The Digital Hand How Information Technology Changed the Way Industries Worked in TheUnited States

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    The President and Fellows of Harvard College

    "The Digital Hand": How Information Technology Changed the Way Industries Worked in theUnited StatesAuthor(s): James W. CortadaReviewed work(s):Source: The Business History Review, Vol. 80, No. 4 (Winter, 2006), pp. 755-766Published by: The President and Fellows of Harvard CollegeStable URL: http://www.jstor.org/stable/25097268 .Accessed: 30/07/2012 15:21

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    Author's Note

    James W. Cortada

    TheDigital Hand: How InformationTechnologyChanged theWay IndustriesWorked intheUnited StatesHardly

    anymajor business activity at the end of the twentieth centurycould be done without computing, often linked to some formof telecommunications. Inmy three-volume book, The Digital Hand, Ihave surveyed the phenomenal growth of computing and have exploredits impact on a wide array of industries, from the 1950s onward. Thefirst volume was published in 2003, the second in 2006, and the thirdwill come out in 2008, all under Oxford's imprint. This essay outlinesmy experience ofwriting and researching the book and describes someofmy conclusions.I chose the title for the volumes to echo Alfred D. Chandler Jr.'sidea that organized business practices and structures provide a "visiblehand" of rational operations in a modern economy. At least thatwashow I conceived of the project initially.As Iworked my way up to thepresent, however, my research findings caused my views to diverge increasingly fromChandler's description of the corporation. By the time Ireached the end of the twentieth century, the corporate world describedinThe Digital Hand had come to lookmore like the networked and diffuse society described by Manuel Castells than the highly integratedcorporations of the precomputer era. Although managers used information technology to carry out theirmissions?as described by Chandler,Peter Drucker, and others?as a result, and often unintentionally, theybegan transforming their companies.1Given that computer applications tend to vary by industry, ratherthan by firm, I felt that the project required an examination of the experiences of a variety of industries, one at a time, documenting exactly

    JAMES W. CORTADA is a historian who conducts research on the history and management of information technology. He works at IBM.1Manuel Castells, The Information Age: Economy, Society and Culture, 3 vols. (Oxford,1996-98).Business History Review 80 (Winter 2006): 755-766. ? 2006 by The President and Fellows of Harvard College.

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    James W. Cortada / 756how computers came to be used and their effects on enterprises. I initially thought that selecting a half-dozen industries would be sufficientto accomplish the task, just as James L. McKenney and his colleagueshad done in the early 1990s in their book Waves of Change.2 Uponreading their book, however, itbecame obvious tome that they hadbarely scratched the surface of the story,despite their good work.Early candidates for investigation included the automotive, retail,banking, insurance, and brokerage industries. But what about otherlarge industries, such as railroads, telecommunications, chemical, petroleum, other transportation industries,wholesalers, newspapers, bookpublishing, and television? And what about the public sector, includingstate and local governments, and higher education? They were all extensive users of information technology (IT) and played important rolesin the American economy. There was the problem of what to do aboutthe new industries that the computer itselfmade possible, such as thesoftware industry, the disk-drive industry, the PC industry,manufacturers of telecommunications products, such as cell phones and routers,and Internet service providers. Finally, I felt that the book had to address the new businesses and economic activity spawned by the Internet: e-Bay, for example, became almost an industry unto itself, andMicrosoft had been a "New Economy" business icon for three decades,sharing celebrity status with Apple, Cisco, and SAP?all firms that owedtheir existence to the computer.I also believed that I needed to study enough industries to ensurethat patterns of technological, business, and economic behavior couldbe identified, documented, and placed in the context of late-twentiethcentury business practice. That set of objectives required looking atmore than a handful of representative industries. My objective was tostudy enough industries, so that I could generalize about roughly 70percent to 80 percent ofwhat all of themwere doing, which meant ulti

    mately examining anywhere from thirty-six to forty-five industries andtheir use of computer technology. Both historians and executives influenced the research agenda for this project. There were many models ofexcellent historical scholarship to follow, Chandler's being only one.3The interests of senior executives proved to be another matter. During2James L. McKenny, Waves of Change: Business Evolution through Information Tech

