Creating a LAN within a single office was the easiest step because the office could buy compatible equipment and network software. Also, it was relatively easy to install a broadband (high capacity) communications line within an office.
Today, local area networks, LANs, are widespread. To understand the their gain in efficiency, let us review the technological advances in an office. The technological revolution of the 19th century was the typewriter. The creation, filing, and transmission of documents and letters on paper were labor intensive operations. The introduction of wordprocessors into the office increased the productivity of secretaries by a factor of four. However, as long as wordprocessors remained standalone devices, paper remained the primary media of communication. Technological advances such as laser printers primarily function to produce better paper copies. The volume of paperwork increased not decreased.
The move towards reducing paper depended on linking all office equipment into a LAN so that filing and communicating documents can be performed automatically by software. For example, this reduces the flow of paperwork throughout the office because messages and documents can be sent E-mail. Today some institutions such as USAA are moving to have all paperwork transferred to electronic memory when it enters the office. At USAA, worker at their workstations in their client-server networks can retrieve the complete file for any customer. The rapid growth of LANs is now just beginning to decrease the flow of paper, this assertion is reflected in the fact that the number of administrative support workers peaked several years ago at 19M workers.
Now let us consider an example of how technological innovations on paperwork processing reorganized the role of workers. Paperwork administration in offices prior to the computer was generally organized in paperwork assembly lines. Each person was responsible for a single box on a form. This approach was very inflexible and errors were hard to detect and, thus, correct. With the introduction of mainframes, the paperwork assembly line was entered into the mainframe as a batch job. A major technical advance was linking hundreds of terminals to the mainframe coupled with much better software. A single person using this software, which had prompts to aid the worker, could handle the entire flow of information for an administrative action. In services such as insurance, this enables customer representatives to handle all the needs of a customer using a software program. The customer representative was much more productive because (1) errors were reduced, (2) the customer related to one individual customer representative, and (3) the firm could offer all kinds of new services supported by software.
Moreover, technological innovations can reduce the firm's costs by transferring labor to the customer. For example, when phones were invented, a human operator made the connections. With the automatic exchange, however, the customer assumed this labor in dialing because it was faster and cheaper. Also, with bank ATMs the customer performs the labor formerly performed by the human teller. Finally, the customer can find and book the best flight using the airline reservation systems accessed through information utilities available through modems of personal computers. By making software more intelligent, the customer can assume much labor formerly supplied by sales representatives. In some markets, like real estate, the agents will resist the move because it will eliminate their monopoly profits. By assuming the labor costs, the customer can obtain a cheaper product. The time spent interacting with the program is no greater than the time spent interacting with the sales representative.
The technological frontier has shifted to creating WANs to link all offices in a firm or public institution. While an institution can purchase a compatible equipment and software to create a WAN, the technical problems are more difficult than creating a LAN. Among widely separated offices, the institution must either set up a satellite communication system or rent lines from a long distance carrier. Given the expense, a great deal of effort in creating WANs is in protocols and compression techniques to obtain the maximum communication flow through the channels among offices.
Corporations are purchasing WANs to communicate text, data and frequently images. Such networks change business decision making. Consider the supermarket. By installing optical scanners, supermarkets are creating an integrated information system linking market transactions with their internal operations. One factor leading to the installation of scanners is that scanners are more efficient in checkout. Scanners also provide opportunities for new innovations in business practice. For example, by reading the Universal Product Code, the computer is able to keep track of inventory and reorder. Controlling the inventory of retail stores via the sales terminal by computer means lower levels of inventory are required. This reduces costs and raises profits. In addition, the computer can compute the profitability of every square inch of shelf space. This new approach enables the seller to perform scientific analysis of his advertising budget. In pharmacies, the computer can cross-check drugs for potentially dangerous interactive effects. Corporatewide data networks make for much more detailed decision-making and faster response to changing conditions.
The creation of WANs for corporations is causing major hierarchical reductions in firms. In corporations, the management hierarchy acts as a filter of information proceeding up the chain of command. With all records in electronic memory and English type languages to manipulate this data, executive assistants of the top management can prepare the reports which formerly flowed through the chain of command. This enables the corporation to``automate'' the chain of command and create effective organizations with many fewer levels of management. Toyota has four levels of management compared to GM's fourteen. Part of the drive for efficiency in the US aims to reduce bloated management by reducing the levels of management together with their associated staff.