Finance - 1956 GE Computer Symposium - Pontius
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Finance - Requirements fer

the Records and cOntrol of a Business by


Consultant - Electronic Data Processing Development

Accounting Services

On behalf of Accounting Services, and the financial function in the Operating Departments, I 'Would like to thank you, Mr. Oldfield, and your associates for the opportunity to participate in this Industrial Data Processing Symposium.

We are greatly interested in the data processing techniques and systems which your new organization will be developing. As time goes on, we look forward to a close, working relationship with your group which, we are certain, will result in lower operating costs, improved data handling and information systems, and greater profits for the operating components.

Although the large attendance at this meeting is indicative of the high interest in the developments which will come out of your organization, let me reassure you also of the very high

interest in your group on the part of the financial people in the operating departments. During the many regular visits by members of Office Procedures Service to operating departments and also

during visits by operating people to our headquarters in Schenectady for the four months that your organization has been established, the discussion nearly always has gotten around to the nature of developments which can be expected from your group. So, we look forward to the message which we shall receive this afternoon concerning your future plans to meet business data processing needs.

In our approaches to these needs since the idea became feasible several years ago, we have tried to be as practical as possible and think in terms of equipment 'Which is presently available or known to be available as soon as procedures could be made ready.

I heard a story recently which illustrates better than I can this matter of being practical. Two men were taking an aptitude test, one an accountant and the other an engineer. One of the questions on the exam was this: Suppose you were on one side of

a room and a pretty girl was on the other side of the room. If you could go only half the distance each time you started toward her, could you ever reach the goal? Recognizing this as an old chestnut, the engineer gave the correct mathematical answer, "No, never." The accountant took a more optimistic view of the situation and said, "No, but I will finally get close enough for all practical purposes." Now there isn't any question about the viewpoint of that fellow being practical and I shall do as well in keeping my comments down-to-earth this morning.



In discussing the business data processing needs as we see them, -the subject upon which you have asked for comments today, I would like to divide my comments into three principal parts:

First, a brief review of progress with electronic or automatic data processing systems in the Company to date.

Second, a few comments of experiences and the lessons learned from these systems and an appraisal of their relation to present needs.

Third, a short look at the future and the requirements of the period beginning, say five years from now - the early 1960's and beyond.

Excluding the four large IBM 701 and 704's presently used by Engineering people principally for the solution of mathematical problems, there are now three large and fourteen medium sized automatic data processing systems installed in the Company. The large systems consist of one Rem-Rand UNIVAC and two 702's. The medium sized systems are all 650's. The equipment already installed represents somewhere between five and 10 per cent of the commercially available automatic data processing equipments which have been manufactured in more than single copies.

Excluding again three additional 704's, there are now firm orders placed by operating components for one large system - a 705 - and seventeen medium sized 650's, including one 650 on order by a department of Canadian General Electric.

Although most departments are giving attention to the possible future use of electronic equipment, we know of no other systems on order.

This review of the systems on order, shows the clear trend away from the large, more versatile equipment - which was available first - to the much less expensive medium sized equipment. It is also quite evident that all of these systems are of the general purpose variety - that is, they can be applied to a wide variety of problems and applications.

As is well known, the commonest application is the preparation of payrolls and related reports. Perhaps somewhat more surprising are some of the totals now being rolled up by the equipment. The payrolls of 22 operating departments with nearly 70,000 employees, or . nearly one-third of all employees, are now being handled on the UNIVAC, the 702's and the 650's. The first of these payrolls was taken over about 20 months ago by the equipment.

With one exception, the number of instructions carried out by the equipment automatically in a payroll application ranges from a low of 1000 to 2000 instructions for that portion of the work which can be done by the medium sized equipment to 15,000 to 20,000 instructions performed by the large scale equipment in handling a much greater proportion of the payroll work. For a department of, say 3000 employees, the average running time for


that portion of the payroll covered by these instructions varies from about eight hours per week for the medium sized equipment to two or three hours per week for the large equipment. Improvements in these times are expected, of course, as personnel are able to take better advantage of the equipment's capabilities.

