When Watson Jr. took on the top position at his father’s company, he did so at a time when it was devoted to electromechanical punch card systems. Watson Sr. had always rejected electronic computers believing they were expensive and unreliable. Watson Jr. wanted to change all of that.
In his first move as President of IBM, Watson Jr. decided to take what Fortune Magazine would later call the company’s “$5 Billion Gamble”. He hired a team of electrical engineers and set them to work designing mainframe computers. Since they would be incompatible with all of IBM’s previous products, the risk was obvious. The launch of the first line of the System/360 project in 1964 was delayed but in the end well received. Watson Jr.’s first gamble had paid off.
Watson Jr. had not only given the company a new direction, he had positioned it for long-term success and in the process, had tripled its revenues. Between 1950 and 1956, IBM’s revenues grew from $214.9 million to $734.3 million. He had silenced both his critics and everyone within the company who had opposed his decision to invest in computers – which was almost everyone.
Despite his son’s initial success, Watson Sr. was reluctant to completely abandon the company he had worked so hard to establish. “He wanted to make me head of IBM, but he didn’t like sharing the limelight,” wrote Watson Jr. in his autobiography. He had to consistently struggle to have his decisions listened to.
Another such disputed decision was Watson Jr.’s inclination towards Research and Development. When he became president, IBM was spending just 3% on R&D, compared to its competitors who were all spending between 6% and 9%. Watson Jr. decided to boost IBM’s R&D spending to 9% in order to keep its competitive edge. He recognized that in the modern high technology industry, nothing was more essential to a company’s success than investing in the future. By the 1980s, IBM was perhaps almost a decade ahead of most of its competitors.
Watson Jr. also spent much time focusing on the organizational structure of the company. “We had a superb sales organization but lacked expert management organization in almost everything else,” he said. Thus, Watson Jr. created five major divisions – Field Engineering, Federal Systems, Systems Manufacturing, Components Manufacturing and Research – in an attempt to decentralize the company. By the end of Watson Jr.’s reign, IBM had become a properly organized entity, more equipped to meet the changing nature of the industry.
In 1986, Fortune Magazine called Watson Jr. the most successful capitalist in history. He was awarded the Presidential Medal of Freedom by President Johnson and appointed as Ambassador to the Soviet Union by President Carter. In the meantime, Watson Jr. continued to pilot and sail, exploring almost the entire Pacific by boat and becoming the first private citizen in 1986 to be allowed by Soviet Premier Mikhail Gorbachev to fly all throughout the Soviet Union.
In 1971, Watson Jr. left IBM after suffering a heart attack. He passed away on New Year’s Eve 1993, leaving behind a legacy that would not only rival his father’s but most other entrepreneurs since.
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