Computing Tabulating Recording Corporation - Organizational Change and Strategies

Organizational Change and Strategies

CTR was a company with three separate elements. Computing Scale was always a problem; and the largest element of this (Dayton Scale) was eventually sold off in 1933, to Hobart Manufacturing. Time Recording was then still the main revenue earner, and was used by Watson as a vehicle for diversification, though none of these was great success.

The piece of the action that most interested Watson, perhaps because it was closest to his NCR experience, was the tabulating business and this was where he directed much of his attention; and by the early 1930s this had indeed become the largest piece of CTR.

Returning to the 1920s, though, while still under Fairchild's domination Watson went for a significant degree of growth. This saw revenue grow from $4.2 million in 1914, when he took over, to the peak of $16 million in 1920. The price of this, however, was a precarious cash position and when in 1921 sales fell to $10.6 million he faced a cash-flow crisis. Once again CTR was to be funded, and indeed rescued, by Guaranty Trust. Watson was forced to cut costs across the board, including reducing R & D and laying off some employees. He never again allowed his cash position to fall so low. He subsequently maintained a policy of low dividends, high revenues and careful cost controls. He adopted very conservative accounting principles.

Hollerith, beginning with the 1890 census, had rented his machines so that his company could provide the maintenance necessary to assure reliable operation. Watson recognized other benefits and in particular took on board the idea that renting equipment was inherently more stabilizing, since the income continued when equipment orders would otherwise have dried up. Less obviously, it forced sales personnel, aware that they might lose the rental, to maintain regular contact with customers, thus ensuring — even as early as the 1930s — that customer relationships were well-managed. This approach became central to IBM's activities.

Thereafter, Watson deliberately lagged on the introduction of new products (but not on research). Even after competitors launched he still waited until the market was ripe for large scale development. But Watson also recognized the importance of sound R&D, appointing, in 1922, James W. Bryce to manage this (moving him from its Time Recording Division, which he had joined in 1915); however, Watson continued to be personally involved R&D, not least through his insistence on rigorous standards.

In 1917, the CTR entered the Canadian market under the name of International Business Machines Co., Limited.

Fairchild died in 1924 and, at the age of 50, Watson at long last came out of the shadows to create the company in his own image; and, for the next quarter of a century until he was 75, he led it to greatness. Almost the first move he made was to rename it International Business Machines, IBM. This was a name he had already given in 1917 to the Canadian subsidiary (and later to CTR's South American operations). It was prophetic because at that time CTR was only barely international, and was just on the fringes of 'business machines' — a concept that did not emerge fully until the 1960s.

He also celebrated his new status with the first Quarter Century Club. Even though CTR had only been going for 13 years, he based qualification on the earlier constituent companies. Personnel management was clearly to be the core of the business.