 million world-wide) conventional business operation within the culturally very different, and bureaucratically based, environment of IBM. The comparison between the two contrasting business structures threw into very sharp relief, for the first time as far as I was concerned, just how different were IBM's "normal" operations. With the benefit of more than decade of hindsight I can now recognise - though I didn't at the time - just how important my recommendations should have been, if they had been seen to also apply to the wider context of IBM as a whole. The philosophies then being applied to these IBUs - wrongly (as my report, which was accepted by John Opel, showed) - presaged the ones which were later to be applied across the whole of IBM. But it was, unfortunately, not a lesson learned by Armonk; for their model, in the later disastrous years, was to remain that on which the IBU decisions were based.
The most important differences in operation that this report initially highlighted were mainly those generated by the very different, and very strong, corporate culture that existed in IBM. In some important respects it was even then apparent that it was comparable with aspects of the "national" culture that seemed to so sharply differentiate Japanese companies from their Western counterparts. To a large extent that IBM culture emerged naturally from the existence of a uniquely high calibre workforce that in many respects has more in common with that of the higher levels of the civil service or the university common room than that of the conventional industrial company; again comparable with the larger Japanese corporations, in terms of its capture and use of the nation's brightest talents. One surprising outcome of this "skewed profile" is that the lessons of IBM may be just as applicable to government bureaucracies as to commercial organisations.
The second insight is hinted at above. It was the comparison not with IBM's Western contemporaries but with its Japanese counterparts. This insight developed during the final research for my first book. The only references I came across during that time which matched the facts of IBM were to Japanese practices. Indeed it was only when the initial draft was complete that I eventually found William G Ouchi's "Theory Z"; and discovered that a number of comparable observations were already contained in that book (but in his case based on observations of Japanese practices). This stimulated further research which eventually unearthed the statement from Noda Nobuo (a former Mitsubishi executive and chairman of the Management Committee of MITI's crucial Industrial Rationalisation Council during the 1950's), and chronicled in "MITI and the Japanese Miracle"(by Chalmers Johnson), that the committee got its ideas for quality control and measurement of productivity from the United States. Later in the same chapter Chalmers Johnson reported that "excited by the American Concept of scientific management the Industrial Rationalisation Council churned out publications and sponsored speakers, leading during the mid-1950's to what was called the 'business administration boom' (Keiei Bumu) and to making best-sellers of books such as Peter F Drucker's 'The Practice of Management' (translated into Japanese in 1956)". This influential book had, as its Chapter 19 (which is extensively referred to elsewhere in that book), "The IBM Story". This spelled out three lessons to be learnt from IBM which were, as far as can be ascertained, duly implemented in Japan; lifetime employment, job enrichment, and the precursors of quality circles! More recently, Jacques Maisonrouge the Head of IBM Europe) wrote about a meeting he had with Kanosuke Matsushita - believed by many Japanese to be the originator of many of the country's management practices - at which he stated "He had taken them [IBM practices] for his model".
My surprising conclusion is developed in more detail in chapter 4 - The Japanese Lesson. Suffice it to say, at this stage, that there is (I believe) substantial circumstantial evidence to show that much of the Japanese management style (which many believe was at the heart of the "Japanese Miracle") was not a spontaneously national cultural phenomenon; but was at least in part a copy of IBM - imported, in the shape of Drucker's seminal book, by MITI.
Whether or not this was in fact the case, it is certain that IBM's management style (as of the 1950's under T J Watson) was a very close match for the now much vaunted Japanese style. As such it is still an excellent guide to Japanese practices, and (most importantly) is located in a cultural context that may be much more easily assimilated by Western management. Understand IBM and you, at least in key aspects, understand the Japanese corporations.