One of the most interesting by-products which will probably come out of this early payroll work by the Company is the acceptance of quarterly social security reports in the form of magnetic tape by the U. S. Department of Health, Education and Welfare, commonly known as the Social Security Administration at Baltimore. Reports for the first quarter-of 1956 were submitted both on magnetic tape and on the customary paper forms. No discrepancies were disclosed and the only barrier to discontinuance of the old paper reports is final approval by the Internal Revenue Service which is expected any day. This development is all the more significant when one realizes that the Department of Health, Education and Welfare never would accept reports in the form of punched cards. This is a far cry from the day remembered by Al Simpson, the Manager of Office Procedures Service, when a former Comptroller of the Company rejected certain proposed punched card procedures, saying, "We shall not payout our good money over boles in punched cards."

Probably the most dynamic automatic data processing job being done in the Company is the material control application on the UNIVAC at the Appliance and Television Receiver Division. The first department to have used the new system for one year recently cited the following accomplishments:

1. The inventory turnover rate was increased from 12.6 to 18.0 times a year while supporting an increase of 64 per cent in production.

The investment in inventory was reduced by $2,000,000 not withstanding the higher production volume.

2. Other less frequent applications in actual operations are preparation of reports of responsibility accounting, budgets, expense statements, financial statements, sales and inventory ports, and others.


One of the first lessons which has been learned is the amount, the cost and the complexity of paperwork are, if anything, even more astounding than was originally believed. It is interesting to note that in some instances these realizations have earned financial people a new respect on the part of the experienced engineering personnel who have crossed over into procedures and are working on the design of new electronic payroll systems. The fact that most of the paperwork performs a legitimate, useful function unfortunately only wakes the problem of reducing its volume more difficult.

We have all been aware of the high cost and growing number of clerical workers. What was not quite s0 clear at the outset was that a very substantial portion of this clerical work is performed not in the financial function - where it was no surprise to dis-



cover that a very large amount of clerical work is done - but rather in other functions as well. What bas been forcibly brought to light is that much of the information being handled by one function was substantially similar to that recorded or processed in others. The need for integration .f procedures, then, appears in sharp focus..

Another lesson being learned daily is that to use the presently available equipment at all is a long, bard job. To use it well is much more difficult but often extremely rewarding. It is incorrect to merely translate existing procedures, perhaps mechanized procedures, to electronic procedures in order to produce substantially the same results. This mere translation from bookkeeping to punched card procedures is not apt to be particularly rewarding in the light of the economic or operating advantages which may be gained. In many instances the results will not be sufficiently rewarding to warrant undertaking the costs and other problems of making the translation. It is far more likely that to use the equipment well we must do something more or better than we are now doing. This leads back again to integration, doesn't it.

As examples, we must find better ways of capturing the raw data in machine - sensible form at an earlier stage of the clerical process. Or we must find a means to save clerical costs by consolidating records, perhaps of inventory, which are maintained, let us say, in the accounting, purchasing, production control, and warehouse areas. Or we must rearrange our records to provide in one place in a machine-sensible form a great deal of information which formerly was not particularly usable because it was scattered all over a number of different records and therefore not readily accessible. We must then use this new accessibility to correlate the data in order to get new or better information. Or, in the sense that more timely information is also better information, we must use the electronic equipment to speed up the cycle of time required to produce information, particularly that information which involves the handling and manipulation of masses of figures or the use of complicated analytical techniques.

A further lesson which has been learned is that the real demands are on the skill, ingenuity and experience of the procedures people who prepare for the equipment as well as on the equipment itself. In making a major installation there are usually about eight stages.

1. Study of procedural and economic feasibility, using flow charts, work distribution charts, volume statistics, and an analysis of the output and reporting requirements.

2. Decision to acquire equipment.

3. The recording of the present system in every detail.

4. The design of the Dew system from data input, through  the data processing and final1y the checks, reports, invoices or other outputs.



5. Preparation of detailed block diagrams of the sew systems and the coding or writing of the instructions to the automatic equipment.

6. Preparation testing and debugging of the new procedures.

7. Installation of the new equipment.

8. Conversion to the new system.

The demands will vary as to type of skill, and the Dumber or individuals and the time they are required. For the most part they are procedures analysts. Quality rather than quantity is to be preferred in all stages.

