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Appendix A . )6

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.c4,1p4tc: fQ2r f-..ncJ1,. .T.4t 0:17 to-c,-rwIliCally, but 41.4,4 :liaaleI;ally. ha: aio. A; a ses411. it har. beton* an estIao:(:ina:ily quanativv tool at tho diapo4a1 of manarcent at all levels Lt.; tt40 intense Qcmpetitive market twhi4;14 mainufa:turing cJoimpanies in the United -,tatot facc, today." (Dean, Icelit, F4 91) mil: w.a th0 conclusion of 4 :ezrIntly oopleteNi survey of 10t leadinq manufacturin9companSes. More- cveS0 thro s:arvey cleasly indicate:1 that-twit oomp.stet incsea4ing1y 14 ponetrat;nq ,W4ci permeating all 4;04% of major manufacturing corporations.

fa:ne: coopesatives WV sapidity adopting thecomputes at 4 ''.44r44401:41 4'4 catc-J Ly that: attcelpt4 tu 11,440 404%0: and 110:, ;_lt.13ticate,J or.c t.1 tnet: coiputr:. t.1nce, theft: inal inutallaticAn. litat w-th:.tatA:V4c) tiocto offolty, a populas C:itlt hatLoch that many WC:C:4" 4:c !ILt posW:IU! tcnol LP iiZ t141114,6% pctential;n thei! levc1,0, clIcct;vc 4,:toto 7LeTefo:c,¶ht. l4t1.41 data .101.ct le.!1theti 1;4ht ion thi4 ccinjectu:o. Thy follole.m) IOW*14trAtIZ OWo t...e41,0 4.i.L4111:uh tl4;i4 onOt Ii:tt, the- Jatemln4tion of the

%A: 4mat o at: lit:or. ci A . c cv-04 eC.L t!c, ..sctellt:t,atLtt, of !%C.- typo:. (.! vonelated vy t2.c. coope:- al;vr'; tyItclm. :t ;4 IA,t thy pu:puutO 4,1thi4 repot to &Valuate the cffcc!LIOct.a::: LI t1c crJengt to: ty:-.totm; homwVollo cf thy ;nfo:L!-. effec!iVonar. cV41A441;al.

40.=ilne"4 lc° ;-,Z0VidIct 9eLd:41 n4nsgyaieht anJ :;110 fut L.,41104te3 '.nstallations With csiteria that rah Lc utoi'o: evaL4t:tbq pa:ticula: campt.tor effort w:th tft4t Qf0.110: 44sio.ltur41 --q-4c34t1vc'u. =n a44i!i4h, it is a.rnedto plovide exten4iofi yciLNLOtittu w:th 4.(kev:!..4.1.44.41 Of Olsolpd:ativy etiectiveno.-..4 in the c001.Ntel 101 w...44414e:41 4de:0:an making.

:nforesation was obtainej111"; 9dneral monaless and individuals :,.d0proh..iibld for oomputer installations ina selected group of marketing, processing, Ana taro supply cooperatives. The info:nation was obtained from 614cooperativd, of which 54 were using the (4cllitiO6 of a computer and 12were not.C4 the 12 firmo not usilog a computer, allbut two planned to use a computo: in the next 3 to 5 years.oe those using a computer, 82Xmere ooned or leased, MC were using the facilities of Anothercompany or institution, anj were provided services by a professionalservice group. Also, of the COOpetatives that were usinga computer, 3.411 had less than fiveyears xperience with the hardware, 4 2X from fiveto 10 years experience, and N.X over tenyea:0 experience.

finally, the average annual sales of all the surveyed cooperativesi4 approximately 565 million, WIth4 64106 range from M million to S435 million.

The authors acknowledge withappreciation the suggestions providedby rhoomp L. Yates, Manager, AdministrativeSystems, Oregon State University Computer Laboratory, and Paul 04 Mbhn,comomist, Extension Service, United States Department of Agriculture. 1%.1iEE clEliFiRAT:CUS -DE it*DVAidi

Ao, unusually rapid rate of technical advanceha been, perhap.., the con:picuous chazacteric of the compute.,industry. A. a consequences LT1 the pa:t :AO yearly ',he computer agehas evolved through three generations of (4,mvute:hardware.1/

First generation computers emphasized recordkoeping and scientific computational capabilities and lasted from 1945 to1957. During this period, *toe barAc lechniques and systems essential tothe building of a new !ochnology were developed.

second generation computers emphasizedautomatic decision and control functions. This generation, mhich has just passed, encompassedthe application of computers to almost every area of businessscience.

Today, the third generation has evolved emphasizingreal time processing aad control. Business and scientific applications are more complexand o!a grester magnitude than everbo:ore in history.

The next generation is difficult to predict; however, manyfeel that this genaration *gin place an even greater emphasis on realtime multi- Thc e:tive cf. this lenerrA^n will he TO dovelop bc..tory more versatile, more useful compu,er, onethat will function fa-4tery store more information, occupy less space,and oost less (Harris, 1968).

WADI !UWE CAPABILITIES

Az a poin, of departure it is well to note that ar information system csnsists of computer oomponents, people, andinformation. The ccmputer components cm, be said to include hardware andNoftware (programs). People dt:,termine the computer usage, and information relates tothe interpreted data in terms of decisions made at Npecific levelsof management. The determination of hardware capabllities is of major concern atthis time, and attention is first given to this topic.

Capability is defined as that which represents the capacity ofbeing used or developed, and existing capacity cannot be used ordeveloped without the involvement of people. Consequently, people are a necessary component of the capability of a computer effort, because, as PeterDrucker succinctly concludes, the oomputer by itself is a morons

VW are beginning to realize that the computer makes no decisions; it only carries out orders. It's a total moron, and therein lies its strength. It forces us to think, to set criteria. The stupider the tool, tha brighter the master has to be--and thisis the dumbest tool we have ever had. (Drucker, 1957 a., p. 24)

Therefore, capability must be defined both in terms of computer components and the manner in which people aanipulate the components.

For clarification of terms used throughoutthis report, see the Glossary. 5 The determinv.ion of hardware capabilitiesis difficult. Even more ;Ifficult I the task of m'aningfully analyzing thehardware owned or leased by 45 000peratives Chatare all utilizing different oombinations of computer hardware. Consequently the following contrivancedoes not present a univers31 set of criteria for systemoomparison; however, it does meaningfully serve the objectives ofthis report.

Perhaps the most genera/ criterion usedfor determining Che capability of a computer system iscore memory capacity of the centralprocessor and determining cost per bit. However, memory capacity by itselfdoes not determine the full capability ofa digital computer system; additional information is necessary.

Tle procedure taken in thisstudy to determine the capabilitiesof the surveyed firms was togroup the cooperatives that are owningor leasing their oompu.ers in four groups, (i.e., I, 119 1119 IV) ranging fromthose firma with Che limited :mailer systems to the larger, more complexsystems. The grouping was performed byprofessionals well everienced withcomputer hardware. The criteria used for the groupingwere varied, encompassing the areas believed to have a significant effecton the capability of the system. The following criteriawere used:

1. Make and model number ofcomputer owned or used.

2. Core memory capability.

3. Capacity of card reader(s).

4. Capacity of card punch(s).

5. Capacity of printer(s).

6. Capacity of magnetic disk(s).

7. Capacity of magnetic tape drive(s).

8. Other input/Output devices.

9. Supporting unit record equipment.

C011ectively, the above criteriawere employed, resulting in the

following frequency distribution: .

Group

II III IV Total

Number of firms 11 10 12 10 43a(

2/Even though 45 cooperatives indicated a!, ownershipor leasing arrangement, 43 cooperatives responded with hardware specifications (seeAppendix Table A).

. , 3 In order for each cooperative to identify its respective group, the general nature of each group is given. However, each firm is unique and the placement of an individual firm in a group can vary when all of the above nine criteria are collectively oonsidered. Also, the hardware capabilities were considered jointly for thos3 firms with more than one computer.

In the determination of the types of information generated by Group I systems, the five areas of Table I were used.The following percentages are established.

