Page 135 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

It was, however, in the second half of the decade that
Watson’s business acumen and insight into the potential of
business machines proved to be unusually prescient and IBM’s
revenue growth really took off. As part of the New Deal,
announced in 1933, many large-scale government projects
started up. These projects created demand for sophisticated
business machines that could keep track of the spending of sig-
nificant amounts of public funds. IBM’s innovative products
were ready at the right moment and enabled the company to
win many lucrative government contracts.
Throughout the decade, as demand and revenue increased,
Watson kept IBM’s factories open and humming and the work-
force intact. He ordered the stockpiling of inventories when
demand fell, convinced of the indispensable role of his business
machines. (Between 1929 and 1932, IBM increased production
capacity by a third.) Watson also retained the best talent by offer-
ing a range of benefits. According to the company’s Web site,
“IBM was among the first companies to provide group life insur-
ance (1934), survivor benefits (1935), and paid vacations (1937).”
The decisions IBM made in the 1930s gave it a decisive and
long-lasting advantage over its competitors. Its revenues dou-
bled between 1928 and 1938, whereas industry revenues overall
fell by 2 percent. Between 1928 and 1938, IBM leapfrogged
from a distant fourth place to a close second, behind the now
virtually forgotten Remington Rand.
It leveraged its relative financial strength to increase capacity
and improve its technical capabilities just when others were cut-
ting back. After the oil shocks of 1974 and during Japan’s Lost
Decade, many companies found success by following a similar
strategy.
And this approach is just as relevant today.

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