The Colossus That Works

By John Greenwald

COVER STORY

Big Blue uses salesmanship and innovation to bestride the computer world

IBM. Three of the most famous letters in American business. For years the International Business Machines Corp. towered over the office-equipment industry. Then in the 1970s, besieged by Government antitrust charges and challenged by ambitious new rivals, the giant seemed to be staggering, and those three famous letters lost a bit of their luster. Was IBM's dominance in jeopardy?

Not a chance. Under the direction of John Opel, 58, who became chief executive officer in January 1981, the firm has been acting like its brashest competitors--entering new markets, chasing the latest technology, trimming organizational fat and selling more aggressively than ever. In 1982, IBM had profits of $4.4 billion on sales of $34.4 billion, making it the most profitable U.S. industrial company. Says Stephen McClellan, author of an upcoming book on the computer industry: "In the 1970s, IBM was a battleship in mothballs. Today it is a fleet of killer submarines."

Nowhere was the company's lean new stance more evident than in the way it plunged into the personal-computer market in August 1981. Tackling the mass market for computers for the first time, the company broke many of the traditions that had made it so successful in the past. Yet its new machine, the Personal Computer, generally known simply as the PC, has done nothing less than trans form the industry. IBM has already captured 21% of the $7.5 billion U.S. market for personal computers, a staggering feat in so short a time, and is virtually tied with pacesetter Apple Computer, which had a four-year head start.

Big Blue, as IBM is nicknamed for the corporate color it puts on many products, is a mighty competitor in a range of products from electric typewriters that sell for $800 to data-processing systems that can cost more than $100 million. It commands some 40% of the worldwide market for computing equipment and produces some two-thirds of all mainframe computers, which are big and medium-size business machines. So great is IBM's pre-eminence that rivals often seem to be running in a different race. Digital Equipment, the No. 2 computermaker, has less than one-fifth of IBM's sales. Says John Imlay Jr., chairman of MSA, an Atlanta-based software company: "IBM is simply the best-run corporation in American history."

At a time when American business sometimes seems to be slipping, IBM's triumphs have served as a reminder that U.S. industrial prowess and know-how can still be formidable. Struggling U.S. steel and automakers have been severely hurt by Japanese and European imports, but Big Blue's competitiveness is unquestioned. The company is the leading computer firm in virtually every one of the some 130 countries where it does business. "IBM is like your papa," says a Swiss computer-marketing specialist, "because it's so big and it's always there." Even in Japan, which has six major domestic computermakers and restricts access to its markets, IBM is easily the dominant producer of large computers and is fighting Fujitsu for the overall title. Last year IBM sold $1.9 billion worth of equipment in Japan to Fujitsu's $2.1 billion.

For all of its success, IBM has been rethinking some of the ways it does business. In a dramatic departure from its traditional practices, IBM built the PC largely from parts bought from outside suppliers and is selling it through retail outlets like Sears and ComputerLand, as well as its own sales network. The company has begun offering discount prices and introducing new products at an accelerated rate. Last December IBM spent $250 million to acquire 12% of Intel, a leading computer-chip maker based in Santa Clara, Calif. In June IBM paid $228 million for a 15% stake in Rolm, also of Santa Clara, a major producer of telecommunications equipment. IBM plans to use Rolm to help create the so-called electronic office. Says Ulric Weil, a top computer analyst for Morgan Stanley & Co.: "We're watching a total transformation of the corporation."

In June IBM Chairman Opel announced that 1983 results were outstripping last year's. That helped push up the price of IBM stock, a leader in the eleven-month-old Wall Street bull rally. After years of hardly moving, IBM shares have nearly doubled in price since the rally started, climbing from 62% last August to close last week at 121.

