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Coping in the New Environment Brought On by Explosive Technological Innovations.

Allow me to start with a rather uncontroversial thought: We are living through an exciting and demanding time--one in which our abilities to manage or even cope are being challenged more each day. Companies and placing major bets--sometimes betting the company itself--on how accurately they can interpret and maneuver within this fast-changing environment.

Coping in today's environment means, in the last analysis, coping with people and change. The future belongs not to the wide-eyed visionaris who speculate on where the technology can go. It belongs to the sharp-eyed realists who determine where the technology should go to meet users' unmet demands.

All too often in the history of science, a considerable time lag exists between the advent of a new technology and the development of a profitable market for it. Sometimes, the inventors themselves intend completely different applications for their inventions from what eventually develops.

Edison didn't have the slightest idea that the phonograph would be used for the reproduction of music, or that it would create a new industry--the record business. He believed that the phonograph would have a relatively small market limited to, and I quote, "Those members of the legal profession who, wishing to eliminate disputation from the settlement of estates, would invite their clients into the office for the direct inscribing of their wishes onto the machine." Indeed, some attorneys did have their clients record their wills; but the practice never caught on, since "disputation" was even then a source of bread and butter for these same lawyers.

The early history of the telephone was similar. In 1876, Alexander Graham Bell presented the telephone to the world, and the world yawned. Historians report that the majority of people saw no obvious application for Bell's invention. The London Times called it "the latest American humbug." In 1879, Sir William Preece, the chief engineer of the British Post Office, testified in the House of Commons that the telephone had little future in Britain. "There are conditions in America," he said, "which necessitate the use of such instruments more than here. Here, we have a superabundance of messenger . . . the absence of servants has compelled Americans to adopt communications systems."

Western Union, the giant among the new telecommunications agencies of that time, was offered exclusive patent rights to the telephone. Western Union's chairman quickly refused the offer saying, "What use would this company have for an electrical toy?"

Thomas Edison was out to assist lawyers, while Alexander Graham Bell was deeply concerned with the plight of the deaf. Innovations like theirs led to revolutionary changes, but different from what these men foresaw.

As we all know, the ultimate value of an invention is often a surprise to the inventors themselves. But once a breakthrough is know by people in search of applications, then a second creative process starts that will put the new discovery to work to either solve an existing problem or accomplish a new thing that cannot now be done. These two development process have separate time frames. The telephone itself as a new application required a major education process on the benefits to the user. But the key message is that both of these process--the invention and the search for its application--have to take place to make change a commercial reality.

The information and telecommunications revolutions are no different. When the computer into existence in the 1940s, very few people had the imagination to see how it could be used. Forecasters estimated a commercial market of not more than 12 machines in the US, saying, "only 10 or a dozen very large corporations would be able to take profitable advantage of the computer."

Who would have guessed 40 years ago that the rudimentary computer, designed by British experts to break German codes in World War II, would form a milestone in the creation of today's new gigantic industries? The challenge to businesses like ours depends not simply on invention, but on how well we can take these new technologies and put them to work for our customers.

Today, we find every major industry in the midst of change. While the pace of this change has accelerated since Edison and Bell, what happened to the phonograph, the telephone and the computer will happen again--users will still call the shots. Clearly, Edison's phonograph solved the problems he set out to solve, but the market didn't share his view of the need. On the other hand, his technological breakthrough eventually gave impetus to a brand-new idea that captured the minds, hearts and pocketbooks of the general public.

The future will be kinder to those companies who see new technology not as an end in itself, but as a tool for profitably meeting the needs of the market. This is what we see as the "unfinished agenda"--the challenge we have to close the gap between the new technology and the consumer.

Was the past easier? We had fewer choices then. It wasn't too long ago that if we wanted a telephone, we called Ma Bell. After all, it was the only game in town. We bought American cars, and flew on any airline since the prices wer all, more or less, the same. If we wanted to save money, we put it in a passbook savings account and got 5.25 percent at any bank anywhere in the United States. It was easy for the marketplace to act when the choices were limited.

