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Gentle, Edgar C., Jr., Ed.Data Communications in Business. An Introduction.American Telephone and Telegraph, New York, N.Y.68170p.Publishers Service Company, Room 600, 75 VarickStreet, New York, Pew York 10013 ($2.00 Paper, $4.00Hard Cover)

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ABSTRACTThis basic text for students in business

administration and business education was prepared for personnel ofThe American Telephone and Telegraph Company with the help of aneducational advisory panel. Fundamental concepts of datacommunications are presented as a means of keeping abreast of theinformation explosion and as a basis for making sound decisions.Three case studies, supplementary information on transmissionequipment, communication services and switching, a glossary, and abibliography accompany the five chapters of the text which are: (1)The Meaning of Data Processing, (2) The Role of Data Communications,(3) Data Communications in Management, (4) Communications Problems inInformation Systems, and (5) Planning a Data Communications System.Also included are illustrations of the flow of information andpictures of communications equipment. (JS)

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DA. ACOMMUNICATIONSIN BUSINESS

An Introduction

Edited by

Edgar C. Gentle, Jr.

Data Communications Planning AdministratorAmerican Telephone and Telegraph Company

U.S. DEPARTMENT OF HEALTH, EDUCATIONA WELF 4RE

OFFICE OF EDUCATIONTHIS DOCUMENT HAS SEEN REPRODUCEDEXACTLY AS RECEIVED FROM THE PERSON ORORGANIZATION ORIGINATING IT POINTS OFVIEW OR OPINIONS STATED DO NOT NECES-SARILY REPRESENT OFFICIAL OFFICE OF EDU-CATION POSITION OR POLICY

American Telephone and Telegraph Company

New York

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Copies of this book may be ordered from:

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Copyright © 1%5 by American Telephone and Telegraph Company. Al rights reserved.

library of Cowes: Card Goole, Number: 45-24962

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Prepared by the American Telephone and Telegraph Companywith the advice and guidance of the following Educational Ad-visory Panel:

Dr. E. Dana Gibson, ProfessorSchool of Business AdministrationSan Diego State College

Dr. Harry Huffman, ProfessorSchool of EducationThe Ohio State University

Dr. Norman F. Kallaus, Aggsociate Professor

College of Business AdministrationUniversity of Iowa

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ACKNOWLEDGMENT

The thoughtful reader of this bookwill quickly realize that its subjectmatter touches upon many aspects ofthe rapidly evolving relationship ofman to machine and machine to ma-chine. Because of the many areas thathad to be considered in preparing thisintroductory text, the advice and ac-tive participation of many personswere required.

In particular, we wish to acknowl-edge the work of Lauren R. Asplund,Andrew L. Cobb, and the other mem-bers of the Data Communications

Planning Section of the AmericanTelephone and Telegraph Company.

We are also deeply grateful to Dr.E. Dana Gibson, Dr. Harry Huffmanand Dr. Norman F. Kallaus, membersof our Educational Advisory Panel, towhom must go much of the credit forwhatever success we have achievedin designing this book for the needsof the educational community

To these men and to all others whocontributed their time and effort inthe preparation of this volume, weexpress our sincere appreciation.

Edgar C. Gonda, Jr.Data Communications Planning AdministratorAmerican Telephone and Telegraph Company

November 1, 1965.

FOREWORD

The fabric of our society is woventogether by the contributions of indi-viduals and by their abilities to com-municate their thoughts and actions.The aggregate dimensions of suchcommunications are increasingly de-pendent upon efficient systems oftransmitting data by electrical means.This book presents the fundamentalideas involved in developing effectiveuses of data communications. Moreimportantly, it provides an insightinto the way that administrators ofbusiness, industry, education and gov-ernment benefit from integrated in-formation systems which merge dataprocessing and communication tech-niques.

Recent developments in both theconcepts associated with business in-formation systems and the hardwareassociated with computers have hada significant impact on managementeducation and practice. Now we seefurther changes as new concepts andnew technological developments areapplied to the movement of businessdata over longer distances. Thesechanges influence the pattern ofmanagement decisions and the verystructure of organizations. Questions

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of centralization, decentralization,and related authorities and responsi-bilities are examples of managementpatterns that are being deeply influ-enced by changes in the field of datacommunications.

This book was written by staffmembers of the Bell System. Our roleas consultants was to advise andguide the staff group. In particular,we were asked to represent the inter-ests of faculty members at the col-legiate level who might be seekingcourse materials in this new field.

The insight that can be gained bya study of the materials in this bookwill not make a data communica'aionsexpert of the reader. It will, however,provide students of business adminis-tration, present and future managers,and present and future businessteachers with a good introduction tothe subject. The future manager cangain a better understanding of howdata processing and data communica-tions can be merged for managementdecision making. Teachers in the fieldwill be able to supplement discus-sions of information systems and"automation" with authoritative infor-mation on data communications.

E. Dana GibsonHarry HuffmanNorman F. Kallaus

TABLE OFForeword

CONTENTS

vii CHAPTER V

List of Figures x

CHAPTER I

The Meaning of DataCommunications 1

Definition .The Forms andUses of Data Communications

Data Communications andBusiness Information Systems

Data Communications andData Processing The Func-tion of Data Communications

Summary

CHAPTER II

The Role ofData Communications 8

The Information ExplosionData Communications as anAid to Government DataCommunications and the Firm

Data Communications andthe Manager Summary

CHAPTER III

Data Communications inManagement 24

Departmental Applications ofData Communications Busi-ness Information SystemsThe Westinghouse Informa-tion System Summary

CHAPTER IV

Communications Problems inInformation Systems 39

Belated Information Out-dated Information Ina-xes-sible Information ExpensiveInforn n Inaccurate In-formatu,.. Mutilated Infor-mation Summary

Planning a DataCommunications System ...49

Identify and Define ProblemGather and Analyze the

Facts Design AlternativeData Communications Systems

Determine the Costs of EachAlternative System Evalu-ate the Alternative SystemsImplement the Selected Sys-tem Follow Up Summary

CHAPTER VI

Trends in DataCommunications 81

Computers and Data Com-munications On-Line Real-Time System Semi-RealTime Voice Communicationin Computer Systems -- Termi-nal Equipment Simplifica-tion of Operation Wider Va-riety of Terminal Equipment

Communications Technolo-gy Conclusion

Case Studies 96

I King Construction CompanyII Custer Oil Company

III Franklin Department Stores

SupplementaryInformation 116

Data Transmission TerminalEquipment

Communication ServicesCommunication SwitchingGlossary of Data Communica-

tions TermsData Communications Bibli-

ography

Index 161

LIST OF FIGURES1. Data processing equipment

reaching beyond itsown room 5

2. Communication channelsprovide access to infor-mation stored in com-puters . . . . 10

3. Merged companies estab-lish a centralized datrprocessing center 15

4. Different company 910Cct-tions have access to adata processing capa-bility 19

3. Construction company in-formation system .. 21

Teleprinter system for anautomobile assemblyline 27

7. Information flow in a Busi-ness Information Sys-tem 30

I. Conceptual view of thecomposition of an in-formation system .. 31

3. The West;nghouse Tele-printer MessageSwitching System 34

10. The Westinghouse Auto-mated Order Process-ing and InventoryControl System .. 35

11. A communication system tohandle payroll infor-mation for a woodproducts company 41

12. An automated telephonecompany supplies or-dering system .. 42, 43

13. Chart showing the informa-tion flow in a typicalcompany . .. 52

14. Geographic diagram of theinformation flow in atypical company .. . 53

15. Basic distribution patterns55

16. A communication networkfor a typical two-divi-sion company . 57

17. A typical sales order form 60

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18. A sales order form designedfor use with tele-printers 62

13. Chart showing the calcula-tion of busy hour traf-fic flowing in one di-rection between twopoints 64

A communication system fortransmitting punchedpaper tape and receiv-ing in punched cardform 69

21. Block diagram of a datacommunication system

72Summary of steps involved

in planning a datacommunication system

79General Electric Data Com-

muni. ons Processor:DATAA ET-30 82

24. Data collection system 84A sample telephone com-

pany service order pre-pared in a conversationmode 89

26. Keydata Corporation'stime-shared computercenter 90

27. The experimental PIC-TUREPHONE tele-phone 91

26. Distribution chart for Cus-ter Oil Company .. 101

Five-part delivery ticketfor Custer Oil Com-pany 106

Distribution chart forFranklin DepartmentStores 110

31. Merchandise tag for Frank-lin Department Stores

11332. Data Set 11833. Data set used as a connect-

ing device . 11934. Pushbutton card dialer tele-

phone . . . . . . 12035. eyboard printer model of

a teleprinter . . 121

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22.