Group I

ARea Percent Bookkeeping 70 Financial Analysis 8 Production-Distribution 12 Marketing-Sales Analysis 10 Operations Research, Economic Research, Engineering 0 100%

The above results are consistent with the previously established capability characteristics of Group I hardware. An overwhelming percent of uze is in the bookkeeping-financial reporting areas, with no use occurring In the research-engineering area. The types of activities Group I is performing have resulted from economic constraints on the firm which are primarily attributed to its limited hardware capabilities. In other words, it is possible for the cooperative to enter the latter four areas of Table Ii to a greater degree, but not economically with their present hardware.

However, there is an economically feasible alternative; the use of a computer utility. The cooperatives have the alternative of continuing use of their present hardware for the types of activities they are currently performing and time-share the more sophisticated applications. The use of a computer utility could then enable the more limited firms in Groups I and II to realize some of the business management benefits that their large competitors now enjoy. However, the use of a computer utility may not be a feasible alternative for all firms. Each firm is unique, and depending upon the particular firm, the disadvantages may outweigh the advantages.

Group I: Consists mainly of very small systems, mostly second generation.

Group II: Typically IBM 360/201s or the equivalent.

Group III: Typically IBM 360/30's or the equivalent.

Group IV:Consists mainly of large systems, all third generation. Typically IBM 360/40's and larger or the equivalent. Mbstly capable of real time processing.

4 Table 1. Computers Owned by Selected Cooperatives byType and Manufacturar.

MAnufacturer & Model No. Caputer Frequency

Burroughs Corporation

B282 1 moo 1 B3500 1 General Electriccowany

GE 415 1 Honeywell, Inc.

H120 5 H2200 1 H4200 1

International Business Machines, Inc.

IBM 1130 1 IBM 1401 2 IBM 1410 2 IBM 1440 3 IBM 6400 1 IBM 6420 1 IBM 360/20 9 IBM 360/25 4 IBM 360/30 14 IBM 360/40 4 IBM 360/50 1

National Cash Register Company

NCR 315 RNC 3 NCR 500 1 NCR Century 200 1

Univac, Division Sperry Rand Corp.

Univac 418 1 Univac 9200

TOTAL RESPONSES 60*

*Although 43 firms responded, totalresponses include those cooperatives with more than one computer.

8 5 The above nine criteria were used todetermine the hardware groupings; reflecting increasing capability as the groupnumber increases. However, the capability of a ccmputer system mustbe defined in terms of the functions it can perform whio4 in turn must also includethe effectiveness of the systemls software.3/

Given an individual sampled cooperative, it ispossible to estimate hardware capacity, most of the specific performancefunctions, and the approximate speed of performance. However, it is difficult to meaningfully generalize hardware specifications and thesystem's application potential in terms of the five general areas used in the survey(see Table 2).

Given any particular problem, most of the computersystems in the survey are capable in arriving at a solution. For example, most of the systems can solve a linear programmingproblem; however, it may take a system inGroup I and II many times longer than a system inGroup IV (assumdng adequate software and a capable computer staff). The reason for this variance can be traced to the high likelihood of a second generationcomputer occurring in Groups I and II. Despite the capability of a Group I or II system to perform some of the more complex functions, thespeed of performance places economic constraints on most of these applications.

Groups I and II are composed of both second and thirdgeneration computers. To generalize, Groups I and II are primarilylimited to the accounting-bookkeeping applications. These +wo groups are more conducive to the bookkeeping activities primarilybecause of their limited memory capacity, speed, and peripheral hardware capabilities.Most of the cooperatives in Groups I and II would havedifficulty in developing a total computeri4id management information system because ofthe real time involved in receiving timely decision-making information.

Group III is capable of supporting a modest managementinformation system. Mbst of the systems in this group are capableof real time processing; however, as is shown later, are utilizing this desirablehardware characteristic.

Group IV computers are all third generationcomputers. Mbreover, most Group IV computers are capable of real time processing. Such a characteristic is usually considered a prerequisite.tor thedevelopment of an effective total management information system.V

Software efficiency is greatly reflected in theinformation demands of each cooperative and its respective programminglanguage. Since the present concern is with computer hardware, a discussionof the various programming languages is presented later in this report withinthe aggregate analysis.

See Glossary for definitions.

6 r ; c ;Qr,it;ttIfrolotipperot 4?J t,Cacopor Ivy;

ALIA UMW hat; rik **V et :441P at. C41 Rifling, invoicing,payroll accounting, etc.

Capital investmentanalysis, CAM. flows, general and tax buageting, etc.

4 vd 044 Product i th+'ti ventcry control, quality control, dis- tribut;on scheduling.

cc 444 at :,*.ttt lit11104 Sales forecasting, salesanalysis and control, advertising,new product scheduling.

4114 causnec Linear programm4ng,critical wso LO. 4441%4ms 'trot) path, simulation, product design.

1 0

7 hardware caoabilty of 4 fr:!. :t ula be unJe:atood that the not deterl4ne the effectvene:,t; 'Ltv information 51%.teni thw ourVucl olly a tool Used 14711h4114ce an exn) 1:Ifornation r.r.tem. Drucker naket,, th, followinj analoqyt

The computer is te infornatlonwhat the electric power station 11 to electricity.The power station makes many otherthings possible, but it is not where the moneyis. The money is the appliances, the motors andfacilities made possible and necessary by electricity, which didn'texist before. Information, like electricity, is energy. Just as electrical energy is energyfor mechanical tasks, information is energyfor mental tasks. (Drucker, 1967, b, p. 23).

Mereover, Drucker relates, the real valueis not in the electrical power station, but isfound in the generated energy. In the same manner, hardware but rather the real value of the computerlies not in the physical in the effective utilizationof the generated information.

The development of an effectiveinformation system should not be construed to only consist of computerhardware. As indicated above, an information system is much more thanthe computer. Moreover, an effective information system must start withthe understanding of management together with a capable technicalstaff rather than a survey of computer hardware.

Censidered next is an analysis of useby groups in the hope that some meaningful relationships canbe found between actual and potential utilization.

Analysis of Use by Groups

The analysis of use is firstconducted accarding to the four groups. Following the group analysis is anaggregate analysis; the latter notonly encompasses an analysisof use, but also other informationrelating to performance evaluation, both of whichwill be compared to an analysisof a study of 108leading manufacturing companiesconducted by Dean (1966 a). It is hoped that by presenting a groupanalysis prior to the aggregate analysis an individual cooperative canidentify its grouping and thereby compare itself with similarcooperatives.

Group I

The eleven cooperatives in this groupused their computers an average of 118 hours per month. The average computer experience ofthese cooperatives of $53,597,471, with a range is five years. They have an average annual sales from 11.5 million to 125 million,and spend an average of $105,193 per year on their computeractivities (hardware rental or theequivalent, operating costs, staff systemsplanning, design, and programsplanning). Within Group I there is no apparentrelationship between annual computerexpenditu/es expenditures break down to 47% and sales. The average annual computer operating expense, 45% rental orthe equivalent, and 8% for systems and pruAram. planninl (seeFoure 1).

tor example, in many cases it may bemore advantaleous in the firm to allocate the long :un far expenditures to the development.of its plesent systeTi rather than suosidize a computer utility; eachalternative :,hould :,nsdereki in t'le long-range planning strategies ofthe cooverative. The following are typical responses fromGroup 19 referringto their future plans for expandingtheir computer effort:

"Id install a complete system of orderentry, sales, and production control resulting in a complete system fromentry of orders to of sales." summary

"Add additional disk drives and increasecore and speed of equipment." component

Upgrade equipment to provide greaterstorage capacity, data, cut down access to on key punching, and improvemembership records."

"Plan to have allaccounts except general ledger on computerrecords, sales, and inventoryanalysis...."

The above indicatethat in the near future emphasize the bookkeeping Group I will continueto applications in theirexpansion plans. gEoup 11,

The ten cooperativesin this group 235 hours on the average use theircomputers per month, and havean average of six Their average annual years of computer experience. sales is $99,935,791,with a range from $21 to $390 million; and million they spend $212,375on their computer activities year. The annual computer each expenditure of GroupII breaks downto 44% operating expense, 40%rental or equivalent, and 16% for systemsdesign and programs planning (see Figure1).

