By Benjamin Hartley, November 18, 2008
The IBM PC was first sold in August of 1981. The original IBM PC had a 4.77 mHz CPU, 64 kB of RAM, a CGA video card, a pair of built-in 5 ¼" floppy drives, and the ability to easily add a 10 mB hard drive. Nearly three decades ago, that was a very nice personal computer, but it wasn't half the computer it could have been, and it's worth our time to examine why. Let's start at the beginning – how did IBM decide to start selling personal computers, anyway?
In 1980, IBM upper management noticed something very disturbing: IBM accountants were purchasing Apple II computers with their own money and bringing them in to work. This was entirely unacceptable. These people worked for IBM, the supplier of business machines. What could this "fruit" company possibly offer that was worth the loyalty of an IBM employee? (And don't scoff about company loyalty. Back then, IBM had an official corporate song. Songs, in fact.) So these accountants were willing to spend large amounts of their own money, and risk their jobs, for this tool. What did it have?
As it turns out, the Apple II had an awful lot to offer. On examining the product, IBM's upper management decided that they absolutely had to provide a product equivalent to the Apple II. Anything less would be suicide. But they had a problem…
IBM at that time was an incredible, lumbering beast. The level of bureaucracy was simply amazing. It has been compared to a country. It had a decision-making process which was absolutely dedicated to quality. As former IBM programmer Rich Seidner said in "Triumph of the Nerds":
I mean it's like getting four hundred thousand people to agree what they want to have for lunch. You know, I mean it's just not going to happen - it's going to be lowest common denominator you know, it's going to be you know hot dogs and beans. So ahm so what are you going to do? So IBM had created this process and it absolutely made sure that quality would be preserved throughout the process, that you actually were doing what you set out to do and what you thought the customer wanted. At one point somebody kind of looked at the process to see well, you know, what's it doing and what's the overhead built into it, what they found is that it would take at least nine months to ship an empty box.
Nine months to ship an empty box. Nine entire months, and that's without product development, manufacturing, quality control, marketing plans… just to get an empty box. Today, entire industries spring up and die in that period of time, and IBM couldn't even get a product to market. Under normal IBM processes, it would have taken four years and three hundred people to create an IBM personal computer. Obviously, it didn't take that long. IBM found another way. They created Project Chess, a special project for the creation of a PC – in under a year, and with only twelve people on the team.
By traditional IBM processes, that wasn't merely impossible, but outright ridiculous. Project Chess called for radical changes in how IBM worked. Instead of a months-long approval process involving multiple committees, individual team members made snap decisions. Designs were implemented almost immediately. And most importantly, the decision was made to outsource and utilize off-the-shelf components. This decision cut years off the project – but it had far-reaching consequences.
Traditionally, computers were almost entirely designed and built "in-house" by the manufacturer. There were few if any components made by other companies, and the inner workings of the computer were kept closely-guarded secrets. IBM did not have the luxury of following this model. Instead, it had to use an "open source" architecture in which the computer's inner workings were publically known. This was needed to build a computer utilizing components from a number of suppliers. Most notably, rather than using the superior IBM 801 processor, which would have required more development time to add to the PC, they instead used the Intel 8088 processor. Today, Intel is the leading manufacturer of processors, with an annual revenue of $7 billion, mostly as a result of CPU sales.
Btu there's more. Since IBM didn't have time to develop an operating system – a key piece of software – in-house for its new PC, IBM had to once again look elsewhere. Their first pick was a well-known programmer named Gary Kildall. Gary Kildall was the foremost programmer of operating systems at the time. His operating system, CPM, was used on the majority of computers in operation, and had been for several years. He was the logical choice for IBM.
And when IBM employees showed up on his doorstep he wasn't at home. His wife, Dorothy Kildall, refused to sign the non-disclosure agreement IBM insisted on. After a very frustrating day, the IBM employees left without an operating system, and Gary Kildall was relegated to a footnote in computing history.
A more opportunistic company ended up providing the operating system for IBM. One that didn't even have and operating system, but saw an opening and took it. That company, Microsoft, is now one of the largest companies in the world, overshadowing IBM by a sizable margin.
With that last crucial component, IBM was able to get a personal computer on the market in under a year. IT was a resounding success, and for over a decade "PC" and "IBM-compatible" were synonyms. But IBM didn't control the personal computing industry. Within a year of the IBM PC coming to the market, Compaq had a competing product which was equal to or better than the IBM PC in every way. Soon, there were dozens of IBM PC clones. Today, IBM is a bit player in the PC industry.
So what can we learn from the genesis of the IBM PC? Naturally, we can learn a great deal about agility. IBM's first failure was in not noticing the market changes in the first place. By the time IBM realized they should be selling a personal computer, the personal computer industry was already huge. The second failure was in IBM's lack of agility: a company which takes nine months to ship an empty box is in no shape to respond to market changes. This in turn forced IBM to seek outside support – not itself a flaw, but in this case putting IBM in a vulnerable position down the road. Then, Microsoft's ability to catch an opportunity where Gary Kildall failed ultimately spawned the software giant we know today.
Obviously, it's impossible to know where IBM or the computer industry in general would be had IBM been better able to produce a PC on their own. We can, however, learn from history. Even more today than thirty years ago, companies need to stay agile in order to remain competitive. A failure to anticipate and take advantage of a market opportunity today can have very far-reaching consequences.