Organizational Frictions and Increasing Returns to Automation: Lessons from AT&T in the Twentieth Century

AT&T was the largest U.S. firm for most of the 20th century. Telephone operators once comprised over 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 first invented in the 1880s. We study what drove AT&T to do so, and why it took nearly a century to automate this one function. Interdependencies between call switching and nearly every other activity in AT&T's business presented obstacles: telephone operators were the fulcrum of a complex production system which 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 indicates that individual tasks can present bottlenecks to automation if they interact with many others. We use this evidence to motivate a model of the "integral task".