Technology: What New Age?

By THOMAS McCARROLL

About a decade ago, Reliance Insurance launched an ambitious office- automation project with the slogan "Paper Free in 1983." The Philadelphia-based insurer had the words emblazoned on wall posters, coffee cups, stationery and lapel buttons. It invested millions of dollars in information technology, including thousands of computers, an electronic-mail system and a brand-new telecommunications network. Managers waited for worker productivity to explode.

They're still waiting. Today Reliance is anything but paper free. Memos and forms proliferate as never before. Employees shun the computerized mail system. And productivity gains have been nil. While the company has curtailed its spending on automation, it has not abandoned its ambition. "It was not a realistic goal in 1983," concedes senior vice president Ronald Sammons, "and it isn't a realistic goal in 1993. Maybe in the year 2003."

Reliance is not alone. Since the early 1960s, when assorted gurus proclaimed the imminent arrival of the Information Age, businesses and consumers have been eagerly awaiting its coming -- and with it, the "paperless" office and the "cashless" society. Among the techno-prophets' predictions: home shopping, electronic libraries, personal computers on every desk, soaring worker productivity, uninterrupted growth. As a result, thousands of companies invested heavily in information technology in hopes of gaining a competitive edge. Other firms, including hardware manufacturers and software developers, placed equally large bets on supplying the markets for home and office automation.

Well, the Information Age is here, but it hasn't exactly lived up to its advance billing. While more people are working with their heads rather than their hands, and more than a third of the nation's $5.5 trillion GNP is generated by ideas rather than manufactured goods, white-collar productivity is no higher now than it was 30 years ago. The paperless office remains a secretary's fantasy. Paper-killing technologies like electronic mail and voice % processors go largely unused -- too complicated -- while paper-generating devices like fax machines and copiers are used to the point of abuse. As for the cashless society, most consumers have thumbed down such gee-whiz financial services as electronic banking, home shopping and debit cards.

The pot of gold at the end of the information-technology rainbow remains elusive. Citicorp has watched close to $200 million go up in smoke since 1985. Its first major information-service investment, a joint venture with McGraw- Hill to supply electronic data on prices and market activity to oil traders, flopped after a year. Earlier this year, Citi pulled the plug on a computerized information service aimed at grocery shoppers. Knight-Ridder lost about $50 million in a failed home-shopping service. And in its ambitious effort to make paper vanish, Wang Laboratories itself almost disappeared when it bet the ranch on manufacturing expensive document-scanning and imaging systems that nobody wanted. Says David Goulden, a Wang vice president: "The market's been a disappointment."

The Information Age just hasn't been able to meet overexpectations. Some technologies have worked as promised; others haven't. For every success story like compact discs or Nintendo, there are fizzles like picture phones and home computers. And in some glaring instances, the industry has been its own worst enemy. The sale of credit information by companies like TRW and Equifax hurt the market for automated credit services; sleazy, heavy-breathing 900-number telephone services created a mounting backlash against audiotext.

A growing number of markets are reaching the saturation point. Cable TV is available to 90% of all U.S. households, nearly three-quarters of all homes have a videocassette recorder, and most people who want a personal computer probably already own one. Rampant price cutting -- a sure sign of maturation -- is putting a squeeze on profit margins industry-wide. In fact, the $500 billion information industry -- which encompasses everything from the media to computer software to telecommunications -- is in its biggest slump ever. Gone are the go-go days of 20% annual growth. Sales peaked in 1987 but rose only 9% in 1989 and 6% last year. This year the industry will be lucky to grow at all.

Despite the slump, industry executives point out that the information business is still growing faster than autos, steel and airlines. What's more, technological improvements and new developments keep coming. What's happening < now, says David Fullarton, president of the Information Industry Association, is simply a transition phase: "These are merely growing pains."

Most deflating has been the market for office automation, the largest component of the industry. Sales of hardware and software were good -- up 7% to $300 billion -- but not great compared with the 18% growth during the '80s. Though the category contains everything from laser printers and multifunction telephones to electronic-mail systems, the staple of office automation remains the computer. During the 1980s, Corporate America spent about $98 billion on 57 million personal computers.

But have computers made workers more productive? Stephen Roach, a senior economist at Morgan Stanley, says white-collar productivity has been stagnant since the 1960s. By contrast, blue-collar productivity has improved by a factor of four. "Companies thought that by simply buying boxes they would somehow make people work harder," says Roach. It didn't happen, Roach discovered, largely because the technology failed to reach the top: while back-office support jobs have been automated, less than 10% of senior executives even use personal computers.