Competition, inflation, the oil shocks of the 1970s and the new information technology changed all that. Deregulation of telecommunications combined with deregulation of banking, transportation and other industries is creating a new business environment. Many of the old rules are no longer working. Today, the change is affecting everyone:

* American manufacturers are in the process of automating, emigrating or evaporating.

* A new airline is born almost very day, it seems.

* Word processors and desktop terminals are making it possible, as one expert puts it, "to substitute low-cost, customized products and services for low-cost, mass-produced" ones.

* Retailers have not only automated, but used their electronic systems to enter into new financial business. You can get socks and stocks at Sears, a six-pack and CD at 7-Eleven.

What's happening is that market identities are being redrawn along boundaries defined by distribution networks and technologies, rather than by traditional "functions."

The impact has affected us all. And yet, the innovations of the last 40 years are still giving way to things new, and still uncertain, as the ability to apply each innovation continues to lag the innovation itself.

The new environment poses major challenges to my own industry--financial services. At no time in our history have the stakes been higher, the competitive issues sharper, the choices more complex in the financial-services areas, as in many other business areas. Nor has there been another time in our recent history when our entire future has been the subject of such public debate and scrutiny. In an industry of 25,000 companies, we see a growing consensus that one-third of the financial institutions that exist today will close their doors or merge over the next five years in response to the new environment.

It's an industry serving an attractive market. Total size: $5.2 trillion in investments and outstanding balance and $150 billion in net customer revenue--a revenue base that's doubling every 10 years.

And the users are changing. Today, roughly 90 percent of the population have a banking relationship, versus only 44 percent back in 1951. New constituencies are making up a greater part of our customer base. We're serving more retirees, working women and minorities than at any time in the past.

The environment, with its new technology, has created a more-informed consumer--and a more-demanding one. They're writing a new agenda, and in response, the industry is changing. The changes now under way offer us more-complex choices, as well as the opportunities for more-expensive mistakes.

As an industry, we have successfully put technology to work for our customers in many areas, but it is important that we remind ourselves that technology in search of itself is clearly not the answer. In our rush for new and better ways of doing things, let's not forget the many financial-services "revolutions" that were just around the corner but never quite lived up to our expectations.

The examples in banking are already legion:

* The "cashless" and "checkless" societies have not arrived; checks continue to increase and are now expected to continue to do so until at least 1990.

* The "financial supermarket" has been more like a mom-and-pop shop; for evidence, look at the recent earnings reports for some of the major players.

* ATMs have not replaced branch banking; we were one of those predicting the end of branch banking, yet we still have 270 branches and over 7,000 people employed in them in New York City alone to meet the growing demand.

* The videotext explosion--we're all in love with the technology but are a long way from understanding how to make it meaningful for our customers. Right now, the videotext P&L is all cost and no revenue.

* And even home banking is way behind "schedule"; present customers can be counted in the thousands, rather than millions.

Customers Decide Which Ideas Are Great

All these supposed revolutions were perceived to be imminent. The main reason they haven't worked is that the customer decided our "great idea" wasn't so great--at least not yet.

Although Citicorp is legally defined as a bank holding company, we spend a lot on our telecommunications each year covering some 360 computer centers worldwide. Deregulation has allowed us to place major bets on the full spectrum of new technologies in telecommunications.

Our own satellite systems provide voice, data and image transmission as well as teleconferencing facilities between major US cities. Six earth stations have already been installed--in New York, Sioux Falls, Los Angeles, San Francisco, Denver and St. Louis--and three more in the works.

Teleconferencing facilities exist in New York, Los Angeles, Santa Monica and San Francisco, and more cities will probably be added.

We are experimenting with very small, portable earth satellite antennas, about six feet wide, which go on rooftops or sit in one's window.

Fiber-optic, cable and microwave systems--both proprietary and leased--provide a growing share of our telecommunications within major metropolitan areas.

Microwave and optics connect our offices in New York; San Francisco and Los Angeles have microwave systems; and cable connects Los Angeles to Santa Monica--the headquarters of our research subsidiary, Transaction Technology Incorporated.

