(FORTUNE Magazine) – I DON'T KNOW WHAT you're talking about, but keep talking,'' said Edson Gaylord, chairman of Ingersoll Milling Machine Co. of Rockford, Illinois. George Hess, his vice president for systems and planning, kept talking. When Hess finished, he had persuaded Gaylord to launch Ingersoll, an extremely competitive machine tool producer, on a complex, risky venture: turning itself into what is becoming known as a computer-integrated business. That was in 1979. Today a lot of CEOs want to do the same. The computer-integrated business is a hot concept. The phrase describes an enterprise whose major functions -- for example, sales, finance, distribution, manufacturing -- exchange operating information quickly and constantly via computer. Product designers can send specifications straight to machines on the factory floor. Salesmen -- or even customers -- can find out which products are in stock and when they can be delivered, and can place orders, which automatically cause new units to be manufactured. Accounting receives on-line all information about sales, purchases, and prices. And high executives can get any of this information, and much more, immediately. The computer system parallels the whole process of producing and selling goods or services and makes it move faster -- much faster. Speed is the compelling reason for computer integration. Old methods of deploying a lot of different computer systems that couldn't talk to each ; other, or could talk only through expensive translation programs, aren't good enough anymore. Says John Rockart, head of the Center for Information Systems Research at MIT's Sloan School: ''The buffers of space, time, people, and inventory are gone, so you have to have the lubrication of information to get the flow going.'' To react fast enough to customers' demands, corporations need a fast, seamless information network throughout the company. For example, Sony aims to use integration to cut the time it takes to make and distribute products from 50 days to 20. It isn't easy. No large company is yet fully computer integrated. One company's network started in manufacturing and then grew to encompass management and sales. Another began on the sales side and is just now reaching into the factories. But even if a system falls short of the scale its planners envisaged, it can still dramatically improve performance. Ingersoll's system, put in place by 1982 at a cost of $5 million and much elaborated since, has helped considerably. While half of America's machine tool companies have folded since the 1970s, Ingersoll's shipments of large tools multiplied tenfold to nearly $500 million last year. The company is just finishing what it believes to be the largest custom-built machine tool ever made, a monster the size of a three-story house to make large turbines and other parts for hydroelectric generators. The customer is Impsa, a maker of hydroelectric equipment in Argentina. Companies much bigger than Ingersoll are following its example. Frito-Lay, PepsiCo's most profitable division, has a new network that joins the hand-held computers used by every one of its 10,000 route salespeople to the office of President Robert Beeby, with connections to area and division offices and to company plants. Saturn Corp., the new General Motors small-car subsidiary, starts off fully computer integrated. Du Pont is committed to tying all its 80 businesses in 50 countries into a uniform information network. The effort will take at least five years, swallowing up about $200 million of Du Pont's $900 million annual spending on information systems. If you're thinking of computer-integrating your operation, brace yourself: It won't be easy. No computer company sells a ready-made integrated system. Because of any large enterprise's vast complexity, each system must be specially created, a fact that provides fertile ground for consultants, business professors, and software and hardware firms. Digital Equipment Corp. not only is turning itself into a computer- integrated enterprise, but is also showing others how to do it. The large Tokyo office of Andersen Consulting (part of Arthur Andersen) works almost entirely on helping clients such as Sony create networks. The job is big enough that pessimistic experts, such as Brandt Allen of the University of Virginia business school, argue that big companies can never integrate themselves completely. Says he: ''The effort is so gargantuan and takes so long that by the time you have finished, everything has changed and the champions of the project have long gone.'' Giant conglomerates probably don't need to be fully integrated: The lawn equipment division doesn't require intimate communication with the life insurance division. In any case, argues MIT's Rockart, ''total integration is not the issue -- integration with the customer is the issue.'' He says that companies with distinct sets of clients might use a separate network for each, rather than try to tie the whole corporation into one giant network. Johnson & Johnson might have a network for hospitals, another for pharmacies, and a third for other retail stores. Competition to give the customer better and faster service will keep up the pressure to put more business on-line. In achieving integration on any scale, the key obstacles are no longer technological; they are in management and organization. ''Integration was inhibited in the past by cost and lack of technology, but that has changed in the past two or three years,'' says David Mengden, director of Du Pont's computing and networking services. Unit computing costs have dropped by a factor of 100,000 in 20 years, and telecommunications costs are falling by 10% to 15% a year. Fiber-optic cables can furnish the vast capacity that companies need when transmitting engineering drawings and other graphic material. Two such cables span the Atlantic, another crosses the Pacific, and two more will reach the Orient in the next two years. So the machines are up to the job. The trouble comes from complicated, sometimes irrational, corporate organizations and procedures. For example, each division in a company often counts sales or profits differently. A computer network can't cope until they are counted the same way. Every process, whether in accounting or design or the CEO's office, needs to be rethought and simplified.