Traditionally, IBM has been so deep in talent that its alumni have gone on to staff laboratories and executive suites throughout the computer industry. "Almost everybody in the business seems to be a former IBMer," observes William Easterbrook, an ex-IBM manager in Copenhagen who now watches the computer industry for Kidder, Peabody, a Wall Street securities firm. Illustrious former employees include Gene Amdahl, founder of Amdahl Corp. (1982 sales: $462 million), which makes large computers; Joe M. Henson, president of Prime Computer (1982 sales: $436 million), a major producer of minicomputers; and David Martin, president of National Advanced Systems, the computer unit of National Semiconductor. Former employees usually speak highly of Big Blue. Says Fla-vil Van Dyke, president of Genigraphics, a computer-graphics firm: "I still look back fondly at IBM and try to run my company by IBM standards."

Customers of IBM often speak with that same kind of devotion. Some have been known to refuse to see salesmen from rival firms. Says James Marston, vice president for data processing with American Airlines: "You can take any specific piece of hardware or software and perhaps do better than IBM, but across the board IBM offers an unbeatable system." IBM buyers range from Government agencies like the National Aeronautics and Space Administration, which directs space-shuttle missions with Big Blue equipment, to firms as diverse as Bank of America and Coca-Cola.

Longtime industry observers view the loyalty of some customers as a natural outgrowth of the attitudes that IBM drills into its workers from the day they arrive. "IBM creates an environment that is unique because of its strong set of beliefs and principles," says Martin. "It is almost overwhelming how it affects employees and rubs off on customers."

IBM's strong corporate culture is the lengthened shadow of Thomas Watson Sr., a charismatic executive who joined the Computing-Tabulating-Recording Corp. in 1914, renamed it International Business Machines in 1924, and ran it until a month before his death in 1956. Watson was a visionary who believed above all in his company.

Under Watson, IBM had rules for practically everything. Employees were told what to wear (dark business suits, white shirts and striped ties) and what to drink (no alcohol, even when off the job), and were urged in signs posted everywhere to THINK. Aspiring executives usually started out in sales and marketing and were transferred so frequently that they took to joking that IBM stood for "I've Been Moved." Observes Gideon Gartner, chairman of the Gartner Group, a computer-research firm: "If you understand the Marines, you can understand IBM."

Many of the Watson-instilled codes remain in effect today, though in a softened form. All IBMers are subject to a 32-page code of business ethics. Sample warning from the blue-covered rulebook: "If IBM is about to build a new facility, you must not invest in land or business near the new site."

IBM salesmen can now drink at lunch, but if they do they are warned not to make further business calls that day. Male IBMers, who make up 80% of the 8,500-member U.S. sales force, must wear suits and ties when meeting prospective customers, although their shirts no longer must be white. Still, a neat and conservative appearance remains the IBM style. "I don't think I've ever seen an IBMer in a pink shirt or an outlandish tie," says Joseph Levy, a vice president for International Data, a Massachusetts-based computer market-research firm. The THINK signs have largely vanished, but the old admonition remains the title of the company's employee magazine.

IBM has combined Watson's stern codes with a deep and genuine concern for the welfare of employees, who number 215,000 in the U.S. with an additional 150,000 abroad. The company has often fired workers, but it has never laid anyone off to cut costs; instead it retrains and reassigns them. The company's salaries and perks are widely regarded as among the most attractive in the industry. New employees are expected to spend their working lives with the firm, and regularly go through intensive training programs to upgrade their skills. "We hire with a career in mind," says Edward Krieg, director of management development. Although some overseas IBM plants are unionized, the firm has never had a union vote in any U.S. facility.

The generous fringe benefits extend to recreation. The company provides memberships for less than $5 a year in IBM country clubs in Poughkeepsie and Endicott, N.Y. There, employees can play golf, swim and participate in numerous other sports.

Watson was especially adept at motivating workers and inspiring loyalty. He personally commissioned a company songbook and led employee gatherings in numbers Like Ever Onward.* The song was belted out with gusto during get-togethers of the IBM 100% Club, made up of members who have met 100% of their sales goals for the previous year.

