I'll Help Myself

It's fun to gee-whiz over new technology, to "Wow!" at the latest gizmos and to dream of devices that never were and ask, "Why not?" Our affection for futurist gear fuels our love of science fiction (think we'll ever have a transporter room like Kirk and Spock?) and can shower wealth on inventors and investors. But in a world where that $400 Palm you bought last fall is so five minutes ago, let's take a breath and celebrate something that feels terribly unsexy: older technology. It's not as cool as Wi-Fi or Java, but spend time in stores and on factory floors, and it's clear that many of the machines that are transforming the way companies do business owe much to technology that debuted during the Reagan era, not the Internet Age.

Just step into the Big Kmart in Braintree, Mass. During peak times, cashiers used to work all the store's 18 checkout aisles. But since September, customers have been able to check themselves out in four lanes that use scan-it-yourself machines. Manager Daniel Ferrie says 44 percent of his store's sales are now handled without a cashier. Kmart hopes the quicker service will help its 1,000 stores using the technology steal sales from convenience stores like the nearby 7-Eleven. "The whole point is convenience for the customer, to push more merchandise through," Ferrie says. Although he hasn't cut back on cashiers, it's no secret where the trend line is heading. Higher sales, lower labor costs: listen closely, and you may hear the U.S. productivity rate ratchet a notch higher.

Self-checkout machines--which after a few years of testing, made their biggest leap into supermarkets, Wal-Marts and Home Depots in the past year--are often disorienting the first time a shopper encounters one. But beneath the nifty facade lies a bunch of technologies that are decidedly old-school. Its main components--a scanner, a scale, a touch screen, a cash accepter/dispenser and a credit-card reader--have been around for at least a decade. Mike Webster, general manager of the NCR division that sells the FastLane self-scanner, admits there was no silver bullet that allowed NCR and its competitors to pull these elements together into a single unit. Instead, the big breakthrough came in a creative idea--can't any schmo scan a loaf of bread?--followed by small refinements to make these disparate elements work together faster, more seamlessly, and without taking up too much floor space. Webster sees his product as an elegant solution to a simple problem. "As customers we're all so frustrated when we see 30 checkout lanes and only six are open," he says. He hopes his $20,000 to $30,000 machines will render that feeling obsolete.

That it takes managers a long time to fully utilize new technology shouldn't be surprising. Economists have been studying this ineptness among businesses for decades. They dubbed it the "productivity paradox," and it's often summarized by a quote from Nobel laureate Robert Solow: "We see computers everywhere except in productivity statistics." He's describing how, even as companies spent billions on technology during the 1970s and 1980s, researchers were unable to find any link between those investments and higher revenues, more productive employees or a higher stock price. It appeared IT was a black hole, and it wasn't clear whether these investments would ever pay a return.

By the mid-1990s researchers began to find the first evidence that companies were finally seeing a payoff, says Harvard Business School professor Andrew McAfee. Managers had rethought their businesses to make better use of the increasingly pervasive technology. It's a slow process: research showed that it often took seven years from the time a company began installing a high-tech innovation--like a fancy database that disburses customer information throughout a company--to the time it began to pay dividends. And it's not just computers or software, says McAfee, who notes there was a 20-year lag from the invention of the steam engine to the real start of the Industrial Revolution. "These things take time," he says.

One example of this circuitous route is every shopper's favorite device: the automated teller machine. When the first ATMs rolled out in the early 1970s, they were a technological breakthrough; the magnetic-card reader had been invented only a few years earlier. But despite heady talk of a soon-to-come tellerless era, it took many years for banks to turn ATMs into a competitive advantage, says consultant George Albright of Speer & Associates. Banks placed the first ATMs inside branches, eliminating their best feature (24/7 access); once inside, customers went straight to tellers. By the late 1980s banks had begun placing ATMs in off-site locations--in supermarkets or malls--and charging fees for their usage, turning them into profit centers. But labor-cost reductions have proved elusive, partly because even today, 15 percent of customers still don't use ATMs, Albright figures. Why did it take banks so long to make this device work to their advantage? Don't blame the technology. "From a marketing perspective, bankers just didn't see the possibilities," Albright says.

The same slow cycle has played out at gas stations. There's nothing terribly challenging about pumping gas; that's why a few gas stations began experimenting with self-service refueling in the late 1940s. Despite the huge potential in labor savings, it proved slow going. "For years this industry never believed that women would get out of their car and pump gas," says Roger Dreyer, president of the Ohio Petroleum Marketers Association. It took more than 20 years for self-service gas to catch on, and by the 1980s the gasoline companies had another potential breakthrough: computerized "pay at the pump" systems that would let folks use credit cards to buy gasoline without ever entering the gas station's office. That technology worked just fine, but gas companies proceeded very slowly. After all, if people could avoid going inside, they wouldn't buy the coffee, cigarettes and gum that are key to many stations' profits. Even so, Mobil--now Exxon-Mobil--plunged ahead, and sales inside its stores actually increased as shorter lines made more people willing to shop. "It drove more business into the store--who knew?" says ExxonMobil executive Mike Goldberg. But the slow rollout meant the devices didn't fully catch on until the mid-'90s.

Emboldened by that success, Mobil moved more quickly on its next low-tech/high-tech gambit. Since World War II, planes have used a technology called radio-frequency identification devices so radar could recognize them. In the mid-1990s Mobil tried putting a small RFID tag on a key chain, hooking the tag into its central billing computer and letting customers wave their keys in front of pumps to pay, instead of fumbling in purses or wallets for a credit card. Launched nationally in 1997, the Speedpass system cut the average 3.5-minute transaction by 30 seconds. Speedpass customers, driven by the convenience, began spending 20 percent more at Mobil; today 5.5 million people use Speedpass, and it accounts for nearly 20 percent of the company's gas sales. "The technology itself had probably been around a decade or a couple of decades," says Joe Giordano, who invented the system. But harnessing it in a new way helped spur sales, and ExxonMobil is cutting deals with McDonald's, supermarkets and pharmacies to let customers pay with a key chain in their stores (debiting a checking account or credit card), too. The goal, says Goldberg: "To make it ubiquitous."

None of these examples suggests that more cutting-edge innovations--wireless PDAs, Web-browsing mobile phones, "data mining" software--won't play a role in helping 21st-century businesses squeeze more sales out of fewer resources. Instead, they demonstrate why managers should think of many of yesterday's innovations like a cream-puff used car: an underappreciated asset with a lot of miles left in it.