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What Strategy Looks Like

By Stuart Crainer and Des Dearlove

Strategy is a little like art.  People tend to recognize great strategy when they see it.  This is usually in the neatness of retrospect.

Take the case of Thomas Watson Jr deciding to commit IBM to the development of a new line of computers in 1962.  He bet the company on the future: a big company and, as it turned out, a big future.  The S/360s revolutionized the industry.

Over recent years the reign of Thomas Watson Jr. (1914-93) at IBM has had a bad press.  To some he is the son who inherited control of a corporate juggernaut and did little to put his own stamp on its destination.  To others he is the man who brought IBM into the technological era and who mapped out how values and culture could shape an entire organization.  In 1987 Watson was hailed by Fortune as “the most successful capitalist in history”.

Whichever interpretation is correct, Watson had a significant role in the shaping of the modern IBM — a company whose trials and tribulations continue to fill the media.  Watson Junior became chief executive in 1956 and retired in 1970.  He was then US ambassador in Moscow until 1980.

Watson propelled IBM to the forefront of the technological and corporate revolution of the sixties and seventies.  Most notably, Watson invested heavily in the development of System/360 which formed the basis of the company’s success in the 1970s and 1980s.  More money — $5 billion — was spent on developing the 360 than on the development of the nuclear bomb.

While the decision to go ahead with the 360 was brave and significant, Watson can also lay claim to another important decisions: his decision to codify the IBM culture.  Under Watson, the corporate culture and the company’s values became all-important.  They were the glue that kept a sprawling international operation under control.  Watson created a blueprint for the modern corporation circa 1960.

The three basic beliefs on which IBM was built were: give full consideration to the individual employee; spend a lot of time making customers happy; and go the last mile to do things right.  These had been established under Watson Sr., a man who knew all about customer service long before it was taken up by the gurus.  But, while Watson Sr. was content to drum the message home, his son took it a step further.

Watson Jr. codified and clarified what IBM stood for – most notably in his book, A Business and Its Beliefs (1963).  Central to this were the company’s central beliefs (or what would now be called core values).

Whether IBM hit trouble because it failed to change or adapt its beliefs to new times is difficult to determine.  Watson saw it coming.  “I’m worried that IBM could become a big, inflexible organization which won’t be able to change when they computer business goes through its next shift,” Watson told Chris Argyris of Harvard in the 1950s when Argyris did some work for the company.  Watson saw the future but couldn’t mobilize the corporate culture he did so much to clarify in structures or practices which enabled IBM to pick up the baton.

So, what does the IBM story tell us about strategy?

First, it is open to interpretation.  No strategy is neat and tidy in planning and execution.  Strategy is a messy business.

Second, greatness often equates with boldness.  Even giants need to bet the company sometimes.  The bets just get bigger.

Third, it is often easier to execute strategy efficiently when you have solid foundations.  IBM had just that in its culture and values. Culture is – or can be — a source of competitive advantage.  Watson said that a culture could only be sustained by “a sound set of beliefs, on which it premises all its policies and actions.  Next, I believe that the most important single factor in corporate success is faithful adherence to those beliefs…beliefs must always come before policies, practices, and goals.  The latter must always be altered if they are seen to violate fundamental beliefs.”

Beliefs never change.  Change everything else, but never the basic truths on which the company is based – “If an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except beliefs as it moves through corporate life…The only sacred cow in an organization should be its basic philosophy of doing business.” In a world dominated by pursuit of cash cows, this particular bovine truism is often forgotten.

Resources
Thomas Watson, A Business and Its Beliefs, McGraw Hill, 2003.

This was originally published in What we mean when we talk about strategy by Stuart Crainer and Des Dearlove (Infinite Ideas, 2016).

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