Experience to date has given us adequate confirmation of the fact that there are important by-products results to be gained from any investigation which brings together top quality people, often with different skills to look at an area which formerly was the more or less exclusive bailiwick of persons with one type of skill. It is common place to find that traditional delays in supplying information are challenged (the monthly time cycle for example), standards of accuracy are questioned, the use of sampling is proposed, and a reconsideration of the basic kinds of data being furnished to management is urged. Somewhat facetiously, but making his point well, the Comptroller has said several times "Order a computer, do all the procedures work required, and then cancel the order for the computer. By that time you will have achieved a very large portion of the savings otherwise attributed to the computer." In such a case the department would react to produce results, which, while they have nothing to do with electronics, can nevertheless be directly attributable to the catalytic action which is produced by the pressure of a proposed computer installation and the questioning, intelligent review that precedes it.

A great deal has been learned about the economics of using automatic data processing systems. The installation of the new equipment is normally accompanied by the highest ratio of fixed to variable charges of any type of office equipment. The site preparation, conversion costs, rental, the relatively fixed operating and maintenance crews all tend to produce high costs and thereby lead to the drive for a high percentage of utilization. This in turn leads to the selection of (1) high volume areas, such as payroll, which can provide a good work load and (2) areas where there are good possibilities for substantial reductions in operating costs. Users of the equipment must guard against the tendency to use the equipment - once in place and justified to handle types of clerical work which cannot produce savings to offset their full share of the fixed and variable costs. Thus we find a type of marginal costing applied to the new equipment. The economics of using the equipment seem to favor the use of general purpose equipment - in the present state of the art. The developmental and tooling costs for special purpose equipment are so large that it seems probable that the latter type of equipment can be used only where the number of potential users for a single application is so great that they provide a major market for the equipment.



We have learned to a large extent the speed and accuracy of the equipment are as great as advertised. The people operating the UNIVAC and the two 702's know of no errors made by the equipment. We have been impressed with the compactness and the relative accessibility with which data can be stored, the long sequence of instructions which can be carried out, etc.

It was not surprising to learn that while, in theory, the equipment can handle almost any clerical task, there are actually a number of types of clerical work for which the equipment is not particularly attractive. At the top of the list of tasks done least well or Dot well at all, would have to be sorting. The equipment sorts fast but at a very high price. On the other hand, what has been impressive has been the frequency with which these high powered equipments can be used on clerical work that involves little more than simple arithmetic. There are probably two reasons for this:

1. What we have formerly thought of as being simple Jobs have been reconstituted into more complicated, integrated areas. Over many years, am intensive effort was made which succeeded in breaking down what is in essence a clerical job of some complexity into a series of rather simple jobs which were within the abilities of the people and equipment assigned to carrying them out.

2. The second reason is that, to a greater and greater extent, it has been realized that while these routines involve only simple arithmetic, they do involve a great deal of data handling - often based on the comparison of two or more code numbers. This comparison in machine language is done almost entirely in arithmetic terms. Arithmetic is also involved in utilizing the decision making abilities of the equipment. In most cases, as a matter of fact, it can be said that unless advantage is taken of the equipment's ability to handle data and perform logical operations, it will be impossible to utilize the other abilities of the equipment to any considerable extent in clerical work.

We have learned that the ability of the equipment to handle exceptions is a powerful one but that this ability is not so powerful as to be able to make all decisions or take care of all exceptions in a complex situation. The attempt to handle all exceptions will either carry the coding beyond the capacities of the equipment or require equipment of such great cost and physical characteristics as are not warranted by the frequency of reference to the exceptions. Here is a case, then, where the equipment has failed to live up to the advance billing. The alternatives seem to be to attempt to reduce the number of exceptions by changing business policy or to arrange to handle them outside the equipment.

The equipment is enforcing a new high level of data discipline on us. The input data must be correct. To use the equipment to detect input errors is highly inefficient. It is essential that procedures be established to insure a high degree of accuracy before the data reaches the equipment. This will avoid the situation which exists when the equipment and the operator have what amounts to large quantities of "unfinished business." The use of "On line"



input devices - usually without the provision for verification of input data - increases the opportunity for delays due to errors.