Other, more exotic technologies have produced disappointment as well. Videoconferencing has largely flopped as a substitute for business travel because costly systems -- they range up to $20,000 in price -- have failed to transmit clear, crisp images and audio signals. Users complain that they are prevented from swapping notes and documents and cannot ensure privacy. They grouse about having to leave their offices and miss phone calls to use the special rooms set up for videoconferencing.

So-called smart buildings have bombed as well. Experts predicted that companies would trip over one another trying to move into offices where all the computer and telephone equipment was prefurnished. They assumed that companies would pay up to a 20% premium to rent space in offices where the temperature, lighting and talking elevators were all smartly computerized. The experts were wrong. Many companies preferred shopping for their own office equipment and opposed paying extra for chatty elevators.

Other technologies, like electronic mail, worked as promised but failed to overcome human habits. "E-mail" was supposed to put an end to memos, note pads and letters. Readily embraced by techie types, it was shunned by secretaries and others because it proved too difficult to use. In 1988, for ! instance, ice-cream maker Ben & Jerry's Homemade installed an E-mail system to serve the 200 staff members at its Waterbury, Vt., headquarters. But less than 30% use the system. Says Christopher Lamotte, a B&J inventory coordinator: "There are too many options, and every option has suboptions. It's easier to just pick up the telephone."

For many companies, home is where the market for information technology was supposed to be. But consumers have been even more resistant than businesses.

While they have purchased audio players and video recorders, people have by and large shunned high-tech products and services like personal computers and electronic shopping. While big corporations were infected with PC mania during the 1980s, households remained largely immune. There are far fewer homes with PCs than analysts predicted, much to the chagrin of manufacturers like IBM and Commodore. Another loser: the picture telephone. First introduced by AT&T at the 1964 New York World's Fair, it allows callers to see as well as hear each other. But consumers considered the device -- at $8,000 a set -- not only too expensive but awkward. Undaunted, Sony unveiled a less expensive videophone using a still image but withdrew the product in 1988 because of consumer indifference. Mitsubishi discontinued its Visi-Tel picture phone earlier this year, selling the entire inventory of 38,000 phones at a deep discount to the Home Shopping Network.

The breakup of the Bell Telephone System more than seven years ago appeared to place the industry at the threshold of a quantum leap into the Information Age. But the telephone companies were legally barred from the computerized- data business. Last month U.S. District Court Judge Harold Greene brought the future closer by freeing the Baby Bells to use their phone lines to provide such services as electronic Yellow Pages and home shopping.

So far, the electronic-data business has had a spotty record. In the early 1980s, for instance, a number of home-banking services were launched; some 3 million customers were expected to sign on. But only 100,000 households use computer-banking services. Predicts a former customer, Katherine Dallam, 34, a small-business owner: "The future won't arrive for electronic banking until they find a way for you to make withdrawals and deposits from home." Other failures include ventures backed by Times Mirror, Chemical Banking and Time Inc. With their advantage in size and experience in selling over-the-phone services, the Baby Bells are convinced they will succeed where others have failed.

But the real explosion in electronic services may have to wait until U.S. homes are rewired with hair-thin fiber-optic cables that can carry hundreds of times as much information as old-fashioned copper cable. So far, the fiber-to- home project has been bogged down in Washington politics. The technology exists, but the question is, Who pays? It will cost an estimated $150 billion to $500 billion to rewire America. Regulators have opposed phone-industry attempts to stick ratepayers with the bill. Cable-television companies, meanwhile, are also overlaying their old networks with optical fiber. With fewer restrictions on who picks up the tab, cable-TV concerns could rewire more homes than the telephone industry.

Despite the plethora of problems, no one should dismiss the Information Age as little more than a will-o'-the-wisp. It would certainly be a mistake to repeat the glowing predictions of the past. But it would be equally foolish to pronounce the Information Age a hoax. If the industry is to meet its own projections, however, it must recognize that most people are intimidated by even moderately high-tech products -- think of programming a VCR -- and must refine its products and services accordingly. But all that may be just part of the Information Aging process.

CHART: NOT AVAILABLE

CREDIT: TIME Chart by Steve Hart

CAPTION: EXAGGERATED EXPECTATIONS

The information industry in the U.S. had high hopes for a wide range of products and services. But not all the predictions panned out. Here are some examples of heavy shortfall.