Watson was succeeded by his son Thomas Watson Jr., who served as chief executive officer from 1956 to 1971. A powerful executive in his own right, the younger Watson had helped persuade his father to steer IBM into the computer age. After retirement, Thomas Watson Jr. was U.S. Ambassador to the Soviet Union under President Carter.

More than anything else, it was IBM's awesome sales skills that enabled the company to capture the computer market. Although it now seems hard to believe, IBM did not introduce the first commercial computer. Remington Rand did that in 1951 with a computer called Univac, which became the name of the firm's computer division. But Big Blue knew far more about winning customers than did Univac. IBM, whose major products at the time included calculators and tabulators, recognized that potential buyers might be frightened by the cost and complexity of computers. When the company entered the market in 1952, it set a high priority on dispelling customer fears. Buyers were promised that IBM service engineers would keep a close watch over the machines and quickly fix any glitches. The salesmen were so knowledgeable and thoroughly trained that their very presence inspired confidence. Univac representatives, by contrast, were seen to dwell on technical details that customers could barely follow.

The race was over by 1956. IBM had won a staggering 85% of the U.S. computer market, even though its machines were considered to be technically inferior to Univac's.

Years later a Univac executive would lament, "It doesn't do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen." The Univac episode helped give rise to the belief that IBM's real strength is in selling while its technical prowess often lags. Says Kenneth Leavitt, president of CGX Corp., a Massachusetts-based maker of high-performance display terminals: "IBM tends to be a step behind in technology but very good at marketing.

There are all sorts of new technologies that IBM doesn't have the expertise to get." Such claims naturally make IBMers bristle. "This is a shibboleth cultivated by certain Wall Streeters," declares Paul Low, manager of the IBM plant in East Fishkill, N.Y. "Nobody who peeks inside any of our 29 laboratories could fall for that nonsense." Company spokesmen like to point out that IBM spent 53 billion on research, development and engineering last year, an amount that exceeds the total revenues of many of its rivals. The firm has also taken the offensive in a new advertising campaign that boasts of the more than 11,000 patents IBM inventors have acquired over the past 25 years.

Actually, IBM is skilled at blending both marketing and technical considerations. That goes a long way toward explaining how so huge a company has kept its edge in an industry where key breakthroughs are often made by blue-jeaned engineers working out of their garages.

What IBM seeks, above all, is products that sell. "They have tried to understand what the customer wants," says Stuart Madnick, a professor of management-information systems at M.I.T.'s Sloan School. "Often the customer didn't need or want the more advanced technology that others have produced. In many companies the technology has grown faster than the market can absorb."

IBM evaluates buyers' needs in fine detail. "IBM will Listen to almost anybody," says Joseph Levy of International Data, which analyzes computer-market trends. "It is one of our best customers." Big Blue subscribes to virtually every major computer market-research service and has a worldwide intelligence-gathering network that includes economists and market analysts.

The company takes equal pains in keeping the skills of its personnel up to date. Last year, for example, IBM invested more than $500 million on employee education and training. Most new IBMers spend much of their first six weeks in company-run classes, and managers are required to take at least 40 hours of additional instruction a year. The classwork often focuses on actual business case studies, in the manner of the Harvard Business School.

The IBM management formula worked so well that the company in the 1960s came to be known as Snow White while its competitors were derisively dubbed the Seven Dwarfs. The dwarfs (Burroughs, Univac, NCR, Control Data, Honeywell, General Electric and RCA) dwindled to five when GE and RCA quit the computer business in the 1970s, and the others are now collectively referred to by their first initials as the BUNCH.