In the determdnationof the types of information generatedby Group II systems, the fiveareas of Table 1 were used. The followingare the results: Group II Area Percent 1. Bookkeeping 2. Financial Analysis 72 3. Production-Distribution 6 4. Marketing-Sales Analysis 13 9 5. OR., EconomicResearch, Engineering 0

130% 12

9 Figure I. Allocation of Computer Expenses by Groups Group I Group Group IS Group rIr programs Systems & Timing 8% 16% 21% 28 % 0 Operating expense 47% 44% 44% 41% Rental 45% 40% 35% 31 % o: tneir hardware. Anzslogous to Gloup 19 if the management of this hs the desire to extend tonew and more complex applications wW--..h a"e beyond the capabilities of their presentsystem, the alternative of wang a computer utility is likewise available. The present functionscan continue to be performed on their present system whilethe more sophisticated Applications are done by a computer utility. A discussion of time-tharing criteria is dis-:ussed later.

The following are typicalresponses from Group II referring to their future plans for expansion:

"Expand to linear programming"

"Expansion to activities other thanprocessing financial information."

"A complete information system tocover our entire organization related to cost and need."

Thr management of Group II indicatea desire to extend their applications beyond their initial clericalapplications. However, most of these :ooperatives are economically constrainedto their present activities, :.esulting from limited hardware capacity.

'Aro= III

The twelve cooperatives in thisgroup, on the average, use their :omputers 344 hours per month. They have an average of 8years of ?xperience with their presentor similar system. Their average annual sales is $130,6209270, witha sales range from $30 million to $370 million. )11 the average they spend $3759637annually on their computer activities. [he average annual computerexpenditure breaks down to 44% operating ?xpenses, 35% rental or the equivalent,and 21% for systems, design, and )rograms planning (see Figure 1).

Group III allocates its totalcomputer time in the followingmanner:

Group III krea Percent Bookkeeping 55 Financial Analysis 12 Production-Distribution 15 I.. Marketing-Sales Analysis 16 >. Operations Research, Economic Research,Engineering 2 100% As the above percentages show, computer use of GroupIII is significantly lifferent from that of thetwo previous groups. Perhaps the most obvious afference is the increasing percentage of computer time inareas 2 to 5; these 'our areas increased at the expense of a significant decrease inrelative alocated computer time toarea I. 14

11 Once again, the explanation for thevariance among groups Is linked to their hardware capability. All of the tIroup lIl systems arethiri generation computers, maintaining a larger core memoryand greater speed which are necessary for many of the morecomplex applications. However, this difference can also be viewed Ziy management'sattitude toward the importance of its applications in the latter four areas,and the amount of experience the firm has wi*.h a digital computer cystem.

The following comments ieflect. the futureplans for the expansion and reorganization of the management in Group Ills

"(Ne have) recently established a management systemscommittee of top management to guide, monitor, andestablish priorities for systems development activities."

"To incorporate teleprocessing into the systemand thereby secure mare timely managementinformation..."

"Management information sys'.em in the implementationstage."

"Development of on-line total information system."

"Continued expansion of applications--timesharing and data transmission oriented..."

As the above indicate, Group III is not onlycapable of a modest information system, but their plans indicate theirdesire to implement one.

Grouo IV

The ten cooperatives in this group each usetheir computer 456 hours per month. The average cooperative has 8 years of experiencewith the present or similar system.Their average annual sales is $152,637,800, with a range from $50 million to $434 million. On the average, they spend $621,806 annually on their computer activities.This average annual computer expenditure breaks down to 41% operating expense,31% rental or the equivalent, and 20 for systems planning and design(see Figure 1).

Group IV presently allocates its total computertime in the following manner:

Group IV

Area Percent

1. Basic Bookkeeping 50 2. Financial Analysis 10 3. Production-Distribution 13 4. Marketing-Sales Analysis 17 5. Operations Research, Economic Research, Engineering 5 "i'5U

1 5

12 Mo.,t of the computers in this group are capatle of maintainiig an on-line teal time computer system. And in short, most of the systems of Group IV have the capab!lity of providing a total management information system. The following indicate the management's anticipation of achieving that goal:

"...We are presently developing a total managementsystem. We also have under development an accounting and reporting sistem for oUr member cooperat:ves."

"To develop a total information system."

However, the management fromone of the more limited systems responded:

"Upgrade core size to permiton line multiprocessing operations and additions to paripheral equipment teleprccessing and CRTinput and inquiry to basic data files."

Ine above indicate Group IV's intentions to developa total computerized management information system.

Summary of GXOUVO Analysis

By using the four groupings establishedto determine hardware capabilities, some very significant relationships are revealed.

Average sales progressively increase froma low of $5395971471 in Group I to a high of $152,637,800 in Group IV. Similarly, average costs progressively increase from $105,193 to $621,806 for GroupsI to IV respectively.

There is a direct relationship betweensales volume and amount spenton the computer effort by groups (see Figure 2). This relationship suggests that the cooperatives witha more capable system spend proportionatelymore on their computer efforts and maintaina higher volume of sales.

The cost-sales ratiosare .20%, .21%, .28% and .41% for Groups I, II, III, and IV respectively. These ratios indicate that the cooperatives withthe more capable computer systems spenda greater percent of their annual sales on their computer systems than do the cooperativeswith the more limited systems. Furthermore, Figure 2 shows thatas group sales increase, the amount spent on the computer system alsoincreases; however, this increaseoccurs at a decreasing rate. The computer expenseisales ratiois often used as a criterion for allocating computer funds.

There is also a direct relationshipamong the four groups and the allocated percentageson computer expenditures. Perhaps the most significant expenditure relationship is theproportion spent on systems planning and design, which increases progressivelyfrom a% in Group I to 28% in Group IV (see Figure 1). Operating costs decreaseas does the proportion spent on lease or the equivalent. Consequently, the cooperatives with themore capable systems spend proportionatelymore on planning and developing new applications.

13 Figure 2 . Relationship of Computer Expense Ratio of Computer Expense to Soles by Groups GroupGroupGroup III MI= = .20 = .29 % % .21 % Sales 41 150 / Group N at .41 % Group Ill Grouprif 100 50 .__ Group I Group II Computer expenditures 100 200 300 in thousands of 400 500 dollars 600 types interesting relationshipsis the present Iprhaps one of the more This relation- generated among thefour groups(see Figure 3). of information systems, there is aproportionate ship shows that as firmsacquire more capable allocated to areasin addition tobasic bookkeeping. increase in computer time exoerience for each attributed to the yearsof computer Mach of this can be demands of the largercooperatives. group and the moreintense information it can be concluded Finally, by interviewing manycomputer managers, is not the primarylimitation in that in most cases thehardware capability and more complexapplications. the cooperatives' questto expand to new (programs) and people elementsprovide even greater Instead, the software competent people to It is difficult toacquire and maintain limdtations. Even more importantis the need program anddesign the informationsystem. those who need theinformation and those for ccnstructivecommunication among much more that provides it. These limitations appear who design the system limitations. These computer utilizationthan hardware crucial to effective following aggregatedanalysis. problems are furtherdiscussed within the

AS'GREGATE ANALYSIS OFUSE

Cooperatives Which Owned orLeased Their OwnComputers this survey that own or leasedtheir computers in The 43 cooperatives Individually they used their computers252 hours per month. on the average their computer activities spend from .03% to.99% of their annual sales on operating costs, staffsystems planning,design, (nardware rental or equivalent, In all, these with the average at.39% of annual saies. and programming), annually on theircomputer. cooperatives spend a totalof over $11.5 million size vary widely(see Individually, computerexpenditures by cooperative usually can be tracedto the type ofproducts Figure 4)2/. Such disparities which supplied and the maturityof the installation, marketed, processed, or Application of determines the extentand type of applicaticns. very likely between annual salesand regression analysis reveals asignificant relationship However, sales alone is not anexact predic'ccr; annual computerexpenditures. such as the significant effect oncomputer expenditures ,other factors have a of the computer marketed, processed,supplied, the maturity type of product utilization, etc. installation, managementattitude towards computer evaluate effectiveness, Although it is not the purposeof this study to relationship betweenthe the question arises: is there any at this point effectiveness in managingit? Dean (1966 b) amount spent on thecomputer and its but not is some correlation amongindustrial corporations, indicates that there with the highest Dean's study revealsthat the companies a strong one. sales on computeractivities effectiveness rating spend onthe average 1.0% of Dean continues, rated companies average.23% of sales. while the lowest indicate that dollarsspent are not "However, there areenough exceptions to a majorcriterion of usageeffectiveness." expenditures for the sampled As Figure 5 indicates,average computer 37% rental or equivalent, cooperatives break down to46% operating expense,