23.

25.

29.

30.

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36. Keyboard of a teleprinter122

37. Automatic send and receivemodel of a teleprinter

123The American Standard

Code for InformationInterchange 124

39. Tally paper tape transmis-sion terminals withcompatible DATA-PHONE data sets 125

The IBM 1001 Data Trans-mission Terminal withcompatible DATA-PHONE data set .. 126

41. The RCA Model 5907 Mag-netic Tape Terminal

12742. Diagram of a transmission

30.

40.

control terminal ar-rangement 128

43. The Victor Electrowritertransceiver 130

44. Stewart-Warner Corpora-tion's "dial/Datafax"facsimile terminal withcompatible DATA-PHONE data set 131

a Teleregister visual displayterminal 132

43. Button arrangement on aDATA-PHONE dataset 134

47. Map of Wide Area Tele-phone Service callingareas 135

48. Typical terminal used forautomatic teleprinterexchange services 136

Chapter I

THE MEANING OF

DATACOMMUNICATIONS

Among the many characteristics that have enabled man to riseabove all other forms of life on earth is his ability to communicateacross time and space. Many lower animals are capable of trans-mitting information within their immediate environment. But onlyman has learned to record information, and thus communicateacross time, and to send information beyond his immediate eL-. z-ronment, thereby communicating across space. The progress ofcivilization is closely paralleled by improvements and setbacks inman's systems of communication.

Contemporary man, faced with a surging technology and increas-ingly complex problems of organization, has had to develop entirelynew methods of dealing with the enormous amount of informationgenerated daily by both the private and public sectors of society.He has also had to find ways of collecting information from, andtransmitting it to, widely dispersed points with ever increasingspeed. Data communications is designed to fulfill this require-ment of rapi a transmission of information.

Definition

Although almost any process of transmitting information may bethought of as a form of data communications, the term is usuallylimited to one particular area of technology. In this sense, a datacommunication system must have these two characteristics: (1)the data, or information, is transformed into a special code and (2)the data is moved, or transmitted, by electronic means. Data com-munications may thus be defined as the movement of encodedinformation by means of electrical transmission systems. Thetransmission system includes input/output devices, the electricaltransmission links proper and, in many instances, related communi-cation switching systems.

The terms data and information will be used interchangeably

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in this book although there is a at :le difference between the two'Data may be regarded as one or more facts, not necessarily mean-ingful. Information, however, is always meaningful. For example,the apparently meaningless series of digits 0486752250 could becalled data. To a payroll clerk, however, to whom the figuresmean that employee number 0486 worked 7.5 hours and shouldbe paid $22.50, the series of digits would be information. Sincedata2 is transmitted through a data communication system in orderto reach someone to whom it is meaningful, in this text dataand information will be considered synonymous.

Th. Rims and UsesA Data Communications

Following are some examples of data communications at work:

I. A hotel confirms a salesman's room reservation in anothercity by teleprinter communication with the chain's centraloffice.

2. A builder receives a sketch of a change in an architecturaldrawing over a handwriting transmission system.

3. A police officer at a remote location uses a facsimile systemto dispatch a photograph to headquarters for identificationpurposes.

4. A branch office manager submits time-card information to thecompany's home office computer, using a punched card trans-

mission system.5. A doctor it a small town transmits an electrocardiogram of

one of his patients to a distant university hospital for analysis

by a heart specialist.6. A scientist obtains a copy of a research study on space medi-

cine from library records by means of a microfilm transmission

system.7. On Monday morning, a sales manager receives a report of

the preceding week's sales via teleprinter service from thecorporate data processing center.

In each of these examples, a data communication system is used

to transmit information almost instantaneously over a considerable

1 "Information" is a muftifaceted term in today's scientific world. The definitionused in this text

is drawn from the way the word is used in business. For a glimpse into the manyother definitions

of the word "information," see Ow IL...... Commdestitsu, Cohn Cherry, JohnWiley & Sons, Inc.,

New York.I Although the word "data" is the plural of the noun "datum," its association with a singular verb

s :-*coming established by common business usage.

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distance. It is this capability that permits data communications toplay a vital role in operations and management.

The activities of business, government and other large organiza-tions are to a considerable extent dependent upon information andthe movement of this information. The increasing compatibility ofdata processing and data communications is doing much to rein-force the complete systems approach now being offered in today'sprocedures for information handling.

Data Communicate' ns andBusiness Information Systems

A Business Information System is a combination of people, dr.taprocessing equipment, input/output devices and communicationsfacilities. It supplies timely information to both management andnon-management people for the planning and operation of a busi-ness. The system must accept information at the point where it isgenerated, transport it to the point where it is to be processed,process the information and, finally, deliver it to the point whereit is to be used. If the total system were contained in one room,the role of electrical communications might be minorperhaps justa number of wires running across the room. In practice, however,the points of collection, processing, and ultimate use are separated,and data communications assumes the key role in linking the totalsystem.

Data CommunicaBonsand Data Processing

Data is being processedthese types of operations:

Operation

1. recording

2. classifying

3. sorting

4. calculating

5. summarizing

whenever office workers perform any of

Example

typing an order or writing upstock transaction information.deciding how to file correspond-ence.segregating student data by classfreshmen, senior, etc.determining the amount to bepaid to an employee for timeworked.writing a report.

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6. storing and retrieving filing documents and taking oth-ers from the file.

In contemporary business practice, however, the term data proc-essing implies extensive utilization of machines, in particular com-puters, to perform these operations.

In any discussion of the relation of data communications and dataprocessing, it is useful to recognize that information must movewithin a data processing system and that this movement is a formof data communication. However, data communications extends farbeyond the context of data processing, embracing as it does themovement of information to and from the poi; 7 of processing.(Figure 1.) It permits data processing equipment to reach out andestablish contact beyond the limits of its own air-conditioned room.Data communications enables a data processing facility to be usedby remote locations for processing, inquiry or input of information.Operating efficiency is enhanced to the degree that basic processingequipment becomes accessible to more people for wider use in anexpanded sphere of operation.

The information system of the Westinghouse Electric Corpora-tion, a multi-product company with almost 300 locations through-out the United States and Canada, is an example of the closeworking relationship between data communications and data proc-essing. Through the use of data communications, all of thecompany's locations are connected with the Tele-Computer Centerin Pittsburgh. The Westinghouse information system is describedin detail in Chapter III.

Data communications also makes it possible to design a largescale data processing system with computers in widely separatedlocations linked together through communication channels. Sinceeach computer in such an arrangement has access to the datastored in the memory of other units, it is unnecessary to duplicatethe contents of all the memory units. As a result, the total amountof information that can be stored in the system is increased. Withthis type of linkage, it is possible in a properly designed system tobalance the processing load by sending any overloads of dataat one location to another location that has spare processingcapacity on its computer.

The Function ofData Communications

It is universally recognized that communication technology isessential to all business today. A business able to function suc-

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figure 1. Data communications permits data processing equipment to reach beyondthe space and time limitations of its own air-conditioned room.

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cessfully without some application of communications is difficultto imagine. At a minimum, a company needs one telephone tooperate. At the other extreme are companies that exist solelybecause of their use of communications.

Organizational size is not the only factor in determining therole of data communications. From an organization as complexas the United States Government to one as simple as a dentist'soffice handling its own records, there is a potential need for datacommunications. Doctors and dentists, for example, can transmittheir account information by means of data communication facilitiesto service bureaus for billing. Within companies uses for datacommunications can be found at all levels, from the president,who may require up-to-date information on almost any aspect ofthe company's operation, to a production-line worker, whose reporton completion of one operation must be transmitted to a computer.