IBM's very success, however, almost backfired against the company. The Johnson Administration on its final working day in office, Jan. 17, 1969, opened a massive antitrust case, accusing the company of monopolistic and anticompetitive practices. The federal suit dragged on endlessly--at a cost to IBM of several hundred million dollars in legal fees--until the Justice Department abruptly dropped it in January 1982, declaring that the case was "without merit." Recalls former IBM Chairman Frank Cary, Opel's predecessor: "The suit was a tremendous cloud that was over the company for 13 years. It couldn't help influencing us in a whole variety of ways. Ending it lifted a huge burden from management's shoulders." Jeffrey Zuckerman, special assistant to Antitrust Division Chief William Baxter, concurs: "We believe IBM must have been deterred from competing as aggressively as it otherwise would have."

Whatever the reason, IBM's momentum slowed markedly in the 1970s, a period Cary called "a time of planning and consolidation." The company entered the decade with a 60% share of the computer market and emerged with a still impressive but slimmed-down 40%.

Though IBM was growing at a respectable annual rate of 13%, the computer industry was expanding even faster. One challenge came from the Route 128 area around Boston, where Digital Equipment and other firms launched the minicomputer. Such machines were smaller and cheaper than the large ones IBM offered, but still performed a wide range of data-processing functions. Revenues of Digital Equipment, the leading maker of minis, have climbed from $265 million to about $4 billion over the past ten years.

Another challenge came from California's Silicon Valley, where the microprocessor, or computer-on-a-chip, was developed. The tiny devices packed thousands of circuits onto a postage-stamp-size silicon chip and gave rise to the microcomputer. Apple recognized the potentially vast appeal of personal computing, and its sales jumped from less than $1 million to $582 million between 1977 and 1982.

By the start of the 1980s, however, IBM had begun to move in new directions, and the dismissal of the lawsuit helped to accelerate the process. The most notable example was in the personal-computer field. Although IBM had been monitoring the market for years, it refused to jump in until it began seeing personal computers appear in offices and became convinced that there was enough demand to make their entry pay off. "There's no particular challenge to building a personal computer other than to build one that someone wants," says Gary.

The task of overseeing the creation of the PC fell to a twelve-member group in Boca Raton, Fla., led by Philip Estridge, a division vice president. The team was first assembled in July 1980 and told to develop a competitive and easy-to-use machine within a year. "Twelve-hour days and six-or 6 1/2 day weeks were commonplace," recalls Estridge. The members made some key moves along the way that help account for the PC's enormous popularity. The planners decided, for example, to build the PC around a 16-bit microprocessor rather than an 8-bit one, which was at that time the industry standard. This move permitted the PC to run faster and handle more complex programs. Says Estridge: "We chose to up the power of the machine so that it could be used without too many changes for the next decade or so."

The group broke with tradition by setting up a so-called open-architecture scheme that makes the PC's technical specifications available to other firms. The idea was to permit outside companies and individuals to write software or build peripheral equipment for the PC and thereby expand its appeal.

The project, however, did not always unfold smoothly and without flaws. Early users discovered that the machine misplaced decimals in certain calculations, but the problem was quickly solved. Also, some owners complained that the keyboard had been poorly designed.

But those problems did not impede sales. "Within just a few months," says Morgan Stanley's Ulric Weil, "the IBM PC was the standard for the personal-computer market." Orders for the machine, which has a starting price, with standard accessories, of about $3,200, have been pouring in so fast that some buyers have had to wait several months to get one. Last year IBM sold an estimated 200,000 PCs, and this year sales of 800,000 or more are projected. In June, the Travelers Insurance ordered 10,000 PCs, to be delivered over the next two years. New companies with names like Compaq Computer and Eagle Computer have sprung up making machines that are modeled on the PC. The explosive growth of the IBM entry has set up a confrontation with Apple Computer. Executives of the California-based company, which introduced a fully assembled personal computer in 1977, profess not to be worried. They even greeted the PC the day after it was announced with ads that read "Welcome IBM. Seriously. Welcome to the most exciting and important marketplace since the computer revolution began 35 years ago." Whatever the intent of the message, some IBMers found it condescending.