represents actualoperating time of 2/The time specifiedby the cooperatives the central processing 18 15 Figure 3. Present Use by Cooperatives GROUP I (Percent of Total Hours ) Classified by Computer Type and Capability GROUP III Bookkeeping 700/. Financial analysis Bookkeeping 55 % Financial analysis GROUP IC -Mkting sales 10°/ 12%Prod-dist 8 % Resea c Marketing sales GROUP ISE16% distributioProduction is % 12 Bookkeeping 72 0/0 Research Bookkeeping 50 % Financial 5 distributionProduction 17 04 analysis 10 % Figure 4. Relationship of Computer Expense to Sales Volume 1200 5 withratios ( 39 Cooperatives ) 800 0-58 .14.08 .07.42 Key 0 - Computer expense Sales 700 055 0.43 em CD1\3 Annual computer 500600 0.52 .24o I1 400r expenditures (000) 0.99 .97 . o .59 .30° 11 300 0.81 0.46 o .38 0 .33 0-19 MI 200 4, 0-57 0- 43 o .32 0 33 0.23 o .14 200 to 400 100 0.75 .550.54 .460 0 .69 0.26 0 .29 0 .22 W23 0 .13 0 .07 50 0.03 100 Annual, sales in 150 1 millions of dollars 200 plus 000 4# 500,000 to \\.$200,$ -2) .0% 00 0 000 0/ $400to 4 "e")

%Pe '$3o01000 6,

000 461 $200 to eoo

\k00,000 -"I aNJ rrovam: planning. Dean's study of theindustrial t;m;la:ly 4t1icate4 37% for - -tal or equivalent; however,the 4 4... the 19% ;pent for 0; rating expense and 24% forsystems tlann;nq. Tb$JA,, thy aver4plf the "effective"industrial firms 4.0'4 UlcV011;c"41teilmare on systems and .,;vcroa (0.31,e,lat:ivor... programs planning than do the A: viewed in Figure5, the cooperativeswith the awlycl ctwot4A:101=v;ip in wneral, -.pond proportionatelyless on rental or 4r1.1 1t:0 on vvtossand programs planning. 1. Ic Dean (1966 c) attributes c companet maturityar. a computer user, and emphati, 041 vptems a reflection of their design 1.1 implementnew, more oomplex operating 414.,ctoi;orhz mh;ch are characteristics of experiencedcompanies. Conversely, ,--w44413v,v.4 thir. lxvey indicated only a slight * (...v00: c.azthalcra relationship between percentage to the cooperative'scomputer experience.§/ I vwvc$, at ;r144cateveoarlieT, there is a releionship among individualgroups t*vert7 celik4.; eflçt

ae alcmt1 lu algac-late the types of informeionbeing generated, *r- 1(413CrWit49 1:ve areaswere -.;pecified: c;a: basic bookkeeping-- financial analysis;production-distribution operations; 4n41),L.is; and operationsresearch, economic c ,-0,01*4 I; rev tV1 Ia ch c ociperative indicated itsinitial, present, and ,:o v.v.% of the five areas. The main purpose inspecifying the Lhesm cffelac!asea: (initial, present, future) scrcamc v*i was to determine the increase p1.4-,ation area since theinitial installation (see

w$th reference to Figure 69 the basicbookkeeping-financial .1.,!) arca ha:. :.ian:ficantly decreasedsince the initial !, (AA te. 4t* fut initial, installation present, and futureuse respectively. In a !fly percentages haveincreased, at theexpense of the t&c arca. Although few responding ¶'Ac cooperatives intend to reduce tcta itortti, most all intendto increase their efforts rlty4.1"-_1;4) fuN4 4:c*, thut in the re4u61g the proportion ofcomputer time spent in twokievping activities.

L: cx.whirelqUelnce,tivio remaining four z:tuc areas show steady percentage increases 1:1110 computer's initialinstallation. The following percentages ift:tral, present, and represent future use for eacharea: basic bookkeeping- f;nacial ;marling, 704 6424 40; financial analysis 6%9 09 11%;production- 4.414;hut:,4n operations, 144 14%,21%; marketing operations- sales analysis 1010, 144 lthif and operations research - economic research- engineering, less i.%ah 419 4-.4 (see Figure 6). Thet.e results clearly indicatea trend away from restairtina the computer to the bookkeepingareas. In the next 3-5 thm =404444i:wet in thia years, survey expect to direct over half oftheir total use to Ape:atips4 aa.eat, and expect to more than double thetime spent in the c4.**$ t$,A iissuelvft Mho Jo not Ownor Lease TWI_Comouters

fol4.0 of the firers in this survey were using the computer servicesof 4eaotIser :-.Ammpany oa institution. The average annual salesof these four

b tor regressionanalysis results. 22 Figure 6. Allocation of Computer and Systems Effort Different to Functions Research and Production14 0/odistribution Bookkeeping 76 % engineering 2% Present uze Bookkeeping 48 % Financial analysis 6°4 engineeringResearch and Kw Marketing Financial analysis II 0/0 Initial use Marketingsales 10 % 8% Producfiondistribution sal es 15 % Future use Productiondistribution 21 % cooperatives was $30 million, ranging from $8 to $65 million. Average monthly usage ranged from 8 to 30 hours. Two of the four firms leasing computer time indicated that the primary areas of use were the bookkeeping tasks and producer payments. None of the four are using the facilities on line; all four were off line batch processed jobs.

Five of the cooperatives were provided computer services by a service bureau. The average annual sales of the five firms was $20 million with a range from $5 to $49 million. None of the five indicated the types of information they were processing with the serVice bureau; however, all of the information was processed off line. Those that specified the service bureau hardware indicated one Univac 9300 and two IBM 360/25's; the other two firms did not respond.

Apparently the above firms have not found it feasible to own or lease their own hardware. However, one firm indicated its purchase order of a computer. Evidently smaller firms find it more profitable to utilize the professional services of a service bureau rather than be confronted with many of the problems of other smaller owners. By taking this route, these cooperatives have available the exact computing capacity and memory, and within limits, those computer capabilities that most closely match the problem needs of the moment. Furthermore, they are charged only for the time and capabilities actually used, while the overhead for the unused facilities are shared among other users.

MANAGING THE COMPUTER

The ability of a cooperative to expand its applications to new and more complex areas is a function of hardware, software, and people. The latter variable is now considered.

Virtually all of the cooperatives in the survey maintain an individual who coordinates the computer activities and is responsible for the overall TIality, performance, and forward planning of the cooperatives' computer effort. Dean's study (1966 d) revealed an important relationship between the computer manager's previous experience and his reporting responsibilities. Dean found that the more effective computer installations were those where the computer manager had either operating or management experience and reported directly to top management personnel.

In this study the following percentages indicate the previous experience of the individual in charge of the'cooperative's computer effort: 44% with data processing and programming experience, 40% with experience in finance and accounting areas, and 16% with operating and management experience.Forty one percent report directly to the general manager, 20% report to the assistant general manager or vice president, 16% report to the treasurer or secretary, and 23% report to the controller or assistant controller (see Figure 7). Upon analysis of the reporting relationships among the four previously established groups, the following hypothesis was rejected: the computer manager in Groups I and II primarily report to the controller or treasurer/secretary and the computer manager of Groups III and IV primarily report to the generalmanager or vice president. In other words, there was no significant difference in the reporting relationships among the groups. 24 Figure 7. To whom does the " computer m'anager General manager " report ? orAssistant vice - president general manager Treasurer/ secretary 'Controller controller / assistant I Many of the surveyed cooperativesindicated difficulty in penetrating application areas and have consequentlyattributed many of their problems to the previous experience of their computer manager.Mbreover, many firms that were concentrating on thebookkeeping areas had individuals with accounting- bookkeeping experience. However, the inability of the firm to expand applications to areas other than bookkeeping cannotbe blamed totally on the lack of ability of the computer manager nor canmanagement take the blame. The problem appears to be a communication gapbetween the computer people and management. To a great extent the lack of progress has beencaused by antagonism between management and the computer staff. Management blames the computer people for not providing them with theinformation they need or with providing too much information. On the other hand, the computer people continually blame management for lack of involvementin the design of the system. In fact, they say, management very often doesnot even know what information they need for decision making.This lack of communication points to the need for the development of an effectiveinformation system which, if designed correctly, will virtLaly eliminate suchproblems.