In my first book I prophetically said "As a company IBM is not perfect or infallible, and as with most things it will not last for ever. Indeed it is currently (in 1986) in the middle of one of the great gambles that is wont to indulge in every couple of decades or so. This time it has just sold off the "family silver" of its rental base to invest in manufacturing facilities that, it fervently hopes, will undercut the costs of even its cheapest Far Eastern competitors; indeed choosing to compete head-on with the Japanese precisely in those areas of their greatest strength. The next few years will show whether this was a wise decision; though the record shows that even the unwise decisions are eventually turned to IBM's ultimate advantage." I was quite right in my reservations, but wrong in my optimism. It is no longer clear that IBM will survive. Indeed, it has already failed to survive; at least in the form which it had for most of its history - the form which is described in this book, and is at the heart of most of its lessons. It has abandoned most of its philosophies, not least that of lifetime employment, and has become an ordinary company!
Even so, it is still my belief that there are a number of important business lessons which may be learned from its history - if not from its present example. At least some of the more sophisticated companies could profitably employ variants of the devices IBM used to create its successes. As already noted, it is surprising, for a company that was supposedly a marketing giant, that the main lessons relate to personnel policies, and indeed it was precisely these that the Japanese seized upon. A number of these, as well as being alluded to in the McKinsey work of Peters and Waterman, are now more directly incorporated, in the West, as part of the 'Human Resources Strategy' (HRS) approach as well as in William G Ouchi's "Theory Z". This is not surprising since the latter was based on his observations of Japanese corporations; and he too was involved in the earlier phases of the McKinsey work. On the other hand, he appears to have applied this more directly to the Japanese examples than did Pascale and Athos. He too credits his own ultimate insight to a meeting with IBM, but regretfully he did not follow this through to determine what further lessons IBM held. This book hopefully will go some way to rectifying that omission.
Those that are incorporated in the Japanese model, and in HRS, largely relate to the IBM of T J Watson; though they were, of course, also incorporated as the foundations for the later IBM developments. Of these perhaps the most important was that of lifetime employment; a concept that IBM would never legally commit to, but did state as an objective (until the fateful events of the early 1990s). Other features include: the extensive use of implicit, rather than explicit, controls based on beliefs rather than on numeric targets; the combination of this with a strong common culture as a mediating factor; the provision of non-specialised career paths within the organisation, backed up by extensive training programmes; consensual decision making (requiring formal approval by a large number of individuals); and holistic relations between employer and employed. All of these would have already been familiar to IBM employees of the T J Watson era, and were largely responsible for IBM's growth during this period (as they were later to be for Japan).
A 'Human Resource Strategies' (HRS) approach (or even one based on 'Theory Z') is, thus, a very reasonable first stage towards implementing some of the lessons to be learnt from IBM. Ouchi's estimation that this stage might take 10-15 years is probably not unrealistic; since this is about the timescale that the Japanese, the consummate imitators, required and was that needed by Tom Watson Jr to complete his own developments (and, later, for Opel and Akers to fatally reverse all of these!). There are some lessons, though, not included in "Theory Z" - though most of them are implicit in HRS.
One of the most important of these is that of attracting and holding the highest calibre personnel. It should be an obvious point, but in my experience very few companies indeed take the recruitment process seriously enough. IBM viewed each new recruit as a capital investment of up to a million pounds, and resourced the recruitment process accordingly. The Japanese corporations, of course, also naturally attract the highest calibre recruits. The second is that of educating and re-educating staff to the highest standards. At its peak, IBM had around 5% of its manpower permanently committed to internal education. Third, and probably the most difficult for many managements to commit themselves wholeheartedly to, is that of allowing the resulting well-educated, high-calibre staff the very maximum amount of individual delegation so that all their talents are fully utilised. IBM achieved this difficult task positively by a range of Personnel Policies that encouraged rampant individualism, whilst engendering a feeling of security; and negatively by a range of management policies which effectively undermined the authority of first line managers, and discouraged them from interfering destructively in the naturally smooth running operations that they headed up. The end effect was an idiosyncratic form of highly organised anarchy!
This third aspect (although hinted at in parts of Peters' and Waterman's work for McKinsey) definitely has no Japanese counterpart and is one element which is also not present in HRS. Indeed it is very largely in total opposition to the Japanese (and HRS) experience. This is understandable since this was Tom Watson Jr's personal contribution, when he started to develop the individualistic anarchy to counter the bureaucratic tendencies then emerging in IBM; all of which came after MITI transferred the IBM lessons to Japan. It will be interesting to see if Japan can ever make the same quantum leap (or even if, with its very different national culture, it will need to); particularly as Ouchi suggests that "no organisational structure" (surely anarchy) is the ideal (if normally unapproachable) precondition for "Theory Z".
