23 Jul 2001  Research & Ideas

How the Giants of Enterprise Seized the Future

What do great innovators of the past have in common? "They live in the future," according to HBS professor and business historian Richard S. Tedlow. In this essay, Tedlow describes tactics of master innovators including Andrew Carnegie, Henry Ford, and Charles Revson, and finds key lessons for executives today.

 

The distinguishing characteristic of the giants of enterprise is that they live in the future. And the future for them is not some fantasy world where trees grow in the sky. It is real—it has a concrete existence in their minds. Why? Because to the giants of enterprise, the future is not something that just happens. It is something they create.

The examples are legion. Robert Noyce invented the integrated circuit on a silicon substrate because the hand work involved in manually connecting lots of tiny wires annoyed him. He co-founded Intel in 1968 with Gordon Moore because he wanted to work at a company that would act as an avenue rather than a barrier to his vision of the future of technology. It was Noyce's silicon integrated circuit that gave "Silicon Valley" its name.

Andrew Carnegie's career provides a guide to the technological frontier of the second half of the nineteenth century. From a bobbin boy in a steam-driven textile mill, where he was paid $1.20 a week, he moved on to a telegraph office, then to the Pennsylvania Railroad, and eventually to the gigantic complex of mills on the Allegheny and Monongahela Rivers that was Carnegie Steel.

To the giants of enterprise, the future is not something that just happens. It is something they create.
—Richard S. Tedlow

A born empire builder, Carnegie could see in the early 1870s that steel was destined to transform the material basis of civilization. Market conditions in any one year (never mind a "quarter") exercised no influence on his investment strategy. He believed that conservative funding was called for in an industry in the midst of technological transformation. Therefore, he always had cash in a depression. He could build when others could not. He could build less expensively than others. Result: Carnegie Steel became the low cost, high quality producer of a commodity vital to the creation of the modern world.

Carnegie sold his company to J.P. Morgan, who used it as the fulcrum for United States Steel, in 1901. Carnegie realized $300 million from the sale. Morgan said: "I want to congratulate you on being the richest man in the world." He had come a long way from $1.20 a week.

Not every giant of enterprise started life with a clear idea of where he was heading. When George Eastman was forced to enter the business world at the age of fourteen because his father had died and his family was running out of funds, he said that "All I had in mind was to make enough money so that my mother would never have to work again." His first job was as an office boy in an insurance firm. His responsibilities included cleaning out the cuspidors.

Eastman saw an opportunity to democratize what was in his youth the "black art" of photography. When he got interested in cameras in 1877, they were expensive (costing about $50), extraordinarily complicated contraptions requiring considerable ability to operate. In 1900, his company, Eastman Kodak, brought out the Brownie. Price: $1.00. And easy to use. As the famous slogan of the product announced: "You push the button. We do the rest."

It took time for Eastman himself to grasp the profit potential of democratizing photography. But once he did, he exultantly said that he would rather have his camera than the telephone. It was not long after he began his career that his mother never had to work again.

When Sam Walton opened his first five and dime store in Newport, Arkansas, after being mustered out of the Army in 1945, his goal was to become the most successful variety store operator in the state. But his innate talent kept bursting the bounds of his own vision. After Wal-Mart had made some progress, one of his executives asked: "Well, now, Sam, how big do you really want this company to be?" Replied Walton, "We're going to take it as it comes, and if we can grow with our own money, we'll maybe add a store or two."

Sam Walton died in 1992, a year in which Wal-Mart ran more than 1,900 stores with over 430,000 employees. Sales topped $55 billion, making it the world's largest retailer, and profits approached $2 billion. Walton was the richest man in the nation. He was probably the greatest merchant in history.

Walton had a secret weapon. Humility. He had a natural respect for those 430,000 people who worked for him. This was exhibited not merely through words but more subtly as well. They knew he respected them through his aura, through a "feeling tone" he engendered around himself. He truly—passionately—believed you could learn from anybody. Because ordinary people knew that, they taught him all they could.

Humility was a trait which no one ever accused Charles Revson of possessing. Abrasive and cruel, Revson was a tyrant at the company he built. He was also a gifted entrepreneur. Revson founded a nail polish company, Revlon, on March 1, 1932, in the depths of the depression with paid in capital of $300. When he died in 1975, the market capitalization of Revlon was almost a billion dollars, and Revson was immensely wealthy.

As personalities, he and Walton could not have been more different. Walton, the optimist, could light up a room. Revson, the pessimist, could light up a room by leaving it. But they did share one trait—a characteristic which paved their way to business greatness. They both understood that new technologies could leverage their abilities.

It is generally agreed that Wal-Mart would have been impossible to manage so efficiently without state of the art, computerized data processing. So Walton authorized investments in it. Wal-Mart had a satellite as early as 1983.

For Revson, the new technology was television. He sponsored the famed, and infamous, quiz show The $64,000 Question in 1955. It is difficult, so many years later, to realize what a radical departure television advertising was for a man and a company which had flourished in a world of high-fashion, rather odd looking models selling dreams in the pages of upscale women's magazines. Indeed, when Revson first saw The $64,000 Question, he was angry with his advertising agency for buying it. There was no glamour, no mystery. The advertisements were plain vanilla.

However, giant of enterprise that he was, Revson did not fight the future, he welcomed it. He took his company public the year the show premiered, and the IPO's success was so great it was almost embarrassing.