It is possible that within the next decade a family may conductmany of its affairs with the help of some type of data processingfacility to pay bills, to order merchandise from the store, and tomake bank deposits. Access to this data processing capability mightbe pros ded via the telephone. Equipment and systems for suchapplications are available today and planning is now going on forproviding services of this type.

It can be seen that there is an ever-increasing variety of ways inwhich lata communications may be used to benefit both businessand individuals. In almost any business function accounting, mar-keting, production, etc. the combination of data processing withdata communications is being employed to improve and facilitateoperations of the enterprise.

Because of the growing use of these applications, many of thenation's business concerns are training their peopio in this field.Sears, Roebuck and Company recogpilles the role of these inte-grated data processing arrangements in the development of anefficient information system. Training and education in systems areregularly held for management personne: with emphasis being given

to the application of processing combin id with communications.The Bell System conducts one-day business commulcation sem-

inars to acquaint businessmen with the uses of all forms of com-munications. Executh ,,s from many types of businesses from allover the country attend this one-day seminar. In addition, a two-day seminar, covering the field of communications in much greaterdetail for systems men and data processing managers, draws at-tendance from many businesses.3

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Summary

The emphasis in this introductory chapter has been upon therole of data communications in the task of moving information.Greater breadth in the design of business information systems isbeing facilitated by the compatibility of processing and communi-cations.

In succeeding chapters, data communications in business infor-mation systems will be discussed in relation to:

1. its role in an organization at several levels,2. its suitability and adaptability in a number of corporate and

management situations,3. communication problems in information systems,4. planning a data communication system, and5. important, discernible trends in the use of data communica-

tions.

Detailed v4' nmation on specific types of communication servicesand equipm_at can be found in the back of the book with referencesthroughout the body of the text for those readers who wish to usethis Supplementary Information Section.

Discussion Questions

1. Define data communications and describe several specific working applications.2. How are data communications and data processing related?3. Discuss the differences between "data" and "information" as used in a busi-

ness sense.4. What role can data communir:ations play to meet the ircreasing information

needs of an organization?5. In what ways can data communications be used by small businesses which may

only have one location?

1 1 2 James Moms, "Breaking Communications Bottlenecks," SYSTEMS The Magazine of ManagementMethods (May/June, 1963), Page 10.

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Chapter II

THE ROLE OF

DATACOMMUNICATIONS

Human beings have been observing for a long time that the worldseems to be steadily growing smaller. It is nevertheless undeniablethat the pace of this apparent contraction has accelerated enor-mously within the past decade. The jet planes that now streakacross our oceans may soon be doing so at two or three times thespeed of sound.

Communications has played an equally important role in draw-ing all parts of the world closer together. Within less than atwelve-month period, millions of people were able to watch theOlympic Games in Japan, the inauguration of a President in theUnited States, and a state funeral in Great Britain without leavingthe comfort of their own homes.

Data communications has also benefited greatly from the recenttechnological advances in the more general field of communications.The most significant developments in data communications havetaken place in the United States, where it is more widely used thanin any other country in the world. Data communication techniquesare assuming an increasingly valuable role not only because of thespeed with which they transmit information, but also because oftheir ability to cope with the expanding volume cif informationgenerated by our society.

The Information Explosion

Throughout most of man's history almost all knowledge wastransmitted from mouth to ear, and then usually lost. The infinitesi-mal amount of information that was recorded was chiseled onstone or scrawled on parchment for others to read. But with thedevelopment of printing, man began the process of accumulatingknowledge rapidly and disseminating it widely.

By 1800, it is estimated, the sum of human knowledge was doub-ling every fifty years. Then, in the 1830's came the full impact of

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the industrial revolution. It accomplished more than just the sub-stitution of machines for human hands; the industrial revolutionalso gave birth to the information explosion. Information began toaccumulate rapidly not only because the new machines were gener-ating information, but also because man, freed to a large extentfrom the burden of manual work, was able to generate more infor-mation himself.

By 1950, the sum of human knowledge was doubling every tenyears, and there were predictions that knowledge would continueto expand at such c .te that by 1970 it would be doubling everyfive years. Noting the trends, American scientists during the sixtieswarned of the problems that this mass and flow of informationwould produce. Dr. Vannevar Bush, a widely respected engineerand mathematician, cautioned that science might soon be strangledby its own product. By 1963, in the natural sciences alone, 600,000technical documents were being published yearly, and it was clearthat there would be a continuing acceleration in the amount ofpublished scientific matter.

The effects of the information explosion were experienced inother areas of the economy. In medicine, for example, the dean ofthe medical school at the University of California in Los Angelesdeclared that more medical research had been published sinceWorld War II than in all prior human history. An executive of anaircraft company revealed that just the paper required for thedesign drawings of a jet plane outweighed the plane itself.

As knowledge accumulates, it becomes increasingly difficult foranyone to have access to all the information available in even ahighly specialized field. Accordingly, the techniques of processing,filing, storage, and retrieval assume added significance in man'sefforts to avoid the waste of duplicating work that someone elsehas already done.

Part of the answer to the retention and retrieval problem createdby the information explosion lies in the use of computers as stor-age units. All the information related to an area of study can bestored in memory units associated with one or more computers.But even when existing information is stored in computer memoryunits, it !s useful only if those seeking answers can gain rapidaccess to it. Easy and rapid access to computer-stored informationcan be available through data communications. An ultimate solu-tion to the information problem may require the establishment ofnational libraries available to subscribers through remote-inquirydevices. Such inquiry devices linked to computers by communica-tion channels would permit a user to key an inquiry into a machine

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and receive in return a visual display, a printed document, or anaudible answer to his question. (Figure 2.)

Data Communications as anAid to Govamment

National Defense. The defense of our country depends uponwhat is undoubtedly the largest combination of computer and datacommunication systems in the world. Individual systems of the

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Figure 2. Computers can automatically index and store information about specific fieldsof knowledge. Access to the information can be provided by remote inquiry terminalsconnected to the computer by data communication channels.

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Department of Defense supply up-to-the-second command, control,and warning information ( including detection, surveillance, andretaliation) required by the various unified and specialized com-mands of the Army, Navy, and Air Force. Individual voice and datacommunication networks may function in combination with oneanother as well as separately; they may be directly or indirectly tiedtogether while serving one or several military commands. Most ofthese communication systems are provided by the communicationscommon carriers.

A description of several of the more important systems mayserve to illustrate the overall magnitude:

SAGE One of the largest combined computer and data com-munication control systems in the world is the Semi-AutomaticGround Environment ( SAGE) system operated by the Air De-fense Command of the United States Air Force. SAGE is asurveillance and weapons control system that maintains watchover the skies of the North American continent. It is designed toreceive information from the many radar sites including thosefrom the CADIN ( Canadian Integration North, formerly PineTree) systems, as well as from flying observation aircraft andocean picket ships. Information from the various outposts istransmitted to central computers over data communication chan-nels. The computers process the data and display pertinentinformation on special screens and radar scopes in military head-quarters where it is evaluated by the Air Force personnel whomonitor the system. As unidentified aircraft approach or violateUnited States air space, command personnel can be notifiedimmediately and, if necessary, issue orders to dispatch ani con-trol interceptor aircraft or activate other weapons of the air de-fense system.

The dependence of the SAGE system on data communicationsis based on the fact that most of the radar sites in North Americaare located hundreds of miles from their central computers. Withcommunication lines providing the primary link, informationrelating to these locations is transmitted to and from the controlcenters as events occur. Electrical communications satisfy thecritical need for accuracy and reliability in the transmission ofinformation vital to the security of the country.

SACCS ( Strategic Air Command Control Systems) This is agigantic two-way communication system funneling informationinto SAC headquarters and sending operational instructions and

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commands outward to the force. Information concerning indi-vidual base readiness, bombers, missiles, tankers, personnel, etc.,is converted into digital data and transmitted at spec is up to3000 words per minute over communication lines to a centralcomputer. Some information is continuously displayed by con-verting the computer language into conventional language, rapid-ly printing on a film and projecting in color on L-ge screens.Virtually any information stored in the computer can be calledup by thc, SAC commander as he desires.