    nology (Boston, 1995).31 have been influenced as well by thework of David E. Nye, who recently summarizedhis ideas inTechnology Matters (Cambridge, Mass., 2006), and even more so by Thomas P.Hughes, particularly by his classic Networks of Power: Electrification inWestern Society,1880-1930 (Baltimore, 1983). Everett M. Rogers, Diffusion of Innovations, on diffusionstrategies, was also an influence, especially the fourth and fiftheditions of his book (NewYork, 1995, 2003), as was Eric von Hippel, The Sources of Innovation (New York, 1988).

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    TheDigital Hand / 757the three decades that I had worked with executives in the IT industry,and with many line executives (customers), Iwas always asked questions about best practices and about the role of prior experiences.Members of the Charles Babbage Foundation, which had establishedthe Charles Babbage Institute (CBI) at the University of Minnesota tostudy thehistory of computing, were executives who had gathered to askbasic questions about the history of this class of technology. Their issuesalso guided my work.In the end, I organized the book as follows: volume one describesall the industries that manufactured and sold physical items.4 The second surveys those, such as the financial, telecommunications, media,and entertainment industries, that sell services.5 The third focuses onpublic-sector institutions, such as defense, tax collection, law enforcement, specific agencies, state and local government, school grades K-12,and higher education.6There were four main research questions. For which applicationsdid enterprises use computers and why? To what extent were computers used from one industry to another? What were the results, or consequences, of using computing and telecommunications? How did computing change the organization and overall functioning of firms andindustries?With these questions inmind, I began collecting material.

    The notion that firmswere "tribal" in their behavior, leading themto identifywith a specific industry, became the central organizing principle for the study. An enormous amount of research material wasavailable, almost all of itcontemporaneous. To address managerial andoperational issues, I turned to publications from the national industryassociations themselves: weekly and monthly magazines that describedmany issues of the day, including the role of IT; industry conferenceproceedings that provided case studies and lessons learned; and industryseminars that articulated thebenefits and operational details of adopting computing. Associations often promoted the use of computing andconducted surveys on the number of employees performing varioustasks assisted by computing.To understand how many firms and industries used specific types

    4James W. Cortada, The Digital Hand: How Computers Changed theWork ofAmericanManufacturing, Transportation, and Retail Industries (New York, 2004).5James W. Cortada, The Digital Hand: How Computers Changed theWork ofAmericanFinancial, Telecommunications, Media, and Entertainment Industries (New York, 2006).6James W. Cortada, The Digital Hand: How Computers Changed theWork ofAmericanPublic Sector Industries (New York, forthcoming).

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    James W. Cortada / 758of equipment, software, or applications, I relied on a large body of government publications, which included materials produced by the Bureau of Labor Statistics (BLS) and Census Bureau data on industry size,structure, and use of various technologies. Specialized studies carriedout by the BLS on dozens of industries from the 1960s to the 1980swere particularly valuable. Many consulting and marketing firms alsoconducted studies throughout the period on the use and deployment ofspecific IT equipment and software. Many of these studies are stored inarchives or were published as articles in contemporary business journals. The records of various congressional committee proceedings contain additional information about computing's role in industry. Finally,research centers like the Rand Corporation and the Brookings Institutionwere also enlightening.To fill in the details on specific applications at thefirm level, I turnedto collections at the IBM Archives, corporate records for RemingtonRand/Univac at the Hagley Museum and Library, BankAmerica, andthe Burroughs and Control Data Corporation (CDC) records housed atthe Charles Babbage Institute. Individual associations and companies,such as the archives of theNew York Stock Exchange and the Bank ofAmerica, also kept IT records.Each industry's experience with computing over the past halfcentury had to be described, requiring, in effect, nearly forty industrydescriptions. Recognizing each industry's unique characteristics becamecritical. Thus, insurance firmswere different frommanufacturing companies, software from banking, and so forth. So the first step was tounderstand what types of firms made up themembership of an industry.Usually I could establish this by finding the national industry associations. These associations listedmembers, defined their business rolesand segments, and often published weekly ormonthly magazines thatserved as a forum for airing industry issues and documented uses ofcomputers over time. Then I compiled a list of published sources thatdescribed the history and contemporary business issues of an industry.These included articles in industry magazines, economic analyses, andreports by consultants and think tanks. I studied these sources to identifywhich firms participated in an industry,what they produced, andthe source of their profits, and to track their evolution from about 1950to the present. That effort defined the context and described the background for the study of the use of computing.Reconstruction of the role of computers became the next step, requiring scrutiny of the contemporary literature on how to use computers (and why) in a particular industry.Associations, academic presses,and trade-book publishers churned out dozens of books and thousandsof articles on this topic,which appeared inbookstores, industry publi

