By Bob Evans,  InformationWeek
Feb. 11, 2011
URL: http://www.informationweek.com/story/showArticle.jhtml?articleID=229216829

We all know IBM used to make PCs--but did you know they also used to make clocks?

And cheese slicers?

Yes, IBM—currently the largest private-sector employer of mathematicians in the world—used to make cheese slicers. Sam Palmisano said so himself.

In the first of what will become a global lecture series that's part of the IBM Centennial, Palmisano used the cheese-grater anecdote to underscore the core values and principles that have not only enabled the company to survive for a century, but also to enter its second hundred years more financially sound and better able to continue innovating than at any time in its storied history.

Speaking to students at his alma mater, Johns Hopkins University, Palmisano spoke broadly about the sometimes-painful efforts IBM has had to undertake over its lifetime to adapt to profound shifts in not just technology but also demographics, global dynamics, societal expectations, and the obligations that must be embraced by a company with 400,000 employees in 170 countries.

Whether you admire or dislike IBM, and whether you think it's more or less innovative than it used to be, Palmisano's reflections on the company's remarkable experiences over that century, as well as his more-personal observations on his own leadership of IBM for almost all of the past decade, offer some marvelous insights into how today's organizations can exploit rather than fear the sweeping changes impacting our lives.

So about those cheese slicers: in sharing that anecdote, Palmisano revealed the simple but profound secret behind IBM's success:

"People who are familiar with our history are often struck not merely by our longevity, but with the fact that we have continually changed," Palmisano said.

"We started off making clocks, scales and cheese slicers, in addition to the punched-card tabulator. After that, it's a blur: typewriters, vacuum tube calculators, magnetic tape, the first disk drive, the memory chip, FORTRAN, fractals, ATMs, mainframes, mini-computers, personal computers, supercomputers, services, software, analytics. Also, we've gone from operating in one country to more than 170. In some respects we're only now becoming a truly global enterprise."

The deeper secret—and one that each of us should scrutinize rigorously within our own organizations—was revealed in Palmisano's explanation for why IBM didn't expand from its cheese-slicer roots into specialty maker of kitchen gadgets:

"It is a constant reminder never to define ourselves by the things we make, no matter how successful they are today."

That's a marvelous thought: simple to grasp, and apparently obvious. But those "obvious" things are often not obvious at all until someone else brings them to light. For each of us, in our own organizations: can we say, with clear consciences, that we never "define ourselves by the things we make, no matter how successful they are today"?

That comment from Palmisano takes on even more significance when juxtaposed against the comments of a former IBM CEO, Thomas Watson, Jr., who was quoted by Palmisano as having said this 50 years ago: "I firmly believe that any organization, in order to survive and achieve success, must have 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. And finally, I believe that if an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except those beliefs as it moves through corporate life."

And then Palmisano added his own perspective on that comment from the man whose father founded IBM:

"Let me repeat that last line: 'be prepared to change everything about itself except those beliefs.'

"Tom Watson was not talking here about ethical precepts. For him, a company's beliefs were about its identity—what makes it distinct—what shapes its decisions and behaviors. If you could codify and sustain that core, it would ensure that the company remained unique and differentiated, decade after decade."

And then Palmisano spoke of the power of relentless, customer-centric innovation:

"In IBM's case, the need for continual forward movement is part of our business model. IBM's value proposition is to create and provide innovative solutions to our clients—solutions they can't get from anyone else. And because the frontier of what is truly innovative keeps moving, that compels us not to sit still. It is a constant reminder never to define ourselves by the things we make, no matter how successful they are today."

At the top of this column, I noted that IBM used to make PCs. Indeed, while IBM was in that business for only 20 years, its PCs forged unprecedented levels of connections with individuals, as Palmisano noted: "It was by any measure the most recognizable brand for us—and arguably the only brand that touched individuals: tens of millions of people. For all these reasons, the idea that we would divest the PC business was, for many—pardon the pun—unthinkable."

Yet that's exactly what IBM did because it foresaw the looming commoditization of the PC business and resolved across the company to put those core, long-term beliefs and culture spoken about by Watson 50 years ago ahead of the short-term "unthinkable" consequences.

Here's Palmisano's rationale for that momentous decision: "We are innovators. In 1981 the PC was an innovation. Twenty years later it had lost much of its differentiation. It was time to move on—to the future.

"Of course, every great company holds unique beliefs. But translating those beliefs into action: that is what separates the company from all others, and that is what keeps those beliefs alive. And that translation happens not in the realm of strategies or process—but of culture.

"In this light, IBM's history can be seen as a century-long journey to create—and continually recreate—a culture.

"Indeed, this was arguably Thomas Watson Sr.'s most enduring contribution to the world: the notion that an organization can—and must—undertake the intentional creation of a culture based on its beliefs or values."

In closing, three final quick thoughts:

1) "Of the top 25 industrial corporations in the United States in 1900, only two remained on that list by 1961—one of those because it had absorbed six others from the original list. Two companies had disappeared, and the remaining 15 had slipped far behind."

2) "Of the top 25 companies on the Fortune 500 at the time of Watson’s lecture [1962], only four remained in 2010."

3) I urge you to read Palmisano's entire speech—you can find it here.