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The President and Fellows of Harvard College

"The Digital Hand": How Information Technology Changed the Way Industries Worked in the United States Author(s): James W. Cortada Reviewed work(s): Source: The Business History Review, Vol. 80, No. 4 (Winter, 2006), pp. 755-766 Published by: The President and Fellows of Harvard College Stable URL: . Accessed: 30/07/2012 15:21
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Author's Note James W. have surveyed the phenomenal growth of computing and have explored its impact on a wide array of industries. At least that was how I conceived of the project initially. This essay outlines my experience ofwriting and researching the book and describes some ofmy conclusions. Peter Drucker. (Oxford. my research findings caused my views to diverge in creasingly from Chandler's description of the corporation. however. 1996-98). CORTADA is a historian who conducts ment of information technology. often linked to some form tury Hardly In my three-volume book. and the third will come out in 2008. I felt that the project required an examination of the expe riences of a variety of industries. The Digital Hand. 1 Manuel Castells. JAMES W. the corporate world described in The Digital Hand had come to look more like the networked and dif fuse society described by Manuel Castells than the highly integrated corporations of the precomputer era. all under Oxford's imprint. from the 1950s onward. The first volume was published in 2003. Chandler Jr.1 Given that computer applications tend to vary by industry. and others?as a result. I chose the title for the volumes to echo Alfred D. Business Review 80 (Winter History and Fellows of Harvard College. The Information Age: Economy. 2006): dent 755-766. Although managers used informa tion technology to carry out their missions?as described by Chandler. Cortada The Digital Hand: How Information Way Industries Technology Changed the Worked in theUnited States any major business activity at the end of the twentieth cen could be done without computing. I of telecommunications. they began transforming their companies. ? 2006 by The Presi . By the time I reached the end of the twentieth century. one at a time.'s idea that organized business practices and structures provide a "visible hand" of rational operations in a modern economy. documenting exactly research on the history and manage Society and Culture. the second in 2006. 3 vols. He works at IBM. rather than by firm. and often unintentionally. As I worked my way up to the present.

sharing celebrity status with Apple. which meant ulti mately examining anywhere from thirty-six to forty-five industries and their use of computer technology. There were many models of The excellent historical scholarship to follow. 2006). including state and local governments. York. manufac turers of telecommunications products. 2003). and economic behavior could be identified. Everett M. Chandler's being only one. insurance. Cortada / 756 troleum. other transportation industries. so that I could generalize about roughly 70 percent to 80 percent ofwhat all of them were doing. retail. newspapers. wholesalers. and Microsoft had been a "New Economy" business icon for three decades.3 interests of senior executives proved to be another matter. That set of objectives required looking at more than a handful of representative industries. despite their good work. as was Eric von Hippel. for example. such as cell phones and routers. Diffusion of Innovations. The Sources of Innovation . I also believed that I needed to study enough industries to ensure how computers came to be used and their effects on enterprises. such as the software industry. Both historians and executives influ enced the research agenda for this project. My objective was to study enough industries. There was the problem of what to do about the new industries that the computer itselfmade possible. book publishing. pe large industries. 1983). and television? And what about the public sector. banking. 1995. and placed in the context of late-twentieth century business practice. documented. Waves through Information Tech of Change: Business Evolution nology (Boston. 31 have been influenced as well by the work of David E. just as James L. But what about other chemical. business. and SAP?all firms that owed their existence to the computer. I felt that the book had to ad and economic activity spawned by the In dress the new businesses ternet: e-Bay. and even more so by Thomas P. 1880-1930 strategies. however. that patterns of technological. Cisco. telecommunications. During 2 James L. who recently summarized his ideas in Technology Matters (Cambridge. Nye. such as railroads. McKenny. McKenney and his colleagues had done in the early 1990s in their book Waves of Change. especially the fourth and fifth editions of his book (New (New York. inWestern Society. became almost an industry unto itself. 1995). Finally. it became obvious to me that they had barely scratched the surface of the story. Mass. the disk-drive industry. 1988).2 Upon reading their book. particularly by his classic Networks on diffusion (Baltimore. and Internet service providers.James W. I ini tially thought that selecting a half-dozen industries would be sufficient to accomplish the task. the PC industry. of Power: Electrification Hughes. Early candidates for investigation included the automotive. Rogers. and brokerage industries. was also an influence. and higher education? They were all ex tensive users of information technology (IT) and played important roles in the American economy..