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    TheDigital Hand / 759cations, technical journals, and academic publications. In addition toexplaining how to use computers, these works advocated the adoptionof technology. Articles on computer use appeared simultaneously indozens of industries, with no acknowledgement that others were grappling with the same issues.

    I began the project at the end of the 1980s as a long process of collectingmaterials on a wide range of industries, recognizing that someof these, such as agriculture or real estate, would not make it into thefinal study. Every week I read industrymagazines, themajority ofwhichwere not indexed, requiring each issue to be perused, and I collectedphotocopies of all relevant articles. This process of collecting materialsby industry consumed most of the 1990s and continues unabated, evenafter completion of the third volume.The sources I relied on for this study reflected the broader reality ofour working lives, in that some were in paper form,while others werealready posted on theWeb. Most of the industry publications and academic articles were still in bound paper volumes. Many governmentpublications were either only available on the Internet or were postedthere in addition to hard copy, including official reports, some datingback to the 1960s. Most economic white papers and many publicationsfrom think tanks could only be found on government and private Websites. Because Web sites come and go, itwas essential tomake electronic or hard copies of the posted documents and to state in endnotesthe date when theywere last accessed online. Researchers working onsimilar projects will have to be adept at using both the printed text andthe Internet.

    Finding material often required the help of several types of individuals. Because academic libraries rarely kept older publications on computers, online book dealers became the single most important sourcefor contemporary books on such matters as computing in police work,use of IT in classrooms, and the role of telecommunications inbanking,all published decades ago. CBI had gathered many of the IT industryconference proceedings as well. Itwas a pleasant surprise to find thatthe librarians at schools of library science had extensively collected andpreserved old computer-industry conference proceedings, as they hadbegun discussing the role of digital data and information managementas early as the 1950s.

    Industry associations varied in their usefulness. LOMA?Life OfficeManagement Association?has a rich library ofmaterials inAtlanta anda staffeager tofind information and to help reproduce articles from the

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    James W. Cortada / 760dozens of seminars and conferences theAssociation had hosted over theyears. On the other hand, theAmerican Banking Association (ABA)?one of the oldest in theUnited States and perhaps themost effective inpersuading itsmembers to use computers?dealt a blow to scholarshipwhen it decided in the 1990s to dispose of its library,which had been inexistence since the nineteenth century.The beginning and concluding chapters of each volume of The DigitalHand had to show some relation to one another: a challenge, sincetheywere written several years apart. Each volume was produced in sequence. However, all ofwhat eventually became volume one and a thirdof volume twowere written before the publisher agreed to handle theproject.

    KeyFindingsoftheStudyA set of findings began to emerge as Iworked, suggesting somebroad historical patterns that transcended individual companies andindustries. For one thing, industries did not operate in isolation butlearned from each other. Firms operated similarly across multiple industries, whether in their accounting practices, in their shared management values, or in theirmanagement of supply chains. Everyone withinan industry used computers in the same way to perform the same functions. Thus, when bankers initiated ATM services, they seemed to do soall at once within a short period of time. They often voiced the samerationale?quantifiable cost justification?and rarely initiated audits toascertain whether theyhad received the anticipated benefits.Overwhelmingly across all industries in each decade, managementadopted IT in order to improve internal business operations and tolower operating costs. While much of the literature advocating computer use focused on expanding marketing and distribution and sellingmore goods and services, managers treated those activities as welcome,but nonessential, benefits thatwere not required to justify the cost of

    projects. Companies preferred to implement computer use in small, incremental ways that fit the size of their budgets and minimized the riskof failure to firm and managers alike. Firms and industries incorporated computing on a continuous basis. For example, theywould addfunctions to existing software tools as new releases of the softwarewereissued, such as moving from using a clerk to take down a customer'sorder over the telephone to having the customer submit the order viathe company's Web site.Adoption of IT applications occurred in tandem with the fashionable managerial practices of the day: management by objectives in the1960s; process and quality improvements in the 1970s and 1980s; and

