Are Cutting Costs,
And Jobs, in Services
Employment Starts to Plunge
As Productivity Increases;
Good News for Consumers
$10 Box, $2 Million Savings
By Joan E. Rigdon
The Wall Street Journal
(Copyright (c) 1994, Dow Jones & Co., Inc.)
SANTA CLARITA, Calif. -- Like many service companies, Pacific Bell
is looking around for big steps toward increased productivity. And it
apparently has found one: a $10 circuit box that eventually may save
PacBell $2 million a day.
Here's how: Statewide, the regional telephone unit of Pacific Telesis
Group dispatches about 20,000 trucks a day to fix customers' lines.
When it finds that the line is broken inside a customer's home or office,
it's up to the customer to fix it. Customers usually shoo the worker away
and do the repair themselves.
But PacBell estimates the cost of sending out a truck at $140 -- and
wants to pinpoint trouble without dispatching one.
In an experiment in this suburb north of Los Angeles, PacBell found that
the solution was a circuit box linking two existing technologies. PacBell
computers continuously send signals to the device, which bounces them
back if the outside line is intact. Whenever a line passes that test, the
company knows right away that the problem is on the customer's end.
Using that gadget, PacBell has slashed its truck dispatches in Santa
Clarita by 30%. Multiplied across the company, the daily savings could
exceed $2 million.
Such productivity-enhancing technological gains are accelerating in many
service companies. Much of the huge U.S. service sector seems on the
verge of an upheaval similar to that which hit farming and manufacturing,
where employment plunged for years while production increased steadily.
But while the competitiveness of U.S. companies will improve and the
cost of services to Americans as consumers will drop, tough times may lie
ahead for Americans as employees. PacBell, for instance, won't need
anybody to drive the trucks that aren't sent out. Technological advances
are now so rapid that companies can shed far more workers than they
need to hire to implement the technology or support expanding sales.
"You can very genuinely paint a pretty apocalyptic picture of the state of
employment driven by technological changes," says Francis Gouillart, vice
president of Gemini Consulting Inc., a management-consulting firm in
In fact, three years into the recovery from the 1990-91 recession,
service-sector layoffs are being announced with unsettling frequency.
American Telephone & Telegraph Co. recently said it plans to reduce its
payroll by 15,000 managers and workers in its long-distance division,
mainly by deploying "new technology." The announcement came hard on
the heels of other decisions to slash jobs: 17,000 at GTE Corp., 16,800
at Nynex Corp. and 10,000 at Pacific Telesis. Aetna Life & Casualty
Co. has disclosed a second round of layoffs affecting 4,000 workers.
Citicorp took a $604 million charge for unspecified cutbacks. By the time
these companies are through, they will have slashed employment by 20%
to 40% from their peaks a few years ago.
According to Challenger, Gray & Christmas, a Chicago-based
outplacement consulting firm, large employers laid off a total of 108,000
workers in January, a one-month record since the firm began tracking
such figures in 1989. Nearly half the cutbacks came in four service
industries: communications, insurance, banking and finance. Small
businesses and other companies are picking up many of the bodies, but
"there's no sign" that major layoffs at big service companies are abating,
says Executive Vice President John Challenger.
Not all the job losses are due to new technology, of course. Some
companies are consolidating or leaving certain businesses. And most are
reluctant to specify the impact of technology on payrolls; they fear a
Luddite backlash among employees. But most of the cuts are facilitated,
one way or another, by new software programs, better computer
networks and more-powerful hardware (such as microchips) that allow
companies to "re-engineer" the workplace -- that is, get fewer people to
do more or better work
Doomsayers have been predicting technology-driven layoffs for decades,
a chorus that grew as U.S. companies invested more than $1 trillion in
information technology during the 1980s. While automation and
computerized tools did shrink manufacturing payrolls, measured
productivity in the service sector stagnated in the 1980s and began
picking up only in 1992.
That isn't as surprising as it may seem; at first, new technologies normally
are adopted only slowly. For years, computers weren't used effectively in
business offices. Then, employees learned to run the systems but merely
adapted them to old work methods, such as replacing a typewriter with a
computer -- essentially paving the cow paths.
But now, more and more companies are learning to use computer
networks to cut out work altogether instead of simply doing it faster --
the basic idea of the much-discussed corporate re-engineering. For
example, an innovation as simple as a call-switching system, among other
efficiencies, enabled Progressive Corp., a Mayfield Heights, Ohio,
insurance company, to eliminate 1,000 workers, 17% of its work force,
last year. Out went entire groups of workers who wrote, designed,
folded, stuffed and mailed lists of phone numbers of various claims offices
for customers to call in case of an accident. Now, customers call a single
toll-free number and are automatically routed by MCI Communications
Corp. computers to the nearest open claims office.
Similarly, companies such as Apple Computer Co. have eliminated most
of their receptionists with voice mail and pagers; AT&T has used
computer-based automation to cut its long-distance operators to 15,000
from 44,000 in the past decade. Automated teller machines and
bank-by-phone computers have enabled banks to slash the ranks of
tellers to 301,000 last year from 480,000 in 1983.
The trend seems bound to accelerate, given recent advances in wired and
wireless networks. Soon, fewer utility workers will be needed to check
meters and fewer service people to check vending machines; wireless
sensors will report the information to a computer network. AT&T and
other companies are building networks that will serve as electronic
marketplaces in which buyers and sellers meet directly via computer,
supplanting some brokers, salespeople, retailers and distributors.
