How They Started Page 24

  Coca-Cola Classic was brought back due to public demand.

  In 1985, Coca-Cola became the first independent operator in the Soviet Union, and throughout the early 1990s it invested heavily in building bottling plants in eastern Europe.

  Flying high

  During the 1990s, Coca-Cola made its presence known in the sporting world, sponsoring the Olympic Games, the NBA, FIFA World Cup and Rugby World Cup. In 1993, the company launched its catchy “Always Coca-Cola” advertising campaign, and by 1997 it was selling a billion servings of its products every day.

  The 1990s also marked the return of Coca-Cola to India, following a liberalization of trade laws. The company pulled out of the market in 1977, when Indian law forbade companies to trade if they withheld trade-secret information, something Coca-Cola insisted upon to protect its formula. In 1991, India changed its laws regarding trademarks, and Coca-Cola went on sale again in 1993. A populous and hot country, India seemed fertile ground for the international giant, but surprisingly it struggled to capture the market. Its slow growth was aided by the acquisition of Indian brands Limca, Maaza and Thums Up. The company followed this pattern of growth by acquisition in other countries, too, including Barq’s Root Beer in the US, and Inca Kola in Peru.

  In 1999, The Coca-Cola Company purchased the soft drinks brands of Cadbury Schweppes PLC in various countries, including the UK. This expanded the existing product range of Coca-Cola, Diet Coke, Cherry Coke, Fanta, Sprite, Lilt and Five Alive to include the Schweppes range, Dr Pepper, Oasis, Kia-Ora and Malvern water.

  Where are they now?

  The Coca-Cola Company celebrated its 125th anniversary in 2011, now owns more than 500 brands and sells 1.7 billion beverage servings each day. Since it began, it has produced more than 10 billion gallons of syrup.

  Of all the countries that Coca-Cola dominates, the highest per capita consumption is in Mexico and Iceland. The company employs over 90,000 people and is headed up by Muhtar Kent, chairman and CEO. To celebrate its heritage, The New World of Coca-Cola, an attraction dedicated to the brand, opened in 2007, and remains one of Atlanta’s main tourist attractions.

  Now a major global corporation, Coca-Cola faces new challenges: changing patterns of demand for soft drinks in many developed countries, and enormous and fast-growing potential in increasingly affluent countries such as China.

  In the past decade, Coca-Cola has continued to add to its extensive brand list, including the launch of Coke Zero in 2005, and acquisitions, including water and tea companies. In 2008, Coca-Cola launched its first-ever clothing range of sustainable apparel. Sold in Wal-Mart, the T-shirts are made of recycled Coca-Cola bottles.

  Coca-Cola Company and subsidiaries’ full-year results to December 31, 2011 showed revenues of $46.5 billion, a year-on-year increase of 33 percent. Today, 72 percent of Coca-Cola is sold outside of the USA, and Coca-Cola’s share price continues to rise, based on expectations of continued profitable growth to come.

  IBM

  Computing success

  Founders: Thomas Watson, Charles Flint and Herman Hollerith

  Age of founders: 40, 61 and 51

  Background: Salesman and executive for National Cash Register (NCR) Company, serial businessman who negotiated first overseas sales of Wright Brothers’ planes, and statistician and owner of Tabulating Machine Company

  Founded in: 1911

  Headquarters: Endicott, New York

  Business type: Computer hardware

  Unlike most business stories, the founding of IBM is not simply a tale of one man with an idea. Rather, it is a story of several men, three in particular, whom history brought together and who laid the building blocks of a vast technological business. It is the story of Herman Hollerith, a brilliant inventor and flawed genius, who would envisage and develop the tabulating machines that IBM would later sell across the world. And it is the story of Charles Flint, a maverick investor and adventurous businessman, who would buy several companies, including Herman’s, which would be forged together to form the International Business Machines Corporation. Thirdly, and most crucially, it is the story of Thomas Watson Sr., a brilliant leader and salesman, who would bring order to Charles’s messy acquisitions and create a strong and vibrant culture that resonates at IBM to this day.

  For many, Thomas was IBM. He was its leader from 1914 to 1956, setting its course, and he was the man who gave the company its name. But Thomas was no engineer or inventor—he barely understood how his company’s machines worked, beyond the information he needed to tell his customers. His path to the helm of IBM is an intriguing one, but to appreciate his journey it’s necessary to return to the beginning and look at how the company came into being, formed from the sparks of genius decades before.

  Crunching the data

  In 1879, Herman, a 19-year-old college graduate, took a job at the US Census Bureau, compiling statistics. The census was taken every 10 years, and it was a tiresome and cumbersome affair for all involved. The data, recorded by hand, took years to process, and Herman became determined to find a more efficient method. He conceived of a machine that would process data automatically, and he spent the next few years of his life inventing it.