Finally there is the establishment of an efficient horizontal communication process. In IBM this was an absolutely essential element of the company's very successful (self) control of its day to day operations in a very volatile marketplace. It was achieved largely because personnel of as high a calibre and as individualistic as those in IBM simply cannot be stopped from communicating with their peers. At the same time very much the same set of management undermining principles as ensured maximal delegation also broke down inter-departmental barriers; so there were no objections, let alone the taboos that afflict most companies, to cross-functional communication. Although not stressed in HRS or in "Theory Z", the Japanese corporations are reported to have relatively good horizontal communications (not least because of the many contacts made during the building of non-specialised careers). They cannot, though, in any way match the great richness of IBM's peak implementation.
In the 1970s these processes were facilitated by institutionalised change, so that almost every IBM employee changed jobs, at least to some degree, every two years or so. This broke down potential logjams, but it (comparably with Japanese experiences) also built the individual contacts that are central to the development of the horizontal communication process.
IBM later reinforced these processes with the introduction of a very sophisticated horizontal terminal network. The introduction of similar networks, always assuming they are very carefully designed to enhance horizontal communication and delegation, may be the best chance that other companies have of implementing at least some of the "systems" which made IBM so successful.
Although overall the end result was very similar to the processes that the Japanese have employed since the 1950's, the inherent "anarchy" of the later IBM version did make it significantly different; and probably that much more relevant a means of introducing HRS (or Theory Z) to Western companies. More important, though, it will be essential to the development of the new business structures, which I describe (based on IBM experience) as "cellular organic", that are increasingly replacing the traditional functional (pyramidal, hierarchical) structures. These are described in more detail in the chapter 11.
IBM at the peak of its success was perhaps unlike any other company in the way that it deliberately managed its business. On the surface a business school professor would still have been able to find the signs of all the sophisticated financial management systems that theoreticians hold so dear. Underneath the surface, though, real control was exercised by a range of relatively crude, but very powerful, non-financial methods. Of these direct control of headcount (the centrally approved numbers of permanent, "established", staff) was the most effective, and this was supplemented by a vice like grip on capital projects. It was reasoned by IBM, based on considerable experience, that both of these areas have a geometric "knock-on" effects, and if these alone can be controlled then most other expenses will also fall into line (and, indeed, the escalation of employee numbers - up from 300,000 to 400,000 - in the early 1980s was to later have disastrous implications for profitability). Up to this point there may have been some similarity with other companies, though their use of these "weapons" may be largely incidental, and certainly far less deliberate than then was IBM's.
The remaining control, that of "culture", was the one that actually determined the day to day running of IBM (and, less effectively since Armonk undermined the process, may still do so). It was, I believe, relatively unique, at least in terms of Western companies and of its deliberate long term implementation; though Peters and Waterman stressed the "cultural" aspect of all the successful companies they investigated. It was the corporate culture that ultimately made IBM unlike any other company, and made it so successful; until John Opel destroyed its foundations. In the case of IBM it is arguable that this culture was a product of more than half a century, from its inception by Thomas J Watson, hence its great strength in depth. It is interesting that a senior director of Toyota, when challenged to account for its success, also said that the process (of developing its similarly unique culture) took the best part of half a century. It is, unfortunately, a management tool that requires a great deal of foresight. It is also an unlikely "tool", as the dismissal by professional IBM watchers (but not the Japanese; "beliefs" are a key element of HRS) of the repeated statements on the subject by the Watsons as "unbelievable" showed. As suggested by Ouchi, and supported by my own investigations, its use may have to span decades before the most dramatic benefits appear, and this must be seen as a luxury when many companies plan only months ahead. It is, though, a tool that should not be ignored; not least because in the "cellular organic" structure it is the only guaranteed control on the teams working within the individual cells. The timespan illustrates the remaining difference shown by IBM at the peak of its success. It could, and did, look at timescales well in excess of a decade and its main detailed planning cycle genuinely was a full five years; as any theoretician would recommend but remarkably few companies even pay lip service to - and which, regrettably, IBM itself later abandoned (reducing operational planning horizons to less than one year!).
