Ibm History - 1890-1938: The Early Years

1890-1938: The early years

IBM was incorporated in the state of New York on June 15, 1911 as the Computing-Tabulating-Recording Company. But its origins can be traced back to 1890, during the height of the Industrial Revolution, when the United States was experiencing waves of immigration. The U.S. Census Bureau knew its traditional methods of counting would not be adequate for measuring the population, so it sponsored a contest to find a more efficient means of tabulating census data.

The winner was Herman Hollerith, a German immigrant and Census Bureau statistician, whose Punch Card Tabulating Machine used an electric current to sense holes in punch cards and keep a running total of data. Capitalizing on his success, Hollerith formed the Tabulating Machine Co. in 1896.

In 1911, Charles R. Flint, a noted trust organizer, engineered the merger of Hollerith's company with two others, Computing Scale Co. of America and International Time Recording Co. The combined Computing-Tabulating-Recording Co., or C-T-R, manufactured and sold machinery ranging from commercial scales and industrial time recorders to meat and cheese slicers and, of course, tabulators and punch cards. Based in New York City, the company had 1,300 employees and offices and plants in Endicott and Binghamton, N.Y.; Dayton, Ohio; Detroit, Mich.; Washington, D.C., and Toronto, Canada.

When the diversified businesses of C-T-R proved difficult to manage, Flint turned for help to the former No. 2 executive at the National Cash Register Co., Thomas J. Watson. In 1914, Watson, age 40, joined the company as general manager.

The son of Scottish immigrants, Watson had been a top salesman at NCR, but left after clashing with its autocratic leader, John Henry Patterson. However, Watson did adopt some of Patterson's more effective business tactics: generous sales incentives, an insistence on well-groomed, dark-suited salesmen and an evangelical fervor for instilling company pride and loyalty in every worker. Watson boosted company spirit with employee sports teams, family outings and a company band. He preached a positive outlook, and his favorite slogan, "THINK," became a mantra for C-T-R's employees.

Watson also stressed the importance of the customer, a lasting IBM tenet. He understood that the success of the client translated into the success of his company, a belief that, years later, manifested itself in the popular adage, "Nobody was ever fired for buying from IBM."

Within 11 months of joining C-T-R, Watson became its president. The company focused on providing large-scale, custom-built tabulating solutions for businesses, leaving the market for small office products to others. During Watson's first four years, revenues doubled to $2 million. He also expanded the company's operations to Europe, South America, Asia and Australia. In 1924, to reflect C-T-R's growing worldwide presence, its name was changed to International Business Machines Corp., or IBM.

During the Great Depression of the 1930s, IBM managed to grow while the rest of the U.S. economy floundered. Watson took care of his employees. IBM was among the first corporations to provide group life insurance (1934), survivor benefits (1935) and paid vacations (1936). While most businesses had shut down, Watson kept his workers busy producing new machines even while demand was slack. Thanks to the resulting large inventory of equipment, IBM was ready when the Social Security Act of 1935 brought the company a landmark government contract to maintain employment records for 26 million people. It was called "the biggest accounting operation of all time," and it went so well that orders from other U.S. government departments quickly followed.

The Social Security deal was secured even while IBM was at odds with another branch of the federal government. The Justice Department filed an antitrust case against IBM and Remington-Rand in 1932, alleging that the two companies, which controlled virtually the entire market for punch card machines, were illegally requiring customers to buy their punch cards. The case went to the Supreme Court, which ruled in favor of the Justice Department in 1936.

In subsequent years, IBM's size and success would inspire numerous antitrust actions. A 1952 suit by the Justice Department, settled four years later, forced IBM to sell its tabulating machines -- at the time, IBM offered them only through leases -- in order to establish a competing, used-machine market. Another federal antitrust suit dragged on for thirteen years until the Justice Department concluded it was "without merit" and dropped it in 1982. IBM's competitors filed 20 antitrust actions during the 1970s. None succeeded.

1939-1963: Era of innovation

When World War II began, all IBM facilities were placed at the disposal of the U.S. government. IBM's product line expanded to include bombsights, rifles and engine parts -- in all, more than three dozen major ordnance items. Watson set a nominal one-percent profit on those products and used the money to establish a fund for widows and orphans of IBM war casualties.

The war years also marked IBM's first steps toward computing. The Automatic Sequence Controlled Calculator, also called the Mark I, was completed in 1944 after six years of development with Harvard University. It was the first machine that could execute long computations automatically. Over 50 feet long, 8 feet high, and weighing almost 5 tons, the Mark I took less than a second to solve an addition problem, but about six seconds for multiplication and twice as long for division -- far slower than any pocket calculator today.

In 1952, the company introduced the IBM 701, its first large computer based on the vacuum tube. The tubes were quicker, smaller, and more easily replaceable than the electromechanical switches in the Mark I. The 701 executed 17,000 instructions per second and was used primarily for government and research work. But vacuum tubes rapidly moved computers into business applications such as billing, payroll and inventory control.

By 1959, transistors were replacing vacuum tubes. The IBM 7090, one of the first fully transistorized mainframes, could perform 229,000 calculations per second. The Air Force used the 7090 to run its Ballistic Missile Early Warning System. In 1964, American Airlines' SABRE reservations system used two 7090 mainframes to link sales desks in 65 cities.

IBM led data processing in a new direction with the 1957 delivery of the IBM 305 Random Access Method of Accounting and Control (RAMAC), the first computer