VideoThe industrial complex that Henry Ford built on the banks of the Rouge River in Dearborn, Michigan, was a wonder of the new age of mass production. Into one end of the plant went iron ore, coal, sand and rubber, brought in by railway and on Great Lakes steamships. Out of the other end rolled Model T Fords. By 1927, there had been 15 million of them. At that stage, Dearborn was handling every step of the car's production, from rolling steel to making springs, axles and car bodies, and casting engine blocks and cylinder heads. The plant even had its own glass factory.
Ford built the Dearborn plant around the labor-saving properties of machines. Automation lowers production costs, which bolsters profits. Companies spend these profits on improving what they sell, and on building more labor-saving machines. As technology advances, these improvements make products more complex. To the basic design, modern car makers add heated seats, air conditioning, guidance and entertainment systems, computer chips that regulate engine performance, and many other gadgets to please their customers. It took 700 parts to make the Model T. Modern cars pack many more into their radios alone.
As industries advance, manufacturers manage the growing complexity of their products by outsourcing: they share the work of making them with others. This enables each company in the production chain to specialize in part of the complicated task. The car industry, for instance, relies on parts companies that make nothing but electrical systems, brakes or transmissions. These parts companies, in turn, depend on the work of other suppliers to make individual components. At each level of production, outsourcing divides up growing complexity into more manageable pieces.
In the office, the tool used to mechanize work is the computer. Computers automate paperwork and hence the flow of information. Companies that sell information products, such as banks and insurance firms, employ computers to automate production. And all companies use computers to automate the administrative work needed to maintain their organizations: keeping their books in good order, complying with rules and regulations, recruiting, training and looking after their employees, managing offices, dealing with company travel and so on.
Bells and Whistles
Like assembly-line machinery, computers save labor, bring down costs and raise profits. Banks and insurance companies have used some of these profits to add bells and whistles to their products, making them more complex. Banks that used to provide basic mortgages now sell fixed loans and floaters, caps, collars, locks and other financial exotica to befuddled home-buyers. Credit-card companies offer loyalty programs, membership rewards and cash-back deals. Insurance firms tailor car and life insurance to fit their customers' appetite for risk.
Corporate administrative work has also become more complicated. The demands of securities regulators and investors for financial information have expanded with the capacity of firms to supply it. IBM's annual report for 1964 contains a scant half-dozen pages of financial information; its most recent one includes 40 pages of financial statements and accounting notes. The more services that corporate HR departments provide to employees, the more employees expect. Ever-more prescriptive accounting and audit rules proliferate as fast as accounting departments can automate the work of complying with them.
The spread of computers through companies has added a third layer of complexity: the task of managing the information systems themselves. The work of company IT departments is particularly complicated at older and larger firms that have bought different sorts of computer systems at different times. The core processing systems of insurance companies, airlines and banks, for instance, are built on a mainframe-computer technology that celebrated its 40th anniversary this year. Companies have added extra systems as they have sold new products, grown abroad or acquired competitors. Most IT departments at most large companies spend most of their time simply fighting to keep this tangle of systems going.
In all three areas of white-collar work, companies are struggling to manage growing complexity. The chief reason for the recent recession in corporate IT spending is that the IT industry's customers are no longer able to absorb new technologies, thinks IBM's Mr. Harreld. Entangled in new products and the computer systems that support them, banks cannot even do something as basic as ensuring that customers who asked one department not to send junk mail do not receive it from another. "If a bank was making cars, every tenth car would come out without a steering wheel," says Myles Wright of Booz Allen Hamilton, a consultancy.
Just as in manufacturing, the solution to the growing complexity of white-collar work is to do less of it in-house. Some companies have outsourced the work of their IT departments, from managing the physical hardware to maintaining and developing business software and managing corporate computer networks. Up to half the world's biggest companies have outsourced some IT work, reckons IBM.
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