Apple Chairman Steven Jobs claims that IBM has expanded the personal-computer market and that his company's share of it has gone on growing at the expense of weaker rivals like Tandy, which owns Radio Shack. Says he: "Apple has a higher market share than IBM, and we intend to keep it." Indicative of how serious Apple considered the challenge was its decision to hire Pepsi-Cola President John Sculley, a marketing expert, to serve as Apple's president and chief executive. "This is not a bruising fight for market share between Apple and IBM," says Sculley. "It's a sorting out of who the major participants will be."

Some observers are far less confident about Apple's prospects. Gene Amdahl knows IBM from the perspective of a rival and a former 13-year employee. Says he: "IBM waits until some brash young companies develop a market to the point where it's interesting, and then they take it over. In Apple's case the shooting isn't over yet, but I think it's clear how the war will come out."

In fact, IBM's aggressive new posture poses a threat to virtually the entire computer industry. "IBM is creating a dangerous situation for competitors in the marketplace," says computer-industry observer Gideon Gartner. Among those most at risk are makers of so-called plug-compatible computers that run IBM software but sell for less. Such firms thrived during the 1970s, when IBM was slow in delivering equipment. Now, however, a burst of IBM price cuts and new models could badly hurt them.

That has already happened to Magnuson Computer Systems (1982 sales: $18.4 million). The San Jose-based maker of medium-size computers prospered in the late 1970s when IBM failed to ship a rival system on time. But IBM fought back in 1981 by slashing prices and introducing a new model. Then, last October, IBM announced two additional computer models and cut prices again. "There was no question. That was the fatal blow," declares Magnuson President Charles Strauch. The company, which has chopped its work force from more than 640 employees to about 100 over the past 18 months, filed bankruptcy papers in March.

Other firms have also been hit hard. Like Magnuson, Storage Technology enjoyed a big jump in business in 1981 when IBM ran into technical difficulties introducing a new memory device. The Colorado-based company, which makes high-performance memory equipment, gained some 300 customers because of IBM's troubles. However, when Big Blue brought out an improved new line last year, Storage Technology's profits dropped to $64.7 million, from $84.2 million in 1981. Says Jesse Aweida, who co-founded Storage Technology after 13 years with Big Blue: "IBM used to be active in only certain areas of the computer business. Now it wants to be active in the whole business."

One big reason for IBM's clout is the major investments it began making in the late 1970s to upgrade manufacturing facilities. IBM executives point to that drive to cut production costs, launched under Gary, as a foundation of the company's current strength, because it has made the firm extremely cost-competitive. IBM has pumped some $10 billion into capital improvements since 1977. The Boca Raton line that turns out the PC is so highly automated that a personal computer can be assembled in ten minutes of worker time.

The plants use some of IBM's most advanced technology. An engineer in the firm's La Gaude, France, laboratory can transmit his computerized design information for a new chip via satellite to the IBM facility in East Fishkill, where the chip is actually manufactured. The chip will be floated through tubing on air from one manufacturing station to another and then tested by robotically controlled equipment.

IBM is also the world's largest producer of logic and 64K RAM memory chips, and installs its entire output in its own machines. The company, moreover, can produce at the same plant far denser 256K RAM chips, which Japanese firms are also developing. IBM could start making the chips ahead of the Japanese, perhaps by early next year.

In line with its new aggressiveness, IBM has been cracking down hard on those who would steal its secrets. It cooperated with the FBI last year in a sting operation that nabbed employees of Hitachi and Mitsubishi Electric, two Japanese competitors, for trying to buy confidential IBM information. IBM then brought a separate civil suit against Hitachi, which pleaded guilty to conspiracy charges last February and was fined $10,000. The criminal case against Mitsubishi is still pending.

IBMers claim to be unruffled by Japanese competition. "I think I'll be physically ill if I hear one more time that the Japanese are coming," says Paul Low, manager of the East Fishkill plant. "That's not to say that they're not formidable rivals, because they are, but we're ahead." All six of the major Japanese makers of large computers together have less than 2% of the U.S. market for business computers.