  Inspired by the way ticket conductors punched holes in train tickets to record information such as destination and age, Herman predicted that the same process could be used to collect the census data. He saw that the position of a hole on a line of paper could represent answers to census questions, such as male or female, or whether a person lived in the US or was from abroad. He imagined a machine that automatically fed the paper through its processors, and a board with buttons that would electrically punch the holes in the paper. As the paper was fed through the machine, it would pass over a drum, completing an electrical circuit for each hole. The data would then come rolling out automatically, without the need for human intervention. The “tabulating machine” would, in time, revolutionize data processing, and on September 23, 1884, Herman submitted his first patent application.

  But an invention alone does not a business make, no matter how great it is. Herman still needed to prove his machine worked in an office environment; he needed to manufacture it and to sell it to the world, and this required investment. Herman worked out that he would need around $2,500 ($60,000 in today’s money) to develop his invention, and a family friend agreed to put up the cash. Herman then visited the census offices and asked if they would consider using his machine to work on some past census data—in effect asking the government to fund the invention by providing the manpower (in the form of government clerks) to test it—to which census officials agreed.

  Herman’s first version of the tabulator in 1890.

  Things were going well, but the machine itself was not perfect, not by any means. For one thing, the paper Herman was using would tear easily, and it was difficult to read the information recorded. To solve this, Herman switched to using punch cards the size of $1 bills. The advantages over paper were clear: the size of the cards meant they were easier to sort and collate, and they did not tear so easily. The process of trial and error to iron out problems took years of dedicated work, and during this time, investors were not easy to find or keep. Government departments were intrigued by the potential of Herman’s machine, however, and they continued to test his machines. Meanwhile, Herman kept himself going financially by consulting on patents and working on other inventions.

  In 1888, the War Department decided to rent one of Herman’s tabulating machines for $1,000 for the year. Herman was told that if it was successful, there was the chance the Navy would also be interested, as the Office of Records and Pensions wanted to compile data on the health of its servicemen. The machine performed well, Herman signed a contract with the Navy that same year, and he began to rent out his machines to other clients. Then, in 1889, Herman’s patent application was finally approved and he took his machine global, exhibiting it at the Paris Universal Exhibition of that year.

  Herman developed his inve
ntion to include a motorized card feeder.

  By this time, the 1890 census was fast approaching, and as the US population had grown considerably in the 1880s, it was estimated that it would take 13 years to complete. The Census Bureau trialed Herman’s machine against two competitors’—and Herman’s won. The Bureau placed an order for six machines at a yearly rate of $1,000 each. A year later, in 1890, an order for 50 more machines was placed by the Bureau.

  The data collection for the 1890 census was completed in a staggeringly short six weeks, and the whole census itself was finished in just two and a half years. Herman’s invention saved taxpayers $5 million and earned him a PhD from Columbia University.

  By 1891, demand for the machines soared and Herman won contracts from other countries such as Austria, Canada, France and Russia, following his appearance at the Paris show. Every country was keen to use his invention to gather and process census data, and the machines now had a great track record. There was also demand from private companies, as Herman expanded the commercial uses of the machine to encompass freight and agricultural data.

  The data collection for the 1890 census was completed in a staggeringly short six weeks, and the whole census itself was finished in just two and a half years. Herman’s invention had saved taxpayers $5 million.

  At the end of 1896, Herman founded the Tabulating Machine Company to continue making and licensing out his machines. However, he was a far better inventor than he was a businessman, and he struggled to cope with the demands of managing a business. Herman also possessed a difficult temperament, often antagonizing both his staff and his customers. By 1911, he was finding it increasingly difficult to manage a growing business, was suffering from poor health, and had competitors biting at his heels. Herman decided to sell the business to an investor named Charles Flint, who was putting together a collection of businesses that would become IBM.

  Fair means or foul

  The man whom many regard as the face of IBM, Thomas, couldn’t have been more different from Herman. While Herman was awkward in social situations, Thomas proved to be a savvy manager and motivator. Also, unlike the well-read and educated Herman, Thomas was a man of humble beginnings who never went to college and who started full-time work as soon as he could. After a few jobs, his working career began in earnest in 1896, when he joined the National Cash Register Company (NCR), based in Dayton, Ohio, as a sales apprentice. Thomas was taken under the wing of John Range, who taught him all about sales, and his career began to flourish.

  By 1903, Thomas had made a real impression with senior management and they called on him to work on a special project. With NCR backing, Thomas set up the American Second Cash Register Company, which was little more than an NCR front designed to crush the competition by fair means or foul. NCR’s business was selling new cash registers, and the company was therefore threatened by companies that bought and sold secondhand ones. Thomas’s goal was to drive out the competition by overpaying for used registers and even acquiring rival businesses on condition that they would not re-enter the market. The operation was highly successful, although later NCR would gain the unwanted attention of the federal government on charges relating to monopolistic activities. Indeed, thanks to Thomas’s work, NCR had gained 90 percent of the market by 1910.

  Thomas’s work gained him a promotion at NCR to sales manager, where he worked directly beneath the company’s founder, John H. Patterson. From him, Thomas learned much about leadership and running a business, and NCR’s founder was to have a profound influence on Thomas’s own leadership of IBM. Patterson was an uncompromising and tough leader, who instilled both fear and respect in his staff. Although he was often ruthless and controlling, he extolled the importance of believing in his staff and developing teams. Patterson also taught Thomas how to win at all costs. The two became close—so close, in fact, that Thomas became one of the few people who could contradict Patterson and get away with it.

