Watson [Sr.] borrowed a common recipe for stunning success: one part madness, one part luck, and one part hard work

Madness: during the Great Depression, Watson Sr. didn't fire one soul and he even hired 20% more employees from 1930 to 1934.^[1] In the meantime, he also increased his research spending, expanded factory capacity and continued building machines which he stored in warehouses, farm sheds, anywhere really, believing that better days would come.

He once said:

A man is known by the company he keeps; a company is known by the men it keeps

His optimism was so counter-intuitive that his board of director thought of firing him as the great depression was getting worse; fortunately they didn't act on it.

IBM edged toward insolvency. In 1932, IBM's stock price fell to 1921 levels and stayed there... The board of directors discussed ousting Watson, but put it off. As Drucker observed about Watson: "He didn't know how close he'd come to collapse"

Hard work: by 1935, IBM had a huge inventory and a complete workforce and its researchers were designing state of the art machines. It was the opposite for all of their competitors which eventually would have to rebuild their businesses from scratch and which wouldn't be able to rehire the best employees they had let go earlier because they now worked for IBM.

Luck: Roosevelt signed the social security act in 1935, which required that all companies record and process data that was then given to the U.S. government to use. This generated a never before seen information processing demand from both big corporations and the government itself.

Stunning success: 

Only one company could meet the demand: IBM. It had warehouses full of machines and parts and accessories, and it could immediately make more because its factories were running, fine tuned, and fully staffed. Moreover, IBM had been funding research and introducing new products, so it had better, faster, more reliable machines... This period of time became IBM's slingshot.

Luck - Something extraordinary happened in the summer of 1948, just a few months after the transistor was invented at Bell Labs, in Murray Hill, New Jersey.

That summer, Grant Gale, a physics professor at Grinnell College, read a newspaper article regarding the invention of the transistor and the fact that his childhood friend, John Bardeen was one of its inventors.

He asked him, and the president of Bells Labs who was also a Grinnell graduate (no kidding), for a sample, and a few months later,

...by the fall of 1948 Gale had obtained two of the first transistors ever made, and he presented the first academic instruction in solid-state electronics available anywhere in the world, for the benefit of the eighteen students majoring in physics at Grinnell College.

and, of course Bob Noyce, the mayor of Silicon Valley, the man that would eventually change the world forever, was one of his students.

In his physics class, Grant Gale

had begun talking about a device so unusual and potentially revolutionary that Gale's description of it "struck Noyce like an atom bomb."

It was his last year at Grinnell.

Gale's transistor class had lit a flame in Noyce's heart that would never go off. After graduating from Grinnell with a double major in Math and Physics, Noyce went to MIT hoping "to focus his studies on the movement of electrons through solids."^[2]

Noyce was a top student at MIT, where he showed "an intuitive sense about solid-state physics that impressed even his most well prepared MIT classmates."^[3] He received his PhD in 1953. For his first job, he turned down better paying offers from IBM and Bell Labs to join Philco a small company where he felt he could have the most impact.^[4]

William Shockley moved him to California in 1956, as the transistor expert part of his dream team, to start his Silicon development venture. Noyce would file for four patents during the one year he was there (two with Shockley).

In 1957, Noyce was the last one to join the group of eight that started Faichild Semiconductor. The other seven needed him because of his solid-state expertise,

they had seen ample evidence of his advanced understanding of semiconductor physics, which Moore describes as "an equivalent amount of knowledge as the rest of us combined"

Noyce would file his planar integrated circuit patent there in 1959, after jean Hoerni's planar transistor process patent. These two planar inventions made Silicon Valley. But Silicon Valley was no accident, and we can find its deepest root in a small provincial college in the middle of America.

Drive - In his autobiography, Tom Watson Jr. tells us that building the air defense system SAGE from 1952

...gave IBM the giant boost I was after... We made very little money on the project, in keeping with the policy against war profiteering laid down by Dad. But it enabled us to build highly automated factories ahead of anybody else, and to train thousands of new workers in electronics

And that wasn't all, IBM's first Moore School, stored-program computers, were the first produced in a factory, on a manufacturing line, not in a lab. Their customer needs had also been answered, since they were composed of fridge size sections, that could be lifted in an elevator, instead of the early UNIVACs that were the size of a small truck.

On top of that, Junior had inherited the marketing organization of his dad, the "greatest salesman in the world" and had used it judiciously.

Thanks to all of that, by 1962, IBM had a 70% market share of the computer industry. But now everybody was catching up and they were delivering, or about to deliver, systems that were about equal or even surpassed the quality of IBM's.

Tom Watson junior needed to made a move and he did, engaging into the most daring project ever attempted.

What set Watson apart as an innovative leader was nerve. In 1964, he bet the company on replacing all of IBM's existing computer lines with a radically different type of machine, the System/360. Previously, businesses needed different software programs for each computer model. But System/360 was a family of computers, and a program written for one would run on the others. Companies could buy a starter version and keep the same software when they traded up. The System/360 made IBM so successful that its rival became known as the Seven Dwarves.

To be continued...

Coming soon...