One solution or partial solution suggested is that companiestend to put operating people in charge of the computer becauseit is believed easier to educate them about computers than to teach systemsspecialists about business. However, this course of action may not always be practical. In any event, systems specialists should be familiar with operating procedures. As Robert Townsend contends:

Before you hire a computer specialist, make it a condition that he spend some time in the factory and then sell your shoes to the customers. A month the first year, two weeks a year thereafter (1970a, p. 37)

Another alternative would be for the firm to clearly and specifically identify its information needs and relative frequency of the neededinfor- mation. Each individual receiving information should continually ask himself: what am I going to do with this information? and what wouldI do if I didn't have it?Then his decision making needs should be relayed to the computer people. Otherwise "your managers will be drowning in ho-hum reports they've been conned into asking for and are ashamed toadmit they are of no value."(Townsend, 1970 b, p. 36). Such a course of action would significantly narrow, if not in fact close, the communication andinformation gap.

In some agricultural cooperatives a genuine lack of accurate and timely data exists, while in others excessive computer output anddetailed routine reports obscure the few key figures that are needed foreffective decision making. Because this information is not properly filtered or screened, an information gap results between the computer people and management. Con- sequently, the purpose of identifying information needs and attempting to implement an effective information system is to significantly reduce decision making uncertainty by closing the information gap. However, even if this information gap was virtually closed, the particular decision could not always by executed. In other words, accurate and timely data does not guarantee adequate or correct decisions. It only makes possible more rational decisions than decisions based solely-on intuition. 26 In attempting to alleviate many of the computer inefficiencies, approximately 50% of the surveyed firms have established a regular procedure to both control and evaluate the computer's effectiveness, and to determine improvement needs. About 40% of the cooperatives conducting such an audit have formed some type of committee involving general management and operating personnel to perform the audit; 20% are utilizing outside consultants, and 20% are conducted by data processing personnel. Dean's study indicates that the managements of two-thirds of his surveyed industrial firms use regular audits to improve their control of computer activities and performance.

Also, the larger the company, the greater the likelihood that management audits the computer activities. The following areas were emphasized in Dean's (1968 b) study by the firms in conducting their audits in order of their importance.

1. Appraisal of budgets for new computer systems developments and new equipment.

2. Determination of appropriateness of present systems as management and control tools.

.3. Review of the usefulness of present systems to operating people,

4. Checking on adherence to operating budgets and output deadlines.

5. Analysis of systems and operations for potential susceptibility to fraud or other financial irregularity.

6. Evaluation of personnel and management practices affecting computer systems.

7. Review and adherence to development project budgets and schedules.

RATED EFFECTIVENESS

Management personnel of the sampled cooperatives indicated their efforts and effectiveness relative to their competitors in expanding their computer effort for activities other than processing financial informationor performing clerical-type work (see Figure 8). The authors hypothesized a relationship between the cooperative's effectiveness-ranking and their actual performance; however, the results of this study reveal nu such relationship. Furthermore, no relationship existed among the rated-effectiveness of the cooperatives and their respective groups. Colleictively, the cooperatives responded with ranking slightly above average,l/

PRCGRAMMING LANGUAGES

In an attempt to determine the exact programming language mix utilized by the surveyed cooperatives each firm was asked to indicate the exact percent of their programming conducted in each of the various programming languages

Scale: High (5), above average 0), average (3), belowaverage (2), low (1). The average ranking of all surveyed cooperatives is 3.2. 24 27 Figure 9. Average Percent of Total Figure 8. Rated Effectiveness of PresentInformation.Processingto Areas Computer. Other Financial Than Applications ProgrammingLanguagesofCooperatives. the Various by Done ProgrammingResponding in Each Above average27% COBOL 33 % Average 33 % HighDon't 10% know Assembly24% language Others (e.g., DPAC, Easy oder, Neat averageBelow14°4 12% RPG2 0% Fortran 1% et. at.) 15% (see Figure 9). The percentages in Figure 9 are only averagesand do not reflect a suggested programming procedure. Moreover, these percentages indicate only the percent of total programmingperformed in a particular language and does not reflect the actual.usage.Since the usage more accurately reflects the efficiency of the programmixture the exact percent of each programming language actually utilizedis desired. For example, if a cooperative was proarammingin both Assembly Language and Fortran, it is feasible that 50% of the programming could be donein each of the languages and the actual program usage could besignificantly different. Further, suppose the cooperative utilizesthe Assembly Language programs 80% of the time to 204 Fortran. Within the typical, agricultural cooperativebusiness- type utilization circumstrnces this would appear tobe a more desirable program mix than if the two languages wereused to the reversed ratio, i.e., 80% Fortran to 20% Assembly Language.

REASONS FOR COMPUTERIZING

Many of the cooperatives indicated, as their initial reasonfor computerizing, the desire to develop a managementinformation system. Apparently many of the cooperativesbelieved that by the mere act of installing a computer an effective management informationsystem would evolve. It should be made clear, however, that the computer is only atool that will, if used effectively, enhance an existing system of collection anddistribution of information. Moreover, before the decision to computerize ismade, the present system of information retrieval shouldbe reasonably clean and effective; otherwise, the computer will only speed up theinefficiencies of the present system and further complicate matters(Townsend, 1970 c).

The responses of these firms tend to be idealistic rather thanrealistic in view of the evidence previously presented showingthat their initial and present emphasis remain largely with the bookkeepingactivities (see Figure 6). The following indivi4ual responses reflect a morerealistic estimation of the typical cooperative's decision to computerize.

"Rising labor costs, tight labor markets, lower error ratesexpected, effective computer salesman, a study of the economics, a desireto be modern.

"Clerical Savings plus the knowledge that a computerwould be required in the future."

"Data volume--cost reduction."

As the above responses exemplify, many dthecooperatives hope-1 for significant savings to result from the substitution ofthe computer for clerical labor. However, today many of tfiese firms are still onlyreceiving those initial benefits and consequently disregarding manyof the "decision- making" activities that may have even potentially higherpayoffs.

Furthermore, a relationship among the four groups was sought in determining their reasons for computerizing; however, no trend wasestablished. PURCHASE, RENT (LEASE), OR TIMESHARE

In this section guidelinesare presented in the attempt to objectively answer the question--shoulda firm purchase, rent, or time share?

In general, the decision maker should consider all costs,contingencies, and risks and then choose thecheaper alternative that hasstrong evidence of effectiveness. In calculating the cost of eachalternative, the costs should be stated in terms oftheir present value. For example, a high purchase/rent ratio does not necessarily indicate that a computer isoverpriced and clearly should be rented; it is more likely to indicate that the manufacturerexpects the computer to havea relatively long economic life.

A more desirable alternative than only considering the purchase/rentratio is to calculate the total (present value) cost of each alternativeapproach-- purchase cr rent. If one alternativeappears to be considerablymore desirable than another, the result (if correct) is likely to be causedfrom significant differences between the situationof the installation in of the typical question and that user. Consequently, it is well for themanager to explicitly identify such differences in order to ensure that theyexist and are in fact significant.

An example provided from Sharpe (1969) of computing whethera firm should purchase or rent willillustrate the principle ofpresent value. Suppose that an agricultural cooperative had decided touse a particular computer for the next 24 month interim period until it purchasesnew equipment. The relevant decision concerns whether the computer shouldbe purchased or rented? Rental (including maintenance) costs $10,000 per month. The purchase price of the machine is $450,000, the monthlycost of maintenance is $1,200 and the computer's estimated market value24 months hence is $270,000. Rental: $10,000 per month for 24 months $240,000 Purchase: - Purchase cost 450,000 - Maintenance ($1200 per month for 24 months) 28,000 - Less sales value 270,000 $208,800

The above example suggests that it would be cheaperto purchase than to rent; however, this conclusion may be incorrect. The error lies in the addition of dissimilar amounts. A dollar spent 24 monthsfrom now is not the same dollar spent today.