Small companies are easier to integrate than big ones, new companies easier ) than old ones. Lynda Applegate, a Harvard business school professor, says the companies having the hardest time integrating are the large ones that set up massive back-room computer systems in the 1960s and 1970s, such as banks and insurance companies. The systems are obsolete, but replacing them is difficult and costly. It's easier to computerize the operations of a brand-new company or of an existing company that wasn't heavily computerized, like Frito-Lay. Ex-CEO Michael Jordan relates that Frito-Lay decided to reorganize its sales system in the mid-1980s because processing 100,000 sales documents a week by hand had become too cumbersome. Besides that, the business was getting more complex and fragmented. As a national company competing mostly with strong regional companies that are close to their markets, Frito-Lay was handicapped because news of competitive incursions took months to drift up to headquarters in Dallas. Says Jordan: ''We needed instant actuals.'' Frito-Lay anchored its new system to the hand-held Fujitsu computers issued to all its salespeople in 1987 and 1988. The computers are about as big and tough as a long brick. A salesman carries one into the store, punching in the code numbers and quantity of Fritos, Cheetos, Tostitos, and other snacks that need replacing, and the number of ''stales'' he removes because they have reached the end of their 35-day shelf life. When he attaches his hand-held, as Frito-Lay people call it, to a printer in his truck, it spits out an invoice for the day's deliveries to that store, which he hands over with the snacks. At day's end, the 10,000 Frito-Lay salespeople hook their hand-helds to telephones and the sales information pours into the company's IBM 3090 mainframes in Dallas. They pull it all together and then redistribute it in appropriate chunks to the area and division offices; to marketing, purchasing, and transportation offices, and to top management. For salesmen, the hand-helds eliminate four to five hours of paperwork a week. To a division sales manager like Paul Davis in Dallas they mean that every Monday he gets a summary of sales, crisp and clear, on his computer screen. He can break down the sales any way he wants -- by product, type of store, or district -- and he can get the results daily if he wants to follow a critical campaign closely. Bad news shows up in red. Davis recalls that he used to get sales figures six weeks after the fact, in a hard-to-analyze two- foot pile of computer printouts. When Frito-Lay and Von's, a Los Angeles supermarket chain, recently ran a joint promotion, the daily report showed that sales were up, but more important, that some stores in the chain were doing a lot better than others. A quick trip through the chain revealed a big variance in the displays. Then a call to the chain's headquarters -- which didn't know that not all stores were cooperating -- got the laggards revved up. The reaction time was two days. The old Frito-Lay would have noticed a slight increase in Los Angeles sales weeks later, and probably would never have known why the promotion didn't do better. Frito-Lay keeps a product-by-product, store-by-store watch on competitors through its integrated system, although the information comes more slowly. Monthly reports from a market research firm, Information Resources, go into the database with the internal information. Competitors can buy the same information about Frito-Lay, but they can't pass it around the company in the same accessible and friendly graphic fashion. Frito-Lay finds that this use of competitive information has helped persuade store owners to give its products more shelf space. If you can show them that Frito-Lay's snacks move faster or produce a higher margin than the snacks of another brand that is getting bigger displays, says Jordan, you have a powerful argument for winning more space. Integration certainly has produced results. Since 1988 Frito-Lay has added 400 routes without increasing its sales force of 10,000 and pushed revenues up by almost $1 billion, to $4.2 billion. Jordan, now CEO of PepsiCo World Wide Foods, says, ''We couldn't manage the company today without this system.'' PepsiCo's soft-drink division is going to hand-held computers, and the restaurant division is considering a similar network tied to the cash registers. HOW FAST CAN a computer-integrated company move? Take a look at Mayday, a sophisticated $5-million-a-year machine tool shop in Lewisville, Texas. Mayday manufactures bushings, the metal sleeves that protect some moving parts on aircraft, such as the wheel struts. They are often made of exotic metals to fine tolerances. Jim Nelson, Mayday's president, says every company in the business uses the same type of production equipment. ''What we need is time management,'' he says. ''I'm selling time on the machines.'' He began by buying big automated Japanese lathes for the plant. But as the plant became more productive, he realized he needed to computerize the office to process more orders faster to keep up with the machines. Nelson bought some elements of the integrated