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    TheDigital Hand / 761process reengineering and networking in the 1990s. Accounting and finance and what became known at the end of the 1980s as supply chainswere themost nearly universal. Both uses warrant historians' attentionacross multiple firms and industries. As the technology made itpossible to linkwork activities, these two classes of use became integratedin an incremental fashion across the decades, so that by the end of the1980s, suppliers, producers, and customers had become more interconnected. Thus, for instance, whereas an automotive manufacturer inthe 1960s would post a production schedule on its computer to determine the number of tires to order from a supplier, fifteen years laterthat same manufacturer would share the file with the tire supplier, insisting that the supplier determine what types of tireswere needed atindividual plants on specific dates. By the 1990s, the suppliers wereeven participating in the design of the automotive firm's new products.Thus many vendors had become involved in the design of new vehicles'components.Across most industries, managers embraced speed, shed costs, andreduced theirworkforces as they increasingly relied on computing. Theyadded applications to a growing list of uses over time, such that by the1970s in some industries, and about a decade later in others, firms hadachieved a level of interdependence thatmade it impossible for them toreturn topractices that predated the arrival of the computer. Thus businesses and whole industries had moved to a post-Ford, postindustrialage style of operation thatwas not yet fully defined. In other words,theyhad moved to away of doing work thatwas profoundly affected bythe technology itself.Furthermore, as an application or technology matured, its usersand uses became more alike, regardless of industry. For example, usingan ATM became a similar experience no matter the bank, just as wordprocessing systems became more standardized regardless of the brandof software. The experience of IT therefore mirrored the shift to achanged way ofworking and living that historians had documentedearlier for automobiles, electricity, or even supermarkets. Early adopters enjoyed momentary strategic economic benefits as a use becamestandard in their industry. The period of time between first adoptionand ubiquitous use ranged from three to seven years, and the speed ofadoption hardly varied throughout the second half of the century. Asthe consequences of technological change accumulated, organizationschanged incrementally. A review of a particular use or firmmight leadone to the conclusion that there had been a "revolution," as the hyperbolic contemporary press so often called it,but in reality companieswere undergoing an incremental evolution in their use of computers.While "back-office" automation was normally and widely imple

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    James W. Cortada / 762mented in an incremental fashion, some transaction-oriented applicationswere revolutionary at the time of their initial introduction. Examples were the online airline reservation system SABRE, ATMs, and eventhe use ofbarcodes in the grocery industry.However, the advantages ofnovel initiatives disappeared quickly as other members of an industryadopted the systems and altered them. With the passage of time in anindustry, an application became less of a differentiating factor and conferred fewer benefits on the original early adopter. Nearly all the industries that I looked at underwent this experience, an exception being theU.S. military with itsmost advanced weapons systems.7In the 1980s, as economists began debating whether computersimproved a nation's productivity, managers offirms did not hesitate toacquire ever more amounts of IT and telecommunications. Apparentlythey knew something that the economists did not. At themost basiclevel, the technology delivered the performance that these managerswanted, or needed. Over time, they relied somuch on IT that itbecamepart of the normal operations of industry. Hence, a "digital style"wasemerging inwhich managers became accustomed to using informationhoused on computers. While late adopters of a new use tended to enjoyfewer competitive or economic benefits, the earliest adopters encounteredmore problems in implementing a novel application. IT adoptionthus illustrates the path-dependency phenomenon. By the 1990s, various surveys of "best practices" made it possible to quantify the economic and operational benefits of IT. Over time, these studies revealedthat outsourcing could be rapidly accomplished by leveraging existingtechnical infrastructures, such as the Internet, and preexisting onlineapplications.

