From the moment he heard about the project at IBM in the fall of 1980, P. D. (Don) Estridge wanted in.
"I knew what I wanted to do from the very first minute," says Estridge, a 22-year company veteran, "and I never doubted that it would be done." The catch was that nobody at IBM had ever done anything like it before.
The project was IBM's crash effort to develop and market a premier personal computer system in less than 18 months. Backed by a top-level commitment, Estridge's Entry Systems group transformed the IBM Personal Computer from a gleam in management's eye to the fastest-selling personal computer in the country in three years. IBM literally can't make enough machines to keep up with the demand.
By 1988, analysts predict, IBM's PC will become a $7 billion business for the company. The machine and its associated software and peripherals, will be a cornerstone of IBM's future profitability.
The IBM PC is just the beginning. Next month, IBM is expected to introduce its much-ballyhooed but still secretive personal computer code-named "Peanut," believed to be a stripped-down version of the PC. The basic machine, without a monitor or printer, is expected to retail for under $900, less than half the price of a basic PC.
It will mark IBM's first true foray into the consumer market, a lucrative but rough-and-tumble arena where IBM has yet to successfully compete. Other companies--like Texas Instruments and Atari--have already been scorched by the wild price-cutting and intense competition.
Still, as Damon Runyon used to say, "The race isn't always to the swift nor the battle to the strong--but that's the way to bet."
According to Estridge, the Entry Systems division he heads has several other products under way. "My staff and I act in the role of venture capitalists," says Estridge, "and we're funding several groups. They each work as a close-knit team; they're autonomous and they have their own resources. Is time important to us? You bet it is. The average project time frame is 12 to 18 months."
That means that IBM can be expected to have several new products on the market within a year. Speculation centers on peripherals for the Peanut and the PC--as well as the possibility of a new portable IBM PC.
IBM is also known to be exploring the idea of setting up telecommunications networks to link its PC and Peanut owners together for such services as electronic mail and data base retrieval. The company is already working with several banks--including New York's Citibank--for using the PC as home banking terminal.
"I think IBM will compete on function," asserts Michael Shabazian, who worked with Estridge at IBM and is nowpresident of Computerland USA, the personal computer chain. "It's not a me-too strategy. The company will take an innovative approach to things. They're getting so aggressive that nothing surprises me anymore."
Peanut will be the first new venture from Estridge's group. Except now it's no longer just a group. The success of the IBM PC transformed it from a project level enterprise to a full-fledged division in less than two years--a corporate metamorphosis virtually unheard of at IBM.
But the changes run deeper than organizational structure. Estridge and his people have radically altered IBM's image. The company--the eighth largest in the world--was always seen as the powerful giant of computerdom, if a bit too stiff around the joints. Now, observers feel that IBM, by deploying in-house entrepreneurs like Estridge, can be as nimble as it is big.
"Don Estridge's operation has changed the character of IBM," asserts Michael Dertouzos, chairman of MIT's computer science department, "Now, like 007, it is licensed to kill."
Actually, IBM prefers the gentler persona of Charlie Chaplin over the cold-blooded ruthlessness of a James Bond to convey its new image. But the substance behind the image is IBM's aggressive desire to serve all aspects of computerdom--even if it has to break its bureaucratic rules to do so..
By entrusting the PC project to Estridge, who in 1980 was more of a project manager than a key executive, IBM did precisely that. Estridge's group became the corporate "ad hocracy." Thus far, the return has been worth the risk.
Earlier this month, Estridge was made president of Entry Systems. a multi-billion dollar enterprise that manufactures and markets many of IBM'S "low-end" machines. Observers both inside the company and out say he is on the corporate "fast track" by virtue of the way his team pulled off the PC.
Estridge's office in Entry System's Boca Raton headquarters is festooned with bits of Chaplin paraphenalia; little Chaplin dolls, bowler hats and canes are strategically placed throughout the room. Estridge himself looks like your prototypical IBMer: tall, gray-haired, a ready smile, plus that dose of self-assurance that marks the successful IBM executive. The one weakness he confesses to is being "a little too confident."
"If I were to write a textbook explaining what we did on the PC," he says, "I wouldn't buy it. This was a once-in-a-lifetime kind of deal."
