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Into the Big Blue Yonder

A few years ago, IBM’s vaunted Research division went through a stormy upheaval. But the labs have bounced back, and the future looks bright.

You hear Bernie Meyerson before you see him-a stream of words fired from behind his office door. Then the man steps forth: bushy mustache, curly hair, sharp eyes, a human whirlwind.

If there’s a poster child for IBM Research these days, it’s Meyerson. Bristling with energy and drive, he makes things happen-embodying the changes that are bringing the organization, once a hallowed name in R&D, back from its near-death experience of the early 1990s. When IBM officially dropped a long-unfruitful line of semiconductor research, he conspired with a few key managers and colleagues to go underground, borrowing equipment and calling in chits to keep his project alive. Today, the novel silicon-germanium technology his team invented is delivering processors for cell phones and communications networks with lower power and double the speed of conventional rivals-leaving competitors eating IBM’s dust.

Befitting his new image, Meyerson occasionally sheds his lab vestments and dons a suit-he has two now-to hobnob with the establishment. He carries a new title, director of telecom technology, and oversees more than 100 people spread across research, design, development and production. He knows the semiconductor business, negotiates deals-and he’s in heaven. Meyerson’s answering machine holds myriad job offers. But he’s not budging. “I could have my own corporate jet and a huge staff and all that other nonsense,” he relates. “But it’s not what it’s about.” Instead, he’s taking an idea from nothing into a business IBM expects to hit $1 billion in sales in 2001. “Things like that,” Meyerson smiles, “you kind of live for.”

His employers agree. IBM is hoping new incentives and a fresh outlook that takes researchers into the field to meet customers will encourage more people with Meyerson’s entrepreneurial drive. It seems to be working. After a mid-1990s upheaval that saw the division knock some $120 million off its roughly $550 million annual payroll and scale back basic science, Research is turning around. The division has eclipsed its old budget, soared back to near its all-time high in personnel, with some 3,000 employees, and opened labs in Austin, Beijing and Delhi, making eight in all (see table “The World’s Largest Industrial Research Organization” below). Led by Research, IBM in 1998 won the most U.S. patents for the sixth year running.

What’s more, the rise of the Internet and the fusion of communications and computers play perfectly into decades of research-raw computing power, storage, chips, displays, speech recognition, “data mining” and electronic security-that few companies, if any, can match. Managers admit to some holes in their technological arsenal and struggle to woo talent, especially in the face of high-flying Internet startups. Still, the future seems bright and chairman Lou Gerstner showcases Research as central to IBM’s revitalization, which helped lift the stock market to record heights this spring. “It’s the best time to be in IBM Research perhaps in our history,” proclaims research director Paul Horn. “We had great thoughts, we had great things. But we never had the IBM Corporation maniacally focused on how they could get our stuff coming out there to the marketplace faster.”

The World’s Largest Industrial Research Organization

Lab (year established) Location Staff Core Areas Thomas J. Watson Research Center (1961) Westchester County, N.Y. 1,700 semiconductors, math, physical sciences, computer Almaden Research Center (1986) San Jose, Calif. 480 information storage, computer science, physical sciences Haifa Research Laboratory (1982) Haifa, Israel 280 applied math, computer science, multimedia, VLSI design verification Zurich Research Laboratory (1956) Rueschlikon, Switzerland 180 communications systems and technology, optoelectronics Tokyo Research Laboratory (1982) Yamato, Japan 170 software, computer science theory, networking, system technology Austin Research Laboratory (1995) Austin, Texas 40 advanced circuit design, microprocessor design techniques and tools China Research Laboratory (1995) Beijing, China 40 Chinese language and speech recognition, digital libraries Delhi Solutions Research Center (1997) Delhi, India 30 e-commerce, weather forecasting, deep computing, communications

In addition to this physical organization, Research is divided into five strategy areas that cut across geographical boundaries. Roughly equal in size and authority, the areas are: Services, Applications and Solutions; Computer Systems and Software; Telecommunications Technology; Storage Technology; and Systems, Technology, and Science. Increasingly, researchers form global teams that rely heavily on e-mail and Internet conferencing to converge on problems beyond the scope of operations at the individual labs.

To Hell and Back

IBM opened its first full-blown research lab in 1945 as an act of vengeance. The company had teamed with Harvard graduate student Howard Aiken to fashion the pioneering Mark I computer, then the world’s largest electromechanical brain. But Aiken’s press release ignored IBM’s contributions, infuriating company patriarch Thomas Watson. Out to construct a superior machine, the “Old Man” renovated a frat house near Columbia University, and launched the lab.