In trying to automate paperwork, a number of paral1e1s to factory automation can be seen. Just as the factory way find it necessary to reduce the number of models, standardize, find new materials, and throw out products not automatable,(??) sp must the office expect to tolerate, yes, encourage, uniformity of procedures, standardization of output papers and reports, and so forth. It would be highly desirable to have simpler, standard calendars, clocks, measurements, etc. Also, the data processing can't begin until the raw data are there - all of it and on time. The respect for deadlines will be more exacting. There can be little capitalization of the programming of others, the repeated use of the same programs, or much automatic programming until much wore standardization of procedures is evident..

If you have gotten the impression that many of these comments have been concerned more directly with procedures analysis and systems planning than with the equipment, you have been placing emphasis where it was intended. The big job is procedures, not coding of instructions to the equipment. In general, present procedures have not been documented very widely in the Company.  We know of only one or two departments which have flow charts for all of their paperwork. This means that there is a tremendous job to be done in finding out what present procedures are before the task of selecting advanced equipment can proceed very far.

Now getting a little farther from general principles and techniques, here are some examples of the needs that have become evident for the present and the next one to five years:

1. Due principally to ease of handling and sorting, the punched card appears to be here to stay for a longer period than has been expected. What is needed is the capacity to store mere than the present 80 or 90 characters of information. Perhaps the card should be made of plastic with capacity, then, to store hundreds and hundreds of characters magnetically. The facility for interpreting, or printing, a large portion of the increased amount of data originally stored in the card should be retained.

2. The need for an improved means of preparing original data in a machine-sensible form was mentioned earlier. The coding systems which presently use magnetic ink, fluorescent ink, optical reading, the optical system to be used with the future ERMA's, and magnetic patterns are some of the approaches developed so far. These devices suggest the need for uniform sizes of papers - such as the issuance of all internal and external orders, bills, and checks in the form of punched cards or uniform arrangements, of machine-sensible coded data on other paper forms.

3. Further improvement in the facilities for estimating data processing times prior to installation are needed. The knowledge that a given equipment takes so many milliseconds or microseconds



for the execution of various kinds of basic instructions has hot proved sufficiently accurate to date. It's the over-all processing time that is the determining factor, of course.

4. The time required for alteration of programs of instructions must be reduced. Using payroll as an example, too much time has been required to incorporate the new insurance plan, new wage agreements, etc. into the list of instructions.

5. There seems to be a need for a sort of universal black box which will enable users of punched cards and electronic equipment of various manufacturers to be hooked together and integrated.

6. There is no question now about the accuracy and reliability of the equipment. Neither is the need for any appreciably greater speeds as evident. What is needed is lower rental or purchase price, lower initial requirements for air conditioning, etc., equipment of equal capability but occupying much less space, much lower maintenance costs, greater mobility of components, and freedom from breakdown of critical components as systems become more intricate.

7. Provision must be made for the earlier closing of books and the issuance of financial statements following the end of the specified financial period. Since the limitations of equipment can no longer be offered as an excuse, it is evident that the solution lies mostly in the area of procedures analysis and ingenuity. One approach which has been considered is the prompt, daily recording of all transactions - with the daily reflection of that transaction in all files and records affected - perhaps as many as several hundred places. We should then be able to extract financial statements and other management control reports within a day or two following the end of the period.

Looking to the period from 5 to 20 years ahead, it is much more difficult to foresee the requirements.

From our standpoint, the engineering design and capabilities of the equipment appear to be beyond Our ability to date to train men and learn to use the equipment. As was pointed out earlier, we are probably moving as fast as any industrial user, but this does not mean we are moving fast enough. We must know how to make better use of the tools available so that the designers can go ahead to exploit the invention farther.

The need for providing random access in an electronic form to a very substantial volume of information, s-0 as to obtain answers within thousandths of seconds, has probably received as much attention in the past few years - without arriving at any supportable conclusions - as any phase of automatic data processing procedures. The experience of these years would seem to have altered our views somewhat in this respect. If I reflect them correctly, present views are that increased amounts of randomly accessible storage will be practical in the large quantities originally desired only if they can be produced at relatively low cost. In most cases it just will not be practical to pay a high price for storage space



which is not actively used. On the other hand, when activity is high, the cost of high or medium speed storage is normally well worth the price.

