The latest Avengers movie, “The Age of Ultron”, has the media thinking about robots. Of course, it’s not just Ultron. Everyone’s favorite Killbot, the T-800, AKA Terminator, AKA Arnold Schwarzenegger, is back from the future to take one last shot at conquering the box office. And then there’s nearly nightly news on real life drone strikes in the Middle East. We can see on the nightly news that our military is trying it’s best to imitate art as it replaces soldiers with… well… robots that… umm… shoot and kill political targets. Suddenly, robots everywhere in the journals of the Corporate 500’s… the New York Times, Harvard Business Review, Forbes, and McKinsey (the world’s largest consulting firm)… are all writing about the impact of the new generation of robots. I do want to logic behind legally sanctioned Killbots, but not today. Rather than the robot apocalypse, today we will examine the only slightly less frightening topic… will robots steal our jobs?
There are two camps of thought on robots in the workplace. First, we have the palpable fear that when robots combine with Artificial Intelligence (A.I.), human employment will be decimated. Extremists in this school (tech luminaries such as Elon Musk, Bill Gates and Steve Hawking) fear that robots learn and improve so quickly, they will soon surpass human intelligence, take over the world and possibly wipe out humanity. The other school of thought has a calmer message. Yes, there will be changes and displacement, but if robots and super intelligent A.I.’s work together with humans, we can create a golden age of productivity and innovation. The merger of technology and humanity may cure all diseases, allow us to colonize the stars and perhaps conquer death.
It’s too soon to organize resistance cells for the robot revolution, but, “co-operate and everything will be OK”, doesn’t sound right either. There’s nothing wrong with technology cooperation, but that’s a last-gen scenario. Knowledge workers have been cooperating with ever advancing technology for decades. Industrial workers have been cooperating with technology for much longer, for at least all of the last century. Perhaps, if we examine the last technology revolution we can tell us something about coming changes in the corporate workforce.
A Bit of History: Peter Drucker was one of the most influential management theorists of the 20th Century. Drucker’s concepts heavily influenced U.S. manufacturing, and launched quality management in Japan in the 1980s, when they dominated international manufacturing. A 1991 report from Drucker showed that the effective use of technology and management techniques increased 20th century worker productivity by 45 times. That is absolutely staggering! However, in professional services corporations (accounting, legal, consulting, finance, etc.), the same increases in productivity were not seen. Why? Because professional service corporations did not apply “scientific management” to the degree that a factory would.
We easily forget how rapidly our environment changes, the things we buy improve in quality, features, and price. In 1950, a 12” Black and White Philco brand TV cost $499 ($5,000 in 2015 dollars). Today, you can buy a lot of TV for $500 or $5,000: MASSIVE screen size, color, HD, digital recording, streaming media, stereo sound, etc. Most of these options would have been unobtainable in 1950, at any price. Or you could watch free TV via an app on your smartphone. This concept of “A lot more for a lot less”, doesn’t apply to the bills from your lawyer, or any other professional service. Yet, professional service firms have invested heavily in computers, software, and automation… just like factories and agriculture. Computers have their own rules of efficiency. This most important of which is Moore’s law. This states that the cost of a computer drops by half every couple of years. But the efficiency given by decades of technology investment has not driven down prices. Where is the “missing” efficiency?
The biggest cost for professional corporations, is the cost of professional compensation. In an investment bank, compensation is half of all costs, with compensation for the most senior member rising dramatically over the last few decades. So long as these positions exist, they will remain high cost. Strangely, while professional service firms apply all sorts of productivity and cost controls through their procurement department, similar controls are not applied to professionals, especially the most expensive professionals. That’s not the say that there are no costs controls for personnel, staff: reports on time per project or per client fills out an expense form, etc. However, the level of control this provides over their primary cost is about the same as the time cards used in factories at the turn of the 20th Century. A very expensive resource, a multi-million dollar lawyer or banker, can assign themselves to projects and usually doesn’t fill out a timesheet. In a factory, a multi-million dollar piece of equipment requires numerous approvals before it can be used. True, a professional is not a machine, but your bottom line does not care if your underutilized resource is an A.I. or an analyst.
