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The Computing Tabulating Recording Corporation (CTR) was incorporated on June 15 1911 in Endicott, New York a few miles west of Binghamton. CTR was formed through a merger of three separate corporations: Tabulating Machine Company (founded 1896 in Washington D.C.), the Computing Scale Corporation (founded 1901 in Dayton, Ohio) and the International Time Recording Company (founded 1900 in Endicott, NY). The president of the Tabulating Machine Company at that time was Herman Hollerith, who had founded the company. The companies that merged to form CTR manufactured a wide range of products, including employee time-keeping systems, weighing scales, automatic meat slicers, and most importantly for the development of the computer, punched card equipment. The key person behind the merger was financier Charles Flint, who brought together the founders of the three companies to propose a merger and remained a member of the board of CTR until his retirement in 1930.• It had a bonded indebtedness of $6.5 million, 25 times its current assets, of which $4 million was borrowed from the Guaranty Trust Company. It had 1200 employees. Flint assigned it a value of $17.5 million, though in reality its tangible assets only added up to $1 million. The chairman was George Fairchild, who - as he had been a member of congress since 1906 - was not expected to take an active part in management. When the first president left after just one month, however, Fairchild took over and ran CTR until 1912 - when Frank N Kandolf, formerly CEO of the International Time Recording subsidiary, took over. In 1914, having been fired from NCR and with a prison sentence threatening his future, Thomas J Watson approached Flint, as a leading financier, for assistance in finding a similar job. Despite his apparently perilous situation he was still very clear as to the type of job he wanted. He had already turned down a number of offers. He wanted control of the business for himself, and be able to earn a share of the profits. Flint offered him CTR. Flint was, as described earlier, a great promoter of trusts and was presumably less worried about Watson's impending jail sentence. The other members of the CTR board were less sanguine, asking who was to run the company while he was in prison! As a result, they only gave him the title of general manager. Thomas J. Watson Sr., became general manager of CTR in 1914; at the time, Watson was a convicted criminal. Watson was convicted in 1913 of corporate and monopolistic conspiracy for his role in a widespread National Cash Register scheme to blackmail and run out of business used cash register retailers. See John Henry Patterson (NCR owner). Watson's own extortionate writings were used as evidence against him. That lesson taught Watson to thereafter keep very little in writing. When his sentence was, finally, quashed by the Appeal Court in 1915, Watson was selected by Flint to became president of CTR. Alternate text for preceding sentence After Watson had been at CTR for 11 months the Appeals Court ordered a retrial. Although he refused to sign a Consent Decree a new trial never took place; and he was duly promoted by the board of CTR to the title of president. end alternate So the die was cast and CTR was joined with Thomas J Watson; the final paradox being that the true founder of the modern IBM, the most moralistic of companies, was at that time a felon convicted of business practices unacceptable even to a period that was notable by its lack of standards! Clearly, though, he had already decided that the future of CTR was to be very different. Surprisingly, in view of his past record at NCR and his later colossal influence on IBM, he initially maintained a very low profile (almost tantamount to seeking obscurity) for the next decade; until 1924, when the chairman George W Fairchild died and he finally took over sole control. For the whole of the previous decade, in some ways uncharacteristically, he consistently deferred to Flint, Fairchild and Hollerith. In the meantime he took personal charge of 400 demoralized and poorly supervised salesmen. His stated objective was to produce a sales force in the NCR mould, as well as advanced machines that would be superior to any of the competitors. In a series of small meetings he presented his 'competitive proposition' to the sales force. Despite the aggressive sounding title, right from these beginnings there was as much emphasis on the ethics and philosophies of the business as there was on sales techniques. In particular he stressed sincerity, integrity and loyalty; saying that they should do nothing that could be construed as 'unfair competition' and should conduct themselves in an 'honest, fair and square way'; something which would be radical even today - and certainly does not seem to be part of the Microsoft vocabulary. The other philosophies that motivated CTR and IBM for the next three quarters of a century were also evident. The company motto was to be 'We sell and deliver service'; CTR was to be in the business of genuinely assisting its customers. Watson strongly believed that when a sale was made both sides came out ahead. CTR was a company with three separate elements. Computing Scale was always a problem; and the largest element of this (Dayton Scale) was eventually sold off in 1933, to Hobart Manufacturing. Time Recording was then still the main revenue earner, and was used by Watson as a vehicle for diversification; though none of these was great success. Time recording was retained by IBM, surprisingly in view of its irrelevance to the rest of the business, for half a century; it was only sold off in 1958. The piece of the action that most interested Watson, perhaps because it was closest to his NCR experience, was the tabulating business and this was where he directed much of his attention; and by the early 1930s this had indeed become the largest piece of CTR. Returning to the 1920's, though, while still under Fairchild's domination Watson went for a significant degree of growth. This saw revenue grow from $4.2 million in 1914, when he took over, to the peak of $16 million in 1920. The price of this, however, was a precarious cash position and when in 1921 sales fell to $10.6 million he faced a cash-flow crisis. Once again CTR was to be funded, indeed rescued, by Guaranty Trust. Watson was forced to cut costs across the board, including reducing R & D and laying off some employees. He never again allowed his cash position to fall so low. He subsequently maintained a policy of low dividends, high revenues and careful cost controls. He adopted the very conservative accounting principles that held true (no matter how many 'gambles' IBM later undertook) until the 1980s (when their abandonment may be deemed to have been one of the causes of IBM's ultimate decline!). CTR had been pushed into the need to rent Hollerith equipment because it was unreliable! Watson, however, recognized the other benefits and in particular took on board the idea that renting equipment was inherently more stabilizing, since the income continued when equipment orders would otherwise have dried up. Less obviously, it forced sales personnel, aware that they might lose the rental, to maintain regular contact with customers; thus ensuring that - even as early as the 1930s - that customer relationships were well managed. This approach became central to IBM's activities, and was especially important to its survival through the Depression in the 1930s. Thereafter, Watson deliberately lagged on the introduction of new products (but not on research), even after competitors launched he still waited until the market was ripe for large scale development; again a feature that was at the heart of IBM's new product policies until recently (where the much increased speed of movement of the markets wrong-footed the management). Indeed, Bill Gates' entrepreneurial (risk-taking) gambles on new products has justifiably earned Microsoft its leading position in its markets. But Watson also recognized the importance of sound R&D: appointing, in 1922, James W Bryceii to manage this (moving him from its Time Recording Division, which he had joined in 1915); though Watson continued to be personally involved R&D - not least, insisting on rigorous standards. In 1917, the CTR entered the Canadian market under the name of International Business Machines Co., Limited In 1924 Fairchild died and, at the age of 50, Watson at long last came out of the shadows, to create the company in his own image; and, for the next quarter of a century until he was 75, he led it to greatness. Almost the first, prophetic, move he made was to rename it International Business Machines, IBM. This was a name he had already given in 1917 to the Canadian subsidiary (and later to CTR's South American operations). It was prophetic because at that time CTR was only barely international, and was just on the fringes of 'business machines'; a concept that didn't emerge fully until the 1960's. He also celebrated his new status with the first Quarter Century Club. Even though CTR had only been going for 13 years, he based qualification on the earlier constituent companies. Personnel management was clearly to be the core of the business. Continued in History of IBM
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