ANNUAL MEETING OF THE CANADIAN ASSOCIATION OF DATA PROCESSING SERVICE ORGANIZATIONS
OCTOBER 20, 1972
As Charles Kettering said “my interest is in the future because I am going to spend the rest of my life there.” This quotation was used in a promotional piece for the World Future Society. Actually, this group is not, as you might imagine, part of the Prime Minister’s Office but is rather an organization of those who are interested in the methodology of forecasting the future.
For some academics, this may appear to be just another discipline but for a fast-moving industry such as ours anticipating and trying to influence the future is essential for our survival. But, how far in the future should one look?
The CCCTF Report did an admirable job of looking at what the computer services industry might be like ten years or more from now. By contrast, our companies tend to operate on an annual plan with some projections as to what might happen in the next several years. It is this ‘near future’ that I felt it would be most profitable to examine.
A large corporation such as IBM or Bell Canada can well afford to base plans on the types of trends that are seen in the CCCTF Report, i.e., anticipating what might happen in 1980. The computer services industry is, however, much closer to the marketplace and generally tries to formulate plans on what we think will happen in about a three-year timeframe. Firms in this industry that have tried to base their plans on ideas that are too far in advance of our ability to sell these ideas usually come to an abrupt end.
Many of our plans have about a three-year implementation cycle and so it is instructive to look at 1975. Beyond that, the computer services industry should recognize that it is very influenced by factors over which it may have little control. For this reason, very long-range planning can only take the form reacting to ‘alternate futures’ involving the major factors pressing on our field such as:
– The changing needs or whims of our customers.
– Alterations in the IBM umbrella which, as we have seen, can go up and down quite rapidly.
– Major changes in the competitive situation nationally and internationally.
– The impact of government involvement at several levels.
For these reasons, I think the most useful thing to do is to provoke discussion on what the field could look like in 1975 and what we as companies and as members of CADAPSO can do to alter this picture if we do not like what we see or how we can hasten the arrival of the events if we do.
I will use the serious technique of scenario writing half seriously by describing what an interested and unbiased observer of the computer services industry such as Ian Rodger of the Financial Post might write about the field in October 1975 when reviewing the recently released Third Annual CADAPSO Survey of our industry in Canada.
October 25, 1975: “IS THE FUTURE OF THE COMPUTER SERVICES INDUSTRY BEHIND IT?”
This is the question raised by the Third Annual Industry Survey released this week by CADAPSO. As you may recall, this survey was started to provide continuing information about the industry using the CCCTF Report as a base. Authorization for the survey was given at the Annual Meeting of CADAPSO in October, 1972.
First, the survey indicates that the revenue of the computer services industry in Canada had risen to $278,000,000 in the year ended June 30, 1975. This indicates a growth rate faster than the 16.7% compound increase predicted in the CCCTF report starting from a base of $133,000,000 in 1970-71.The report went on to say that CADAPSO membership had grown to 65 firms representing over 80% of the revenue earned. The report noted that this seems to follow the 80-20 rule whereby 20% of the firms might be expected to provide 80% of the revenue. However, the extensive commentary with the report is more interesting than the figures since the report reviewed major events that had taken place during the past three years. The report indicated that most of the firms in the field tended to be small organizations serving a local market either with programming services, data origination services or other such services requiring little capital investment. Most of the growth had taken place in firms that were already in existence by 1971 or were more recent spin-offs from large corporations whose main business was not the data processing field. The report noted that no new major underwritings of firms in the field had taken place since the report started.
One of the reasons for the faster than anticipated growth in revenue was that spin-offs tend to take the parent company’s business with them and put it into the computer service sector rather than having it counted as in-house computing.
The report noted that there had been a number of mergers and acquisitions which tended to keep the growth rate in number of firms relatively flat. There is also a high turnover in the small local firms and two large firms in the field had chosen to withdraw from the computer services industry during the past two years.
Naturally, the largest entry in the field was that of Bell Canada who announced their intention in mid-1973 to enter the computer services field by setting up a wholly-owned subsidiary and placing much of their in-house equipment in this. Operation of this new subsidiary started in January, 1974 but as the Federal Government had not precluded a data processing subsidiary of a common carrier from selling to the parent company there had been very little external impact by this move. This may have been compounded by the fact that the new Bell subsidiary, Trans-Canada Data Systems, had concentrated on technical development rather than marketing on the assumption that referral business would be adequate to build a business base.