High compensation, poor tracking, and ineffectively defined processes keep expensive professional services, expensive. A law firm and a car factory are not the same, but they share many of the same characteristics. They both have many people with the same titles performing similar or identical work, generating “value” for the work they process. The most important difference may be that in a car factory, the “focus” of the organization is the car, but in the law firm, the focus is the lawyer.
Law firm automation focuses on augmenting lawyer capabilities and developing junior lawyers into higher paid senior lawyers. The “law factory” splits it’s efforts into producing completed cases, and creating senior lawyer, adding both costs to client billing. Publications such as The America Lawyer provide critical statistics on lawyer compensation, new lawyer graduates, lawyers per firm, etc. These are lawyer specific numbers. The auto industry produces statistics on cars: what they cost, features, mileage, expected years on the road, etc. When the focus of the firm is the products, become just one element of the product. That’s when the work can be experimented with and new types of resources substituted. That’s when innovation, including automation and outsourcing, happen and where production costs drop dramatically.
As corporate America transitioned from the 20th to the 21st century, outsourcing and automation migrated from manufacturing to the corporate workplace. Outsourcing mainly impacted support services, but the line between support and professional services moved. Outsourcing was sometimes problematic, and automation often did not go far enough or was not robust enough, but it got better, and the line moved again. Malcolm Gladwell’s book, “The Tipping Point,” tells us that things don’t suddenly happen. Rather, change happens slowly for a long time until a point is reached where change happens very quickly. That’s the tipping point. A period of rapid change. The latest generation of robots and A.I.s are the results of years of slow progress. Now they are approaching that tipping point where new robots will move quickly and deeply into manufacturing, agriculture AND the corporation. Take the capabilities of robots, add the economic pressure of a growing economy and mix in the pressure for higher wages after years of flat compensation, and we have a formula for a revolution in the workplace. But that revolution won’t’ come from HR, it will come from the procurement department. And that’s the game changer.
Outsourcing Drives Robotics: Consider how China has dealt with its labor market issues. Back in the 1970’s, it was clear that the population of China didn’t align with their economic plan. Too many people, too few jobs, not enough industrial development. China instituted a one-child policy in 1981, to align population growth with reasonable economic growth, and preserve political stability. Globalization and open international trade were just taking hold in the U.S. and Europe, allowing China to target manufacturing outsourcing as the driver for the tens of millions of new jobs they needed every year. Economic stability would guarantee political stability. China would give away land, mineral resources, electricity and anything else needed to build the world’s largest portfolio of outsourcing programs. While each outsourcer individually needs profitable contracts, overall China put jobs ahead of profitability. At least in the early years.
China did become the premier outsourced manufacturing location in the world, progressing from low-end manufacturing to eventually building the most sophisticated products in the world. Along the way, China began shifting its focus from Chinese workers to the Chinese Brand, and national prestige. Foxconn, LG, China Construction Bank, Alibaba are some of the biggest, best known and highly rated companies in the world. China’s perception of itself has changed. In an underdeveloped China, everyone did whatever was necessary to survive. But as the world’s biggest economy, the workers of China want their share of the prosperity.
For years there have been massive strikes and protests (up to 500 a day in 2012) that received little coverage in the US and Europe. More recent protests that endangered the production of the iPhone, went viral and focused attention on the working conditions and pay in China. A shocked world watched as workers receive huge pay increases, instead of lifetime prison sentences. The next transition of the Chinese economy, a working class that can buy its own products, had finally arrived! Unfortunately, this is not quite a happy ending.
Remember the one child policy? Three decades later, China has a labor shortage. A tight labor market plus pay increases has made China the “higher cost” outsourcing location. Chinese factory workers are paid 3,500 Yuan (the currency of China) a month, compared to 900 yuan in Vietnam, and 600 yuan in Cambodia. China has started outsourcing to nearby countries to take advantage of the lower cost, but China’s labor needs could easily flood the market and drive up costs. China’s solution is to massively invest in robots, displacing millions of works in the next few years. Obviously, the focus for China has moved from the workers. We can expect robots to initially be used strategically to catch up with the backlog of work, but they also need to bring down their costs to match other outsourcers. Once they do that, they will have redefined the market and make many other jobs suitable for robotic replacement.