BMEWS ( Ballistic Missile Early Warning System) Long-rangeradars in Alaska, Greenland, and England transmit ballistic mis-sile and satellite tracking data to computers in Colorado Springs,Colorado. Voice and data circuits are used between ColoradoSprings and each site. The communication facilities of the DEWLine and new under-ocean cables are also used.

SPADVS ( Space Detection and Tracking System) Computersat Bedford, Massachusetts, and Colorado Springs, Colorado, keepaccurate, up-to-the-minute records of every orbiting object inspace payloads as well as pieces of "space junk" that accom-pany satellites into orbit. Tracking stations radars and optictrackers forward observations and tracking information to aSPADATS computer over communication lines. Anticipated or-bits are calculated by the computers and anticipated tracks aretransmitted back to the reporting stations for verification. Thetwo computers are also connected by communication lines so thatboth may be continuously kept up to date. Radars of theBMEWS also supply satellite tracking information to SPADATS.

Switched Networks In addition to special systems such asthose mentioned above, the Departments of the Army, the Navy,and the Air Force share a sophisticated private automatic switchedvoice network ( with data transmission capabilities) similar in opera-tion to but separate from the Direct Distance Dialing network usedby the public; and also a private automatic switched digital networkwith message switching' capabilities. These systems perform ex-tremely important tactical service during periods of emergency; innon-emergency periods they are used to carry on normal routineand administrative matters.

Federal Agencies. The Federal Government utilizes several verylarge data communication networks in addition to those that have

The concept of message switching is explained in the Supplementary Information Section.

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military applications. The United States Weather Bureau, for ex-ample, uses an extensive network to collect and disseminate weath-er information to the Federal Aviation Agency, commercial air-lines, agricultural organizations, and the general public. The Na-tional Aeronautics and Space Administration employs another largecommunications network for data acquisition and tracking in con-nection with its manned space vehicles and other space probingactivities. The Federal Aviation Agency, the Veterans Administra-tion, and the Social Security Administration have each establishedan extensive communications complex for transmitting both voiceand data between their various locations.

Law Enforcement. Federal and State law enforcement agenciesemploy more than 200,000 people. The sheer size of this operationdemands that law enforcement organizations utilize many of themost advanced techniques of business information systems, includ-ing the lent in data communications.

Rapid communications and ready access to records are essentialto successful law enforcement. To complicate the problem, lawenforcement activities in the 17nited States are divided among amultitude of state, county, and municipal organizations that arehighly interdependent for information and assistance. Further-more, if law enforcement is to be effective, information must flowfrom the operational levels of each organization to the operationallevels of the others. The faster a report of a stolen car can be sentfrom the desk sergeant in a city precinct to a county highway pa-trolman in the next state, the greater the chances of apprehendingthe thief and recovering the car.

Many states today have installed extensive teleprinter2 networksto send administrative messages as well as reports of suspects,reports of stolen property, etc. These networks are interconnectedwith those of other states to exchange information rapidly through-out the country. Within minutes after initial receipt of word con-cerning a crime, relevant information can be distributed over awide area, records checked, facts verified, and appropriate instruc-tions issued.

Emerging trends in law enforcement indicate even greater de-pendence on data communications in the future. The tendencytoward regional consolidation of law enforcement services, theautomation of police information systems, and the establishment ofregional record centers all herald an increase in the use of datacommunications.I Teleprinter equipment is discussed in the Supplementary Information Section.

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Data Communications and the Firm

In the American economy, every business firm must be a dynamicentity always in a state of transition. It either advances or declines;it cannot stand still. This constant change in a company's statuscreates operational problems. The mark of an effective manager ishis success in identifying problems and solving them with whatevermeans are available. Communications, as one of the available tools,plays a significant role in keeping a company in touch with its owndivisions as well as with its customers and suppliers.

As companies become larger, more widely dispersed, and morediverse in their operations, and at the same time try to renderbetter service at lower prices, the problems of internal communi-cations become much more complex.

Communications Links Newly Merged Firms. The lure ofreduced administrative costs, tax benefits, and an expanded baseof operations has led to an unprecedented number of companymergers in the past few years. Although there are obviousadvantages to such mergers, they are not without theirproblems. Physical consolidation of plants is often impracticablebecause of considerations such as existing union contracts, proxim-ity to suppliers, and unexpired leases. Thus the rapid exchange ofoperating information becomes a vital consideration. Data com-munications can play a prominent role in bridging the gap in timeand space between the merged companies.

If both firms have been using data processing equipment beforethe merger, it may be advantageous to devise a system that permitsthe companies to share the facilities. It is thus often possible toeliminate part, if not all, of the data processing equipment at onelocation. With data communications, the two companies can cen-tralize all their data processing equipment or, at least, distributethe load between the two installations if both remain in operation.(Figure 3.)

Mergers permit many cost-cutting measures, including the shar-ing of some staff services. Close administrative cooperation is ofparamount importance. Here, too, data communications can serveto link the two companies.

Communications Improves Efficiency. A corporation mustexamine many factors before deciding to transfer all or part of itsoperations to a new location. In our competitive, open economy,successful companies seek every opportunity to cut expenses andimprove service. One way to achieve these goals is to move closerto available sources of labor and raw materials. Another is to move

14

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Figure 3. Even though Two newly merged companies must remain physically separated,they can both have access to a new centralized data processing center through the useof data communications.

15

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closer to the principal market area for the particular products. Athird is to choose locations where building costs and taxes are loweror where labor costs can be reduced. While these objectives aresound reasons for moving to new locations, the resultant changesare almost certain to increase the problems of coordination.

An example of just such a situation may be seen in the case of acompany that divided its manufacturing operations so as to producetelevision cabinets in one plant and the sets in another. Because ofpoor coordination between the two plants, inventories were almostcontinuously unbalanced. For some models, more cabinets thannecessary were being produced, while in other cases there werenot enough cabinets. This imbalance created additional expenseand inconvenience; it became necessary, on occasion, to find tem-porary storage facilities for the surplus cabinets, even to the extentof using the barns of local farmers. Top management was unawareof the dimensions of the problem until an investigation was touchedoff when a customer complained of finding barnyard debris in thebottom of his television console. It was subsequently discoveredthat the breakdown in plant coordination had cost the company asubstantial portion of the profits it might normally have expectedto make.

Coordination of the supply of components required to manu-facture a particular product is basically a problem of inventorymanagement and production control. Whether the requirementsare relatively simple, as in the case just cited, or involve the con-trol of a great many parts manufactured or warehoused in widelyseparate locations, data communications can help to coordinateinterplant activities. With effective communications, centralizedcontrol can be exercised over the rate of manufacturing of thevarious components. It is practical, moreover, to use data com-munications for rapid reordering of parts from outlying ware-houses. When daily records of warehouse shipments are sent tothe factory, it is possible to deliver ( often by the next day) enoughstock to replenish the inventory supply. This type of coordinationlimits the amount of stock required in the warehouse and thusreduces both the storage problem and the inventory cost.

Communications Permits Larger Markets. Many companies,no longer willing to depend upon one or two major products tosupply the bulk of their sales revenue, are branching out intobroader product lines. They are also attempting to find new marketsfor existing products.

Promotion of an existing product line by increasing its channels

16 1

of distribution introduces a host of marketing and communicationproblems. A good example is the new trend in the marketing ofchildren's clothing, for which the traditional retail outlets have al-ways been department stores, large clothing chains, and children'sapparel shops. In recent years, however, these products, individu-ally wrapped in plastic bags, have been sold in increasing quantitiesin supermarkets.

A manufacturer cannot distribute products to supermarketsthrough the same channels he uses for department stores. Utilizingthese supplementary channels of distribution requires changesin methods of placing orders, delivering merchandise, billing, etc.Stocks retained in supermarkets are limited and usually requiremore frequent reordering. Orders tend to be smaller and must bedelivered faster to avoid shortages. In brief, these differences de-mand different types of communications.