How such re-engineering can be introduced in the service sector is
illustrated by PacBell's novel experiment here in Santa Clarita. The
project, now called Infotel, was born in September 1991, when San
Francisco-based PacBell sent a dozen managers to the Double Tree Inn
in Santa Ana, Calif. Their familiar mission: Think up ways to increase
Their leader, John Lewis, then general manager of PacBell's Los Angeles
staff, wondered why the company was using traditional methods if it really
wanted a quantum leap. Puzzling over the problem in the shower that first
morning, he had an idea: He would "fire" his colleagues (and himself) and,
unbeknownst to his bosses, change the agenda. He asked them to
pretend that they had just inherited a phone company from "Uncle
Herman" and found that the old man hadn't left enough money to buy a
new computer system. Otherwise, they could invent a whole new phone
For the first few days, the participants got nowhere. They were simply
too tangled in the PacBell culture, speaking in corporate acronyms and
thinking old thoughts. So, Mr. Lewis imposed 25-cent fines for each
peep of PacBell lingo. "We had lots of cocktails" with the proceeds, he
Then, changes came more easily. During "I wish" sessions, the managers
offered ideas beginning with those words, as in: "I wish the first person
who answered the phone could solve my problem." That drill developed
ideas for, among other things, changing office procedures so individual
workers could perform many tasks quickly. Such an office could be set
up, the managers thought, if they could invent software giving workers
instant access to numerous databases.
After some four weeks of brainstorming, Mr. Lewis told his boss, Marty
A. Kaplan, PacBell's executive vice president for re-engineering, that the
group wanted to create and run a real Infotel within the phone company.
Mr. Kaplan agreed, and Infotel spent the next year developing a business
plan -- despite the doubts of other senior managers. The group chose
Santa Clarita as the test site because it is small -- its population is 30,000
-- but has a mix of business and residential accounts. For staffing, Infotel
asked the Communications Workers of America for four union
volunteers, who would bring along their old work but handle it with
Infotel's new procedures, plus their own innovations.
Most of Infotel's cost savings come from small changes. Because of one
software glitch, for instance, PacBell computers couldn't automatically
process requests for voice mail from customers served by a certain kind
of phone switch. Every day, the computers across the state kicked out
hundreds of orders, and employees had to spend about 10 minutes
processing each one.
Sandy Coash, an Infotel worker, identified the problem and told Mr.
Lewis, to whom she wouldn't normally have had access. Within three
months, PacBell software engineers fixed the problem for the whole state
-- and eliminated all that work. That and other software fixes allowed
Infotel's four union workers to cut out 85% of the work they had brought
with them from their old jobs, Mr. Lewis says.
There were many other changes. A new software program for repair
workers' portable computers gives them all the information they need to
fix a line; no longer do they have to call other PacBell employees for help.
The computers also dispatch them to their next assignment; now they
don't have to call in for those, either. Cellular telephones in their vans
allow them to make phone calls on the road instead of pulling over at gas
And that is just the beginning. Infotel has yet to implement its crowning
achievement, a software program that should make customer-service
computers as easy to use as a cash register at McDonald's. Once it's in
place, workers will be able to point and click at a menu of orders when a
customer calls, filling the order in minutes. The same workers will have
remote access to switches and also will be able to perform simple tests
Currently, when a customer calls regular PacBell offices to start phone
service, the worker who answers must type in the name, address, billing
information and how the person wants to be listed in the directory. Then
the worker fumbles through heavy manuals to look up corresponding
computer codes for the whole order and type in the codes -- sometimes
making mistakes. The process takes an average of 22 minutes. A
customer who also wants to report trouble on a line must transfer to a
different department and talk to at least two more people.
PacBell's customers in Santa Clarita are already getting better service.
They can now get new features such as call-waiting in seconds instead of
hours. And repair workers have developed a sixth sense: When Cindy
Pascoe's daughter shorted out a phone line by knocking over a fish tank,
a repairman arrived even before she knew the line was dead. "It was
wonderful!" the department-store saleswoman exclaims.
Since the Infotel group didn't have enough money to buy a new,
easy-to-use computer system, they jury-rigged the one they had by
writing a new software program. So far, the software has taken more
than a year and more than $10 million to develop, but that is small change
compared with the $4 billion Mr. Lewis estimates as the cost of replacing
all of PacBell's current computers.
The bottom line: Companywide adoption of Infotel innovations, combined
with other re-engineering efforts, will allow PacBell to serve its existing
customers with 10,000 fewer workers. Mr. Lewis is a bit sensitive about
linking Infotel's success to the job cuts, which are to be completed by
1997. Infotel "is not laying them off. Competition is laying them off," he
argues. Mr. Kaplan agrees: "We didn't say we're going to re-engineer the
business to cut 10,000 people. We said we've got to take a lot of costs
out . . . and improve service."
A crucial question is how many well-paying jobs destroyed by technology
will be offset by well-paying jobs created by technology. And many are
being created. United Parcel Service of America Inc., for example, now
has 3,000 information-technology employees, up from 90 in 1983. At
many companies, more technicians will be needed to service computer
networks, and more programmers to write software.
For at least a few years, however, technology-driven layoffs seem likely
to dwarf new high-tech jobs. Many layoff victims will have to settle for
the low-paying or part-time positions that are dominating recent job
growth, because they generally aren't the ones who will get the new
high-paying jobs. A telephone operator isn't qualified to install wireless
communications equipment, for example. The danger is that America's
work force could evolve into an elite minority of highly paid "knowledge
workers" and frustrated masses of the underemployed or unemployed.
Already, many workers are aware that technology cuts two ways. Riding
in an Infotel van, Steve Symach, a repairman, marvels at how technology
has made his job easier. But he realizes it could cost him his job -- before
he plans to retire, in 12 years. "If the result of us being efficient is me
being laid off," the silver-haired 18-year phone-company veteran says, "I
hate to say it, but I guess that's progress."
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