system, like the bookkeeping software, off the shelf, which helped keep costs down. Others had to be designed by his own programmer. Today, Nelson has an automated system for quoting prices when a customer calls in for an order. When the customer gives his specifications, Nelson's computers can figure the costs of materials and machine time and quote a delivery date and suggested prices within 30 seconds, even if the part has never been made before. If the client places the order, then the system itself sends him a confirmation by fax or mail, or both, and takes other steps to make the product, such as ordering materials and scheduling machine time. As the order flows through the plant, Nelson's computers can report its progress. At the end, the system produces the shipping labels and invoices. MIGHTY DU PONT is far behind Mayday, but the imperatives are the same. Du Pont needs to develop, sell, and deliver products faster to remain competitive. If a Du Pont salesman in West Germany wants to sell O rings to an auto company today, he can look up the parts available in Germany in a catalogue. But when Du Pont becomes computer integrated in the mid-1990s, he will be able to look into a worldwide database and find not only what O rings are available, but also what products are being developed and when they should be ready for delivery. Du Pont has a head start on building its system. Ten years ago the company told all divisions to standardize equipment, using IBM mainframes with Hewlett-Packard and DEC minicomputers. Du Pont also has a worldwide electronic mail network linking 80,000 of its 146,000 employees. And last year it installed an executive information system that supplies some 300 top executives with key numbers and charts that can be updated daily. Over the next five or six years, each of these Du Pont systems will be meshed into a much expanded network with the same basic hardware and software throughout. The system will grow and bend to accommodate new technologies and business needs, says Ray Cairns, vice president for information technology. The effort to simplify and rationalize the corporation to give integration a chance to work has already caused major changes at Du Pont. For example, there used to be more than 40 kinds of distributed control systems corporatewide. They are the computer brains that run continuous processes like refining oil by manipulating valves, sensing pressures, and so forth. Du Pont cut the 40 types to seven and then to two. In contrast to Du Pont, GM's Saturn started with a clean sheet since the division is brand new and was conceived as a computer-integrated enterprise. EDS, the data-processing company that GM acquired from Ross Perot, supplies much of the expertise and equipment to tie all of Saturn into a single database. Michael Reed, the EDS group manager for Saturn, uses the slogan FROM ART TO PART, meaning that the pieces that make up a Saturn car are designed on computers, which tell purchasing, manufacturing, and other departments what they must do for that part to be made and then schedule production. Saturn's system actually goes well beyond art to part. Top suppliers will link electronically with Saturn, so that the orders they get from GM, bills they send, and payments they receive will all move electronically. Once a car is built, a computer record will follow it to the dealer and through its life until it is scrapped, so long as the owners keep going to Saturn dealers anywhere for service. Each service visit or repair will go into the car's record. With this system plus good service at reasonable prices, Saturn hopes to hang on to two-thirds of its customers for regular service and repairs after the warranty period instead of the usual one-third. By tracking sales and customer preferences closely and fine-tuning production, Saturn also hopes to run on slimmer inventories. Says Saturn vice president Donald Hudler: ''Conventional wisdom holds that everybody should have a 60-day supply of cars. We want to operate on a 30- to 45-day supply. Nothing good happens to a car sitting in inventory.'' How well all this will work, of course, remains to be seen. CREATING the computer-integrated corporation remains chancy. How can you put into a computer the subtleties and intricacies of relationships in a big corporation? Even if you succeed, won't you create an overbearing centralized management at a time when business theorists are calling for more decision- making power down the line? Supporters of integration argue that if the new networks give CEOs better knowledge of what even distant managers are doing, the CEOs will feel comfortable allowing the managers a freer hand -- and the managers will have the knowledge to make good decisions. At least, that is the goal. Reaching it is sure to be difficult. But like a number of other elusive goals, just pursuing it can make a company a lot stronger.

CHART: NOT AVAILABLE CREDIT: CHART BY DANIEL PELAVIN HOW TO TRACK A SNACK Frito-Lay salesmen use hand-held computers to print invoices in their trucks and feed sales data to the company's mainframes. They digest the information for management and pass it to other parts of the company.