IBM at 100: What Is the Secret Sauce?

IBM is 100 years old now, in the same year it passes $100 billion in sales. The company that started in 1911 as a merger of four companies named Computing-Tabulating-Recording Co. boasts robust profits, products, and services, and its stock market value surpassed Google's. What is the secret of the company's staying power and ability to reinvent itself?

Named International Business Machines in 1924, IBM is by no means the world's oldest company.

The Italian bank Monte dei Paschi di Siena was founded in 1472, the German Weihenstephan brewery goes back to 1040, and the Keiunkan hotal in Japan launched in 705.

But IBM has come back from a near-death experience in the early 1990s with remarkable staying power. 

"IBM faced the challenge that all great companies do sooner or later," said George F. Colony, the CEO of the a technology and market research firm Forrester Research; "they dominate, they lose it, and then they recreate themselves or not."

Now the company has 427,000 employees and could well be an inert colossus. But it is remarkably agile. How did it achieve this rare feat?

From Forbes magazine to the Economist to the New York Times, publications and pundits have wondered about the source of IBM's resilience.

They have theorized that it's the company's ability to build on its past instead of walking away from it; its long-term relationships; its deep scientific and research capabilities; its unmatched breadth of hardware, software, and services; its roadmaps (5-year visions); its being built around an idea instead of being attached to a particular technology; or simply its dumb luck.

There may be another success factor that is largely ignored: IBM's willingness to share its intellectual property.

In early 2005, the U.S. leader in new patents (IBM registers some ten patents a day, more than any other company) made a sweeping gesture: it gave away five hundred of its patents for free.

Why would IBM do that? Had its chairman and CEO since 2002, Sam Palmisano (in picture above, receiving the Deming Award for innovation) lost it, like the people in this IBM commercial?

No; the answer is self-interest. Diverging from conventional wisdom, the company calculated that sharing technology can sometimes be more profitable than jealously guarding its property rights on patents, copyrights and trade secrets.

“If you open up your technology and reveal quickly, people will build on your stuff,” said Eric von Hippel, a professor and innovation expert at the Sloan School of Management at M.I.T. “It becomes more economically efficient to be open.”

IBM is not doing this naïvely. “The layer of technology that is open is going to steadily increase, but in going through this transition we’re not going to be crazy,” said John E. Kelly, an IBM senior vice president put in charge of this initiative in May 2004 by Palmisano.

“This is like disarmament. You’re not going to give away all your missiles as a first step.”

But IBM understood that by contributing its intellectual property, it could win over new markets and customers. And the gamble seems to have paid off.

What do you think? What is the source of Palmisano and IBM's success? I look forward to reading you on http://thomaszweifel.blogspot.com/.

P.S. To read more about how companies make business out of giving back, check out my book The Rabbi and the CEO: The Ten Commandments for 21st Century Leaders (co-authored with Rabbi Aaron L. Raskin), a National Jewish Book Award and Foreword Book of the Year finalist.