leading them to identifywith a specific industry. almost all of it contemporaneous. To address managerial and operational issues. such as the financial. Telecommunications. Transportation. Associations on the number of employees performing various conducted surveys tasks assisted by computing. theWork ofAmerican Cortada.The Digital Hand / 757 the three decades that I had worked with executives in the IT industry. 5James W. 2006). that sell services. industry conference proceedings that provided case studies and lessons learned. In the end. Media. The Digital Hand: How Computers Changed and Entertainment Industries (New York. and indus tryseminars that articulated the benefits and operational details of adopt often promoted the use of computing and ing computing. An enormous amount of research material was available. Their issues also guided my work. theWork ofAmerican Cortada.6 There were four main research questions. Members of the Charles Babbage Foundation. Financial. I organized the book as follows: volume one describes all the industries thatmanufactured and sold physical items. For which applications did enterprises use computers and why? To what extent were comput ers used from one industry to another? What were the results. . media. telecommunications. I began collecting material. 6 James W. including the role of IT. The Digital Hand: How Computers Changed theWork ofAmerican Public Sector Industries (New York. school grades K-12. gathered history study basic questions about the history of this class of technology. law enforce ment. such as defense. or conse How did com quences. 2004). specific agencies. I was always asked ques tions about best practices and about the role of prior experiences. forthcoming). and with many line executives (customers).5 The third focuses on public-sector institutions. of using computing and telecommunications? puting change the organization industries? With these questions and overall functioning of firms and inmind. Manufacturing. Cortada. I turned to publications from the national industry associations themselves: weekly and monthly magazines that described many issues of the day. The notion that firms were "tribal" in their behavior. state and local government. To understand how many firms and industries used specific types 4James W.4 The sec ond surveys those. The Digital Hand: How Computers Changed and Retail Industries (New York. which had established to the Charles Babbage Institute (CBI) at the University ofMinnesota were to who had ask executives of the computing. became the central organizing prin ciple for the study. and higher education. tax collection. and entertainment industries.

That effort defined the context and described the back ground for the study of the use of computing. nearly forty industry descriptions. software from banking. I relied on a large body of gov ernment publications. academic presses. and Rand/Univac the Burroughs and Control Data Corporation (CDC) records housed at conducted studies throughout the period on the use and deployment of specific IT equipment and software. and so forth. Thus. they produced. which included materials produced by the Bu reau of Labor Statistics (BLS) and Census Bureau data on industry size. which appeared in bookstores. software. Many of these studies are stored in archives or were published as articles in contemporary business jour nals. To fill in the details on specific applications at the firm level. I think tanks. and included articles in industry magazines. in effect.James W. research centers like the Rand Corporation and the Brookings Institu tion were also enlightening. requiring. Reconstruction of the role of computers became the next step. industry publi . and tify participated the source of their profits. These associations listed members. insurance firms were different frommanufacturing com panies. Specialized out by the BLS on dozens of industries from the 1960s to the 1980s were particularly valuable. the Charles Babbage Institute. Each industry's experience with computing over the past half century had to be described. I turned to collections at the IBM Archives. and often published weekly or monthly magazines served as a forum for airing industry issues and documented uses of computers over time. also kept IT records. Individual associations and companies. studied these sources to iden consultants and reports by an in what which firms industry.Usually I could establish this by finding the national industry asso ciations. economic analyses. and to track their evolution from about 1950 to the present. such as the archives of the New York Stock Exchange and the Bank of America. and trade-book publishers churned out dozens of books and thousands of articles on this topic. Associations. Then I compiled a list of published sources that described the history and contemporary business issues of an industry. defined their business roles that and segments. Many consulting and marketing firms also of equipment. Recognizing each industry's unique characteristics became critical. and use of various technologies. corporate records for Remington at the Hagley Museum and Library. BankAmerica. The records of various congressional committee proceedings con These quiring scrutiny of the contemporary literature on how to use comput ers (and why) in a particular industry. or applications. Finally. re tain additional information about computing's role in industry. So the first step was to understand what types of firms made up the membership of an indus try. Cortada / 758 studies carried structure.