IBM was a company used to look very different to most other Western companies, and really was different, and indeed was to the Japanese companies it might also have been compared with. It flew in the face of many of the conventional theories of sound management (as my footnotes - or at least the lack of them - in the boxes reflect); yet was supremely successful for a far longer time than most other companies have existed, and across a wide range of different environments. Indeed, it only showed signs of mortality when it abandoned its idiosyncrasies and adopted the style and techniques of the more mediocre performers. It was only then that it too became mediocre. The moral would appear to be two-fold. In the first place the structure of "Western" management theory is not as firmly rooted as its practitioners would have us believe (even Ouchi's "Theory Z is relatively unknown and, though Peters and Waterman achieved considerable popularity for their own criticisms of "rational" management, even HRS remains more theory than practice); which leaves hope for those brave individuals who are the true innovators, the real entrepreneurs of our society. The second is that, along with some Japanese companies, IBM showed that it is possible to control, in a highly productive manner, even a very complex operation by using the simplest of means.
Over the second half of the twentieth century one line of management theory moved from Theory X to Theory Y (as described by Douglas McGregor in "The Human Side of Enterprise") and thence, at least for some, to "Theory Z" (and perhaps for many more to McKinsey's "Seven S's") before being consolidated in 'Human Resource Strategies' (HRS). As you will appreciate I believe that this moving finger should by now have travelled even further. Thus, based on the model of IBM in the early 1980's, in my first book I proposed some additions to these previous theories. I did not then, and do not now, believe, however, that there is necessarily just one definitive style of management which will be equally applicable to all companies, or to all personalities. I, therefore, deliberately referred to this extension of theory as "Philosophies I". This was because at the heart of the matter were various beliefs, or philosophies; and the 'I' was an acknowledgement to IBM, which was the original model (where my contribution was to be the interpreter).
"Philosophies I" has two more or less equally balanced components. The first of these approximates to 'Human Resource Strategies' - not surprisingly, given that these were derived from the Japanese corporations who, in turn, derived many of their ideas from IBM. In essence they revolve around the trust built up between management and employees, which stimulates the flexible working practices and worker motivation, so typical of IBM and the Japanese corporations. The 10 major ingredients (which are described in more detail in Chapter 4) are;
Strong Beliefs, rooted in shared ethical values (leading to objectives set in terms of philosophies) - the evidence is that, above all, it is the strength of the shared beliefs (shared by management and employees alike), and not just the resources at its disposal, that made IBM so spectacularly successful over such a long period. The comparable "spiritual" nature of Japanese corporations - ascribed, I believe incorrectly in the context of their outstanding performance, to Zen - has long also been marvelled at by the West.
Full Employment Policies ("Lifetime Employment") - this is perhaps the most difficult commitment for a typical Western firm, with short term profit performance objectives to meet, but it probably is the most important foundation for success on the scale of IBM and the Japanese corporations.
Job Enrichment - IBM was one of the first companies to put significant effort into offering its employees "enriched" jobs (a philosophy that was later also adopted very successfully by the Japanese); which was one of the early steps towards a fuller implementation of HRS. IBM employees could, at least to a degree, choose jobs that they felt were both interesting and fulfilling.
Personal Incentives - this is a perhaps surprising element (in the context of the non-materialistic nature of the other elements), which is not featured in HRS, but the evidence does seem to suggest that (in both IBM and the Japanese corporations) a personal financial involvement adds to employee commitment (but not necessarily for conventional "capitalist" reasons).
Non-Specialised Career Development - the concept of a career, perhaps spanning several quite different disciplines, developing within the one company (rather than in the traditional Western alternative of within one discipline across several companies), is typical of the Japanese corporations; but it was also (within the rather different confines of the Western culture) one that was adopted by IBM. Again, this is not a major feature of HRS.