We're working with national phone companies around the world (our international data communications network now connects more than 60 countries), with our own switching centers in New York, Jersey City, Pompano Beach, London, Brussels, Bahrein, Hong Kong and Singapore. Today, 8,000 corporate customers access information on all their financial relationships with Citicorp from virtually anywhere in the free world.

The 10,000 terminals in our branches in New York, serving our 1.5 million customers, represent perhaps the largest proprietary network dedicated to any banking institution.

Processing centers of up to 2500 terminals and 20 satellite channels are needed to support the one million daily transactions generated by the large base of our bankcard customers.

Recently, we put into place a new data communications network in the United States to give individual consumers--using their own telephones--direct access to their financial relationships with us from their homes or offices.

And we're seeing the emergence of what they now call "intelligent buildings," as with our new Citicorp Center in San Francisco, where fiber optics connects all offices to central computers that provide a range of services including telephone, word and data processing, and hard-copy transmission. We are moving to a day when computer access will be as plentiful as the phone jack or electrical outlet.

The new environment requires that financial transactions become features or attributes of a good financial-services network.

Through these efforts, what we've learned at Citicorp is that technological change requires its own pace, its own rhythm, its own calendar. The consumer benefits must be proven every step of the way. It sometimes takes hundreds of tests and simulations to get the technology right, and most of the time "getting it right" means seeing how the customer interacts with the system, rather than just seeing if the system works.

In New York, we have built a facility that allows us to evaluate consumer responses to new offerings we contemplate. The laboratory is equipped to deal with simulation, iterative product design and ergonomics; it's where we can test and fefine the interaction between customers, employers and new developments.

This is not a panacea, though it serves us well. We brought 2300 consumers through our research laboratory to help design our automatic teller machine program in New York. Today, some 70 to 80 percent of our customers use them, which is more than twice the national average.

We test about 20 new concepts every year. In today's environment, I believe it improves our chances of success, reduces our chances of failure and permits us to reach for a high standard for our new product offerings. We see technology as not just a commodity: it has to be imbedded in each product and product design.

By focusing on the early stages of concept design, we learn a lot from our laboratory.

We learn to never underestimate the naivete of even the "informed" consumer in addressing the electronic interface. A naive user should be successful in his or her first try.

We can check to see if the language and flow of the electronic product is being designed to follow the consumer's thought processes--and not systems requirements.

We can see if enough flexibility is being built into the electronic offering so that consumers can take it and tailor it to meet their needs. They should be able to speed up, back up, change directions, start over, correct, cancel, confirm and exit at any time.

Getting It Right through the User's Sight

But while we're very proud of our planning, we are rarely right the first time. Getting it right requires monitoring and measuring all of a consumer's reactions. And getting it right means understanding how to make it better. It requires research methodologies ranging from informal focus groups to precisely calibrated human responses.

As an industry, we have expanded the consumer's access to information; we have moved from offering simple, single products to putting together customized financial packages spanning an entire spectrum of services, savings and investments; and we have lowered the cost of the long-haul transmission.

Bridging the gap between what is now technologically possible and what the consumer wants is the challenge of the "last mile." This is the unfinished agenda. And it means that we have some serious work to do. When we talk about technology requiring its own pace, we mean the time it takes for new developments to be understood, to be creatively examined against what we know about the markets we serve, and to be incorporated into new or existing products and services--which are then put into our lab where customers help us evaluate the result, rafining, shaping or sending back to the drawing board.

Even then, the job is not complete. If we're lucky enough to come up with a successfully tested new product or delivery system, the job of educating the market remains.

Success will come to those companies that are able to provide the interface that gives customers what they want. This is no small task. The investment levels required to bridge the gap are growing exponentially--for both the technology as well as for the effort to bring the consumer along every step of the way.
COPYRIGHT 1985 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1985 Gale, Cengage Learning. All rights reserved.

Article Details
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Author:Braddock, R.
Publication:Communications News
Article Type:transcript
Date:Apr 1, 1985
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