The Maverick And His Machine

4 minute read

Lessons learned

Overall, great book to read! Covers traditional 1900’s business and how it’s changed over the course of the next 50 years.

Things I learned:

  • The importance of discovering, attaining, and then maintaining a monopoly. IBM did this exceptionally well.
  • Once a monopoly is attained, keep an eye peeled for potential future disruptors.
  • The importance of having a carefully designed company culture from day one.

Notable Notes

Attributes:

  • Avid networker

Watson had a system: a friendship apparatus run by his five secretaries. They kept files on every acquaintance, each file jammed with every letter and telegram exchanged.

One key to the system was action; nothing could languish

  • Family

According to Tom Jr., a major source of anguish was his sense that the awesome weight of this father was constantly bearing down on him.

Worse, his father’s telegram seemed to mock him. His father had so little confidence in Tom that he rigged the system to Tom’s advantage.

Away from the influence of his father, Tom discovered who he was.

Competition

Creating a monopoly

In the late 1980s, Patterson realized that NCR was creating its own competition problem. NCR was so good at making cash registers that the machines tended to last for years. Independent dealers started buying used cash registers from establishments that either went out of busniess or bought newer models. the dealers buffed them up and sold them, more often than not to someone who otherwise would have bought a new NCR machine.

So what did they do? Watson went ahead and setup stores next to the existing used-register sellers, disguised as just another competitor. However,

because Watson was backed by NCR and had no need to make a profit, he could pay more to get used cash registers and then sell them for less, both starving and undercutting all the competing stores.

He wasn’t done there…

When the competing businesses started to crumble because of Watson’s pricing, Watson’s company, as a friendly gestuer, would offer a deal. He’d buy the business out, usually for more than was necessary, to prevent the owners from feeling railroaded.

Monopoly breeds resistance to change

IBM, though, had a huge legacy business to protect. In 1953, IBM brought in $497 million in revenue, and only $14 million of it came from electronic machines, mainly the 604 electronic calculator. The rest of the revenue came from punch card systems…

Oh, the S-curve woes

Invest in R&D

Somehow, [in the midst of the depression] Watson had to stimulate demand. He had to come up with products that companies couldn’t resist, whatever the economic conditions. Again, thanks to Charles Kettering’s influence, Watson believed that R&D would drive sales. So Watson decided to build a lab, pull engineers together, and get them charged up to push the technology forward.

Patents

The formula began with patents. Watson had learned the value of patents while at NCR and from Kettering.

Controlling the key patents on tabulating systems helped make life difficult for the competition because competitors would have to invent entirely new technology or licence IBM’s patents, which IBM could refuse to do.

Culture

What Watson’s IBM did better than any company in the world was to create and manage a strong, choesive — and successful — corporate culture. In turn, that culture wove together the pieces of the business and drove employees forward in ways that competitors couldn’t beat.

Internal competition

Watson created rivalries among the internal groups at IBM, by assigning the work to multiple groups at a time.

The groups competed ferociously, creating a sense of urgency even when the company controlled the market and had virtually no outside competitors.

This is very reminiscent of Bezos’s approach to teams at Amazon. However, it’s crucial to reward not just the winners but also the losers (which Watson did). Employees would write to him:

I know you have not looked upon my defects as evidence of incompetence, I shall strive harder to justify your good opinion.

Business savvy

Watson turned to Bryce, and ordered him to assign his best engineer to figure out how to “gear down” the machines that the government and miliray would return after the war. The high-speed, top-of-the-line model were to go back out to customers operating at one-half or even one-tenth of their original speed. … IBM was going to market the old machines to smaller businesses that had never before been able to afford an IBM installation.

Alas, however, later in life he became resistant to change:

Watson had no reason to think customers would want to process data thousands of times faster. Customers seemed satisfied with the pace of IBM’s electromechanical machines.

Alas, it sorta worked out in the end:

Watson met with Jim Bryce and Clair Lake, and ordered them to build a computer that would make Aiken’s current and future machines look like child’s toys. IBM got into electronics as an act of vengeance.

Evolution after Watson Sr.

New ideas — Tom Jr’s ideas — percolated through IBM. Watsom had ong valued loyalty, devotion, and conformity. Tom Jr. valued imagination, professionalism, and individualism. Tom Jr. wanted more “wild ducks” as he called them — people who broke formation and took chances. The new ideas appealed to a high-flying postwar generation of workers who balked at blindly following orders and dressing alike.

After a series of bad executive hires:

Opel and Akers simply did not have Watson coarsing through their veins. They both were supersmart, charming, clever executives but they had too little of Watson’s devotion to customers, his competitive hunger, and his willingness to bet big.

All too common in next-gen businesses (businesses that the original founder no longer runs).

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