Page 134 - Accelerating out of the Great Recession

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of IBM, believed that the increasing complexity of business
functions would eventually make the business machine indis-
pensable. He also recognized that Depression-hit companies
seeking to realize cost savings would turn to automation.
So, as demand began to fall in late 1929 and competitors cut
back, IBM decided to accelerate the development of a state-of-
the-art alphabetical accounting machine so that it could be ready
for launch in early 1930. When the product hit the market,
interest was strong—but sales were limited by the machine’s
high price point. IBM adjusted quickly by introducing a smaller,
less expensive model in 1931. The new model appealed to exist-
ing customers (who had become very cost-conscious) and
enabled IBM to attract new customers—particularly companies
that had been unable to afford the company’s larger machines.
IBM also leveraged its product-leasing program to attract cost-
conscious customers. By leasing its accounting machines instead
of just selling them, IBM attracted companies that did not have
sufficient capital to purchase its machines outright.
Starting in 1932, IBM committed 6 percent of its revenue to
R&D. In order to make its investment as effective as possible,
IBM created a corporate research laboratory—the first of its
kind—that became a model for other firms to follow. It built
the new laboratory next to its main manufacturing center in
Endicott, New York. All its engineers were located there, under
one roof, to facilitate the exchange of ideas within the R&D
team and between the R&D and manufacturing teams. The
mandate given to the research and engineering team was to
focus on practical product needs rather than on pure research.
The investment and the process paid off—during the 1930s,
IBM launched three times as many products as it had in the
previous decade.

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