Communications Increases Services to Customers. Customersin today's competitive climate are demanding and getting moreservice. They are no longer content to wait long periods of timefor delivery of products. They want fast delivery, low prices, andfirm commitments. A supplier who cannot provide these servicesis likely to lose his customers to a competitor who can.

Timely delivery is often the most valuable service a supplier canrender. The faster a customer can expect delivery of an order,the smaller the shelf inventory he will have to maintain. Inventorycan be further reduced if the supplier is willing to accept frequentsmall orders. Some form of automated ordering is also a help to acustomer, for then he can prepare orders with a minimum ofclerical effort. After one company had instituted an automatedordering system, it discovered that its annual sales to one of itscustomers increased from a previous average of $750 to almost$42,000 in the first year and to almost twice that in the followingyear.

The key to an auti,mated ordering system is the conversion of orderinformation into machine language ( e.g., punched or marked cards,or paper or magnetic tape) as quickly as possible, preferably at theinitiating customer's location. Using some type of communicationservice, the information can be immediately relayed to the sup-plier in machine-processable form. The order can be processedwithout delay, permitting much faster delivery.

In businesses such as banks, travel bureaus and airlines, whichdeal primarily in service, data communications can be used toobtain information quickly and to expedite transactions involvingdeposits and withdrawals or ticket and hotel reservations.

17

1

Communications Reduces Operating Costs. As competitionforces prices down and labor and material costs continue to rise,profit margins tend to shrink. When this happens, managers lookto the reduction of operating costs as a means of exercising econo-mies.

Communications can serve in many ways to reduce operatingexpenses. Businesses that have decentralized plant operations inorder to save transportation costs, often find it more economical tohandle payroll, purchasing, billing, and other functions on a cen-tralized basis. With the aid of data communications, all branchtimecards, invoices, bills, etc., can be processed at a central location,reducing clerical costs at each of the plants. (Figure 4.)

Operating expenses can be reduced indirectly by acceleratingthe rate of processing invoices. Rapid receipt of orders in the ac-counting center expedites customer billing, and any reduction inthe time gap between shipping and billing dates correspondinglylessens the "float" in accounts receivable. A decrease in that por-tion of working capital devoted to carrying customer accountsproduces in turn a saving in interest charges.

Data Communications and the Manager

The previous section discussed some of the ways in which datacommunications can be useful in the various aspects of a company'soperations. Although installation of any of the systems describedis a management decision, once the system becomes operationalit functions much like any other part of the company's structure.Data communications, however, can also serve the business manageras a continuous tool, helping him to evaluate all relevant factorsin his task of administering and managing the men, the machines,and the money available in his organization.

Communications Permits Organizational Flexibility. A one-man business has no need for interr., -_-)mmunications. But assoon as the entrepreneur hires a secretary z9 help with office work,a communication requirement is establist. ed. In a two-room office,an intercom may serve as one link between secretary and employer.As the organization grows, so do its communication requirements;the more people engaged in the operation of the business, thegreater the need for internal communications.

The pranary purpose of organizational planning is to improve theability of a business to conduct its affairs. The only justificationfor any form of internal organization is that it most effectivelysatisfies the particular requirements that called it into being. Until

18

recently, the forms of organization available to many companieswere limited by their requirements for intracommunication. A firmthat needed timely, accurate information to operate efficiently hadto keep its divisions relatively close to one another if managementdecisions were to be reached with dispatch. The available types ofcommunications to a large extent determine the physical layoutof the organization.

Today, however, as a result of advances in the science of electri-cal communications, business executives cau be located completelyin accordance with the needs of the organization. It is now practica-ble to send information anywhere in the nation, in armost any form,with accuracy and speed. In a matter of a few minutes, a sales

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19

1

report, financial statement, or production report can be transmittedwherever needed so that a decision may be based on timely infor-mation. Through the use of advanced communication techniques,a company can determine its geographic distribution solely on thebasis of the demands of the business. Plant proximity is no longera prerequisite for reliable communications.

Communications Improves Planning and Forecasting. Plan-ning and forecasting are by definition concerned with the future.But the basis of good planning is an accurate knowledge of thepast. The more current and accessible the information about thepast, the more valuable it becomes as a tool for planning. If amanager uses sales data that is one month old as a basis for planningthe next month's sales program, he may be missing importantinformation about events that occurred within the preceding week ortwo. Such information is especially critical when seasonal orperishable merchandise is handled. A sudden slump in salescould create stockpiles of unsalable items, while a sudden spurtin sales could deplete inventories and result in lost sales in thefuture.

Data communications can deliver up-to-the-minute informationon sales, production, cash collections, and a host of other items in-formation that is vital to proper planning and forecasting. Forexample, today's information on machine down-time, available man-power, and project priority could be instrumental in planning to-morrow's activity in a job shop where men and machines must beemployed efficiently.

The construction industry, to cite one illustration, relies onworkable plans and realistic schedules to meet deadlines. One largeconstruction company uses data communications to collect jobstatus reports from all its construction sites every Friday night. OnSaturday, the data is processed on a computer, using the CriticalPath Method3 of Scheduling. The computer reschedules each job,figures the cost of each project to date, and predicts the final costand profits based upon the up-to-date progress reports. The revisedschedules are then airmailed to the job sites on Saturday afternoon,and the superintendents have them in hand Monday morning. Inthis case, the company employs data communications to assembleup-to-the minute information so that plans for the following weekmay be revised in the light of the preceding week's events. (Fig-ure 5.)3 Critical Path Method is a method of planning a project so as to bring it to completion in theshortest time at least cost. For a detailed discussion of CPM see Project Management and Control,R. L. Martino, American Managemenr Association, New York, 1964.

20

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Figure 5. Status reports are transmitted to the construction company headquarters everyFriday night. The data is processed and revised schedules prepared. The new schedulesare airmailed to the project sites and arrive there Monday morning.

21

Communications Improves Control. The system just describedis not only an example of an effective planning operation, but alsoan illustration of an effective control technique. In this sense, thecompany evaluates the latest information to determine whetherthe progress of each construction project is on schedule. In theControl Room at company headquarters are displayed all projectinformation, architectural sketches, progress photographs, updatedCPM ( Critical Path Method) charts, and the company's currentprofit and loss picture. Each Monday morning, top managementpersonnel convene in the Control Room to review each projectand the company's position as a whole. If a project's time, cost orprofit figures are significantly above or below estimates, steps aretaken to determine the cause and start corrective action if necessary.In this company's system, data communications serves as a meansof gathering timely information essential fOr centralized control of afar-flung operation.

Communications Facilitates Decision Making. Few thingscause executives so much anguish as the need to make vital deci-sions before all pertinent information is available. Many types ofdecisions, of course, can be made on the basis of information days,weeks, or even months old, but others require an appraisal of factorsthat may change daily or even hourly. Without rapid communica-tions, a manager may choose one course of action shortly after theentire framework of circumstances within which he must makethe decision has changed.

Most large companies, for example, convert idle cash into UnitedStates Treasury bills as soon as possible to take advantage of theinterest that can be earned. The most important information forthe treasurer is the amount of cash available for investment. Thecritical time for decision making is the end of the day just beforethe money market is about to close. The more up to date the infor-mation about cash collections and disbursements, the more accu-rately the treasurer can decide how much cash to invest. If he hasto delay the purchase until the next morning, the company willlose a day's worth of interest. When millions of dollars are involved,one day's interest amounts to a substantial sum of money.

If the company has an efficient data communication system,information :.bout collections and disbursements anywhere in thecountry can be relayed almost instantaneously to the treasurer'soffice. At the end of each day, the treasurer can be sure that hehas an accurate picture of the company's current cash position. Hecan thus make truly well-informed decisions as to whether he shouldbuy or liquidate Treasury bills.

22

Summery

Advances in technology have enabled communications to play anincreasingly important role as a tool of both government agenciesand private business. As society becomes even more complex,corresponding progress in communication techniques will be re-quired.