In virtually all times and places, goods and servicesin the present have been considered preferable to equivalent amountsin the future. is coped with by calculating This problem the present value ofa dollar given a specific time period and interest rate using the followingformula: 30

27 Present value =Future worth ( 1 + r)n where r = interest rate, and n =the period of time covered.

Now suppose that the current rateof interest is5/12 of 1% (approximately purchasing will indeed be 5% per annum). The policies of renting versus significantly different if therespective cash flows arediscounted.

RENTAL: Present Aplue Present value of cash flow Period Cash flow of $1§/

-9,958.51 1 $-10,000 0.995851 -9,917.18 2 $-10,000 0.991718

24 $-109000 0.905025 -9,050.25 Total present value = -227,938.98

PURCHASE: -450,000.00 0 -450,000 1.00000 - 1,195.02 1 - 1,200 .995851 1,190.06 2 - 1,200 .991718 -

1,086.03} 24 - 1,2001 .905025 - +270,000 +244 356.75

Total present value -232,995.93

The above discounting procedureindicates that the original purchase alternative is no longer the financiallydesirable alternative. Other considerations, however, should also beconsidered such as the cost of capital and possible tax deductions. For example, if the machine ispurchased-- outright or on credit--over a period oftime the firm may be better off because of possible tax deductions. ,

A third alternative available to thepotential computer user is that of the computer utility or time sharing. Since costs of time sharing computers vary so widely amongmanufacturers and bureaus, our attemptwill be merely to suggest a few guidelinesthat will provide additional information

2/Present value tables are found in mostmathematical table texts. 28 to individuals contemplating time-sharing. The following areas will be discussed regarding the time-sharing alternative.

1) Who are the primary users?

2) What types of applications are conducive to time sharing?

3) What are the advantages and disadvantages of time sharing?, and

4) What is the optimal solution?

Time sharing is used by many small companies whichare unable to afford their own computers. However, despite the fact that many small companies are using time sharing they are not the largest consumers; the bigusers tend to be the large corporations that are also bigusers of other types of computer equipment. A study by Brandt (1969 a) revealed that 39 percent of time sharing used was by large companies with annualsales in excess of $100 million. However, uf these large firms, 93% indicateda decline in time sharing, while firms with sales less than $100 million generallyindicated an increasing usage in time sharing.

Many small computer owners have said, "We haveour own computer; thus, we have n need for time sharing." A response of this kind is likely to reflect a lack of understanding rather than a measure of cooperative size. There are definite application areas where each type of computersystem offers significant advantages over other application areasas the following advantages and disadvantages suggested by Schwab (1968 a).

Beneficial Circumstances of Time Sharing:

1) For the solution of problems with (a) a high amount ofcomputation, to take advantage of economies of scale in processing, and (b)low communication costs for input and output.

2) For the solution of problems requiringa large memory, to tpke advantage of the economies inherent in sharinga computer's memory (e.g., large linear programming problems).

3) For a relatively small user, in terms of the amount ofcomputation, who has problems with widely varying characteristics;such a user will benefit from a complete programming system, which could not beobtained from -renting a small computer of his own.

4) For obtaining the solutidn of interactive problemscommon in programming and in research and engineering applications.

Unfavorable Si.tuations:

1) When the penalty of failure is high.

2) For the solution of problems which entail (a)a low amount of computation, in terms of the number of oper:4-ions, and also (b)high communication costs.

32 29 3) For problems whose processing can be easily scheduled and whose execution times are known in advance--as is true, for example, of repetitive problems. (This situation is often found in business applications: a problem such as the payroll processing of a company can be easily scheduled; furthermore, it is repetitive, and thus its execution time is known. There- fore, if problems can be scheduled, a time sharing system, with its capability of program interrupt, may not bring any gains, since a firm can determine its computer needs fairly accurately.)

Optimal Solution

While the large shared computer has significant economic advantages in some situations, it does not provide the optimal solution under all circumstances. Schwab (1969 b) further contends that "in the future users will simultaneously have their own small systems and share larger systems and the combination of small individual computers and a large shared computer may well provA to be the economically optimal solution. Thus, by having access to both a time sharing and a batch-processing system, each problem can be solved with the system best suited for its solution. The question is not whether to have a telephone, write letters, or send wires;we normally.have access to all three means of communication.Rather, it is the question of which system is tne most appropriate for each type of information to be transmitted."

SUMMARY AND CONCLUSIONS

In the past few years, the major emphasis of the computer industry has been to increase the speed and overall capability of the hardware. The emphasis now, howaver, involves bringing software in line with the hardware.

Cooperatives in Groups III and IV of this study are confronted with this identical problem. The capabilities of their hardware are beyond the development and sophistication of their software. However, a certain amount of excess capacity should be allowed for future growth and development. The use of the Group III and IV systems in the next few years reflect a shift from the routine bookkeeping chores to those that help management and operating personnel make decisions.

Generally speaking, the hardware of Groups I and II are economically constrained to the bookkeeping activities. In the future most of these managers express the desire for further development of their bookkeeping applications. One alternative available to the managements of Groups I and II is that of tiffn sharing with many of the more sophisticated applications of a computer utility while maintaining their present applicationson their given system. In this manner these smaller cooperatives can realizesome of the business management benefits that their larger competitors have been enjoying all along. In fact, in many situations the use of a computer utility may also be desirable for many of the firms in Groups III and IV. However, the Group III and IV systems are as fully capable of handlingmany of the same problems as a computer utility, and in mostcases these resources should be allocated towards the development of theirown systems.

303:3 41.c,itiC7 prot)lom affecting the computer utilization ix gpope:4* ives is reflected in the magn3tude of the communication .Qqr4.ar people and management. The firms that were utilizing x_: iowarJ; 'heLr fullest capability have devised methods of involving t1'40 4etermLf.4t:con of new areas of application. Solutions consist ,4 i:4c'-1 to-1,41emen" o: Jperating people in charge of the computers, devising wilipn.tes audits involving top management, and explicitly identifying f:144.!;ce 'Amft atA Ine relative frequency it is needed.Finally, we would ta t!,,croulLli consider one computer manager's philosophy, "We must xvw- t"-At lo's people who run our computers and not the other way

34 31 BIBLIOGRAPHY

Brandt, Allen, "Time Sharing Takes Off," Harvard Business Review, March- April, 1969. pp. 128-136.

Dean, Neal J. "The Computer Comes to Age," Harvard Business Review, January- February, 1968, pp. 83-91.

Deans Neal J. and James W. Taylor, "Managing to Manage the Computer," Harvard Business Review, September-October, 1966, pp. 98-110.

Drucker, Peter, "The Manager and the Mbron," condensed from The McKinsey Quarterly, Management Review, pp. 20-26.

Garoian, Leon and Arnold F. Haseley, 1965. Developing Planning Information for Agricultural Marketing Firms. Corvallis. 141 p. (Oregon State University. Cooperative Extension Servi77)7-

Harris, Bernard, "Trends in Computer Hardware," Computer Yearbook, Vol. I, American Data Processing, Inc., Detroit, pp. 191-195.

IBM, A Data Processing Glossary (C20-1699-0)(Technical Publications Depart- ment, White Plains, New York), 60 p.

Schwab, Bernhard, "The Economics of Sharing Computers," Harvard Business Review, September-October, 1968, pp. 61-70.

Sharpe, William F., The Economics of Computers, (Columbia University Press, New York, 1969) 571 p.

Townsend, Robert,Itthe Organization: How to Stop the Corporation from Stifling People and Strangling Profits, (Alfred A. Knopf, New York, 1970) 202 pp.

32 GLOSSARY2/

1. Batch processing: 1) Pertaining to the technique ofexecuting a set of programs such that each is.completedbefore the nextprogram of the set is started. 2) Loosely, the execution ofprograms serially.

2. Bit: In binary notation, eitherof the characters 0or 1. 3. ate: A sequence of adjacent binarydigits operatedupon as a unit and usually shorter thana word.

