Reinventing the Future: How IBM Innovates

by Greg Satell

Last week, IBM announced that it lead the list of companies receiving US patents for the 23rd consecutive year. IBM’s patent leadership is extreme. It not only consistently tops the list, but outpaces the number two company on the list, Samsung, by 50%. That’s pretty impressive.

IBM’s commitment to research goes back a long way, dating to when its legendary CEO, Thomas Watson established the Research division in the depths of the Great Depression. And, while other great labs, such as Xerox PARC and Bell Labs have long since fallen into obscurity, IBM has redoubled its efforts.

Yet there is a notoriously poor connection between patents and corporate performance. Samsung, Canon and Sony, who also consistently perform well on the patent ranking, have fallen on hard times. Apple, on the other hand, which never makes the list, has dominated tech over the past decade. So is IBM a model for others to follow or a cautionary tale?

History of Reinventing the Future

Just about everybody knows the story of Steve Jobs and his triumphant return to Apple. After being essentially run out of the company he founded, the iconic CEO completely reinvented it.  With a new vision for the computer as a hub for devices, he launched the iPod, the iPhone and the iPad and transformed a failing enterprise into the world’s most valuable company.

It’s an incredible story. Yet IBM has done essentially the same thing multiple times. It originally grew to prominence with punch card machines, but then moved almost seamlessly to digital computers when they replaced the earlier technology. In the decades that followed, its foundational innovations in software, computer memory, databases, personal computers and, most recently, cognitive computing led to billion dollar businesses.

Every time IBM entered a new era, it attracted a new set of competitors. Remington Rand rivaled it in punchcard machines. The BUNCH computer companies (Burroughs, UNIVAC, NCR, Control Data and Honeywell) competed for mainframes. Compaq, Dell and a host of others fought for share in the PC market. All are gone or greatly diminished.

In that span of time, our very conception of what computers do has changed dramatically. In the early days, they were seen as strictly calculating machines. With personal computers and the Internet—and more recently mobile computing—they were transformed into communication devices. Now we are increasingly calling on computers for assistance with cognitive tasks.

Those are huge, sweeping changes and not just of technology, but imagination and mindset. That one company spans all of them is sort of astounding.

Expansive Approach to Research and Innovation

We tend to think of innovation as a single event—a flash of genius followed by a revolutionary product or service. But the truth is that the road to any significant innovation is a long and twisted path. First, research must uncover important insights. Then, those discoveries must be engineered into useful solutions and finally, new products and processes must be implemented at scale in order to transform a particular field or industry.

The reason that no one sees it coming is that the next wave is always unknowable. For example, Benoit Mandelbrot’s pioneering work at IBM in the abstract field of fractal geometry may seem far afield from practical business problems, but it’s impacted everything from communication networks to computer graphics.

“You’re never certain as to what’s going to be commercially fantastic” says Bernie Meyerson, the Chief Innovation Officer at IBM whose own work on Silicon-Germanium chips revolutionized the ability for chips to facilitate communication in wireless networks such as Wi-Fi. “That’s why we take an unconstrained approach to research and innovation. We want to know about everything that can help us solve a problem.”

A more recent example is the company’s work on Neurosynaptic chips. Based on insights from neuroscience gleaned over the past few decades, rather than microprocessor architectures, they are achieving up to a 10,000 fold improvement in the power efficiency relative to traditional chips for certain applications, such as visual recognition and object identification.

What’s essential about each of these revolutionary innovations is that they are not confined to any one field or function, but synthesize across domains to achieve something truly different.

Collaboration as a Competitive Advantage

IBM is highly unusual in that it spans all three phases of the innovation process. Scientists at IBM Research win Nobel Prizes and Turing Awards. IBM engineers translate those theoretical breakthroughs into market leading products. The consultants at its Global Business Services division work with clients to use that technology to transform their businesses.

The key to how IBM innovates is that it manages to create collaboration among all the moving parts—not only internally, but externally as well—into a key competitive advantage. Because it actively works across the innovation ecosystem, it is able to see things—and act on them—earlier. Meyerson believes that putting customers at the center is crucial.

Steve Jobs famously said that “people don’t know what they want until you show it to them,” but Meyerson counters, “Our customers can’t tell us about a future that doesn’t exist yet, but they can tell us about unresolved problems and we can get to work on them. Addressing a really grand challenge like Watson can begin 5 or 10 years before the result is seen in public. It was a science project, but with business problems in mind.”

Another way in which IBM collaborates is through its longstanding commitment to open technology. While it often develops new technology on its own, it actively participates in open source communities like Linux and Apache, so that tens of thousands of outside developers can improve on them, freeing up resources that IBM can then focus on solving its clients problems directly.

The company also often contributes patents to open source foundations, to protect the technology. So IBM’s patent leadership has both an offensive and defensive function. It helps create new businesses, but also helps give it freedom of action and avoid patent infringement dustups like the one that’s been raging between Apple and Samsung.

Planning Obsolescence

It’s no secret that Big Blue has had a rough few years. The shift of its corporate customers from on-site installed solutions to cheaper cloud offerings has hit its hardware and software businesses hard. Since reaching a high of $214 a share in 2013 its stock has been pummeled, losing 40% of its value.

Yet the company has not only seen this before, it has prevailed each time. Every technology has a shelf life. Growth markets come and go. Company fortunes wax and wane. What makes IBM unique is its ability to continually renew itself and create new markets. That’s key to understanding how IBM approaches innovation.

While other companies think in terms of quarters or years, IBM thinks in terms of decades—or longer. It’s hardware business may be faltering, but its cloud business is definitely thriving. Its conventional software business is slowing, but it’s also entering a new era for data. Lots of companies are trying to make machines intelligent, but nobody has anything like its Watson Platform.

When you start counting patents in the thousands, it’s easy to get lost in the numbers, but the important thing to remember is that behind each patent is a new discovery that has the potential to lead to a new business. “We want to define the future, rather than become a victim of it,” says Meyerson.

That’s easier said than done, but history would seem to be on their side.

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Greg Satell is a US based business consultant. You can find his blog at Digital Tonto and you can follow him on Twitter.


  1. Yet their revenue has fallen in each of the last 15 quarters and their share price has had a big hit this year. For a company that ostensibly seems to be doing the right thing, the results don’t appear to be baring this out.

    • Well that’s kind of the point, isn’t it? IBM is getting pummeled right now because its core businesses that rely on installed solutions are dying. As I wrote in the article, that’s nothing new. Its happened at least 3 times before (punchcard machines, mainframes and PC’s). That’s got nothing to do with IBM, it’s a basic facet of technology.

      However, its new businesses are growing by 60%-80%. At this point, they haven’t grown large enough to offset the losses in its legacy businesses, but clearly its just a matter of time. Innovation is about creating the new, not protecting the old.

      In the scope of a 100 year old history, 15 quarters is not a significant period of time. We’re still talking about a business that earned $21 billion last year.

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