Personal (consensual) Involvement, in decision making - although IBM had no formal equivalent of the Japanese (ringi) system of widespread "sign-off", all personal impacted by specific departmental activities were usually informally involved in the decision-making processes, and they had (in effect) some right of consensual veto (albeit very partial, and most obviously policed via indirect programmes such as the Opinion Survey) on the key policies affecting them. This is, once more, an element of HRS - and was, to a degree at least, a victim of IBM's later policies.
Implicit Control, rather than Explicit (figure) control - IBM was as likely as any other Western company (but not Japanese companies) to indulge in numeric controls on all fronts (after all that was a large part of the service it was selling to its customers), but these were tempered with well communicated explanations of the philosophies behind these "targets"; so that each individual knew exactly what he or she was expected to do (and why). It is not central to HRS, but is implied by many of the ideas behind it.
Cultivation of a Strong Culture - the ultimate implicit control is embodied in a strong culture which encapsulates all that the organisation wishes to achieve (be it IBM or a Japanese corporation). All decisions, by all individuals, are thus taken in the (largely) correct context, even if no further brief is given. Again, this is implied by much of HRS, but was the central message of Peters & Waterman - at least in terms of what most readers took away from their book.
Holistic Approach to Employees - finally IBM, especially in the T J Watson era, saw its role as addressing all the needs of its employees (a philosophy that is even now very evident in the Japanese corporations). The relationship was paternalistic (in the best sense of the "family"), rather than the more traditional capitalist exploitation of mere units of labour.
The second leg of this equation comprised the set of 'Advanced Philosophies I', largely unique to the IBM of the 1970s; though some of them are, again, incorporated in HRS. They were the anarchic, individualistic, philosophies and horizontal communication devices which could contain the potential problems of a fully fledged Western bureaucracy and harness its energies to create a viable business machine. They are, indeed, probably a necessary pre-requisite for the "cellular organic" structures emerging in the "Information Technology Revolution", since these are built around very small groups (with the individual as the ultimate building block) which are only very loosely linked into the overall company structure. Under these circumstances the individual has to be in a position to control his or her own destiny, otherwise there can be no really effective control overall. The 10 'Advanced Philosophies I' (described in more detail in Chapter 11) are;
Strong (published) Beliefs in Individualism ("Respect for the Individual") - once again it is beliefs that are the driving force of this second leg of the 'Philosophies'. In this case the key belief is that of individualism; one that is more normally seen to be opposed to the interests of any corporate body. Within IBM it was, before John Opel undermined it, clearly and most publicly enshrined as its first belief; "Respect for the Individual".
Personnel Processes, to guarantee the working of these beliefs - to be most effective these beliefs need to be seen to have real teeth, and these teeth are best provided by effective personnel programmes; which indeed IBM did - in happier times - run, under the collective description of "Respect for the Individual".
Single Status, across the company (reinforced by status divorced from any management role) - effective promotion of individualism implies a commitment to "single status"; where all employees (whether management or not) should clearly be subject to the same, democratic, conditions of employment. IBM had also shown that it is helpful (in terms of breaking down the remaining status barriers within the company) if status is formally divorced from its normally most obvious manifestation in terms of management position; and hence an individual's status is not immediately obvious, and relations between individuals cannot be based on a "hen-pecking" order.
Recruitment, of the highest calibre individuals - it seems self evident that a company is as good as its employees (a view, however, that is far removed from the conventional capitalist "units of labour"). But all too often companies willingly settle for second best by devoting too little effort (and expertise) to recruitment. This is, once more, one aspect of HRS.
Extended Training, particularly for top management - continuing the same theme, few companies make the best use of the talent they have. On the other hand IBM was committed (and resourced) to train, and retrain, all its staff to allow them to fulfil their true potential. Training, in general, is also a focus of HRS - but the all-important preparation of CEOs is largely ignored in that approach.
Maximal Delegation, to the lowest possible levels - this is now almost a cliché of business management, but too few companies actually succeed in implementing the philosophy; even though it is central to HRS.
Planned Constraints, on first line management - one of IBM's most successful innovations was to force maximal delegation by, in effect, undermining the position of its first line management. This forced them to become "team leaders", allowing their subordinates to fulfil their maximum potential and the managers to get on with the real job of management.
