Some say that technology is not the answer. As the following story from
the front page of sunday's Washington post demonstrates, the new economy
is built upon a digital information infrastructure, making mastery of the
tools o that economy essential for economic independence.
kelly
In a Tech-Led Economy, Speed Begets Productivity
By Mark Leibovich
Washington Post Staff Writer
Sunday , November 21, 1999 ; A1
MIDLAND, Mich. Trucker Bill Frizzell revved his 65-foot rig through
another industrial strip, past the shiny silos of Dow Chemical Corp.
and a drab procession of drive-through food options. There's little
downtime to his trips now, scarce chance to eat bacon and eggs and
play video games at the Flying J truck stop in Walton, Ky., or worship
at the Transport for Christ ministry near Gary, Ind.
But he's not complaining. Frizzell has more highway to cover than
ever, more cargo to haul and headier aspirations for Miracle
Transport, the trucking firm he runs out of his basement. His workdays
and work nights have gone from grind to sprint, his once uninterrupted
drives now fragmented by newfound pickups and drop-offs. Frizzell's
pace and his business have been recalibrated to the souped-up speeds,
demands and possibilities of what's come to be known as the New
Economy.
Like many U.S. businesses today, Miracle Transport is using the
Internet to wring fresh revenue from its equipment and workers. In
May, the company joined an online network, National Transportation
Exchange Inc., which helps drivers and dispatchers find cargo in range
of their trucks. NTE fills the empty rig space that can turn driver
time unproductive, and the Downers Grove, Ill., start-up will help
generate an estimated $75 million in sales this year for the trucking
industry.
Bill Frizzell is hardly the archetypal high-flier for these boom
times. He has a bearded, sober bearing, wears scuffed brown cowboy
boots and listens to Merle Haggard CDs as he drives. He cares more
about giving 10 percent of his income to Midland's Christian
Celebration Center than buying a Gulfstream jet. He's never been to
Silicon Valley except once, to pick up a big computer when he drove
for United Van Lines.
But Frizzell is just as much a participant in the changes sweeping the
U.S. economy as any bull market zillionaire or geek tycoon. And the
transformation of Miracle Trucking is perhaps just what Alan Greenspan
meant when the ever-cautious Federal Reserve chairman gave a kind of
papal blessing to the innovations he sees pervading the country. "An
impressive proliferation of new technologies," he told a congressional
panel last summer, "is inducing major shifts in the underlying
structure of the American economy."
Speed and Information
The "New Economy" has become a rubric that seems to encompass every
development of the late-century boom from telecommuting to casual
Fridays to the latest mega-stock offering. But at the heart of a broad
notion is a simple idea: Thanks to a wave of computing advances,
American businesses can do far more than they ever could before, and
they can do it faster and cheaper.
In real terms, this means that airlines can save about $7 by
processing a ticket online instead of on paper; that Navistar
International Corp. can now produce 300,000 diesel engines a year with
1,800 workers, compared with 100,000 engines with 1,200 workers in
1994; that new software helps the Weather Channel answer 250 e-mail
messages a day instead of 80; and that Detroit now takes less than 48
months to produce a new-model car compared with 60 to 70 months five
years ago.
For Frizzell, it meant logging on to NTE before a recent run from
Pigeon, Mich., to Chicago Heights, Ill., and finding extra cargo for
one of his truckers to haul along the way. This led to pickups in
River View, Mich.; Greenville, Ohio; Richmond, Ind.; and Plymouth,
Ind. He also discovered several "backhauls" loads for his trucker's
return trip which made for seven additional stops.
The added cargo meant the trip earned $1,925 for Miracle instead of
$1,125. In the last six months, Frizzell said, NTE has spurred about
$60,000 in extra revenue half the company's overall business. "I thank
the Lord first and I thank NTE second," said Frizzell, who at age 41
has driven trucks half his life.
Productivity Rising
The collective gauge of these technological advances is an economic
statistic called productivity, the key indicator of how efficiently
the nation's labor force is working. The Department of Labor recently
reported that business productivity shot up at the unusually high
annual rate of 4.2 percent in the third quarter, the latest in a run
of momentous signals over the past four years. A recent report by
Macroeconomic Advisers, a St. Louis forecasting firm, said
improvements in technology have raised the productivity level so
sharply that the nation's economy should be able to grow 3 percent a
year in the next decade without adding to inflation.
Economists have debated the true measure and meaning of productivity
rates for years. Robert J. Gordon of Northwestern University argues
that recent productivity gains have occurred disproportionately in the
high-tech sector. Others have downplayed the significance of
technology, maintaining that cheap imports, liberalized trade and low
interest rates have played a greater role in helping companies cut
costs by making them more efficient.
But beyond these expert debates, the New Economy is driven by a
powerful ethos, a conviction that new technology can eliminate
traditional drains on efficiency the time, for instance, that truckers
spend working the phones at truck stops in search of loads. It is a
crusade for streamlining rooted in the principle of "uptime,"
originally a computer term from the 1950s to define when the room-size
machines could function.
"Uptime" now extends to humans and entire organizations, meaning a
working rhythm with minimal lags and all the savings that can bring.
