Organizational and Economic Obstacles to Automation: A Cautionary Tale from AT&T in the Twentieth Century

Abstract

AT&T was the largest U.S. firm for most of the 20th century. Telephone operators once comprised more than 50% of its workforce, but in the late 1910s, it initiated a decades-long process of automating telephone operation with mechanical call switching—a technology invented in the 1880s. We study what drove AT&T to do so and why it took nearly a century. Interdependencies between call switching and nearly every other activity in AT&T’s business presented obstacles to change: Telephone operators were the fulcrum of a complex production system that had developed around them, and automation only began after the firm and new technology were adapted to work together. Even then, automatic switching was only profitable in larger markets—hence, diffusion expanded when the technology improved or service areas grew. The example suggests even narrowly defined tasks can be difficult to automate if they interact with many others. This paper was accepted by Joshua Gans, business strategy. Funding: The authors thank the Duke University Fuqua School of Business and Harvard Business School Division of Research and Faculty Development for financial support. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2022.01760 .