photocopies of all relevant articles. explaining in of technology. Many government publications were either only available on the Internet or were posted there in addition to hard copy. some dating Industry associations varied in their usefulness. Researchers working on similar projects will have to be adept at using both the printed text and the Internet. use to these works advocated the adoption how computers. This process of collecting materials by industry consumed most of the 1990s and continues unabated. requiring each issue to be perused. Every week I read industrymagazines. with no acknowledgement pling with the same issues. The sources I relied on for this study reflected the broader reality of our working lives. and I collected back to the 1960s. even after completion of the third volume. Because Web sites come and go. including official reports. and the role of telecommunications in banking.The Digital Hand / 759 In addition to cations. CBI had gathered many of the IT industry conference proceedings as well. use of IT in classrooms. as they had begun discussing the role of digital data and information management as early as the 1950s. recognizing that some of these. such as agriculture or real estate. in that some were in paper form. Most economic white papers and many publications from think tanks could only be found on government and private Web sites. Because academic libraries rarely kept older publications on com puters. Most of the industry publications and aca demic articles were still in bound paper volumes. Finding material often required the help of several types of individ uals. and academic publications. while others were already posted on theWeb. Itwas a pleasant surprise to find that the librarians at schools of library science had extensively collected and . Articles on computer use appeared simultaneously that others were grap dozens of industries. I began the project at the end of the 1980s as a long process of col lecting materials on a wide range of industries. technical journals. itwas essential to make elec tronic or hard copies of the posted documents and to state in endnotes the date when they were last accessed online. all published decades ago. would not make it into the final study. online book dealers became the single most important source for contemporary books on such matters as computing in police work. themajority ofwhich were not indexed. LOMA?Life Office a rich library ofmaterials inAtlanta and Management Association?has a staff eager to find information and to help reproduce articles from the preserved old computer-industry conference proceedings.

For example. they would add functions to existing software tools as new releases of the software were issued. all ofwhat eventually became volume one and a third of volume two were written before the publisher agreed to handle the project. when bankers initiated ATM services. They often voiced the same cost justification?and rarely initiated audits to rationale?quantifiable ascertain whether they had received the anticipated benefits. Companies preferred to implement computer use in small. such as moving from using a clerk to take down a customer's order over the telephone to having the customer submit the order via the company's Web site. On the other hand. benefits that were not required to justify the cost of projects. process and quality improvements in the 1970s and 1980s. in their shared manage ment values. industries did not operate in isolation but learned from each other. whether in their accounting practices. management adopted IT in order to improve internal business operations and to lower operating costs. managers treated those activities as welcome. Thus. the American Banking Association (ABA)? one of the oldest in the United States and perhaps themost effective in a blow to scholarship persuading itsmembers to use computers?dealt when itdecided in the 1990s to dispose of its library. since theywere written several years apart.which had been in existence since the nineteenth century. Overwhelmingly across all industries in each decade. Each volume was produced in se quence. but nonessential. in cremental ways that fit the size of their budgets and minimized the risk alike. they seemed to do so all at once within a short period of time. Key Findings of theStudy A set of findings began to emerge as I worked. and . For one thing.James W. However. While much of the literature advocating com puter use focused on expanding marketing and distribution and selling more goods and services. Firms operated similarly across multiple in dustries. Everyone within an industry used computers in the same way to perform the same func tions. suggesting some broad historical patterns that transcended individual companies and industries. Firms and industries incorpo of failure to firm and managers rated computing on a continuous basis. Cortada / 760 dozens of seminars and conferences the Association had hosted over the years. The beginning and concluding chapters of each volume of The Dig italHand had to show some relation to one another: a challenge. Adoption of IT applications occurred in tandem with the fashion able managerial practices of the day: management by objectives in the 1960s. or in theirmanagement of supply chains.