  It was through NCR that Thomas heard about Herman’s tabulating machines. He was impressed with how they could be used to transform company data, and he hired some machines for his offices. It is clear that at this stage Thomas understood the importance of being able to measure performance, as well as the benefits of having a scientific approach to business.

  In 1912, NCR’s management was indicted by the federal government for its corrupt and monopolistic practices, and John H. Patterson and Thomas Watson were among those indicted. The charges were made criminal and Thomas faced up to a year in prison. The indictment began a dark period in Thomas’s life and would go on to haunt him throughout his career. At the first trial, the company was found guilty. The defendants appealed, and eventually a deal was made. Thomas never admitted he had done anything wrong.

  By the end of 1913, Thomas was finished with NCR. However, with federal charges still hanging over him while he awaited the appeal, he found it difficult to find work. He would have liked to set up his own business, but no one was likely to back someone who could soon end up in prison. However, after many trips between Dayton and New York looking for a job, Thomas would eventually enter the offices of Charles Flint.

  Leader in the making

  Charles Flint is a colorful character in the history of IBM. He had been an adventurer, an explorer, an investor, an arms trader and a friend to high society, to US presidents and to dictators. Prior to meeting Thomas, Charles had acquired several businesses: the Tabulating Machine Company, International Time Recording, Bundy Manufacturing, and Computing Scale of America. The new company became known as the Computing Tabulating Recording Company (CTR). However, the acquisitions were not working out, and Charles needed a strong manager to turn his sinking ship around. It was a brave decision to make, bearing in mind the charges still standing against Thomas, but Charles saw in him a true leader in the making. The two struck a deal whereby Thomas would be manager until charges against him were dropped, and then he would become president.

  Thomas understood the importance of being able to measure performance, as well as the benefits of having a scientific approach to business.

  Thomas began work at CTR but found the experience a miserable one. Unlike the well-oiled machine of NCR, his new company was structurally flawed. Its founder’s messy acquisitions did not sit well together, and the company had no discernible culture. It had 1,200 employees based at several locations, which made managing the business virtually impossible. Financially, the business was hemorrhaging money: it was valued at $3 million but had over $6 million in debt. Technically, it was bankrupt. Instinctively, Thomas wanted to impose on it the rational management techniques he had learned at NCR, but two big obstacles stood in his way: Herman, who had remained at the company, and CTR’s chairman, George Fairchild.

  Herman had sold his business but retained a role at the company that gave him the right to approve or veto any new technological advance or product. The effect was to stifle the company’s innovation and prevent gifted engineers from bringing forward the next phase of products. Innovation was needed, as Herman’s patents were running out and competitors were cutting into the company’s markets. However, Thomas needed Herman, as his name was synonymous with the tabulating machines and the business traded off it. George Fairchild irritated Thomas with his interference, demanding to be consulted and informed while also being unavailable. However, as a member of the House of Representatives, he brought some respectability to the company, which offset Thomas’s questionable past at NCR. Thomas had little choice but to play the long game and placate them both.

  Nevertheless, Thomas got to work on his sales team and soon proved himself a powerful motivator. He wanted to transform the approach his managers had toward their staff, encouraging a more nurturing approach. “Every supervisor must look upon himself as an assistant to the men below him, instead of looking at himself as the boss,” he told his managers.

  The Man Proposition

  Thomas also introduced what became known as “The Man Proposition.” On a blackboard, he
wrote out the words “manufacturing,” “general manager,” “sales manager,” “sales man,” “factory manager,” “factory man,” and so on, covering all the positions within the business. He then crossed out all the words apart from “man,” suggesting that all were equal in the company. “We are just men,” he said. “Men standing together, shoulder to shoulder, all working for one common good.”

  The Man Proposition would be repeated regularly at IBM for the next 40 years or more, and is one of Thomas’s biggest contributions to the company’s culture.

  By 1915, the federal case against the management of NCR had concluded, and while most of those involved accepted a minor penalty for what they had done, Thomas never admitted to any wrongdoing. The federal government declined to pursue him any further. He therefore became president of CTR on March 15, 1915, and was determined to turn the company around and to run it in as moral a way as possible. It was a grueling challenge, as the US economy was then in decline as World War I raged in Europe.

  Imbued by the Man Proposition, Thomas looked to find talent within his existing staff rather than recruit from outside. “The directors told me, ‘You’ll have to hire outside brains before you can build up this company,’” said Thomas. “I told them, ‘That’s not my policy. I like to develop men from the ranks and promote them.’”

  Thomas’s own personal style and morality affected those around him. He never drank alcohol, and soon it became the norm for the executives to refrain from drinking as well. Thomas also had a love of fine clothes, and pretty soon those under him adopted his style of suits. However, while he espoused democracy and equality, he could also behave like a tyrant, subjecting staff to brutal tongue-lashings and tirades. At the same time, he engendered a love in his staff, which meant that most forgave or tolerated him, and he developed many loyal employees.