Phone equipment maker Nortel Networks said it saves $2.4 million a
year by managing all of its real estate properties from a single
desktop in Virginia, instead of having 20 people crisscrossing the
country at any given time. Dow Chemical can process its quarterly
financial results in 16 fewer days by consolidating its company
information on sophisticated "data warehouse" software.
It used to require a phone call to track a FedEx parcel, and a wait
for the customer service agent; now, more customers visit the FedEx
Web site than call its 800 number. And FedEx's customer service reps
can spend their increased uptime on pursuits more constructive than
simply finding information that many customers can get with a point
and click.
"Instantaneous execution has become the era's defining business
promise," said Keri Pearlson, an assistant professor of information
systems at the University of Texas's graduate school of business. And
that has been made possible by a confluence of innovations in
microprocessor, software, laser, fiber-optic and satellite
technologies that have sped the flow of information to a radical
degree, and reduced its cost dramatically.
Data at the Fingertips
At a Louisiana-Pacific Corp. wood products mill in Houlton, Maine, for
instance, the plant's uptime rate (95 percent) is updated and flashed
constantly for the plant's 116 employees to see. So is the most
seemingly arcane data, about menaces such as "flaker starts," an
electrical blip that can cause a few seconds of downtime on the
production line. The numbers are available to all on a company
intranet.
Such data, however minute, is a defining currency in the contemporary
organization. Once tightly controlled, the flow of information has
been democratized by networking and database technologies, with
profound implications both for the way a company is run and for its
potential to be more efficient.
In "Old Economy" organizations, information typically remained at
management level. "Today, with information filtering everywhere, it
would be dysfunctional to use the old model of a single decision
maker," said Erik Brynjolfsson, a productivity expert at MIT's Sloan
School of Management.
Brynjolfsson, who has studied data from 600 large U.S. firms, said the
computerized dissemination of information has had a leveling effect on
organizations. It has led many to break down hierarchies and institute
more team-oriented structures.
"We put out the information to everyone as fast as we can," said Jerry
Nason, Louisiana-Pacific's plant manager in Houlton. "Who knows more
about uptime than the people who do the work?"
Savings From Technology
To many economists, increased uptime provides an explanation for the
most surprising facet of the U.S. economy this decade for the first
time in memory, the nation is experiencing low unemployment and low
inflation simultaneously.
When unemployment is down, businesses traditionally compete for
workers by offering higher wages. This cost is often passed on to
consumers, resulting in inflation. Yet the pattern has shifted in the
1990s, and a prevailing theory is that once-unforeseen efficiencies
have helped companies cut costs and keep prices low a necessity in
today's intensely competitive economy.
"We're seeing only the tip of the iceberg in terms of
technology-enabled savings and efficiencies," said John Chambers, the
chief executive of Cisco Systems Inc., the Silicon Valley computer
network company that's building much of the Internet's hardware
infrastructure.
Chambers, whose company is reaping staggering profits and stock
valuations from the online boom, posits Cisco as an object lesson for
conducting business electronically. The Internet has accounted for a
20 percent increase in the firm's productivity rate, he said, and
saves $500 million a year in operating costs. One small piece of this
occurs every time Cisco hires a new employee. Since much of Cisco's
recruiting and application process takes place online, its "cost per
hire" is $6,381 compared with the high-tech industry average of
$10,800, the company said.
Chambers works in a crammed and modest cubby at Cisco's headquarters
in San Jose. Cisco Executive Vice President Don Listwin sits in an
adjoining office and monitors that day's sales flow from his
"Executive Dashboard." Listwin can study every aspect of Cisco's
business: How many people did Cisco hire that day in Asia? How many
network routers did it sell in South America? "The essence of the New
Economy company is using technology to optimize your information,"
Listwin said.
Old Practices Abandoned
Windfalls are being reaped across numerous sectors, new and
entrenched, in every region of the country. Ford, the auto icon that
perfected the assembly line early in the century, is saving tens of
millions of dollars a year by simulating many of the cumbersome and
costly car design processes on powerful supercomputers.
The company has reduced the number of clay automobile models by 80
percent to 90 percent, said Charles Schloff, a 34-year-old Ford
product manager at the company's Dearborn, Mich. headquarters. Instead
of technicians having to use heavy tools to tinker with a clay
automobile, they can tap a few buttons on a keyboard for the same
simulated effect. It saves huge amounts of time, along with the
$250,000 to $500,000 it costs to build each clay model.
Similar efficiencies have struck Big Oil, like the auto industry a
pillar of the traditional economy based on manufacturing and natural
resources. When he started work at Texaco Inc. 22 years ago, geologist
Ronald Cupich would spend months studying paper prints of seismic data
in the part of the world he was exploring. "We would be moving up and
down, folding big sheets of paper the size of horse blankets," said
Cupich. "This was tedious, inefficient time."
What once took months now takes hours. Cupich sits in a Houston office
park, in an elaborate 3-D simulation center where Texaco geologists
are homing in on potential drill sites off the coast of West Africa.
It costs about $50 million to drill an oil hole and most of these turn
out empty, but the hit rate has risen considerably since the center
was built for about $3 million.