4. Cathode ray tube display: (Abbreviated "CRT display"), 1)A device that presents data in visual form by means of controlledelectron beams. 2) The data display producedby the deviceas in 1). 5. Central processing unit: A unit of a computerthat includes circuits controlling the interpretation and execution ofinstructions. 6. Character: A letter, digit, or other symbol that is usedas part of the organization, control, or representation of data. A character is often in the form of a spatial arrangement of adjacentor connected strokes. 7. Computer: 1) A data processor that can perform substantialcomputation, including numerous arithmeticor logic operations, without by a human operator intervention during the run. 2) A device capable of solving problems by accepting data, performdng described operationson the data, and supplying the resultsof these operations.

8. Core storage: A form of high-speed storage using magneticcores. 9. First generation computer: A computer utilizingvacuum tube components. 100 Graphic character: A character normallyrepresented by a symbol by a process such produced as handwriting, drawing,or printing. 11. Hardware: Physical equipment,as opposed to the programor method Of use, for example, mechanical, magnetic, electrical,or electronic devices. (Contrast with "software").

12. Magnetic Core: A configuration ofmagnetic material that intended to be, placed is, or is in a spatial relationshipto current-carrying conductors and whosemagnetic properties are esSential to itsuse. It

2/This glossary contains definitions from thefollowing: 1) The U. S. Standard Vocabulary forInformation Processing, America Standards Instit777717; published by the U. S.of 2) The ProposedU. S. Standard Vocabulary; 3) Sipple,Charles J., Computer Sams and Company, Dictionary and Handbook,Howard Inc., Indianapolis,Ind., 1967.

38 33 may be used to concentrate aninduced magnetic field as in a transformer, induction coil, or armature, to retain a magnetic polarizationfor the purpose of storing data, or forits nonlinear properties as in a logic element. It may be made of such material as iron, iron oxide, or ferrite and in such shapes as wires, tapes, toroids, or thin film.

13. Magnetic disc: A flat circular plate with a magnetic surface on data can be stored by selective magnetization of portions of the flatsurface.

14. Magnetic tape: 1) A tape with a magnetic surface on which data can be stored by selective polarization of portions of the surface.2) A tape of magnetic material used as the constituent in some forms of magnetic cores.

15. Management information s stem: 1) Specific data processing system that is designed to furnish management and supervisory personnel with information consisting of data that are desired, and which are fresh or with real time speed. 2) A communications process in which data are recorded and processed for operational purposes. The problems are isolated for high-level decision making, aad information is fed back to top management to* reflect the progress or lack of progress made in achieving major objectives.

16. Memory: See "Storage."

17. Multiprocessing: 1) Pertaining to the simultaneous execution of two or more programs or sequences of instructions by a computer or computer network. 2) Loosely, parallel processing.

18. MUltiprogramming: Pertaining to the concurrent execution of two or more programs by a single computer.

19. Offline: Pertaining to equipment or devices not under direct control of the central processing unit.

20. Offline system: In teleprocessing, that kind of system in which human operations are required between the original recording functions and ultimate data processing function.This includes conversion operations as well as the necessary loading and unloadingoperations incident to the use of point-to-point or data-gathering systems.

21. Online: 1) Pertaining to equipment or devices under direct control of the central processing unit. 2) Pertaining to a user's ability to interact with a computer.

22. Online System: 1) In teleprocessing, a system in which the input data enters the computer directly from the point of origin and/or in which output data is transmitted directly to where it is used. 2) In the telegraph sense, a system of transmitting directly into system.

23. Real time: 1) Pertaining to the actual time during which a physical process transpires. 2) Pertaining to the performance of a computation during the actual time that the related physical process transpires in order that results of the computation can be used in guiding the physical process. 24. Second Generation Computer: A computer utilizing solid state components.

25. Software: 1) A set of programs, procedures, rules, and possibly associated documentation concerned with the operation of a data processing system. For example, computers, library routines, manuals, circuit diagrams. 2) Contrast with "hardware."

26. Storage: 1) Pertaining to a device into which datacan be entered, in which data can be held, and from which it can be retrieved ata better time. 2) Synonymous with "menory."

27. Stroke: In character recognition, a straight line or arc usedas a segment of a graphic character.

28. Tape drive: A device that moves tape past a head.

29. Telecommunication: 1) Transmission of signalsover long distances, such as via telegraph, radio, television. 2) Data transmission betweena computing system and remotely located devices viaa unit that performs the rigcessary format conversion and controls the rate of transmission.

30. Teleprocessing: A form of information handling in whicha data processing system utilizes communication facilities.

31. Third generation computer: A computer utilizing solid logic technology components, i.e., utilization of miniaturized modulesused in computers, which result in faster circuitry because of reduceddistance for current to travel.

32. Time-sharing: 1) Pertaining to the interleaveduse of the time of a device. 2) Participation in available computer timeby multiple users, via terminals. Characteristically, the response time is such that the computer seems dedicated to eachuser.

33. Total management information system: A system that will instantaneously provide all managers--at every level from plantforeman to chairman of the boardwith relevant facts needed in orderto make a decision.

