The History of Digital Intelligence - Part Two

In this blog we shall look at the examples from the 60s.

J L Carver 

J L Carver (1964) illustrates how the application space at the beginning of IT use seemed to be clear and tightly constrained. This case demonstrates how IT began in many organisations. It involved automation of accounting and sales systems processes to provide consistent updates, more timely reports, and elimination of accidental clerical errors. Implementing these projects was very time-consuming and expensive. When the projects were ultimately installed and debugged, it was hoped one had improved the efficiency and effectiveness of the organisation. In practice, however, it was almost impossible to prove the projects had achieved the promised benefits because there were always other confounding factors in the environment. This type of project and its benefits, for the most part, did not stir people’s souls, as it was not seen as deeply changing the organisation’s competitiveness. 

Additionally, a significant amount of intellectual power in project execution had to be spent on writing code to optimise use of the scarce resources of computer memory and processing power, versus simply doing the functional tasks. Technologies had not yet emerged where one could use great amounts of additional processing power in running a system with little additional cost. At every step, the organisation was rationing expensive, tightly constrained IT physical resources like memory. This is an example of a problem that was critical to address at one point in time, which emerging technologies blow away. The applications, for the most part, were not exciting. Many of them also had high implementation risk, as they were using untested technologies and triggered enormous changes in internal transaction processes and human behaviour, which had to be managed if the applications were to be successful. 

These applications were also large in terms of dollars and people resources, which required lots of coordination. At best, these applications, if successful, fine-tuned the operations of the firm, but usually did not fundamentally transform its economics or its products. These were mostly support and low factory quadrant applications. Not surprisingly, senior management at J L Carver (like senior management at Harmony Life) had only limited interest in these applications. When they worried at all about these applications, they tended to particularly focus on controlling their costs. Achieving competitive success for the firm was seen as lying in other areas. The people who managed the technical implementation resources were not seen as future leaders of the company. 

J L Carver was typical of the landscape of the 1960s and 1970s. Even at that time, there were, of course, exceptions where the technology was truly transforming for the firms involved. For example, development of oil company reservoir simulation models to uncover new pools of oil and understand their structures was extraordinarily impactful. So also was the work done in large banks and insurance companies in automating what had become mountains of data which couldn’t be handled as the firms grew in size. 

A third industry where IT was vital was the airline industry. The early airline reservation systems were extraordinarily helpful in making operations more responsive and in providing differentiable service to customers. At the head of the list was American Airlines and its SABRE system, its frequent flyer programmes, etc. These were all early examples of the early birds of digital intelligence. For the most part, however, the 1960s and early 1970s were a relatively quiet period in terms of the dramatic impact of IT on the firms. The next two cases capture the enormous threats and opportunities posed to organisations by steadily emerging technology. One is a case of complete transformation of the activities performed by the firm, and the second, a new opportunity created by the explosion of technology pervasiveness.  

William Carter Company (1964) Li & Fung (2002) 

The William Carter Company (Carter’s), in 1964, was a highly profitable company, primarily making pyjamas and shirts for babies and toddlers. Headquartered in Needham, Massachusetts, it had seven factories (all but one located in the South of the USA), and a workforce of 2500. The company had dominant market share. Acquiring their first computer in 1962, they had started automation of scheduling and sales forecasting processes in 1963 to better control the flow of production on the factory floor and reduce inventories of ultimately unsaleable merchandise. The applications were seen by IT and users to be highly exciting and innovating at that time. 

Two cases were written, showing how technology was reshaping various scheduling activities and plant processes of work flow in the plants. However, senior management, while interested, did not see this technology as dramatically affecting the firm’s competitiveness and kept a rather close eye on budget. Alas, the end was not pretty. In 2000 (nearly four decades later), the William Carter (A) case writer joined the board of a large supply chain orchestrator, Li & Fung, headquartered in Hong Kong. Li & Fung and its 30,000 employees primarily make their living connecting manufacturing plants located in China with retail stores located in the USA and Europe, handling the order and product flow between the two. By using Li & Fung, a company like Carter’s no longer needed its own US manufacturing facilities. 

They designed and sold products that were made by the Chinese. On the opening day of orientation for new Li & Fung directors in 2000, the ten largest customers of Li & Fung were described in order of importance. The name of Carter’s was near the top of that list. It was the Carter’s, the baby pyjama and shirt company whose corporate headquarters and sales operations were now in Atlanta. The answer to the question of how that could be, and what had happened to all its automated US manufacturing plants, was brief. They were all closed. The combination of cheap labour in China, reliable, low-cost transportation, and the ability to send online orders from a retail store via Carter’s to Li & Fung (made possible because of new, high-speed, cheap bandwidth telecommunication technology) had completely destroyed the economic viability of the US factories. 

$20-an-hour US labour was now competing directly with $2-an-hour Chinese labour plus shipping costs. Carter’s by the late 1970s, had optimised the processes within its US factories as much as was possible, but new communication technologies had put these factories directly in competition with suppliers 8000 miles away, located in a radically different cost-structure environment. It was not a viable match, and the US plants all closed because they were so much more expensive than the Chinese plants. In every sense, these factories and workers were casualties of information age efficiencies (Digital Intelligence in direct action). 

Ironically, in 2016, sharply increasing Chinese labour costs, combined with higher shipping costs and need for faster response service, is bringing back some factories to the USA. In 2016, textile plants were being reopened in South Carolina, some by Chinese textile companies. At Carter’s, a low-support operation in 1964, became an digitally intelligent operation in the twenty-first century. It required intense senior management involvement to get to a viable structure. Carter’s shows the non-benign side of IT. Big parts of industry now produce better, more cost-effective services and products, but with significant transition pain and job loss. Erik Brynjolfsson and Adam Saunders powerfully capture this societal transformation in their book Wired for Innovation - How Information Technology is reshaping the economy.  

In the next blog we will be looking at the examples from the 70s though 80s until the mid of 2010s.