SIS has a remit to conduct espionage activities overseas, as opposed to MI5 which is charged with internal security within the United Kingdom. It was founded (along with MI5) as part of the Secret Service Bureau in 1909. Its first director was Sir Mansfield Smith-Cumming, from whose initial the codename used by him and all subsequent directors of SIS, "C" (not "M" as in the James Bond stories), originated (he usually dropped the "Smith").
Its first significant test came with the First World War, during which it had mixed success. It was unable to penetrate Germany itself, but had some significant successes in military and commercial intelligence, achieved mostly with agent networks in neutral countries, occupied territories, and Russia.
After the war its resources were greatly reduced, and the organisation became MI6 in 1921. It began to operate mainly through a system of sometimes-grudging co-operation with the diplomatic service. Most embassies acquired a "Passport Control Officer" who was in fact the SIS head for that country. This gave SIS's operatives a degree of cover and diplomatic immunity, but the system probably lasted too long and was an open secret by the 1930s. In the immediate post-war years and throughout most of the 1920s, SIS was preoccupied with Communism, and Communist Russia in particular. Sidney Reilly was loosely associated with SIS until his capture, and SIS sponsored and supported both his and Boris Savinkov's attempts to bring down the Communist regime, in addition to running more orthodox espionage efforts within Russia.
Cumming died (in his office) in 1923 and was replaced as "C" by Admiral Hugh 'Quex' Sinclair, whom historians agree to have been far less effective as a director. He was not incompetent, but he did not have the advantage of Cummings' force of personality, and was unable to command the respect and obedience of his men as effectively as Cumming had.
Along with the rest of the intelligence community and the wider government, SIS switched focus in the 1930s to Nazi Germany. Again its success was rather modest; although it did acquire several quite reliable sources within the Government and also the German Admiralty, its information was probably less comprehensive than that provided by the rival network of Robert Vansittart, the permanent undersecretary at the Foreign Office.
'Quex' Sinclair died in 1939 and was replaced as "C" by Lt. Col. Stewart Menzies. Menzies was another run-of-the-mill chief; by common opinion, SIS did not have a head of Cummings' calibre until Dick White, in the post-war era.
During the Second World War, SIS was overshadowed in intelligence terms by several other initiatives, including the massive cryptanalytic effort undertaken by GC & CS (the bureau responsible for interception and decryption of foreign communications) at Bletchley Park, the extensive "double-cross" system run by MI5 to feed misleading intelligence to the Germans, and the work of the Photographic Reconnaissance Unit. It was also affected by the inflammatory activities of the Special Operations Executive, which tended to increase the danger to its own agents. Its most famous operation of the war was a spectacular failure known as the Venlo incident (after the Dutch town where much of the action took place), in which SIS was thoroughly duped by agents of the German secret service, the Abwehr, posing as high-ranking Army officers involved in a plot to depose Hitler. After a series of meetings between SIS agents and the 'conspirators' at which SS plans to abduct the SIS team were shelved due to the presence of Dutch police, a meeting took place without a police presence, and two SIS agents were duly abducted by the SS. This failure tarnished the service's reputation considerably.