by Rob Enderle

Why Apple Won’t Be Around as Long as IBM

News Analysis
May 03, 20135 mins
IT LeadershipIT Strategy

IBM is 102 years old. At its height, it was almost a cult, with employees dressing alike, speaking a unique language and earning benefits that took care of them for life. Today's tech companies aren't built to last, as Apple's recent earnings report shows all too well.

I spend a lot of time looking at IBM. Big Blue is worth close attention, though—it’s one of only a handful of technology companies that has actually made it 50 years and the only one that’s been around a century.

Look at the companies that were powers in the 1990s: SGI, Netscape, AOL, CompuServe, Novell, Microsoft, Sun, Banyan, Digital, Compaq and so on. Most are either a shadow of their former selves or exist only in our memories.

Most tech companies are lucky to make it 10 years. We intentionally don’t let companies survive over long periods of time anymore. A lot of things contribute to this: The cancer that is forced ranking, the excessive focus on quarterly results, and the massive income disparity between CEOs and the rank and file. What’s happening to Apple—which Steve Jobs clearly wanted to make immortal but which almost didn’t make it 20 years—is a case in point.

IBM’s Design: A Great, Big, Cult-Like Family

IBM was a family company. It’s not just because the Watsons, Thomas Sr. and Thomas Jr., led the company through the first 70 or so years but because the culture was set up to be as much family as it was a company—or, maybe, a cult or religious organization. Lasting religions have a lot in common with such companies: unique uniforms, handshakes, languages, or greetings that identify members to each other, not to mention the tendency to not only employ people for their entire working lives but also to take care of them in retirement.

Feature: IBM: Highlights of 100 Years

Steve Jobs envied IBM’s culture of secrecy. When Big Blue was at its true peak in the 1970s, employees wore a sharply defined uniform of a dark suit, white shirt and conservative tie. They shared a technical language that few outside Armonk understood. They were expected to remain employed for life; much of their compensation was earned entitlements and equity, not cash. It was virtually impossible to lure an IBM employee away, and there were no leaks. IBM even had unique songs that employees had to learn and sing.

From time to time, Watson Sr. would personally meet with rank-and-file employees and ask them how they fit into the organization. God save the employee and his manager if the answer wasn’t satisfactory. That said, executives and line employees often socialized at regular company events. This not only bonded the top to the bottom; it bonded the people and the company into a family.

Living In a Material World

So what happened? Over the years, we replaced equity with salary and pensions with the 401(k). CEOs were rewarded with lucrative salaries, essentially turning them into kings and queens with little, if any, connection to the rank and file. Social gatherings fell to the budget ax. Forced ranking practices further drove employees apart, pitting them against each other for salary and benefits and leading managers to hire unqualified people who posed no threat and could easily be let go. This weakens productivity and effectiveness and destroys a firm’s espirit de corps.

Today’s employees lack loyalty. In fact, company policies drive it out of them. CEOs are motivated to produce short-term returns that spike stock value, not to build a company that assures their (and their employees’) pensions. On top of that, many must sell their company shares when they leave, removing any interest in assuring that the company survives and focusing them instead on spiking the stock price and leaving the company in a condition that prevents their successors from making them look bad.

Apple May Fail, Cook Will Be Rewarded and We’ll All Move On

Jobs busted his hump turning Apple into a debt-free company with reserves that could take it through any catastrophe short of the sun going nova. By the end of the year, as I wrote last week, current Apple CEO Tim Cook will have eliminated the vast majority of that reserve, institutionalized charitable giving and dividends, removed massive amounts of income from his control, put the company billions of dollars in debt and eliminated most of the handpicked team that Jobs had built.

Clearly, Apple’s board has no real problem with any of this—it should drive the stock price up, after all—but it will leave Apple far less able to last a decade, let alone a century. In fact, Cook might even get a bonus for doing this, like Mark Hurd did at Hewlett-Packard, and there’s no reason to believe that someone else in his place wouldn’t do the same things.

Analysis: After Hurd, HP Shifts Strategy From IT Services to Software

Unless we can get another Thomas Watson Jr. or Steve Jobs, it’s unlikely we’ll ever be able to build a company that can last a decade, let alone a century. Today we build companies to fail by design. That’s sad.

Rob Enderle is president and principal analyst of the Enderle Group. Previously, he was the Senior Research Fellow for Forrester Research and the Giga Information Group. Prior to that he worked for IBM and held positions in Internal Audit, Competitive Analysis, Marketing, Finance and Security. Currently, Enderle writes on emerging technology, security and Linux for a variety of publications and appears on national news TV shows that include CNBC, FOX, Bloomberg and NPR.

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