Why @IBM Will Go On Forever

By Greg McFarlane

This article was originally published at investopedia.com on March 27, 2014

It’s the very definition of a venerable corporation, the mention of its name prompting visions of its visions of its longstanding uniform of conservative suits, white shirts, wingtips, and, per the recommendation of founder Thomas J. Watson, “sincere” ties. But even today, with its dress code now allowing for considerable variation, Armonk, N.Y.-based International Business Machines Corp. (NYSE:IBM) remains one of the most redoubtable companies in all of American and global industry, with no signs of its influence waning. The company is now in its second century of espousing “dedication to every client’s success,” “innovation that matters” and “trust and personal responsibility in all relationships,” just in case you thought IBM was above the tiresome modern practice of crafting mindless mission and vision statements.

Ask the average person on the street what IBM does, and you probably won’t get more than a vague answer about “computers.” But the company has a history of innovation that rivals that of any. Dozens of the ideas birthed at IBM throughout the years have gone from being proprietary inventions to staples of everyday life. They include the automated teller machine, the magnetic strip on your credit card and the Universal Product Code on that package of … well, just about anything.

By market capitalization, IBM is the ninth-largest corporation on the planet. Only a half-dozen or so U.S. companies can match IBM for profitability. While many of its counterparts atop the list of largest American corporations of the 1970s have long gone defunct (e.g. Gulf Oil, LTV, Amoco, General Telephone & Electronics), IBM continues to be relevant in a vastly different and rapidly accelerating world. How did such a monolithic company manage to keep nimble, not only adapting yet flourishing in an economy that would have been unrecognizable to Thomas Watson a century ago?

Here’s the shocking truth about IBM: the orthodoxy and traditionalism are all an act. IBM didn’t get where it is, nor maintain its position, by being anything less than bold and inventive. If IBM has been characterized by one thing over the decades, it’s aggressive forward thinking. When other major corporations would hire and fire employees at will, IBM was among the first to provide benefits to the spouses of its dead employees. It was putting women in vice presidencies as early as 1943, back when stenographer or nurse were likely a woman's only career options.

Perhaps most noteworthy of all, IBM was one of the first employers to offer paid vacations. Yes, you can add compensated time off to the list of modern features that we take for granted now, that began with IBM. Granted, one could argue that IBM merely discovered that by simply prorating its employees’ annual salaries over 52 weeks instead of 50, those employees would think they were getting something for nothing. Still, few employers were doing this before IBM decided to.

It’s tempting to think of IBM as primarily a hardware company. IBM does still make physical products, everything from mainframes to tape drives to the processor that powers the Nintendo Wii U. But to say that the hardware division isn’t a moneymaker for IBM is something of an understatement. Hardware operations lost half a billion dollars last year. For most companies, that sort of loss would spell the end, but given that IBM earned $16 billion in net income that same year, hardware losses are nothing more than a problem that management needs to address at some point. While IBM’s chief executive officer – Virginia Rometty – (whom, it might warrant mentioning, given that the vast majority of the 30 CEOs working for companies that make up the Dow Jones Industrial Index are male, is female) acknowledges that hardware will remain vital to the company’s operations, most of its income derives from two divisions that are almost functionally inseparable: software and services.

It would be easier to list the areas in which IBM doesn’t have a software presence than those in which it does. Business analytics. Product and system development. “Enterprise marketing management,” which includes everything from analyzing customers’ behavior, to using data to determine what products your company should offer and how much it should charge for each. IBM has managed to take business decisions that used to be the realm of its customers’ intuition and subjective opinion (“Should we offer this product? I have a gut feeling we shouldn’t”) and applied objective methods to give answers. It’s safe to say that future business clients will be demanding more of this from IBM, not less.

IBM’s technology services division is as broad and all-encompassing as its software operations. IBM’s technicians and consultants might not get as much publicity as those at other, more media-friendly companies, but they do the extremely profitable work that makes much of modern commerce hum. Said technicians will create your company’s data center, optimize your network, even show you what to do when the tsunami of data becomes overwhelming. IBM’s reach is so inclusive, it’s hard to overstate its importance to almost every sector of the economy, both in North America and around the world.

The Bottom Line

In a time when even the established financial news outlets can’t seem to shut up about the social media network, that mobile messaging application or the other photo-sharing service, IBM continues to quietly and purposefully plod along, content to create much of the framework upon which flashier and more ephemeral businesses can ply their trade.