IBM's Watson Offers Personal View of the Company's Recent Difficulties

Michael W. Miller, Staff Reporter
The Wall Street Journal

December 21, 1992

"They hired my father to make a go of this company in 1914, the year I was born," says Thomas J. Watson Jr. "To some degree I've been a part of IBM ever since. When you see something you love have great difficulties, you are very sad about it."

Mr. Watson took over his father's medium-sized company in 1956 and built it into a modern business legend. Today, nearly 19 years after his retirement, he is still revered as a living icon at International Business Machines Corp., where his name adorns walls around the world. And while he has no seat on IBM's board and an insignificant holding in its stock, to some insiders he still has powerful symbolic influence over his beloved company, as it veers into its greatest crisis ever.

For years Mr. Watson has kept largely silent about IBM's decline. But last week, as IBM predicted its first layoffs in half a century and its stock plunged to an 11-year low, Mr. Watson returned a reporter's phone call and spoke for 45 minutes about IBM's travails; where it went wrong, and the uncertain future of its embattled chairman, John F. Akers.

"I have a lot of admiration for Johnny Akers -- I think he's done his very best," Mr. Watson says, speaking from his Greenwich, Conn., home as he prepared for a ski vacation in Vail, Colo. "I have every confidence they'll prevail. But meanwhile it's a pretty hard pot of porridge to digest for an old-timer."

One longtime IBM executive and Watson intimate said recently that Mr. Watson's support has been crucial to the besieged Mr. Akers's job security. "It's a vote that still counts a lot," this executive declared. Mr. Watson says he doesn't think his opinion counts for that much. Asked whether he does indeed support Mr. Akers, he says carefully: "The people who are important to John Akers are his board of directors and his employees. If they support him all will be well. If they don't, we'll have to watch for what happens."

Mr. Watson today leads a life of daredevil leisure, piloting his Kingair 200 plane and sailing his 75-foot sloop around the world. But he still drops by his office at IBM's Armonk, N.Y., headquarters every few days, sometimes driving in on his BMW motorcycle. He takes care of correspondence; chats with salesmen; and occasionally has lunch with senior executives. He said he was briefed about IBM's extraordinary move to bring back two retired vice chairmen to help Mr. Akers run the company -- but only after the decision was made.

Mr. Watson is a genial, plain-speaking man with a rare gift for confronting the painful errors of the past. In his 1990 memoirs "Father, Son & Co.," he writes candidly about IBM's and his own "primitive instinct" toward monopolistic behavior and acknowledges the U.S. government had some merit in its landmark antitrust case against IBM. He also offers wrenching memories of volcanic fights over IBM with his father, and the toll his career took on his marriage, which briefly ruptured until psychotherapy helped Mr. Watson repair it.

Speaking about IBM's recent tailspin, Mr. Watson is equally blunt. "I suspect all American companies -- computers, autos -- are going to have to learn to make much more rapid decisions, and to commercialize those decisions into products very much more rapidly," he says.

With a note of envy in his voice, he says he read with interest a Wall Street Journal story this month about how another sprawling high-tech giant, Motorola Corp., keeps its edge by inculcating a culture of dissent -- even screaming arguments -- and rapid-fire action.

"I thought, `Boy, they've learned the secret of rapid decision-making,'" he says. Adding: "It remains to be seen whether you can do that with a $70 billion company." (Motorola has revenue of about $11 billion; IBM's will be about $65 billion this year.)

Mr. Watson gently suggests that in the age of PCs, IBM clung too long to the core business he and his father built -- big, centralized mainframe computers. "Didn't I read an article that John felt we had hung on too long to the mainframe philosophy because of the high profits we were making there?" he says. He adds: "It's pretty hard to forecast that something making a lot of money is going to become a sour apple."

The computer industry was much simpler when Mr. Watson ran IBM. "In my day, we really had a great ability to move because we were almost the only company in it," he says. Today, IBM is besieged by hundreds of rivals around the world, who have turned its computers into look-alike commodities. The juiciest profits are no longer in computer hardware, but in markets where IBM has been slow to pounce: software, services, microprocessors and other intellectual-property businesses.

Mr. Watson sounds frustrated when he speaks about IBM's predicament today. "Unless you can get something that is very unique -- and it's hard to do in electronics any more -- you have to keep cutting your prices, or you have to decide to lose market share." His voice trails off and he says, "I don't think I should talk any more about it."

While he says he doesn't want to criticize the chairmen who succeeded him, he does have one rebuke about the dismantling of a key Watson-era strategy at IBM. In his day, companies rented mainframes from IBM, giving him a dependable cushion of cash year after year -- "my golden goose," Mr. Watson called it.

Mr. Watson's successors Frank Cary and John Opel phased out rentals and started selling mainframes outright. In hindsight, Mr. Watson worries the shift went too fast and left Mr. Akers with a newly volatile business just as the industry began souring.

"It would have been nice if they'd been able to stretch that longer, so that John would have had a chance to get his feet under him before the full pressure of the new environment without any rentals came under his head," he says.

Last week Mr. Akers dismantled another cherished IBM tradition, dating back to Mr. Watson's father: a promise never to lay off IBM employees for economic reasons. But Mr. Watson isn't sentimental about that landmark change at IBM.

"My father did everything he possibly could for the employees," he says. "But he was above all a businessman, and he would certainly not be one to keep extra people on the payroll when they weren't needed."

Mr. Watson hasn't disappeared from the public eye since he left IBM. He served a brief stint as Jimmy Carter's ambassador to the Soviet Union and this year publicly supported Bill Clinton's candidacy. But, at the end of last week's interview, he says, "I've said more about IBM today than I've said in the last 30 years."

Is this sage boardroom veteran and diplomat sending a signal by breaking his silence? He insists not. "I think it's improper for me to speak about IBM," he says. "You got me in kind of a weak mood this morning."

He says he wants to be supportive of IBM's current management team. "I like John Akers, but one is never very close to heads of enterprises, and if you're the head of an enterprise, you're not very close to anyone else," he says.

"I never had any really close friends when I worked at the top of IBM," he recalls. "I just don't think a CEO can have any close friends."

Copyright Dow Jones & Company Inc