Many outsiders believe that IBM is more concerned about the Japanese than it professes. Says Magnuson Computer's Strauch: "I'm sure IBM's basic concern is the Japanese. It is almost certain that what happened to us was a message to the Japanese that if they have any thought of entering the market with a low-to-medium-range mainframe, they had better be prepared to compete at an extremely low cost." Apple's Jobs believes that IBM's investments in Intel and Rolm are at least partially intended to strengthen IBM's ability to compete with Japan.

The struggle between IBM and its Japanese competitors is most intense in Japan, where IBM lost its No. 1 position to Fujitsu in 1979. IBM Japan, the company's wholly owned subsidiary, is fighting back. "They are becoming surprisingly aggressive," says Yuji Ogino, managing director of IDC Japan, a unit of International Data. IBM Japan, which employs 13,000 Japanese workers, has been slashing prices and launching new marketing drives in a bid to win back its overall lead. Admits a spokesman for a rival Japanese firm: "IBM is an enormous competitor."

At the same time that it has been fighting vigorously for market share, IBM has been forming cooperative agreements with the Japanese. In one, IBM and Matsushita Electric Industrial teamed up to produce a personal computer that converts Japanese phonetic symbols into Chinese characters or Kanji. Typewriters have not been widely used in Japan, partly because, with so many different characters, a typical machine must be packed with about 3,000 Kanji. The new machine, which ranges in price from $4,100 to $12,700, has a keyboard of only 45 phonetic symbols plus the Latin alphabet. More than 15,000 of the machines have been ordered, and there is at least a two-month wait for delivery.

If striking similarities exist between IBM and Japanese companies, the reason is that Big Blue was the model for some Japanese business techniques. For example, IBM developed "quality circles" some 20 years ago. The circles, small teams of workers that get together to discuss ways to improve output and solve production problems, have been widely adopted in Japan and are often cited as a reason for productivity gains there. Both IBM and Japanese executives stress harmonious employee relations, and both place a high priority on becoming the most modern, cost-efficient manufacturer of the products they turn out.

Foreign operations are vital to IBM. Overseas business accounted for 45% of IBM's gross income in 1982 and 37% of the company's profits. IBM hires mainly local employees at its international locations. There are only 125 Americans among some 1,000 managerial and technical employees in the Paris headquarters of IBM's European, Middle Eastern and African operations. Says Hans-Olaf Henkel, a vice president in the Paris office: "Europeans like IBM not because it is American, but because it is IBM. It promotes from the inside, and the majority of senior positions are held by nationals of the country."

IBM executives concede that despite its wide-ranging successes, the company has its weaknesses and has made some major mistakes over the years. Despite increased efforts to recruit women and minorities, there are still few of either in management ranks. Only 3,089 of IBM's more than 29,000 managers are women. IBM policies, moreover, can seem high-handed, especially toward women. In December 1981, a California jury awarded $300,000 to an IBM marketing manager who quit after the company objected to her romantic relationship with a former employee who had joined a rival firm. She resigned when her boss, fearing a conflict of interest, tried to transfer her to another division. IBM is appealing the jury verdict.

Some employees find the firm slow to capitalize on opportunities in spite of steps to decentralize decision making. "IBM has more committees than the U.S. Government," complains one insider. To increase its flexibility, IBM has set up 15 small ventures within the company since 1981. These explore new business opportunities in such fields as robotics, specialized medical equipment and analytical instruments. The new units are independently run, but they can draw on IBM resources. This seems to provide IBM with the benefits of both a large company and a small one. Says Robert Burgelman, an assistant professor of management at Stanford University's Graduate School of Business: "If IBM can integrate these new ventures into its culture, the company is going to be an enormously dangerous competitor in most of the emerging areas of high technology."

IBM stumbled badly when it set out to produce an office copier in the 1970s. Executives first turned down a chance to buy a process that Xerox later used with great success, and then introduced a balky model. Admits Gary: "If you're asking was it a mistake to ship so many copiers before they were really reliable to sell, yes it was a mistake." The company was forced to suspend deliveries until the problems were solved.