Communications is essential at every level of organization. TheUnited States Government utilizes vast communication networksfor voice as well as data transmission. Businasses also need com-munication systems to carry on their muny complex operations.Communications helps companies disperse their operations withoutlosses in efficiency. Managers of a business use communicationchannels for rapid access to the information required for dailydecision. Thus overall planning and control can be based on infor-mation that is accurate, inclusive, and up to date.

Discussion Questions

1. What problems has the "information explosion" created?2. How do the uses of communications by law enforcement and military agencies

provide examples for similar data communication system's in business?3. How can business use data communications to improve efficiency?4. How can top management use data communications to aid decision making?5. Why is data communications important to the student of businessadministration?

23

Chapter III

DATACOMMUNICATIONS

IN MANAGEMENT

The previous chapters have stressed, mostly in broad terms, thevariety of ways in which data communications can serve govern-ment and business. This chapter will consider the application ofdata communication techniques both to the various functional ordepartmental activities of a company and in an integrated informa-tion system for corporate management.

Departmental Applicationsof Data Communications

Data communications can be useful in practically every area ofbusiness practice. Its range of application seems to be limited onlyby the ingenuity of system designers. Wherever dispersed sourcesof information present a problem, there is likely to be a role fordata communications.

Accounting Operation:3. This area usually one of the first tobe automated when a company begins to install computers wasalso among the earliest to receive the attention of data com-munication systems planners.

One large chemical company, for example, had used a system inwhich payroll information was recorded on time sheets at each ofits four plants. These reports were mailed weekly and were receivedat company headquarters on Monday. Upon receipt of the timesheets at the accounting center, punched cards were prepared, thepayroll was run on the computer, and the checks were printed outand sent to the main office for signature. The deadline for returnmailing of the checks was 10 A.M. on Wednesday. The signed pay-checks had to arrive back at the plants by Thursday for distribu-tion to the employees. Adherence to the schedule was essentialto good employee relations.

24

Although a payday had never been missed, the company wascompelled on several occasions to charter planes to meet deadlinesat two of its more distant plants. Because of delays in the methodof transmitting time sheets, the company was unable to realize allthe expected advantages of centralized processing.

After ire situation was studied, it was decided to transmit timereports from each plant to the accounting center on the existingadministrative teleprinter network. The reports were typed on a':eleprinter and a punched paper tape was prepared. As the datawas transmitted to the accounting center, it was converted directlyto punched card form ready for immediate processing. Direct cardpreparation alone saved the company almost $500 a month in costof keypunching and verification. The company was also able tocomplete its payroll processing twenty-four hours earlier, whichprovided a comfortable margin in meeting its deadline. The com-pany plans to expand the system by transmitting payroll informationto each plant where checks will be printed out automatically.

Another aspect of accounting procedure is illustrated by the caseof a wholesale drug distributor. This firm maintained a separatebilling operation at each of its warehouses so that an invoice couldbe packed with every order as it was shipped to the customer. Theinvoices were prepared from prepunched stock item cards.These cards were then trucked from the warehouses to head-quarters for purposes of inventory control Under this system, how-ever, the inventory record in the computer was twenty-four hoursold; consequently, the computer would frequently prepare ordersthat could not be filled from the specified warehouse.

A data communications system was established by which theprepunched cards fur all orders received during the day (an averageof 10,000 cards) are automatically transmitted every evening to theheadquarters computer location.' The central computer preparesthe invoices and determines whether all orders can be filled fromstanding inventory: at the local warehouses. Items in short supplyare requisitioned Loin the main warehouse and trucked to the localwarehouses, together with the invoices, by 2 A.M. the followingmorning. This new system eliin- inates the need for accounting equip-ment at warehouse locations, improves the accuracy of the inventoryrecord, gives the customers quicker and more reliable service, andsaves substantial administrative expenses.

Personnel Applications. Most companies make every effort tomaintain accurate, comprehensive employee records. Common to' Punched card transmission terminals ano discussed in the Supplementary Infonnation Section.

25

almost all employee records are such basic facts as name, address,dependents, education, previous work experience, company workexperience, and company training. Many companies, however, alsorecord information of a more confidential nature, such as medicalhistory, salary, and evaluations by supervisors. In the course ofbusiness, many people require access to the first category of informa-tion, but considerable difficulty could arise if the more confidentialrecords were available just as freely. To provide the necessarysecurity, some companies have established many different employeerecord centers, each containing only the information pertinent to therecord centers' specific functions. In such an arrangement the basicinformation is duplicated at many locations. Also, because theinformation changes from time to time, there tend to be discrepanciesamong duplicate records at different locations.

A study of one company showed that employee records were beingmaintained at ninety different locations, that much of the informa-tion was duplicated at several locations, and that many of the recordswere not up to date. To cope with this problem, the companydecided to consolidate all employee information in a computercenter. Thereafter, when any division required pc- Innel informa-tion, a teleprinter was used to interrogate the computer. The tele-printer would, in turn, print the computer's response. The computerwould check the validity of the interrogator's confidential authoritynumber before transmitting the information. After the informationhad served its purpose, the printed copy could be destroyed.

Such a system has several advantages: most of the space formerlyrequired for storing records can be used for other purposes; employeeinformation is more accurate and up to date; confidential informationis available only to authorized personnel; and, last but not least, thesavings in clerical expenses help offset the cost of the company'scomputer center and the associated data communication subsystem.The system, of course, is also available to perform many other dataprocessing functions.

Production. A major problem among manufacturers is maintain-ing control over production lines. It is necessary to know at alltines what raw materials have been used, how far each item hasmoved along the production line, how many items have beencompleted, and whether any bottlenecks have developed.

One large airplane manufacturer uses punched cards to identifyevery item used in the manufacture of a plane, ranging frommaterial such as hydraulic fittings to pieces of sheet metal andbarrels of bolts. As these items are issued from the supply room,the corresponding punched cards are transmitted to a computer.

26

The information is used to maintain an inventory of parts as wellas to record the cost of each airplane. As inventories becomedepleted, the computer automatically issues orders for the purchaseof more parts.

In another case, an automobile manufacturer uses a teleprinternetwork to send orders to various stations along the productionlines. At each plant, detailed assembly instructions are preparedby data processing equipment for transmission over the teleprinternetwork. This system enables each station on the final assemblyline and on the transfer lines feeding the final assembly lines toknow exactly what is to be added to each car as it comes through.The first station on the line selects the desired basic body style.Subsequent stations are instructed as to type of tires, color of theinterior, kind of radio to be installed, etc. The desired items arereceived as needed from the transfer lines, thus avoiding an accumu-lation of material at the final assembly stations. In this way, ordersfrom all dealers can be coordinated and assembly line methods canbe used to produce finished automobiles according to the specificwishes of each purchaser. (Figure 6.)

"1

Figure 6. A teleprinter is used to receive assembly instructions at each station on an

automobile production line.

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Marketing. Electronic data processing has yet to achieve inmarketing the status it holds in other areas of business operation.One reason for this is the pervading belief that marketing does notyield enough data to justify the use of a fair-sized computer. Manyauthorities point out, however, that eie data does exist in greatquantities but until now there has been no way to collect the informa-tion or to analyze it quickly enough to make it useful. The growingvariety of terminal equipment coupled with data communicationshas now made it possible to collect marketing data rapidly andeconomically.

One large department store is installing a system that will includea communications link to report sales directly to a computer fromcash registers in nine stores and a voice response from the computerwhen a clerk checks the credit standing of a customer. The computerwill also provide management with a daily report on the cumulativesales of each department in every store compared to the equivalentperiod in the previous year, plus analyses of sales trends and evena report on the sales performance of each person on the sellingfloor.

One important aspect of marketing is the development ofefficient sales procedures. Customers should be able to place orderseasily, and their purchases must be processed quickly and accurately.Many companies have turned to data communications for solutionsto their problems in these areas.