Two other major entries were spin-offs from life insurance companies who entered the field in late 1973 and early 1974. One reason for this move by the life insurance companies was to make better use of a staff that had been built up and which would be no longer required as the major applications they were developing stabilized.
Three major banks in Canada had entered the field in the past two years offering a variety of financial-related application packages. However, as the banks were required to do this on an arms-length basis, only one had established its own subsidiary to do this work and the other two had contracted out the processing to existing computer service firms.
A consortium approach was tried by three large companies in the Montreal area in late 1973 but as these organizations had little in common and had tried to run the operation on a joint management basis, the operation had met with little success. Finally, in early 1975, the consortium was reorganized and the work was contracted on a bulk buying basis to an existing computer service company.
One new phenomena which might become a trend in Canada took place in late 1974. By that time, MacDonnell-Automation of St. Louis had installed its 6th /370 Model 198 and having now bought the DATRAN operation from University Computing proceeded to establish DATRAN links in Toronto and Montreal. One Canadian computer service company realizing that this economy-of-scale could not be matched in Canada elected to phase out its own computer operation and buy time from MacDonnell-Automation. The company would provide application support in Canada but not computer services. The CADAPSO report noted that this might be the start of massive multi-national computer utility operations which would provide computer power to local computer service organizations who would concentrate on local problem solving.
IBM’s service bureau subsidiary in Canada which was established January 1, 1973 as the Service Bureau Corporation (Canada) Limited continued to occupy a steady part of the market by concentrating on several large application areas such as brokerage. SBC (Canada), however, seemed to have little impact in the general-purpose computer services market except in regions still not serviced by Canadian-owned companies.
The CADAPSO report noted that the industry organization had spent much time with the Focal Point in reviewing the changing nature of the computer services industry. The Focal Point, as you will recall, finally found a compromise home in the Department of External Affairs in mid-1974. Some of the conclusions that this joint study arrived at are as follows:
– The announcement of Virtual Memory capability on machines as small as the /370 125 meant that one of the reasons for large outside computer utilities had disappeared, i.e., the need for a very large machine for a small number of runs each month. This move by IBM could be seen by 1975 to have stemmed the trend to very large and very small machines and had the effect of bolstering the sagging mid-range market for IBM.
– This same phenomena had an effect on the computer timesharing firms because even small machines could now provide a reasonable timesharing facility through TSO on an in-house /370.
– This coupled with the disappointing progress in reducing the cost of communication lines led to a slower than anticipated development in the remote computing area. For example, while datasets offered by the common carriers in Canada did decrease about 15% in cost, similar datasets in the United States had decreased by almost 60% leading to a further imbalance between Canada and the United States in the cost of communications.
– Another factor that had mitigated against the growth of the raw computer power utility was the advent of the mini computer which could take over many of the functions of remote timesharing service.
– The machine replacement market had also proved somewhat disappointing as few companies were really willing to allow their entire data processing operation to go outside.
Fortunately, the computer services industry had clearly recognized these trends in the early 70’s and had already made the switch away from providing raw computer power and toward providing a total solution approach to customers’ problems. This was done either by providing tailor-made solutions or by providing specialized services which would be available only from the computer service vendor and could not readily be duplicated on an in-house system. Some computer services companies provided highly specialized services such as computerized text handling operations. Specialization by service or industry or both maintained the strong growth rate shown by the figures.
In general, it appears that the computer services industry will continue to more than match the original projections made by the CCCTF Report because it has learned to become more responsive to user needs and has begun providing what people wanted rather than what the industry wanted to sell. The report concluded that the computer services industry would continue to expand as long as it viewed its mission as being improving the productivity of its clientele. As a long-time observer of the field, I would conclude that its future is by no means behind it.
Any similarity to situations living or dead, is of course, purely coincidental. Like Ian writing in 1975, I have great faith that our industry will grow even faster than the rates predicted for I also believe that the industry is sufficiently adaptable to keep pace with the changing needs of our society.
I am also concerned that we not let up our pressure to keep a healthy climate for developing the computer services industry, one that will let us realize the desired growth rate. The field is amply large enough to sustain a number of good sized firms in Canada as well as a large number of small firms. If Toffler, Drucker, and others are correct, the future will require an increasing variety of services and these services will not be static. We must welcome change as there should be no one else in the country better equipped to deal with it than companies in a leading edge field such as ours. That is why I have predicted many more experiments with new types of organizations and services. Behind all of this there must be a strong industry association which can work with government and with users to make sure that the industry is being developed to be responsive to our customers, to be useful to the nation and to be profitable to the service companies. This, of course, is what CADAPSO is all about.