From that seed sprang today’s international research organization-the world’s largest. Over the next half-century, a flood of technological and scientific triumphs-including back-to-back Nobel Prizes in the 1980s for the scanning tunneling microscope and high-temperature superconductivity-placed IBM at the forefront of industrial research. But while some advances poured billions into corporate coffers, the company failed to turn other Research creations into big profits. Achievements in relational databases and Reduced Instruction Set Computing (RISC), for example, languished for years in IBM’s pipeline-only to be snapped up and commercialized by competitors such as Oracle, Hewlett-Packard and Sun. Such failures earned Research the reputation of a “country club,” whose members cared little about bringing their ideas to market.

It’s hardly fair to place the blame solely on Research. For one thing, IBM’s historic success with entrenched technologies sometimes made it difficult for the business groups to accept radical approaches such as RISC. And many of Research’s inventions-the first magnetic hard disk drive, for one-did get commercialized by Big Blue. Still, the division’s longtime motto was: “famous for its science and technology and vital to IBM.” In reality, notes Wolf-Ekkehard Blanz, once a physicist at IBM’s Almaden Research Center in San Jose, Calif., and now a manager in Siemens’ medical division, “it was perfectly OK to excel in one” of those two goals.

Things reached a head in the early 1990s, when IBM started hemorrhaging money. In spring 1992, research director James McGroddy focused the division more on the bottom line, establishing a new strategy area-Services, Applications and Solutions-whose members worked directly with customers on specific needs. Foreseeing a management change and worried Research might be considered an ivory tower, he also prepared a report detailing its contributions. McGroddy was ready on April 1, 1993, when new boss Gerstner asked senior executives for a description of their operations. Research was first to complete the assignment-and the Thomas J. Watson Research Center in Westchester County, N.Y., was Gerstner’s initial company stop outside headquarters. After a five-hour tour, the new boss told McGroddy he had served on the AT&T board and watched Bell Labs struggle to help its parent: “I want to thank you for not putting that problem on my plate here.”

Over the next two years, to whip his division into fighting shape, McGroddy reduced his budget 22 percent by cutting overhead and axing redundant or dead-end programs-simultaneously helping Gerstner slash nearly $2 billion from IBM’s $5.1 billion annual R&D budget. It was a painful period. Morale plummeted, many good people left. But the real battle had been won that first day. At McGroddy’s retirement dinner in late 1996, Gerstner confessed he’d considered breaking up the division-farming its pieces out to business groups-until McGroddy’s great first impression convinced him to stay the course.

Research Reborn

Sitting in his expansive office, casually clad in a black mock turtleneck that accentuates the gray in his salt-and-pepper beard, research director Paul Horn is looking happy to have been saved.

And why not? His division is delivering big time on Gerstner’s faith, establishing itself alongside a similarly rejuvenated Bell Labs as one of the world’s premier industrial research organizations. After 25 years of hard labor, the Watson lab’s trailblazing speech recognition efforts are taking off commercially. Two semiconductor projects are also paying dividends. One is Bernie Meyerson’s. The other, announced in September 1997, involves replacing the aluminum used in microprocessors with copper, a superior conductor that makes for smaller and faster chips.

Last fall Almaden lab researchers, whose earlier advances in magnetoresistive data-recording technology (see past issue “The Big, Bad Bit Stuffers of IBM,” TR July/August 1998) enabled IBM to capture 40 percent of the laptop storage market, announced their Microdrive, a one-inch-square storage device bound for digital cameras and handheld computers. Then there’s Deep Blue. Even beyond the free publicity associated with demoralizing chess champion Garry Kasparov, the SP line of Deep-Blue-like supercomputers has emerged as a market leader.

These technologies and others are already generating as much as $25 billion annually for IBM-by one Horn estimate, anyway-and poised to do more. That amounts to nearly a third of IBM’s 1998 revenues. John B. Jones Jr., an analyst with Salomon Smith Barney, says success stems from the high quality of IBM’s research-and its ability to shed once-weighty bureaucracies and speed research advances into production. In semiconductors, for example, Jones says IBM is “bringing their technology to market faster than the competition-faster than Intel, faster than Motorola, faster than Texas Instruments, faster than Fujitsu.” What goes for chips, he adds, goes for storage and other areas.

