The Wizard, King, and Hobbit of Business

Part 2: The Tortured Prince

The Princeton director of admissions flipped through a file on his desk, glowering at the pages. After a long pause, he looked across the desk at Thomas J. Watson Sr. and simply said, "Mr. Watson, I am looking at your son's record, and he is a predetermined failure." It was just one more early life setback described by Thomas J. Watson Jr. in his memoir, Father, Son & Company (Bantam, 1990), written with Peter Petre. He'd failed in high school--taking six years to graduate at the age of 19, with terrible grades. He'd failed to make the baseball team, the football team, or the hockey team. His one arena of success lay in rowing crew, setting the stage for a lifelong love of being on water. His father finally pulled strings to get young Tom into Brown, garnering a ringing endorsement from the officer of admissions: "He's not very good, but we'll take him."

Little wonder young Tom doubted he could fulfill his destiny to take over IBM. In reading his remarkably honest text, one gets the feeling that Watson Jr. would rather have spent his life flying airplanes and taking adventure trips on small boats than running IBM. He was like the prince of a nation who did not feel qualified to be king. (Imagine the Prince of Wales saying, "I'm sorry, Mom, but I just don't think I'm up to being king of England. How about I go climb the Himalayas, and we hire a professional manager instead?")

The turning point came in World War II, when Watson Jr. worked for Air Corps Major General Follett Bradley. Like thousands of young soldiers, he gained confidence from the responsibility placed on his shoulders ("If I blow it here, the plane will crash, and I'll kill all my comrades. . . ."). After the war, Watson Jr. planned to become an airline pilot; he'd simply never believed he had what it took to take over IBM from his legendary father. "Really?" asked a surprised Bradley as they drove to a meeting in the spring of 1945. "I always thought you'd go back and run the IBM company."

Stunned, Watson Jr. stared out the car window and finally summoned the courage to ask the one question he'd never dared: "General Bradley, do you think I could run IBM?" Bradley uttered two words that would change the course of Tom's life and the trajectory of industrial history: "Of course."

Watson Jr. lived in terror of letting his father down. After his father's death in 1956, Watson Jr. spent the next 14 years of his life proving--to himself, to the world, and to his dead father--that he was up to the task. He drove himself and IBM, never allowing rest. He turned IBM to computers. He bet the company on the IBM 360--the largest privately financed commercial project undertaken to that point in history, requiring more resources than the Manhattan Project to develop the atomic bomb in World War II. Under Watson Jr., IBM grew more than tenfold, while profits multiplied 18 times. Carrying the burden of responsibility for his father's company, Watson Jr. turned himself from a predetermined failure into the chief architect of IBM's greatest days.

Unfortunately, Watson Jr. was just like his father in making the company too dependent on his own leadership genius. After Watson Jr., IBM began to lose momentum. At first, the slide was imperceptible, but gradually IBM's position and profit margins began to erode, then fall off dramatically. By 1992, IBM was losing nearly $100 million per week.

Part 3: Enter the Stranger

In early 1993, I stood in front of a group of skeptical Silicon Valley executives, sharing the results of our Stanford research into enduring great companies. "How can we possibly take your research seriously with IBM in the study set?" scoffed one participant. "They're going the way of the dinosaurs."

I fumbled and struggled, trying to explain that the essence of a great company lies not in the absence of difficulty but in its ability to bounce back from difficulty and come back even stronger than before. I argued that great companies--like great nations--have a way of fighting their way out of calamity, rising to their best when their backs are most to the wall.

It's a good thing that I didn't know what Lou Gerstner was thinking at that same time 3,000 miles away in New York. "I was convinced that . . . the odds were no better than one in five that IBM could be saved and that I should never take the position," he wrote in his memoir, Who Says Elephants Can't Dance? (HarperBusiness, 2002). And even if the company could be saved, Gerstner continued, he wasn't qualified for the job. After all, he'd been selling cookies and credit cards, not computers.

It was Jim Burke, former CEO of Johnson & Johnson, who made the clinching argument: IBM is not just a company; it's a national treasure. Saving IBM wasn't just about business, economics, or profits and losses--it was about saving an institution of vital importance to America and the world.