and about a decade later in others. fifteen years later that same manufacturer would share the file with the tire supplier. By the 1990s. and customers had become more inter connected. shed costs. The experience of IT therefore mirrored the shift to a changed way of working and living that historians had documented earlier for automobiles. and uses became more alike. as an application or technology matured. so that by the end of the 1980s. For example. regardless of industry. postindustrial age style of operation that was not yet fully defined. managers embraced speed. for instance. As the technology made it pos sible to linkwork activities. They added applications to a growing list of uses over time. just as word processing systems became more standardized regardless of the brand of software. As the consequences of technological change accumulated. its users Furthermore. Accounting and fi nance and what became known at the end of the 1980s as supply chains were themost nearly universal. Both uses warrant historians' attention across multiple firms and industries. these two classes of use became integrated in an incremental fashion across the decades. they had moved to a way of doing work thatwas profoundly affected by bolic contemporary press so often called it. In other words. the technology itself. and reduced theirworkforces as they increasingly relied on computing. firms had achieved a level of interdependence thatmade it impossible for them to return to practices that predated the arrival of the computer. and the speed of adoption hardly varied throughout the second half of the century. Thus.The Digital Hand / 761 process reengineering and networking in the 1990s. in sisting that the supplier determine what types of tires were needed at individual plants on specific dates. Thus busi nesses and whole industries had moved to a post-Ford. such that by the 1970s in some industries. using an ATM became a similar experience no matter the bank. Thus many vendors had become involved in the design of new vehicles' components. organizations changed incrementally. While "back-office" automation was normally and widely imple standard in their industry. or even supermarkets. but in reality companies were undergoing an incremental evolution in their use of computers. Early adopt ers enjoyed momentary strategic economic benefits as a use became Across most industries." as the hyper . the suppliers were even participating in the design of the automotive firm's new products. The period of time between first adoption and ubiquitous use ranged from three to seven years. suppliers. producers. whereas an automotive manufacturer in the 1960s would post a production schedule on its computer to deter mine the number of tires to order from a supplier. A review of a particular use or firm might lead one to the conclusion that there had been a "revolution. electricity.

an application became less of a differentiating factor and con ferred fewer benefits on the original early adopter. but even the latter changed and later other countries. Hence. and their rea . By the 1990s. multiple regulatory practices and requirements. ATMs. for example. Over time. Apparently they knew something that the economists did not. With the passage of time in an industry. Exam ples were the online airline reservation system SABRE. the technology delivered the performance that these managers wanted. the earliest adopters encoun tered more problems in implementing a novel application.g. which led me to conclude that historians and other scholars should look at the industries themselves. an exception being the U.James W. the advantages of novel initiatives disappeared quickly as other members of an industry adopted the systems and altered them. vari ous surveys of "best practices" made it possible to quantify the eco nomic and operational benefits of IT. A key finding of the project that I uncovered was the resemblance of industries to ecosystems. Nearly all the indus tries that I looked at underwent this experience. and not just at individual firms. a "digital style" was emerging inwhich managers became accustomed to using information housed on computers.S. and preexisting online soning in deciding to acquire specific technologies. While late adopters of a new use tended to enjoy fewer competitive or economic benefits. and even the use of barcodes in the grocery industry. their use of IT. some transaction-oriented applica tions were revolutionary at the time of their initial introduction. they relied so much on IT that itbecame part of the normal operations of industry. applications. bases its operations on industry influence.7 In the 1980s.. such as the Internet. However. managers of firms did not hesitate to acquire ever more amounts of IT and telecommunications. At the most basic level. extensive sharing of data (e. Thus itwas possible to create industry matrices that de scribed their overall style of operations. these studies revealed that outsourcing could be rapidly accomplished by leveraging existing technical infrastructures. Common patterns of IT adoption varied widely between industries. or needed. The features common to banks would include active. Cortada / 762 mented in an incremental fashion. and deployment ofmany technical standards that are shared and embraced by all members of 71was thinking ofmissiles and atomic bombs. Over time. for check processing). influential indus try associations. IT adoption thus illustrates the path-dependency phenomenon. acquired them. military with itsmost advanced weapons systems. but they nonetheless showed homogenous uses of technology. as economists began debating whether computers improved a nation's productivity. Banking. as the Soviets.