A few key factors account for this rejuvenation. One lies in the improved focus that comes from having survived hard times and being embraced by Gerstner and the business divisions. Pay raises, bonuses and other incentives-inside Research and company-wide-have been broadened to reflect a team-oriented approach to innovation.

But researchers and managers insist the biggest change is cultural. In the past, says Bernie Meyerson, “we never had the ability to do things in a timely manner around here.” That was because people worried too much about protecting their own turf, he adds, putting up roadblocks to anything that threatened existing products. But that changed under Gerstner, he says. “Lou’s emphasis is, Get the job done, I really don’t care where you sit.’”

Melding Many Machines

Mitch Sein is a big, bearded guy with an infectious smile. But confronted with the typical home entertainment center, answering machine or PC, he’s not happy. Consider the gyrations necessary to navigate these supposedly user-friendly electronics-none of which easily go together. As senior manager of IBM’s consumer systems and software group, Stein takes it personally. That’s why he’s exploring a concept he calls Life Networking, which seeks to blend computing effortlessly into people’s everyday worlds.

In Stein’s Watson lab “family room,” phone messages and e-mail, TV viewing, Web-surfing and other aspects of home control are integrated onto a big television screen. Stein imitates a man returning home from work. His presence is detected, lights come on, and his dormant (but never off) system awakes. “Hello Mitch,” the computer’s voice greets him. “Several messages are waiting for you.”

Although many other companies are experimenting with such systems, few have IBM’s expertise in speech recognition, graphics, storage, processing power and electronic security (see sidebar “The Couple That Computes Together”). It was that extensive technical base, coupled with marketing clout, that brought Stein, Apple’s former director of Human Interface Technologies and a founder of five startups, to Big Blue. At a smaller company, he notes, “I came to the realization that maybe, best case, I’d be able to do one or two point products. But I knew I would never be able to attack the whole platform.”

Deep Thoughts

One answer is what IBM calls “deep computing.” The concept comes from Deep Blue, whose 1997 rematch victory over Kasparov resulted not only from massive computing power, but from dramatically improved chess-playing algorithms as well. It’s that combination of power and approach, applied to vast amounts of data, that defines deep computing.

For IBM, the challenge goes far beyond fun and games. So this May, the company launched its Deep Computing Institute, an umbrella organization that pulls together 100-odd researchers at the Watson, Haifa, Tokyo and Almaden labs. By focusing these distributed talents in computing theory, statistics, computational biology, financial mathematics and data mining-expertise previously turned largely on scientific challenges-IBM wants to solve complex business problems.

One ambitious project under way this spring aims to combine Big Blue’s supercomputer weather-prediction capabilities with energy and financial modeling to help utilities meet power demands more efficiently-even to the point of buying and selling excess capacity on spot markets.

It’s a deep computing problem if ever there was one. IBM isn’t known for weather forecasting. But Deep Thunder-an SP computer outfitted with 3-D graphics and powerful modeling algorithms-can often predict weather in localized areas with greater precision than anything available through government or commercial channels. The system debuted at the 1996 Olympics in Atlanta, where it aided the scheduling of sailing and other weather-dependent events-and helped save the closing ceremonies by predicting that a powerful storm would stay 10 miles from Olympic stadium.

Because weather is central to determining energy demand, even conventional weather forecasts can help utilities use their generators more efficiently. In a program with a midwestern utility that ended last year, IBM researcher Samer Takriti helped develop proprietary algorithms he says can trim 3 percent to 5 percent off generating costs-enough to save the typical utility upwards of $40 million annually. Add in Deep Thunder’s capabilities, Takriti reasons, and the model could get even better; he’s now working with Thunder researchers to do just that. At the same time, recent industry deregulation is spawning volatile energy markets-complete with futures, options and hedging strategies. So Takriti hopes to capitalize on IBM’s years of modeling supply-and-demand dynamics and currency trading to create a system that accurately forecasts energy prices. The company believes the fusion of weather prediction and financial modeling could be applied to agricultural industries, property insurance and other fields.

Even as IBM redirects deep-computing resources from science to business, another vein of research focuses on mining the business of science. An especially hot area is computational biology, which involves analyzing huge databases of biological information to unearth patterns that might point the way toward a new drug or a better crop. IBM dived into this blossoming field in the early 1990s and now has some two dozen researchers assigned to it, with scores more in related areas. One key hire was Barry Robson, who before joining IBM helped launch several computational-biology ventures and conceived a computer system instrumental in creating a test for mad cow disease. Now strategic adviser to IBM’s Computational Biology Center, Robson says that through clinical drug trials and decades of genetics research, scientists have amassed stockpiles of biological data that today’s powerful computers and sophisticated algorithms can finally begin to decipher. “My passion is to really see it become an everyday applied discipline,” he adds.