There still appears to be certain kinds of work (in banks, for example) which may Dot be practical without this type of storage. However, we have learned that it is possible, either through changes in policy, or by skillful classification of high access demands in accordance with the frequency of inquiries, to minimize the need for high or medium storage. As a matter of fact it is interesting to note that in many instances equipment with fairly substantial amounts of randomly accessible information are not using this storage so much to answer interrogations rapidly as to improve equipment efficiency by minimizing sorting and collating work.

Another field of high interest is the increasing awareness of the complexity of communication problems and the frequent interdependence of solutions to these problems and the success or failure of automatic data processing. Under some concepts, it is difficult to draw the lines between the two fields. It is clear that communications requirements are -no longer thought of as involving only miles or thousands of miles, but also as involving feet - the distance from one area of the plant to another or to the data processing center. It is clear also that the facilities available for communications, and our ideas and concepts of what is essential data, i.e. what needs to be transmitted, will both have to advance substantially before we can feel a satisfactory solution has been reached in this area.

It seems clear also that the ultimate automatic data processing is far from here, but that the progress being made is far from abating. As a matter of fact, progress can't slow down, because you gentlemen who have decided to launch the Industrial Computer Section and a new set of vigorous competitors 'Won't allow it and the demands which motivate the government won't let it.

I think you will agree that if you move a clerical function as much as ten feet it takes a number of days to adjust the new situation so that operations go on smoothly. Similarly, the final successful design, development and debugging of even early information handling and data storage systems will make substantial improvements in carrying on business and will require the efforts of experts in the running of that particular kind of business, working for years in close cooperation with the engineers who understand what data processing is all about and what modern electronic equipment can accomplish. To bring together these experts in a hard working project is not easy.

We must continue to develop at a fast pace, a greater number of new kinds of people to do the job. When the revolution has finally taken place, whether it be in five to ten years - which I think is too optimistic - or the twenty or thirty years which is closer to the truth - will be possible for us to realize that the colleges and universities are graduating new doctors who are systems and data processing experts, products of an entirely new



course which probably combines unusual study of the human brain, the physical sciences, mathematics, business, industry and economics and the requirements of government laws, rules and regulations. Ultimately the problems of business data handling will be solved - memory, sorting, simple computation in general, lots of adding and multiplying and putting together of data on the various forms going in and out of machines and data input devices.

Standard black boxes will probably be cabled together; the situation will be very similar to that of the telephone networks in which it bas gradually become possible to design standard equipment which is reliable despite the millions of input and output points. In fact, only by understanding these problems well enough will we be able to arrive at standard devices at the hope to make any real headway. Systems are bound to fail in the end that is, to be uneconomical in application, unreliable and littered with false starts - if in big data handling applications it is necessary to evolve too many compatibility custom built arrangements. When we have this twenty years of development behind us, then I believe that it will be rare to walk into any factory in a company of substantial size and not observe boxes throughout the factory containing electronic gear which is simple and reliable. The management of such organizations will have almost immediate visibility as to the status of operations.

So there will probably be a substitute for the present paperwork dilemma. Large scale devices, possibly highly interconnected with each other, will provide running control and data for the management staff. I believe that it is very difficult to try and compare the way the things will be when this business data processing industry has matured with the way they are now.

It is going to be necessary and inevitable that this whole field be attacked on all fronts mere or less simultaneously.

The really big strides are going to be made only after there has been a solid effort by the large number of people including technical and business experts. We are talking here about the application of new techniques to business and industry that will pay off and are paying off wherever applied in cutting costs and simplifying procedures and providing better service to customers, providing better visibility to management, being compelled to make uniformed decisions and better planning in business and industry. Because of tremendous complications, many years of unusually high caliber effort will be required to realize the big payoff of major replacement of drudgery human effort by electronic business data processing systems. Someday it will be true that business and industry will be revolutionized. I do not think we can expect it in the next few years but we can expect to see gradual effects on our businesses from now on.




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