or vendor of banks or similar industries to pay close attention to regulators. but that banking. re tailers. Banking. Such a project would have to be tested on an industry-by-industry basis. had to conform to American methods. However. which feasible for have long histories of extensive IT use and a propensity to organize and communicate among themselves at the industry level. work closely with their industry associations. Thus industries dominated by American firms. however. software. Japan. Can research on other countries' industries match the degree and intensity of our studies of American industries? Business and economic historians consulted for this project normally answered no. that American corporations imposed their uses of IT on their employees in other nations and increasingly on suppliers outside U. bar codes in retailing. transportation. We know that manufacturing generally functioned in the same way. and even collaborate with other mem bers of their industry to accomplish important reforms.The Digital Hand / 763 the industry. for instance.S. 1990). they hold up well. Jr. and telecommunica tions. Often banks and similar groups developed new industry-specific applications of IT. How well do the findings apply across all industries. and CAD/CAM software inmanufactur ing. however. I suspect. It is certain. semiconductors. we cannot assume that the retail in dustry has operated in the same manner in France or Japan as U.. But such a research agenda may be Western Europe. new questions surfaced that are still unanswered. which are important sources of inno vation that are often overlooked by historians of technology or business. agriculture. but rather by industrymembers themselves. A second genera tion of young historians working in Europe is beginning to explore pos sible areas of study in the business history of IT. or government had not necessarily followed suit.These features require themanager.. some of themost important IT innovations were often not conceived by the vendors of computers.much theway Chandler researched Scale and Scope. both in the United States and in other countries? For most U. So it is not clear that we can generalize about activities in other countries based solely on the ev idence provided about the United States. such as petroleum. borders.8 8 Alfred D. indus tries.S. Australia. did not. thuswarranting further study. Mass. software. Scale and Scope: The Dynamics of Industrial Capitalism (Cam .S. Chandler bridge. who requested ven dors and universities to develop new applications or technologies. finance. and software. there fore. As I proceeded with the project. that theywill be severely hindered by the lack ofmajor collections of ar chival and contemporaneous publications inEurope. probably even one country at a time. and New Zealand. In short. such as the modern check in banking. relies heavily on task forces. firm. but those in telecommunications.