IBM’s biggest publicly announced effort-an agricultural genetics program launched with Monsanto in January 1998-revolves around Teiresias, an algorithm that can scour vast protein or gene sequences to find repeated patterns that might code for similar functions in different molecules. Monsanto hopes Teiresias, named after a blind seer in Greek mythology, will hunt through its proprietary databases and speed the identity of genes responsible for improved yields, higher nutritional content or pest resistance.

The initial deal concluded this spring. Under a new agreement that runs through 1999, IBM will also use the algorithm to look for patterns in the far larger public databases maintained by the National Institutes of Health and other government organizations. Beyond the discovery of new genes, the company hopes Teiresias will turn up unsuspected commonalities across protein families that will enable scientists to design drugs to attack a wide variety of ailments.

But Can Big Blue Boogie?

Shortly after taking over as research director in 1996, Paul Horn changed the division’s motto. Out went the phrase, “famous for its science and technology and vital to IBM.” The new legend simply declared: “vital to IBM’s future success.” Talk about shock. “He took science and technology out of the wording,” recalls Randall Isaac, research vice president for Systems, Technology, and Science. “People were wondering, What does it mean, what does it mean?’”

While the motto change hardly raised eyebrows outside IBM, what it spoke to has dogged the company since the McGroddy days: science doesn’t hold the place it once did. Cherry Murray, director of physical sciences at Lucent Technologies’ Bell Labs, pulled no punches during a talk last December in Washington, D.C. “IBM lost 50 percent of its physics researchers. When you do that, what you had is gone.”

Horn’s people counter that axed basic science projects involved long shots like neutrino detection, which even if successful were unlikely to impact the company commercially. Meanwhile, Research continues to support fundamental studies in key areas of physics and materials science, as witnessed by its storm of semiconductors and storage advances and its explorations into quantum computing and other scientifically risky areas where gambling makes more sense. What’s different from the past-the point of the new motto-is that science is no longer considered an end unto itself, says Isaac. “We still want to be famous in science and technology-but its goal is to be vital to IBM’s success.”

In this view, IBM has an ally in former research director John A. Armstrong. Before his 1993 retirement as vice president for science and technology, Armstrong was McGroddy’s boss. What IBM has done, says Armstrong, is dare to ask, “How much is enough?” The finding that less science will do, he adds, “is deeply disturbing to the national scene.” And though people chastise IBM for scaling back basic studies, he scoffs, “they don’t scorn Intel for never having serious research. Same is true for Microsoft, same is true for Motorola.”

In the end, far more serious than how much science to support are the straightforward challenges of staying nimble and creative inside a worldwide organization. Horn admits Research isn’t as competitive as he’d like in networking and certain Internet technologies, though he won’t specify which ones. But in attempting to beef up these areas IBM must battle the perception that it is stodgy, and, well, uncool.

Since taking over, Horn has moved aggressively to address these concerns. To better compete with startups, an unprecedented number of researchers now receive stock options. A Watson out-building was turned into a gym. The Hawthorne lab got a new entertainment room-the Hawlodeck-rigged for video games, go and chess. In what would have been a sacrilegious act at previously teetotaling IBM, Research now hosts “Summer Fun Days” with live music, beer and wine. Horn’s even hired an activities director to ensure summer interns have fun.

Horn says that these efforts are beginning to pay off in improved recruitment. But at least some potential hires have a bigger question on their minds: Can radical ideas thrive in the new environment? Former IBM Fellow Jerry Woodall, now an electrical engineering professor at Yale University, thinks this is Research’s Achilles’ heel. In their zeal to bolster the bottom line, he says, managers have virtually eliminated curiosity-driven investigations in areas that don’t relate directly to current business needs. Such projects, Woodall believes, could be vital in the future, “the high-tech corporation’s equivalent to seed corn.’”

Gerstner himself had the chance to confront this issue last July, when Research treated 700 summer students to a day of music and brainstorming sessions held simultaneously at its labs around the world. At the Watson festivities, a young would-be recruit said he’d never come to IBM for fear that if he did do something truly different and important it would never see the light of day.

The chairman didn’t miss a beat. Pointing out a curly-headed mustachioed figure in the crowd, he replied: “Ask Meyerson about that.”

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