A wholesale hardware distributor, for example, has established apunched card system to permit customers to place their ordersquickly and easily. Although the company stocks over 30,000different items, most of its customers, the management learned,repeatedly requested the same items. To simplify the process, eachcustomer was provided with a card-reader transmitting device anda supply of prepunched cards for the frequently ordered items. Thecards contain the customer's number and the parts number. Theordering system works as follows:

1. When a customer wants to place an order, he telephones thedistributor's card-punch receiving station.

2. Using the established telephone connection, the customeractivates his card-reading device, which transmits the informa-tion contained on the chosen item cards. The desired quantityof each item is keyed in on a small keyboard associated withthe card reader.*

3. The customer's cards are automatically duplicated at the dis-tributor's receiving station.

2 This punched card transmitting device is described in the Supplementary Information Section.

28

4. The distributor processes the duplicate cards to prepare apicking sheet to locate the items in the warehouse.

5. The order is assembled, checked, and sent to the customer,often on the same day it is placed.

Since this system was installed, orders from customers haveincreased substantially. Customers appreciate the arrangement, asit helps them reduce the size of their inventories and the costs oftheir purchasing operation. The system virtually eliminates paperwork, since both customer and distributor can use the punched cardsfor computerized bookkeeping, and the order itself is prepared andtransmitted with a minimum of preliminary paper work.

Engineering Applications. The complexities of engineeringproblems require that engineering and research people have accessto data processing equipment; many types of complex problems arenot readily solved with paper, pencil, slide rule, and desk calculator.In this area, too, data communications helps research and engineer-ing personnel prepare and test new computer programs and transmitdata over long distances.

A large chemical company uses teleprinters to prepare newengineering programs in punched paper tape form and to forwardthem to a large-scale computer at a data processing center. Theengineer receives the results of the test of his program and returnsany corrections to the computer via a keyboard printer. Engineerscan also send their own data to the computer for processing. Thissystem allows each engineer to have access to a computer for hisown project assignments. It eliminates the need for a small computerat each of the engineering locations without any loss of time inresearch and development work.

An arrangement has been developed which allows several usersto share a computer at the same time ("time-sharing" ) . Each userconverses directly with the computer via a remote keyboard printeras he prepares his program. The computer analyzes the instructionsas they arrive, and can send back error messages. This is called tLeconversation mode of operation. For engineering applications, itgreatly increases the productivity of each engineer as compared tothe older method with its inherent delays in getting a new program"debugged" and in running a problem on the computer. The con-versation mode is discussed in detail in Chapter VI.

It can be seen from the foregoing examples that within the frame-work of business practice, data communications is widely used inconjunction with data processing equipment. Communication sys-tem designers can help management apply the economies of com-

29

puter operations to every department of a corporation. So far,however, we have been considering each administrative subdivision

accounting, personnel, production, marketing, engineering asmore or less independent units. Perhaps the most dramatic exampleof the benefits data communications Cal" provide is its capacity tohelp integrate all of the departments of a major company into asingle coordinated system that permits both departmental ind epen-dence and overall control in those areas that require it.

Business Information Systems

Figure 7 is a simplified representation of the way informationflows in a Business Information System. Relevant information isaccumulated from various operating sources, or from sources outsidethe company. After being processed, the data is acted upon,either directly by operating personnel in accordance withestablished rules, or analyzed by management so that appropriateaction can be taken. All information that cannot be acted on at thelower levels is filtered out, and sent upward to the appropriatedecision-making or action personneL

MANAGEMENT

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Figure 7. A Business Information System handles all of the company management andoperating information. The operating information will generally represent the bulk ofthe information handled in the system.

30

It is apparent that the bulk of information handled is in the non-management area of the business. Such information includes factual,routine material essential to everyday operation: orders, inventorycontrol, billing and purchasing. Operating reports and non-routineitems move up the line to higher management. There is a corres-ponding downward flow of information designed primarily for thecontrol Gf operations.

The apex of the pyramid represents the essential strategic knowl-edge required by top management a distillation of the financialand operating data used for routine decisions at lower levels of thefirm. In between the two strata, middle management is concernedwith data for control of tactical operations, and, to some extent, withinformation for strategic decisions. Again the pattern reveals alateral flow in addition to a downward flow of control information.

In Chapter I, a Business Information System was defined as acombination of people, data processing equipment, input/outputdevices, and communication facilities that supply the informationneeded to operate the business. In this definition input/outputdevices may be either remote data processing equipment or terminalequipment associated withcommunication links. Insimplified terms, the threemajor elements of an infor-mation system are people,processing equipment, andcommunications. This com-bination can be envisionedas a three-legged stool, withthe seat comparable to theinformation system itself.(Figure 8.) The three legsare reinforced with braceswhich in the analogy maybe considered as aspects ofsystems planning.

When a Business In-formation System is ana-lyzed in this way, the

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31

relationship between the various parts becomes clear. Any systemdesign must consider all three elements; like a stool, it cannot standon only two legs. The structural strength f: the entire operation,then, is supplied by effective systems plan_l: -6.

It will be useful to examine the Business Information Systeniinstalled by the Westinghouse Electric Corporation. It demon-strates how designers can consider all the necesE lry elements of acomplete system and establish a proper balance between them.

The WestinghouseInformation System

Late in 1962, Westinghouse established a corporate, generalpurpose information processing center using a high-speed, real-timescomputer. This computer serves as the hub of a nationwide tele-printer network. The heart of the system is called the Tele-ComputerCenter.

Basic to the concept of the Tele-Computer Center is the use ofthe computer to perform the function of message switching in thenetwork. The message switching activity, however, is a means toan end, rather than an end itself. With the computer as an integralpart of the existing communications system, and with every messagepassing through it, it is ideally situated to identify and interceptdata messages of many different kinds and to perform functionsranging far beyond the simple routing of traffic. In addition to itsreal-time capability, the computer has extensive batch processingcapabilities, being arranged to interrupt batch programs in progressto take care of real-time situations.

Many of the applications involve the use of the real-time capabili-ties of the system to gather data via the teleprinter network fromwidely separated operations, storing it automatically, and processingit periodically as required for the production of management controlinformation. Some of the applications result in the production ofinformation for specific operating divisions, others in the productionof information for the use of Headquarters management.

The Tele-Computer Center provides essential benefits in manykey areas of operations. To customers, for example, it means fasterdelivery of orders than was ever possible before. To the Westing-house Electric Corporation itself, it means more efficient operationand more valid information for management decisions. To Westing-house salesmen it means greater speed in obtaining estimates, sub-mitting quotes, and answering inquiries about stock availability, aswell as improved service to their customers. (Figures 9 and 10.)

' The concept of "real-time" operation is discussed in Chapter VI.

32

The Tele-Computer Center serves approximately 300 locationsthroughout the United States and Canada. These include plants,administrative and sales offices, warehouses, repair centers, and dis-tributors for the entire organization. The Tele-Computer Centerhas been designed to administer four major operations, each ofwhich will be described briefly:

1. Message switching

2. Order processing and inventory control3. Corporate accounting applications

4. Remote data processing

Message Switching. The first application of the informationsystem, starting in December, 1962, was message switching, a func-tion basic to the applications which were planned for later. Inaddition to performing various switching functions, the programtakes care of a number of additional tasks, including generatingdaily statistics and message accounting. This message accounting isrequired for proper distribution of charges to the various companyunits using the communication facilities. Cards for billing are pro-duced at the end of each day's run.

Order Processing and Inventory Control. Any of the 117 indus-trial and utility sales offices served by the information system mayoriginate an order message, using a teleprinter to prepare a messagetape in a specified format. The address code of the message directsit automatically to the order processing program within thecomputer.

The computer performs certain checking and editing functionsand then proceeds to locate the desired items in its file of inventoryrecords. If an item is out of stock at the warehouse nearest thecustomer, the computer searches for the item at warehouses pro-gressively nearer the factory, and finally at the factory itself, inorder to minimize transportation costs.