    A key finding of the project that I uncovered was the resemblanceof industries to ecosystems, which ledme to conclude that historiansand other scholars should look at the industries themselves, and notjust at individual firms. Common patterns of IT adoption varied widelybetween industries, but they nonetheless showed homogenous uses oftechnology. Thus itwas possible to create industrymatrices that described their overall style of operations, their use of IT, and their reasoning indeciding to acquire specific technologies.

    Banking, for example, bases its operations on industry influence.The features common to banks would include active, influential industryassociations, extensive sharing of data (e.g., for check processing),multiple regulatory practices and requirements, and deployment ofmanytechnical standards that are shared and embraced by all members of

    71was thinking ofmissiles and atomic bombs, but even the latter changed as the Soviets,and later other countries, acquired them.

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    TheDigital Hand / 763the industry.These features require themanager, firm,or vendor of banksor similar industries to pay close attention to regulators, work closelywith their industry associations, and even collaborate with other members of their industry to accomplish important reforms. Banking, therefore, relies heavily on task forces,which are important sources of innovation that are often overlooked by historians of technology or business,thuswarranting further study.Often banks and similar groups developednew industry-specific applications of IT, such as the modern check inbanking, bar codes in retailing, and CAD/CAM software inmanufacturing. In short, some of themost important IT innovations were often notconceived by the vendors of computers, software, and telecommunications, but rather by industrymembers themselves, who requested vendors and universities to develop new applications or technologies.As I proceeded with the project, new questions surfaced that arestill unanswered. How well do the findings apply across all industries,both in the United States and in other countries? For most U.S. industries, theyhold up well. However, we cannot assume that the retail industry has operated in the same manner in France or Japan as U.S. retailers.We know thatmanufacturing generally functioned in the sameway, but that banking, for instance, did not. So it is not clear thatwecan generalize about activities inother countries based solely on the evidence provided about the United States. It is certain, however, thatAmerican corporations imposed their uses of IT on their employees inother nations and increasingly on suppliers outside U.S. borders. Thusindustries dominated byAmerican firms, such as petroleum, software,semiconductors, and software, had to conform toAmerican methods,but those in telecommunications, finance, transportation, agriculture,or government had not necessarily followed suit. Can research on othercountries' industries match the degree and intensity of our studies ofAmerican industries? Business and economic historians consulted forthis project normally answered no. But such a research agenda may befeasible forWestern Europe, Japan, Australia, and New Zealand, whichhave long histories of extensive IT use and a propensity to organize andcommunicate among themselves at the industry level.A second generation ofyoung historians working inEurope isbeginning to explore possible areas of study in the business history of IT. I suspect, however,that theywill be severely hindered by the lack ofmajor collections of archival and contemporaneous publications inEurope. Such a project wouldhave to be tested on an industry-by-industry basis, probably even onecountry at a time,much theway Chandler researched Scale and Scope.8

    8Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990).

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    James W. Cortada / 764I originally anticipated that the technological characteristics of themachines and software would require more attention than the question

    of how the technology came to be sowidely deployed. However, Iwassurprised to realize that business and managerial issues required morespace than technical discussions. A study concentrating on a particularindustry's use of computing might examine its technical issues, as recent scholars have demonstrated.9An essential task that I undertook was understanding and revealing theways inwhich an industrymade money. Learning about insurance companies, for example, meant uncovering the sources of their income and outflows and tracking their allocations of employees andassets, which was not always easy. Each type of insurance, such as life,property and casualty, and health, has its own cost structures and distinct products, and tailors the size and proportion of its staffand funding to its own needs. Retail and commercial banking are quite differenttoo, as are state and federal government agencies. Even contemporarytextbooks thatdescribe the activities of firms inany industryoften provedto be inadequate or had to undergo multiple editions as functionsevolved over time. Telecommunications represented themost extremecase, since its structure changed radically in 1984 with the breakup ofAT&T, the nation's nearly monopolistic telephone service provider. Itsbreakup unleashed an enormous, complex, diverse explosion of newcompanies, industry niches, and services that still confuse "themarket"as new technologies and products appear. Some of these, like cell phones,which might be more accurately classified as consumer products, seemnot tobelong to the telecommunications industry at all.Another realization that came as a surprise tome while Iwrote thesebooks was the degree towhich theAmerican economy had remained oligopolistic throughout the second half of the twentieth century. Invariably, a half-dozen firms have dominated their industry, as occurred inthe movie industry, or even, as in the case of pharmaceuticals and petroleum, have maintained a stranglehold on their portion of the economy. In these industries, the largest firms oftenwere themost innovative early adopters of a new information technology or use. They couldmost afford to experiment, and once theyhad proved the value of a certain digital application, theyhad the resources toblanket their industrywith the new offering. Although many small firms experimented andoftenwere touted in the trade press as the nextwave of the future, theyfrequently either failed to succeed (as happened with somany dot-com