Robot Plan, In China and Beyond: In order for their economic plans to work, China has to put more robots on-line than all of the other countries in the world combined. Today, the total world production of industrial robots is about 200,000 annually. China buys 25% of that production and expects to buy over 50% in the next couple of years. In addition to these numbers, China will build its own robots, many exclusively for internal production. China has set out some notable milestones.
- China is a preferred low-cost outsourcing site, mostly due to cheap labor. A high-tech Chinese factory has far less mechanization or automation than a US or European factory. New outsourcing clients are very aware that more mechanized factories can reduce their cost of production more quickly than a similar program in China.
- China has 30 robots for every 10,000 manufacturing workers. South Korea is the leader in robotics, with 437 per 10,000 industrial workers. China claims it will meet South Korea’s robot density, which would require adding 4.4 million robots.
- China predicts that their first fully automated factory will be on-line by 2020. That seems reasonable. Japan’s first automated factory went on-line in 2001, and can operate for up to a month without human intervention. Likewise, Siemens AG in Germany has a fully robotic electronics factory. Even Mexico has a full robotic brewery.
- Foxconn, with 1.3 million workers, pledged in 2011 to have a million robots on its assembly line by the end of 2015. While they missed this goal, this plan would have replaced 75% of their staff in just 4 years.
- Instead, by early 2015 Foxconn had just 50,000 robots in production. Clearly, Foxconn assumed that more robots would be available (only 200,000 industrial robots annually), and they would be more capable. More realistic estimates say that by 2017 all of China (not just Foxconn) will have a robot population of 500,000. Remember, one robot usually replaces MANY workers, meaning that millions of Chinese workers will be replaced in the next two years.
- To speed up China’s robot revolution, Foxconn started to manufacture robots for its own use. Foxconn’s new “Foxbots” started to arrive at the start of 2015, and will start with at least 10s of thousands of robots a year.
- Other nations have been listening to China’s plans. The European Commission launched what is so far the world’s largest robotic research and innovation program, SPARC.
Whatever the specific number, it is clear that China robotic ambitions will vastly increase the number of robots in the world, which will drive down their cost and expand their capabilities. Even if the rest of the world stopped buying robots, China alone could drive the next stage in automation. China’s investments alone will evolve robotic capabilities. In just a few years, virtually every factory in the world COULD be automated. That includes management functions and decision making. Factory managers have worked in corporate environments. Therefore, the A.I. that manages the factory can take over some positions in the corporate world, with minimal re-training. Once the software is re-trained, it can be rolled out into corporations as quickly as installing a new browser on your computer. The speed of transition to fully robotic factories (and initial corporate work) will be faster than the last transition, to global outsourcing.
Robot with Benefits, or Robot Apocalypse?: Robots may herald in a new golden age, where difficult, dangerous and even boring work is no longer handled by human beings, freeing everyone to pursue the jobs that provide the greatest satisfaction. That golden age may eventually happen, but the next few years are going to introduce very disruptive events into the workplace. These changes are not just driven by robotics. Outsourcing will magnify the impact of robots in the workplace. Changes in population, both in the number of people and in the locations where they will live, adds more complexity to the robot revolution. Even the 21st Century’s other major issue, Global Climate Change, is sure to have a hand in the coming labor market changes, as both flooded cities and regions without water force workers to move, and disrupt manufacturing.
China’s robot revolution has focused on manufacturing, so far. This may be the final stage of the industrial revolution, as mainstream manufacturing ceases to employ human beings. By 2020, working prototypes of all types of automated factories will be rolled out around the world. Global manufacturing outsourcing piloted in the 1970s when Ford built car radios in Brazil. By 2010, outsourcing was fully integrated with manufacturing and corporate support services. Based on that speed of implementation, it is reasonable to assume that 20-30 after these new pilots (2040-2050), robots will be the new global norm in factories and all but the top corporate positions.
Will professional jobs be safe from takeover until the end of the century? Will more education protect our jobs? Which types of employment will be safe from robots? There are answers to these questions, but it’s going to take a lot more space than we have here. In fact, it’s going to take a new series, a Robotic Review, to answer these questions. The robot revolution is on, and we can expect robots to completely take over some areas of employment. But there are still some very surprising things events that will happen, and major changes that no one has predicted. So, stay on the front lines of the robot revolution and keep reading this blog! And that’s my Niccolls worth for today!