James W. which was not always easy. Even contemporary textbooks that describe the activities of firms in any industry often proved to be inadequate or had to undergo multiple editions as functions evolved over time. Some of these. diverse explosion of new cent scholars have demonstrated. Cortada / 764 I originally anticipated that the technological characteristics of the machines and software would require more attention than the question of how the technology came to be so widely deployed. 9 Joanne .9 An essential task that I undertook was understanding and reveal ing the ways inwhich an industrymade money. Structuring the Information Age (Baltimore. the largest firms often were the most innova tive early adopters of a new information technology or use. a half-dozen firms have dominated their industry. and tailors the size and proportion of its staff and fund ing to its own needs. and health. which might be more accurately classified as consumer products. as re industry's computing might companies. breakup complex. they frequently either failed to succeed (as happened with so many dot-com Yates. and services that still confuse "themarket" as new technologies and products appear. They could most afford to experiment. 2005). Invari ably. Each type of insurance. have maintained omy. Computer Company. However. Arthur L. for example. Norberg. space study concentrating on a particular use of examine its technical issues. property and casualty. Learning about insur ance companies. Mass. as occurred in and pe the movie industry. and once they had proved the value of a cer tain digital application. changed radically in 1984 with the breakup of the nation's AT&T. seem not to belong to the telecommunications industry at all. In these industries. such as life. or even. 2005). Engineering (Cambridge. they had the resources to blanket their industry with the new offering.. I was issues required more surprised to realize that business and managerial A than technical discussions. nearly monopolistic telephone service provider. 1946-1957 Research Associates. at Eckert-Mauchly and Management and Commerce: A Study of Technology Computers and Remington Rand. Although many small firms experimented and often were touted in the trade press as the next wave of the future. meant uncovering the sources of their in come and outflows and tracking their allocations of employees and assets. like cell phones. industry niches. has its own cost structures and dis gopolistic throughout the second half of the twentieth century. as in the case of pharmaceuticals a stranglehold on their portion of the econ troleum. as are state and federal government agencies. Retail and commercial banking are quite different too. Telecommunications represented themost extreme structure since its case. Its an unleashed enormous. Another realization that came as a surprise tome while Iwrote these books was the degree towhich theAmerican economy had remained oli tinct products.

One could argue that computing reinforced oligopolistic economic behavior. because the tech nology made it possible for larger firms to absorb rivals and integrate them quickly into their operations. var I found that regulators ious wireless media. regulators wanted to promote the use of specific tech nologies.0 (New York. and telecommunications. however. though research is also being directed toward public institutions. (Oxford. A recent survey conducted by IBM and the Economist In telligence Unit confirmed that consumers rather than the private sector constitute the frontier for new computer uses in the United States. Often discussions within business circles today are less about new applications and more about how to replace aging. formulated many Act of 1996. 2006). Information Society. Addi tionally.10 My own work reinforces Lessig's views. particularly in the second and third vol umes. one can reasonably con clude that computing is now ubiquitous in both the public and private sectors. 2nd ed. such as the Internet by schools and on-line commerce in the 1990s. Related to the of the elements of the Telecommunications influence of regulators was the role played by Congress. 2006).11 It has become increasingly difficult to recall a time when computers were not integral toAmerican business. Theories of the Deployment of computing across the American economy has been pervasive. by Lawrence Lessig. much along the lines described. a routine event in the pharmaceutical and software industries. This study confirms that until the chronology of an industry is ex amined. 2005). Lessig. for example. in collaboration with the Congress.The Digital Hand / 765 firms) or were simply swallowed up by the larger ones. it is not possible to appreciate fully the pervasive influence of regulators in the evolution of IT inAmerica. balanced the needs of markets against state-mandated imperatives. al . and thus behaved much as Frank Webster describes. where I describe how specific regulatory practices have directly affected the actions of telecommunications and education in kindergar ten through the twelfth grade. a common occurrence in the life insurance industry after 1980 and in some portions of the telecommu nications industry at the end of the century. Regulators determined the timing of new business offerings. Their control over the direction of telecommunications was evi dent when the FCC. such as online banking and brokerage services. Code: Version 2. particularly in the context of themyriad laws governing opportunities in banking. expensive IT in frastructures. Rankings 10 Lawrence Frank Webster. On the strength of the evidence. 11 The 2006 E-Readiness (London.

late 2007. or chapters in the detail that historians expect but that I could not always provide. nothing would satisfy me more than the news that The Digital Hand had become woefully out of date. Babbage I hope this will industries. can possibly serve as a template for con While The Digital Hand on further business studies issues. often according to period or application. fifteen help years. Every sentence that I wrote felt like a headline. be cause the publication had to be limited to three volumes. When this project is completed in . a on start to In to twenty others fast achieve their work. demanding the backup paragraphs. So there is room formany more related studies.James W. pages. Cortada / 766 the files on which it is based will be deposited at the Charles where theywill be organized by industry and within Institute. it could just as easily lead ducting other investigators to conjure up different approaches. By no means does my work cover the subject.