    9Joanne Yates, Structuring the Information Age (Baltimore, 2005); Arthur L. Norberg,Computers and Commerce: A Study of Technology and Management at Eckert-MauchlyComputer Company, Engineering Research Associates, and Remington Rand, 1946-1957(Cambridge, Mass., 2005).

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    TheDigital Hand / 765firms) or were simply swallowed up by the larger ones, a routine eventin the pharmaceutical and software industries. One could argue thatcomputing reinforced oligopolistic economic behavior, because the technology made itpossible for larger firms to absorb rivals and integratethem quickly into their operations, a common occurrence in the lifeinsurance industry after 1980 and in some portions of the telecommunications industry at the end of the century.This study confirms that until the chronology of an industry is examined, it is not possible to appreciate fully the pervasive influence ofregulators in the evolution of IT inAmerica. Regulators determined thetiming of new business offerings, such as online banking and brokerageservices. Their control over the direction of telecommunications was evident when the FCC, in collaboration with theCongress, formulated manyof the elements of the Telecommunications Act of 1996. Related to theinfluence of regulators was the role played by Congress, particularly inthe context of themyriad laws governing opportunities inbanking, various wireless media, and telecommunications. I found that regulatorsbalanced the needs of markets against state-mandated imperatives,much along the lines described, for example, by Lawrence Lessig. Additionally, however, regulators wanted to promote the use of specific technologies, such as the Internet by schools and on-line commerce in the1990s, and thus behaved much as Frank Webster describes.10 My ownwork reinforces Lessig's views, particularly in the second and third volumes, where I describe how specific regulatory practices have directlyaffected the actions of telecommunications and education inkindergarten through the twelfthgrade.

    Deployment of computing across theAmerican economy has beenpervasive. On the strength of the evidence, one can reasonably conclude that computing is now ubiquitous inboth the public and privatesectors. Often discussions within business circles today are less aboutnew applications and more about how to replace aging, expensive IT infrastructures. A recent survey conducted by IBM and the Economist Intelligence Unit confirmed that consumers rather than the private sectorconstitute the frontier for new computer uses in the United States, although research is also being directed toward public institutions.11 Ithas become increasingly difficult to recall a time when computers werenot integral toAmerican business.

    10Lawrence Lessig, Code: Version 2.0 (New York, 2006); Frank Webster, Theories of theInformation Society, 2nd ed. (Oxford, 2005).11The 2006 E-Readiness Rankings (London, 2006).

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    James W. Cortada / 766While The Digital Hand can possibly serve as a template for conducting further studies on business issues, it could just as easily leadother investigators to conjure up different approaches. By no meansdoes my work cover the subject. Every sentence that I wrote felt like aheadline, demanding the backup paragraphs, pages, or chapters in thedetail that historians expect but that I could not always provide, because the publication had to be limited to three volumes. So there isroom formany more related studies. When this project is completed inlate 2007, the files on which it is based will be deposited at the Charles

    Babbage Institute, where theywill be organized by industry and withinindustries, often according to periodor

    application. I hope this willhelp others to achieve a fast start on their work. In fifteen to twentyyears, nothing would satisfyme more than the news that The DigitalHand had become woefully out of date.