Unlike Walton and Revson, Thomas J. Watson, Sr., the founder of IBM, and Henry Ford were in businesses that were technology-intensive by their nature. Both men shared with the other titans in this book a belief in the future.

Watson had two decades of business experience by the time he became chief executive of Computing-Tabulating-Recording (C-T-R) in 1914. The situation he faced was not encouraging. He had just been fired, quite unfairly, from the National Cash Register Company and was under indictment for criminal violations of the Sherman Antitrust Act. There was more than one raised eyebrow when he took over at C-T-R.

Undaunted, Watson set about to build the company—which he re-named International Business Machines in 1924—into the colossus it became. With his eyes on the future, he drastically pruned the company's product line, jettisoning items that held little promise and concentrating on data processing. The most important decision any company ever makes is what markets it will serve with what products. Watson was absolutely right about where the future lay.

From the first, with no particular basis for the assertion, Watson endlessly repeated to his employees that "IBM is not merely an organization of men; it is an institution that will go on forever." Despite some pretty sharp ups and downs, IBM is still very much with us. Why? A key reason is that Watson instilled in the firm's marrow the importance of change.

In 1954, still running the company at the age of 80, Watson attended a presentation on new products. He declared that what he saw was revolutionary and would transform the business. If IBM were to be immortal, it would only be because it never rested.

Henry Ford's career bears some interesting similarities to Watson's. Ford built his first automobile, the quadricycle, in 1896. Many people at the time thought the automobile was a mere plaything for the rich. According to the president of the Carriage Builders Association, 350,000 carriages were sold in New York City alone between 1894 and 1899 compared to 125 cars. The idea that the automobile would someday replace the horse and carriage was, he declared, "a fallacy too absurd to be mentioned by intelligent men."

Ford disagreed. The Ford Motor Company was founded in 1903. Ford was not a young man. At 40, he was the same age that Watson was when he took control of C-T-R. Ford exhibited the same future-mindedness, resilience, and flexibility during the remarkable first decade of his company's history that characterized Watson's career. The result was that following the Models A, B, C, F, K, N, R, and S came the Model T in 1908, the car that put America on wheels and made Ford a billionaire.

Unlike the other giants of enterprise portrayed in Giants of Enterprise, however, Ford thought that history stopped with the spectacular success of this product. He became inexorably more tied to the past as he aged. As late as 1943, he was talking about returning to the Model T. Thanks to this attitude his company almost collapsed.

What lessons can we learn from these remarkable stories?

The first one brings us back to our major theme—an orientation toward the future. When a giant loses that, he becomes a pygmy, which Henry Ford's pathetic later years illustrate.

Other lessons which the studies of these men teach (but which considerations of space allow only brief mention of here) deal with: 1. The derangement of power; 2. The price of success; and, more generally, 3. The American business tradition.

1. Lord Acton taught the world that power corrupts. These giants of enterprise teach us also that power deranges. Think of the word giant. It describes someone bigger and taller than the rest of us. The world looks very different from that perspective than from the way it looks to more average folks. Some things a giant can see clearly because he has a higher vantage point. Others he can not see at all. His vision is further distorted by spending a lot of his time with other giants and by attracting courtiers around his feet.

Giants lead lives that are privileged in many ways. Their view of the world is distorted as a result.

2. The price of success has often been high. To become a true titan, it often happens that a person has to choose between what is best for himself and what is best for others. He may have to abandon people who have helped him at one stage of his career in order to succeed at another. Such choices—such moments of truth—are fraught with drama, the drama enacted in the conflict between being great and being good. The two have often proven hard to reconcile.

3. The American business tradition is that there is no American business tradition. If you are talented and driven—if you allow nothing to stand between you and the fulfillment of your destiny—you have a chance to become larger than life. If, that is, you are included in a set of people allowed to play the game.

It is no accident that all the giants in this book are white men. It is inconceivable that an African American or a woman could have done what Andrew Carnegie did when he did it. When Carnegie immigrated in 1848, there was slavery in the United States and women's rights were sharply limited.

Even today, not everyone has an equal chance to make a lasting mark on the world through success in American business. But the "golden door" referred to at the base of the Statue of Liberty is opened more widely today. Oprah Winfrey has risen from nothing to great wealth and global influence. Her impact transcends gender, race, and national boundary. This is a new phenomenon, inconceivable in Carnegie's day.

Capital, in the words of a former President of Mexico, has no heart. But it does not have any biases, either. A truly capitalist society has plenty of defects, but it has its share of virtues as well. The desire, the demand, for high returns on invested capital can break down many a prejudice. That is the road the United States has been travelling—too slowly—since Carnegie's time.

Tedlow's latest book, Giants of Enterprise: Seven Business Innovators and the Empires They Built, was published in November, 2001 by HarperBusiness.

Other books by Richard Tedlow

New and Improved: The Story of Mass Marketing in America. 2nd ed. Boston: Harvard Business School Press, 1996.

The Rise of the American Business Corporation. Chur, Switzerland: Harwood Academic Publishers, 1991.

(with Alfred D. Chandler, Jr.) The Coming of Managerial Capitalism: A Casebook on the History of American Economic Institutions. Homewood, Illinois: Irwin, 1985.

Keeping the Corporate Image: Public Relations and Business, 1900-1950. Greenwich, CT: JAI Press, 1979.