34. Word: A character stringor bit string considered as an entity.

35 APPENDIX TABLE A. CURRENT HARDWARE SPECIFICATIONS AS REPORTED BY COOPERATIVES RESPONDING4/ Firm Mbdel No.Make & CapacityMemory Card ReaderNo. & cpm Card PunchesNo. & cpm #Printer & lpm MagneticTaNo.Tapes e ofDrives CaNo.DisksMagnetic acit & 2.1. Burroughs283 Characters96k 800 cpm 100 cpm 750 lpm 3 1 @ 9.6 INS NO 3. 300B-3500Burroughs 98k120k Chac. Bytes 800800 cpm cdm 100100 cpm cpm 1040 lpm500 lpm 3 Mill. Bytes 1 4. ModelGen. Elec.415 32k Wds. 900 cpm 100 cpm 1200 lpm 8 MO ...I 5. 120HoneywellIBM 360/25 16k16k Bytes Bytes 450 cpm 300 cpm 600 lpm 4 11=1 CD 7.6. H-200 8k16k Bytes Bytes 850400 cpm cpm 200100 cpm cpm 450 lpm 3 1 @ 8k Bytes NEB WO 8.9. H-120ModelH 200 120 32k20k Chac.Bytes 300400 cpm cpm 400100- cpm 450450 lpm lpm 5 2 2@ (on4.6 order)Mil. Chac, 10/ The order in which the hardware An attempt isto listedlist the in hardwarethis Appendix is basically accordingin accordance to its to respective an computer alphabetical listingConsequently,generationhowever,electrical of the thiswould circuitry manufacturers.such information be a acourse mootis generally strategywasof actionnot readilythe criterion available. utilizedsince for there the are no clear-cutwould be subject to semantic guidelinesdetermination separating of generation differences.generations. differences; The composition of the APPENDIX TABLE A (CONT.) Firm Model No.Make & Ca acit Memory Card ReaderNo. & c m Card PunchesNo. & c m Printer & 1 m No.TaTapes Magnetic ofe Drives CapacityNo.DisksMagnetic & 11.10. H H4200 2200 262k64k Bytes Bytes 8001000 cpm cpm 400250 cpm 1101100 lpmlpm 96 1 @ 2.5k Bytes 4 13.12. IBMIBM 1410 1130 (2) 20k (1) 16k Bytes 400800 cpm cpm 250 cpm 600100 lpm 729 IV 0 14. IBM 1440 8k.Bytes40k (1) 400 cpm 91-365 cpm 240 lpm 21 packs @ 2 Mil. 1 Bytes/Pk. 03 16.15. IBM 64201440 8kIk Bytes Bytes 50150 cpm cpm 2550 cpm 61pm240 lpm - 2 @ 2 Mil. Chao. ea. 17. IBM 360/20 4k Bytes not specified not specified not specified - IM .1111 18. IBM 360/20 8k Bytes 500 cpm* 100 cpm 600 lpm Ole IM ONO 20.19. IBM 360/20sub 5 disk 16k8k BytesBytes 5001000 cpm cpm 30092 cpmcpm 600600 1pm lpm IM 16 disk packs @ 21. IBM 360/20 16k Bytes 1000 cpm- 200 cpm 600 lpm 4 5 4 mil/pk IM 22. IBM 360/20-sub-model 5 24k Bytes 300 cpm 100 cpm 600 lpm Oa 2 (2311) APPENDIX TARTY. A (OONT.) Magnetic Magnetic Model No.Make & CapacitYMemory Card ReaderNo. & cp14 Card PunchesNg. #Printer & lpm No.TapeTapes of D/sives No.DisksCapacity & Firm23. IBM 360/20-sub-model 5 32k Bytes 500 cpm cm 600 lpm ImPa. 2 @ 5 Mil. Bytes ea. 24. a. b.C. IBMIBM 360/30 360/25 32k16k32k Bytes Bytes 600 cpm 600 cpm 600 lpm 110.1. 4 @ 4 Mil. Bytes ea. 25. d. IBM 360/256400 16k Bytes 240 cpm 240 cpm 600 lpm 1110 2 (2311) 26.27. IBMIBM 360/30 360/30 32k24k Bytes 10001000 cpm cpm 300 cpm 1100 lpm 4111011 21 (2311) @ 7.5 Mil. 29.28. IBMIBM 360/30 360/20 32k12k Bytes Bytes 4001000 max. cpm 500250 cpm max. 600 lpm 2 45 (2311)@ 7k Mil. ea. 30.31. IBMIBM 360/30 360/30 32k65k Bytes Bytes 10001000 cpm cpm 300 cpm 600600 lpm lpm 44 3 @ 7k 4 Mil. Bytes ea. 32.33. IBMIBM 360/30 360/30 65k65k Bytes 10001000 cpm cpm 250350 cpm 1100 lpm 2 3(2311) 34.35. IBMIBM 360/30 360/301401 H '65k Bytes65k8k BytesBytes 1000 cpm 350300 cpm 1100600 lpmlpm 2 4 8@ (2314)7.25 Mil. Bytes ea APPENDIX TABLE A (CONT.) Firm Model No.Make & Ca acitMemory Card ReaderNo. & c m Card PunchesNo. & cpm ftPrinter & TapeNo.TapesMagnetic ofDrives No.DisksMagneticCapacity & 37.36. IBMIBM 360/30 360/4014436000 128k65k32k BytesBytes4k Bytes 1000 cpm 250-300250 cpm cpm 10001100 lpm ipm 24 4 3(2311) @ 7.5 Mil. Bytes ea 38. IBM 360/40 128k Bytes 2 @ 1000 ea 250 cpm 2 @ 1100 lpm 1 (2314) 111 111 34. NCR.315IBM 1401360/40 12k128k40k Bytes Bytes 10001 @ 400 cpm800 cpm 250 cpm MI MI 11001 @ 600lpm lpm600 lpm 2 1 (2314)(1405) co 40.41. IBM 360/50360/40 256k196k Bytes 1000 cpm 300250 cpm 10001100 lpm 10 8 9233 @ Mil.28 Mil. Bytes ea 42. NCR 500 4.8k Chac.4800 or 300Chac. cpm 500 cpm 100 cpm 125 N 62 A/N 44.43. NCRNCR 315 Century- RMC 20040k 65k Bytes Bytes 750300 cpm cpm & 84 to 240 300015001000 lpm NA/N 47 4 @ 4.1 Mil. Bytes MI MI 45. NCR 315-100 20k Bytes .11111 111 800 lpm 5 111 111 46. UnivacNCR Century 418200 - (ordered) 40k Wds. 600 cpm 250 cpm 600 lpm 4 Fastrand II Drum 47. Univac 9200 8k Bytes 12 @ 4001000 cpm cpm 73-200 cpm 250 lpm MI MO APPENDIX B

Hypothesis #1

Regression analysis was used to determinethe relationship between annual sales (X) and annual computerexpenditures (Y). The following linear estimation was obtained:

Y = bo + b1X'

(expenditures in $ thousands) where: bo= 87.27 =

and, b1 = 2.35

hence: 2= 87.27 + 2.35X

Specifically it was hypothesized that there was norelationship between annual sales and computer expenditures(i.e., H:5 = 0). This hypothesis was rejected at the95% significance level; thus indicating alinear relationship between X and Y. The correlation coefficient, r, was.54; meaning that 54% of the total variation aboutthe mean V was explained by _the regression. (The correlation coefficient is a measure of theassociation between the random variables X and Y. For example, if r = 1, X and Y are perfectly positively correlated and the possiblevalues of X and Y all lie on a straight line. If r = 0, the variables are said to beuncorrelated.)

Therefore, we can conclude that there is a significantpositive relationship between annual sales and annual computerexpenditures. However, sales alone is not an exact predictor; asaforementioned, other factors have a significant effect on computerexpenditures such as the type of product marketed, processed, supplied, the maturityof the computer installation, management's attitude towardscomputerfutilization, etc.

Hypothesis #2

Regression analysis was used to determine therelationship between years of computer experience(X) and the percent of total computer usage allocated to the bookkeeping-financialreporting applications. Specifically, it was hypothesized that there was no linearrelationship between the length of computer experience and the percentof total computer time allocated to the bookkeeping applications(i.e.,5l =0). This hypothesis was not rejected at the 95% significancelevel. Thus, we can conclude there was no statistically significantlinear relationship between X and Y at the 95% significance level. The slope of the regression equation was, however, slightlynegatively sloping, suggesting that as the yearsof cemppter experience increased a smaller percent of totalcomputer time was allo'cated to the bookkeeping-financial reporting applications.

40 Hypothesis #3

Regression analysiswas used to determine the relationshipbetween years of computer experience (X) andannual computer expenditures (Y).

Specifically, itwas hypothesized that therewas no linear relationship between X and Y (i.e.,a 1 = 0). By rejecting this hypothesisit could be concluded that as cooperatives gain more experience withtheir computer installations their computer expenditures woul-1 increase (ifa positive relationship). However, this hypothesiswas not rejected and we conclude that there is no statisticalrelationship between X and Y. Hypothesis 44

Regression analysis was used to determine the relationshipbetween annual cooperative sales (X) and the percent of total computerusage allocated to the bookkeeping-financialre_)orting applications. Specifically it was hypothesized that therewas no linear relationship between variables X and Y. By rejecting thishypothesis it could be cluded that as cooperatives con- increase their salesvolume, the proportion of total computer timeallocated to the bookkeeping-financial ities should decrease (if reporting activ- a negative relationship)as a result of increased allocation to other applicationareas. However, this hypothesis rejected despite was not a slight negatively slopingequation. clude that there is Therefore, we con- no statistical relationshipbetween X and Y. Hypothesis #5

Regression analysis was used to determine therelationship between cooperative annual sales (X) and the percent oftotal computer usage allocated to the marketingand sales applications.

Specifically, it was hypothesized that therewas no relationship between X and Y. By rejecting this hypothesis it could beconcluded that as sales increased the percent of total computer timeallocated to the marketingsales applications would increase (indicatinga positive relationship). increase would primarily This be at the expense ofa decrease in the bookkeeping- financial reportingarea. However, the hypothesis 95% significance was not rejected at the level and wecan conclude that there isno statistical relationship between X andY.

Hypothesis #6

Specifically, itwas hypothesized that there between annual was a positive relationship cooperative sales and thepercent of total computer allocated to the financial usage analysis applications. However, no significant positive relationshipwas found.

Specifically, itwas hypothesized that between the there wasa positive relationship amount of coMputerexperience of spent for systems a cooperative and theamount and programsplanning. relationship but There was a slightpositive not statisticallysignificant. 4 4 41 Hypothesis 48

Specifically, it was hypothesized that there was a relationship between annual sales and whether the cooperative either owned its own computer, leased from manufacturers, or leased from a non-manufacturer. However, no significant relationship was discovered.

HYPothesis #9

Regression analysis was used to determine the relationship between the total number of computer employees (X) and annual computer expenditures (Y). The following linear estimation was obtained:

Y = bo + blX

where: bo = 16.78

and, bi = 13.97

hence: Y = 16.78 + 13.97 X

Specifically, it was hypothesized that there was no relationship between the total number of computer employees and computer expenditures (i.e., H: = 0). This hypothesis was rejected at the 95% significance level; thus indicating a linear relationship between X and Y. The correlation coefficient, r, was 92; meaning that 92% of the total variation about the mean Y was explained by the regression. Therefore, the conclusion is that there is a significant pos2ive relationship between the total number of computer employees and annual computer expenditures.