IBM, in addition, has not broken into the market for so-called supercomputers, which are used mainly for scientific research. The company launched supercomputer projects in the 1950s and 1960s, but could not produce a design that executives believed would be profitable. IBM has since abandoned the specialized field to Control Data and Cray Research.

Opel is bullish about the future of IBM, and he is very optimistic about the outlook for the whole industry. He notes that while people have limited demands for commodities like shoes and automobiles, they seem to have an insatiable appetite for information. Says he: "I have yet to hear somebody say they could not use more information. Hence the demand for information processing, though perhaps not infinite, is enormous."

What will be coming next out of the IBM laboratories to satisfy that demand? Opel is clearly not ready to sit back and relax despite his company's achievements. Says he: "We've got an enormously successful operation. Therefore you could be complacent; you could play it safe and not change. All the natural forces in the business pressure you in that direction." But one sign that the pace of the past two years will continue will be the arrival of a home computer, which IBM originally code-named "peanut." This will sell for about $700 and could reach stores in late fall. The machine, fully compatible with the PC, will come with a built-in disc drive and cartridge slot for software. "It will offer the best performance on the market for its price," asserts Clive Smith, a computer watcher with the Yankee Group, a Cambridge, Mass., research firm.

IBM is also developing a raft of exotic technologies. These include Josephson Junction and quiteron switching devices that operate in trillionths of a second at temperatures that approach absolute zero (-459.67DEG F). Says one IBMer: "There's nothing, literally nothing, noteworthy in the field that IBM doesn't have its fingers into."

The biggest future payoff for IBM is likely to come in the field of office automation. The key to the so-called paperless office will be computerized networks that shuttle messages between computer terminals, telephones and other office equipment. All can then be consolidated into a "work station" atop a desk. "The world of the future is centered on powerful work stations," says Lewis Branscomb, IBM's chief scientist.

Last month IBM showed that it was determined to become a leader in developing the automated office by agreeing to acquire 15% of Rolm. That company's advanced PBX system, a type of computerized switchboard, can be used to direct the flow of voice and data traffic between work stations. The investment will enable the two firms to work out ways to link IBM computers with the Rolm PBX.

In fact, IBM has long been deeply involved in telecommunications. In 1975, the company bought a one-third interest in Satellite Business Systems, which transmits voice and computer data. IBM is seeking partners for communications ventures in Europe. In March 1982, it won an $18 million contract to upgrade the British telephone system, and it is installing a computer-driven telephone information service in West Germany.

IBM's moves into telecommunications will put it squarely in competition with American Telephone & Telegraph, now the world's biggest company. An extended battle between the two giants seems inevitable in the area where computers and communications overlap to create the Information Age. Once the separation of A T & T from its regulated telephone units goes into effect next January, the company will be able to use its Bell Laboratories and Western Electric facilities to develop products to compete direct ties to develop products to compete directly with IBM. AT&T through the new American Bell is expected to introduce computers next year, and it already has the capability of offering a wide range of data-processing services similar to those IBM provides.

In that upcoming clash of the titans and the continuing fight for the world computer market, IBM will be tough to beat. Its resources--human, technological and financial--are enormous. Its ability to combine salesmanship and service with research and innovation is unmatched in the U.S., perhaps anywhere. At a time when the rallying cry "Small is beautiful" can be heard even in business circles and when some critics charge that large corporations are inherently inflexible, IBM has shown how to be a successful colossus. --By John Greenwald. Reported by Bruce van Voorst/New York, with other bureaus

*Sample lyric: "Our products are known/ In every zone/ Our reputation sparkles like a gem/ We've fought our way through/ And new fields we're sure to conquer too/ For the ever-onward IBM."

With reporting by Bruce van Voorst/New York This file is automatically generated by a robot program, so viewer discretion is required.