The Silicon Graphics Onyx2 Infinite Reality supercomputer allows
Cupich and his team to turn the undersea terrain over like fluorescent
clay on a 25-by-8-foot screen. By bright color coding, he can sift for
sand, shale and faults that could be fatal to a dig. He says he spends
about 98 percent of his time in front of a computer now, compared with
about 30 percent five years ago.
"Technology is getting up to the speed of how the brain works," said
Jesse Mericle, Texaco's vice president of West Africa exploration. "Or
maybe it's the other way around."
Rise of Entrepreneurs
As the price of computing power has dropped and chip speed has
accelerated, the barriers to being a technical innovator, or an
industrial pioneer, have been lowered appreciably. A would-be
entrepreneur doesn't need much to start, say, an Internet business. No
inventory, no store, no physical proximity to customers and not a lot
of money. Ambitions have soared accordingly.
Gene Riechers, a venture capitalist who invests in start-up technology
firms for Arlington brokerage Friedman, Billings, Ramsey and Co., said
he gets 150 business plans a month from would-be entrepreneurs, double
the number of two years ago. "There is room for literally millions of
people to redefine lives," said Riechers, to make them more convenient
and productive. That's the promise of so much new technology, he said.
And it's spawned the New Economy's most celebrated figure, the
Internet entrepreneur.
Five years ago, Matthew Pittinsky graduated from college and came to
Washington with an education career in mind. He took a job as a
student teacher in a District junior high school. Then the Internet
triggered bigger ambitions.
In June 1997, Pittinsky co-founded Blackboard Inc., a Web-based
service that allows colleges to put their course material online.
Today, it is used by more than 1,600 universities and public school
districts in 70 countries. A college dropout in Tanzania might soon
attend a virtual Harvard. Pipe dream or no, Pittinsky said he has a
rejiggered sense of what is possible. Why try to scale a corporate
ladder when you can make a new industry from a desktop?
And another thing: In the next year, Blackboard will likely hold an
initial public offering, and Pittinsky stands to become a paper
multimillionaire at the age of 28.
Longer, Harder Hours?
In time, the expectation of instantaneous information will become
"hard-wired" into organizational expectations, said Gopi Bala, the
director of management strategy at Yankee Group, a Boston technology
consultancy. "It will create a new economic ecosystem."
Bala compares today's U.S. economy to contemporary athletes. They are
bigger, stronger and faster than their forebears, and it's no fluke of
evolution. Rather, the athletes have benefited from nutritional
breakthroughs, new training tools and techniques, even economic
incentives and information that, presumably, expanded the population
of available talent. By the same measure, today's economy has been
nourished to better fitness by technology.
Fitness is an appropriate metaphor, as the New Economy has bred a
runaway workweek unmatched in the industrialized world. U.S. workers
are toiling the equivalent of two additional 40-hour weeks a year
compared with Japanese workers, according a new study by the
International Labor Organization, a United Nations agency. They worked
nearly 2,000 hours per capita in 1997, an increase of 4 percent from
1980.
"When I was a kid reading Popular Science in the '60s, everyone said
the appliances of the future would let us work 25-hour weeks," said
Riechers. "That nirvana certainly never materialized."
This is in part due to basic supply and demand: With a 4.1 percent
unemployment rate, and countless jobs going unfilled, there is simply
more work being done by fewer people. Nineteen percent of Americans
say they are working more than 49 hours a week, according to a Bureau
of Labor Statistics report, up from 16 percent in 1985.
But it also gets to a crux of a New Economy debate: the question of
whether workers are producing more because they have better tools, or
because they're simply working more hours.
What's clear is that human stamina is often the only barrier to total
uptime in "our interconnected, hyperactive, e-mail-fueled,
sleep-deprived economy," said corporate consultant and historian
Daniel Yergin, the chairman of Cambridge Energy Research Associates.
Bodily rest, so unproductive, is often a casualty in the sleepless
business cycle. Yergin half-jokes that "the next frontier is
biotechnology. People are going to need genetic therapy to keep up
with the demands of the New Economy."
Back on the Road
But in its most hopeful manifestation, the New Economy is about what
can be done and what can be dreamed. Miracle Transport began as a
one-truck operation last November. Frizzell added two more trucks
after he joined NTE six months ago. He envisions a small empire of 150
trucks. "I want to be your man to call for one-stop shipping around
Midland," said Frizzell.
Sitting in his Midland home office one morning this month, he signed
onto America Online, jumped to National Transportation Exchange and
contemplated an electronic menu of loads: perhaps a run from Muskegon
Heights, Mich., to Carterville, Ga., another from Prairie du Chien,
Wis., to Centralia, Ill.
As he browsed, Rick Armstrong, Frizzell's church pal and a Miracle
driver, walked in. Armstrong was in the midst of a long haul of cement
products that began in Baltimore and would end in Wyoming, Mich., 2¼
hours from here.
It was 11 a.m. and he'd been driving since 2:30 a.m. He sat down and
joined Frizzell in gulping some coffee before they both rolled out
again.
Washington Post researcher Richard Drezen contributed to this report.
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