On the surface, that's probably a very accurate assessment. But the fact is, Estridge fully expects to replicate the PC's success with other projects hatching at Entry Systems. The critical lesson the PC project proved to top management is that the company could move hard, fast and with outsiders and still preserve its standards of quality.
IBM is a vertically integrated company with a tightly woven corporate culture. One-on-one salesmanship is the key marketing approach. The motto "IBM means Service" is gospel. That's why Estridge's approach to the PC was unique: He decided IBM would employ outsiders, not just to help design the machine, but also to distribute and sell it. Going outside put the service ethic at risk.
"Picking the direction was kind of easy, to tell you the truth," says Estridge, "There was unanimous agreement that the PC required sales channels outside of IBM.
"We already had 'Product Centers' but there wouldn't be enough of them to sell enough machines to get the returns we wanted. We needed more stores. We didn't have the choice to make."
The company went to consultants to see if it could learn how to transmit its service values to outside distributors.
"We want to be partners in spirit with the retailer," says Estridge, "we want to get them into that mindset. Structurally, we insisted on things like bench space, test equipment, a five-day school. If he does all of these things, he tends to be a better businessman. That's the underpinning of the whole thing--to provide the best possible service to the consumer."
By working closely with Computerland and Sears, the first and most important of the PC sellers, Estridge's group soaked up a sense of what "ordinary" consumers are like.
IBM broke its mold on selling the PC; it did the same in designing it. IBM's PC was the first in the market with a 16 bit microprocessor, making it much more powerful than its 8 bit competitors and giving it extra value for its premium price.
Most important, IBM threw open the specifications sheets and encouraged third-party software designers to support the machines with new programs. The company also encouraged PC customers to send in software samples they had written, and paid them if the company chose to distribute it. The machine swept into the market with a torrent of software and service support. All the pieces were there.
In essence, Estridge turned his group into a fully integrated company that tapped every aspect of a virgin market. But the rules were made up as he went along. "That may be the key to the whole thing," he says, "No matter what your background was, it was breaking new ground. There was no trail blazed at IBM to tell us how to do it. A lot of people found that exciting."
IBM, a company used to selling systems to organizations, had to learn how to tailor its technology to individuals. "The problems marketing PCs are much broader than in other kinds of products," says Estridge, "Its chameleon-like ability to change functions makes it hard to position in the market.
"We had focus groups playing with different types of computers. We weren't trying to figure out who our competition was, we were trying to define what is a personal computer."
With the PC, IBM had a definite advantage: it was marketing to business people. IBM knows business people. Business people know IBM. Consumers, as Estridge agrees, are a different sort of creature. Their expectations for personal computer price and performance are more difficult to determine. While not confirming that IBM's Peanut is waiting patiently in the wings, Estridge concedes that he's bothered by the problem.
"The base question remains what do you do with the thing?," says Estridge, twiddling a wooden clothespin he uses as a paper clip. "While discovery is a wonderful experience, it only goes so far. Ultimately, there has to be some sort of economic equation to justify the purchase. Right now, the equation doesn't work. Business knows the equation but the public is buying into an investment, not a product.
"Right now, I don't really think people have thought about the problem in that way."
Once his people find and solve the variables to that equation, Estridge figures, the consumer will no longer be an obstacle--just the newest brand of IBM customer.
"It's going to be a very exciting market," says Esther Dyson, editor of Release 1.0, a personal computer industry newsletter. "If anybody's got the staying power for it, IBM does."
However, there are serious questions whether consumers will be willing to pay a premium for the IBM name and, more important, whether IBM will be able to position itself as a marketer for the masses as well as the classes. Privately, executives at IBM's corporate headquarters in Armonk, N.Y., express concern that the transition from business customers to home consumers may prove bumpier than anticipated.
But David Stein, executive vice president of the Gartner Group, points out that if IBM wants to continue its blend of growth and profit, the consumer market must be addressed. "The largest market for micros will be for the home," he asserts, "and IBM should be a major player in that market."
Estridge obliquely agrees. "Being a widely known brand name is not a problem for me," he says. "We can be a brand name and people ought to expect us to become one . . . .
"Nobody at IBM goes up to hit singles. We're all trying to hit home runs."