Encouragement of Dissent - one key contribution to individualism, which was heavily promoted within IBM during the 1970s, is the encouragement of dissent. When IBM management could rely on their subordinates to disagree, then they could rely on the information that was being fed upwards from the grass roots. Its later problems were compounded by a weakening of this process - the Akers management, in particular, did not seem to want to hear of any problems!
Encouragement of Horizontal Communications - in the newly emerging organisational forms (such as cellular organic) the vertical communications structure is being broken down, to be largely replaced by an extensive horizontal, peer-to-peer, communications network; and this process is also being reinforced by developments in Information Technology.
Institutionalisation of Change - the final contribution of IBM, at the end of the 1970s, was to develop the concept of continuing change as a "lubricant" to free the organisation from the potential stranglehold of bureaucracy. IBM now simply does not allow time between successive reorganisations for a fully fledged bureaucracy to become entrenched.
The final act of the drama occurred when the management of IBM, led by John Opel, unwittingly abandoned most of these philosophies in the 1980s. Indeed, its CEOs over that decade (first John Opel and then John Akers) fought, almost as hard as had the Watsons, to introduce their own philosophies - and to 'bring IBM into the modern world'. For the first time, IBM's CEOs understood conventional management theory, and realised that IBM had been mistaken in its previous - outdated - ideas. They publicly committed themselves to change IBM so that it followed the 'best' management practice (or, at least, theory).
It is surely the ultimate paradox that the final justification for IBM's earlier idiosyncrasies, which I enshrined in these Philosophies I, came when IBM itself abandoned them and consequently slid into a pattern of failure heaped upon failure. Whether that abandonment was unwitting, or a deliberate attempt to follow more reputable theories, does not, in this context, matter. The lessons are clear (and are, in most respects, complementary to the Philosophies I):
Cultural Blindness - the stronger a culture the less able it is to see the external realities it faces. The 'paradigm', using Thomas Kuhn's well-known term, which describes the world in which it thinks it lives, becomes more real than the actual world. What its members see is, indeed, mediated by that paradigm - they see what they expect to see!
Cultural Vulnerability - despite the optimism (and often arrogance) of the members of even the strongest cultures they may not be invulnerable. They require constant 'maintenance' if they are to become immortal. They must change to survive.
Challenge from the 'Normal' - in particular, they are exposed to attack from the supposedly 'normal' values of society. The conventional paradigm has an inherent power which can overwhelm the unconventional when the latter's confidence falters.
Leader Power - the strength of the CEO and his or her commitment are crucial in failure as well as in success.
Growth Strength - a challenge is typically not made, or is unsuccessful, when an organisation is experiencing strong growth - the strongest cultures are those which generated (and in turn were sustained by) rapid growth. Then there is no reason for abandoning obvious success, or even for any doubts about it. Growth also allows the resources to be found for the hidden 'overheads' (such as lifetime employment) which strong cultures demand.
Confidence Loss - unfortunately, the reverse is also true. When growth fails, or even falters or simply falls below expectations, confidence can be destroyed - and the overhead burden can become untenable.
Loss of Vision - the result can be an organisation which is so demoralised, and literally disillusioned, that it no longer knows where it is going. Its 'map' of the world, its paradigm, has proved false.
Loss of Competence - this state of confusion may be so great that the organisation no longer recognises what are its real core competences, and increasingly comes to rely on the (questionable) judgement of outsiders.
Loss of Cohesion - ultimately the whole organisation may fall apart. Its best people leave, its customers turn to other suppliers and it is no longer sure what it should offer the world.
To cope with such situations which must, from time to time, face even the most successful of organisations there is one further 'Basic Philosophy I':
'THINK'
For many years this slogan appeared everywhere in IBM, until it became a cliché. Sometime around the beginning of the 1980s it dropped out of sight; which was doubly unfortunate, since that was precisely the time when it was needed most. Had IBM management really thought about the decisions they were taking they might not have taken them - and IBM might still be the supremely successful corporation it once was.