Having located the required items, the computer generates amessage, directing the warehouses to ship the items. It also preparesthe shipping labels, bills of lading, and packing lists for those itemson the receiving teleprinters at the warehouses. Meanwhile priceextensions and sales taxes have been calculated for the periodicinvoice printing run. Inventory records are updated as each orderis processed, and examined for reordering points. If a reorderingpoint is reached, the applicable formulas are automatically brought

33

FIGURE 9 THE WESTINGHOUSE TELEPRINTERMESSAGE SWITCHING SYSTEM

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Invalidmessages

TeleprinterReceiver

A

TeleprinterReceiver

Teleprintersystem op-orators' com- Amands tocomputer andmessages tooperators atoutlying sta- Teleprintertions. Transmitter

Acknowledg-ment ofaction taken Aon system op-orator's com-mands.

TeleprinterReceiver

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Real Time ClockThe computer constantly refers toclock to &tannins which plants andoffices are open, to assign time tooutgoing messages, and to deter-mine when to check the status ofstations on the system.

CommunkationsControl Units

Typical'WOWstations

A2 i r

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CENTRAL PROCESSOR

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TeleprinterTransmitter/Receiver

Drum Memory(Transient

message file)

Random-AccessMemory(Completed Teleprintermessage file) receiver

FIGURE 10 WESTINGHOUSE AUTOMATEDORDER PROCESSING ANDINVENTORY CONTROL SYSTEM

11 '11 11 i 1 ear 1ORDER ENTRY 1.

High Priority Segment Order Processing Segment1 41_, 1Inventory sntrol

programsInvoice writing

programStock status reporting

programsAccounting and

financial control programs

Nir .1. nOn site

order service staffInvoices

(Accts/Rec, etc.)

Stock bulletinsand order

service guides

,....,..**"...*"--.

Pricerealization

Taxreporting

Billing andcost reports

and analyses

...--,./".....--".

1 I MESSAGE SWITCHING OUTPUT 1 11III 111j, III1__I_Inquiry

answers

.........

Shipping notices,bills of lading, etc.

/---".Replenishment

stock requisitionsStock activity

reports

_...."'"."

Back ordernotification

S.- .....----

Billinganalysis

N..__ _.....o

Message switching program receives and directs incomingm gas:

recognizes stock-status inquiries, customer orders, andstock receipt reports, and writes them on random-accesssection fr ich order entry program receives all job as-signments.On-site order service staff may receive mes-sages via channels other than teleprinter. In such cases, theymay inter information directly to the order entry program,by-passing the teleprinter switching input.Igpck-status inquiries receive priorty: order-entry programlir checks warehouse inventory for availability of ordered

items at design 061 warehouse, or alternate warehouses, ifnecessary; and IP replies in standard form through mes-sage switching output whose program also gives priority tostock-status messages.

Customer orders are processed as received. They y con-tain coded customer billing and shippi address, productidentification, and preferred warehouse. Or entry pro-gram searches preferred warehouse inven ory. For items

not available at preferred warehouse, program uses geo-graphic warehouse file to find items at warehouses progres-sively closer to factory, and finally at factory itself.

As items are assigned to an order, inventory totals arereduced accordingly. Inventory control program constantlymonitors inventory records. When recording point is reached,program includes the item in daily inventory-control batch runwhich sends teleprinter stock-replenishment information tofactories, calculated for economical production quantities.

Order-entry program performs shipment paperwork: ex-tracts customer special requi nts and shipping addressfrom random-access file, and I/ sends shipping notices tose ted warehouses via teleprinter switching output program.

Teleprinter at warehouses print the actual labels, billsof ading and all paperwork necessary to make shipment.

Order-entry progra racts from random-access file:pr g information; 11/ discount schedules for each item;

lip customer billing address and discount classification;

and state arilliocal tax data, completing information forprinting invoice and stores on tape for periodic invoice-printing runs (several per day) and accounts-receivable inputinformation.

If an item is out of stock: the sales office and thecustomer are notified through Jailybick-order run, which alsog rates teleprinter notification 11/ of back-ordered items;111/ order service taff at Tele-Computer goiter is notified

via printed reports, run several times daily. 111/ Stock-statusreporting program also generates weekly stock bulletins onactive items, monthly stock statistics for manufacturing divi-sion planning, and a periodic order service guide to the entireproduct file.

At end of each day: 110 order-entry progra itiates dailyaccounting and financial control program; informationfor billing analyses iiisitomatically collected or each man-ufacturing division; W price realization reports, tax re-ports, and billing-versus-cost reports and analyses areprinted.

into play to determine the proper replenishment quantity. A requisi-tion message is automatically produced and sent to the properfactory. Sales statistics are also accumulated during the processingof orders. The entire process takes less than three seconds afterreceipt of an order message.

The system provides as a by-product a high-speed, automaticstock inquiry service to sales offices. Priority is given to theseinquiries; the only delay is the time necessary to complete thetransmission of a message already in progress on the receiving line.Before installation of the system, information received by salesoffices was often two to six weeks old.

Corporate Accounting Applications. The Tele-ComputerCenter also performs most of the corporate and headquartersaccounting functions. Those for which time is not a critical factorare handled as conventional batch processing applications. Amongsuet. functions are the maintenance of stockholder records andissuance of dividends; maintenance of headquarters, regional andpension payrolls; generation of monthly budget statements; andmaintenance of fixed asset records and depreciation accounting.

There are two major accounting programs which are run on areal-time basis. The output of these programs provides informationthat is of extreme interest to management, and the usefulness of thisinformation for decision-making purposes declines rapidly with age.

One of these accounting programs is the gathering and compila-tion of month-end financial results from the profit centers andsubsidiaries. At the beginning of 1964, Westinghouse abandoned theold method of gathering the month-end results of the profit centersby mail and manually auditing, correcting, and assembling the in-dividual results into group and corporate statements. Now, on theappointed closing day, a real-time computer program gathers thetrial balances of the profit centers via the teleprinter network, audit-ing each set of figures as it arrives. If discrepancies are discovered,a request for correction is generated by the program and auto-matically sent to the reporting location over the teleprinter network.When all locations have reported correctly, the key statements areimmediately generated in final form for reproduction and distribu-tion to top management. It is now possible, through the use of theteleprinter network, to speed up the receipt of the financial dataand, with automatic auditing and assembly, to give this vitalinformation to management several days earlier than in the past.

In July, 1964, the second of the major real-time accounting pro-grams went into operation at the Tele-Computer Center. The cashmanagement information program provides the company's Head-

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quarters Treasury Department with complete and up-to-the-seconddata relating to cash. The teleprinter network is utilized for collect-ing data in the computer as well as for providing daily reports andanswering specific inquiries from Treasury. The program includesthe continuous recording of deposits of cash collections, the transferof funds to coyer the cash needs of the various divisional activities,the maintenance of bank balances for the approximately 250 bankaccounts used by the company, and the reporting of cash data toHeadquarters Treasury.

More importantly, this program demonstrates the feasibility ofproviding management with up-to-the-minute financial data by"push-button" request from a remote office. An inquiry device hasbeen installed in the Treasury Office which enables that office torequest such information as the up-to-the-minute cash position ofthe company, the amount %.4 collections from customers, the disburse-ments made from the company's various payroll and accounts pay-able locations, the current balimce in any of its bank accounts, theavailability of such funds, and the current status of its marketablesecurities. The Treasury personnel merely set a if- N dials on theinquiry device and push the button from then on, the communica-tions network and the computer take over. The computer receivesthe inquiry, interprets it, and within a few seconds relays the answerback to the treasurer's office.

Also, the various divisions now have a new means of requisitioningfunds to cover their disbursements. Each time the divisions issuechecks to pay employees or suppliers, they send a teleprinter messagedirectly , the computer. The computer extracts certain key infor-mation from the memory file and relays the message to a teleprinterat the local bank. Using this teleprinter message as its authority,the bank transfers funds from the local bank account to the appro-priate division's bank account by way of the bank's wire service.

Remote Data Processing. With the computer tied into everycompany location large enough to justify a teleprinter terminal,each such location has direct mcess to the information-processingfacilities of the Center. Westinghouse is now working on a pilotproject to exteni the capabilities of the information center to oneof its manufacturing divisions. The program will pre- gide the manu-facturing division with an information processing and real-timeinformation retrieval service it could not afford to support by itself.Thus, the Tele-Computer Center will eventually serve as a source of-iiii-oi illation n