IBM: Lessons from the Great Depression
Kevin Maney
About this author:
IBM has a habit of being a beacon during economic calamity. Of course, its earnings yesterday helped everyone feel for at least a moment that the world wasn't coming to an end. But that pales in comparison to IBM's feat during the Great Depression. Hopefully, we'll see more of the same from the company.
I know about this because I wrote a book about the guy who built IBM, Thomas Watson Sr., titled The Maverick and His Machine. (Earlier this week, blogger Ed Cone picked up on the connection between IBM then and now.)
IBM may seem pretty staid today, but Watson was actually quite the gambler. As the Depression killed off IBM customers and forced others to cut back on orders, Watson pledged that he would not shut a single factory or lay off a single worker. In fact, he recognized that while his competitors were down, he could make investments that would better position IBM when the economy turned around.
In 1932, he announced that IBM would spend $1 million -- an enormous sum for the company then -- to build a stand-alone R&D lab in Endicott, N.Y. Every competitor at the time was slicing R&D. Watson added employees and expanded factory capacity. If no one was ordering IBM punch-card machines, Watson told the factories to keep making machines and spare parts and store them in warehouses.
As sales stalled, this put enormous financial pressure on IBM. Investors started pitching a fit. In 1932, IBM shares fell to 1921 levels. The board of directors started discussing firing Watson, but he held them off. As the late, great Peter Drucker told me about Watson, "He didn't know how close he'd come to collapse."
In 1935, Watson's stubbornness paid off. That year, FDR signed the Social Security Act, instantly creating enormous demand for data processing machines. The government needed them to process claims and companies needed them to gather and send information to the government. IBM had been stockpiling machines and investing in new technologies, while competitors had shut factories and stopped R&D. IBM cleaned up -- and in fact that moment was the slingshot that allowed IBM to utterly dominate the IT industry for the next 50 years.
In the process, Watson got rich during the worst economic despair in U.S. history. In the late-1930s, he was one of the highest-paid Americans, making more than $350,000 a year -- more than $5.2 million in today's dollars.
If today's executives remember that lesson, we'll get out of this economic jam a whole lot sooner.
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This article has 20 comments:
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H.J. Huneycutt
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122 Comments
Oct 10 05:21 PMI'm actually amazed I've never heard anyone talk about that before.
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User 277051
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1 Comment
Oct 10 05:42 PM-
User 277059
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1 Comment
Oct 10 06:05 PM-
Mr. Math
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30 Comments
Oct 10 06:35 PMI'm sure it's just a coincidence the president at the time was the former governor of New York.
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oldumbguy
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7 Comments
Oct 10 07:25 PM-
Rabbito
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46 Comments
My Website
Oct 10 07:57 PM-
Zooey
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786 Comments
Oct 10 08:24 PM-
a believer
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51 Comments
Oct 10 10:01 PMIn our local paper, the October 10 front page news, ‘Nothing stops stock plunge,’ about the 679 point plunge in the stock market on Oct. 9, was accompanied by ‘They all filled up for $20, and now they’re all wanted,’ and article about ‘possibly hundreds’ of criminals stealing from a local company by participating in a gas card scheme.
Both articles are actually about the same thing: how far we have fallen, and how much farther down we have to go.
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investor88
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755 Comments
Oct 10 10:03 PM-
RETIRED IBMER
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1 Comment
Oct 11 01:04 AM-
IP Daily
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18 Comments
Oct 11 08:17 AMAnd, that if we continue to depend on the government to handle this situation, we won't get a thing accomplished.
Bite the bullet. Take a hard look. And stop voting these virtual dumbasses into office. All of them. Get rid of them. Get involved.
Quit allowing these a$$holes to distort and dash our hopes and dreams.
A person without hopes or dreams is dead.
Take back what IS our birth right.
Just Do It !
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winindthedust
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36 Comments
My Website
Oct 11 10:08 AMSteve Jobs declared, that he would invest and spend on R & D if the economy became recessionary. He has made good on his promise. New acquisitions, new factories, new technologies, recruiting and hiring the smartest people.
What is different, however, that their product line has been immune to this recession; their products continue to inspire record sales.
An economic downturn is one of the best opportunities for companies, small and large, to invest in expansion. Costs are low, competitors are pulling back. Once the economy comes back around, the one that ignored the "news" and fear, and kept moving forward always ends up way in the lead.
WE are the economy, not the stock market; invest in ourselves, our families, and our own businesses, that's something we all have control over.
Apple is the new IBM & the new Sony all rolled into one.
Long IBM & Apple is a very smart move; adding to your position at these sale prices is even smarter. This is a chance of a lifetime that does not often come around.
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famos
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35 Comments
Oct 11 11:58 AMWhat I like: I like your story/information and your attitude.
What I don't like: Doomsday advocates, Monday Morning Quarterbacks, smart ass's that never have a good thing to say or a good idea.
Famos
P.S. I'm putting your book,"The Maverick and His Machine"
on my "to read" list. Thank you.
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4Annie
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11 Comments
Oct 11 01:07 PM-
dbbennett
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5 Comments
Oct 11 02:31 PMNow that the firm is more of a professional services organization than a manufacturer the situation is different. Guess we shall see how it turns out.
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jegan ;-)
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773 Comments
Oct 11 04:29 PMContrast those people with the 'I got mine' attitude of the Carly Fiorinas and Larry Kudlows of this world. Boy things have changed. In fact, look what we have as a CEO of our country. George Bush. Then there's his posse, Paulson, Bernanke, Rove, et al... It's amazing we even have an economy.
John 'who stole my half full glass of water' Egan.... ;-)
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Peter J S
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1 Comment
Oct 11 08:39 PM-
famos
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35 Comments
Oct 15 01:44 PMSome one has given Saddam Hussein credit. Following except from a letter that I wrote to a friend of mine:
"And you're right about Obama, "he sure does outtalk and outthink McCain!" I sure wish the Republican's were running a more politically correct and forceful candidate. Might be because he had the hell beat out of him in that Vietnam prison camp. Sort of scary and concerning. No telling what he might do.
And, I sure hope I'm wrong about Obama. I'd hate to make a mistake like I made about the Iraq war, i.e. I didn't think we'd find a weapon of mass destruction - some say we did? I believe they called it a "Suddam Hussein." However, at the time, we Americans didn't have a thing to worry about because this weapon was only being used on it's own people, which brings up the question: How could Saddam Hussein be called a weapon of mass destruction?
Answer: Because of the death toll."
Well Peter JS, I think we're very much on the same page. I liked and agreed with Kevin's article and your comments. Thank you.
Sincerely,
Famos
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Skjellifetti
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62 Comments
Oct 17 12:56 PMwww.seacatchrestaurant...
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IBMer
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1 Comment
Nov 10 03:08 PM