Indeed, the ultimate paradox is that it was not the changes in the external environment which finally undid IBM. As the last section of this book demonstrates, that theory, favoured by most of the IBM watchers, simply does not hold true. Instead, it is best seen as a tragedy, of classical form, for IBM itself constructed its own undoing. It engineered the changes in its environment, the PC and its dealers, which eventually destroyed it. If it had not intervened, some market changes might have taken place but they would not have had the force needed to destroy IBM's position. It, too, changed the whole basis of its management style from the previous idiosyncrasies (enshrined in its uniquely strong culture) to the convention prescribed by the top business schools. These actions, taken by choice, were what decided its fate - not anything forced upon it by outside events beyond its control.
As a management academic, I am embarrassed when management theory is found to be flawed. In the case of IBM it was found to be flawed in almost every case! The problem is that such generalised theory can never provide the answer to all the problems of all organisations - no matter how loudly supporters promote their wares. The most important advice I (and the earlier managements of IBM who thought of, and promoted, the slogan) can give is 'THINK', before you use such new ideas. Unthinking commitment to any ideology can be a form of corporate suicide.
'THINK' is, therefore, a slogan which should be on every managers desk - as it was, in happier times, in IBM.
These "lessons" or "philosophies" are expanded more fully in the last chapter each section. They are included, briefly, here to provide a perspective for the rest of the book, for at the end of the day the best solution to understanding these philosophies is a study of the original model, IBM; which is what the remainder of this book attempts to provide.
As suggested earlier, these management lessons should be almost as applicable within the great government bureaucracies. I always felt particularly at home when dealing, on behalf of IBM, with senior civil servants; precisely because their culture and that of IBM were so similar. Now, as a member of an academic institution which has taken collegiality to almost extreme lengths, I still feel at home with the lessons. The specific IBM philosophies, particularly those of "undermining management authority" and encouraging individualism, may be just as valuable in suggesting a solution to the apparently intractable problem of inflexibility within such bureaucratic organisations.
Overall one is still, to a certain extent, left with a fascinating enigma. At the start of the 1980s, IBM was arguably the most successful company in the world. It was the one stable point in the fastest developing, and most volatile, market; at the very heart of the "Information Revolution". Though its success was based on constant change (completely remodelling itself and its product line every five to seven years), it had consistently maintained the (product) leadership that Peter Drucker identified as essential to achieve economic results. It seemed, however, to have found the secret to defying Drucker's accompanying prediction that any such leadership was likely to be transitory and short-lived; and this was a secret that had evaded the Japanese corporations. For, although they appeared all conquering to their Western competitors, they were - even before the problems caused by the stagnation of their home markets in the early 1990s - rarely dominant for more than two decades. They were then replaced by newer and more dynamic Japanese corporations - often in new markets - when the original fell into liquidation. IBM was a company that then thought it had found the philosophers stone, it could turn almost anything into gold. Yet, as I reported in my first book, it was not clear, even to Armonk (as later developments demonstrated), just how it did this.
Probably IBM's success was, at least in part, a function of the synergy derived from bringing together 400.000 of the most capable people in the world (including 42,000 managers and 1,500 executives), within the most stimulating culture founded on the pursuit of excellence. The calibre, and sheer innovative bravery, of the earlier generations of Armonk management should not, however, be discounted by anyone. One thing was clear and that was that the workings of IBM at its peak success were very different to those conventionally employed in most Western companies, and very different too to those recommended by many management theorists; and as such must pose a major question of such theories. IBM's final failure, when it did finally fall into line with conventional management theory offers a damning indictment for those who would propose an uncritical application of such theories.
I hope that IBM's epitaph will at least include the statement that the lessons which it demonstrated, but which it ultimately failed to understand itself, helped other organisations through the difficult transition into the Third Millenium. Still with fond memories of what was, and sad for what might have been, I hope that IBM itself will successfully make that transition; but I am no longer as optimistic (and certainly not as confident) as I once was.
In any case, the IBM which dominated the business world at the end of the 1970s, as much in terms of its ethical values as in its performance, no longer exists. It, and its ideals, fell victim to more conventional ideas. To that extent, this book is an epitaph.
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