During 2016 and beyond, I will continue to investigate a new long-term theme: “The Great Disruption.” It is increasingly obvious that technology is disrupting business models.
That’s what it has always done. It just seems to be doing it faster and in more industries than ever before. For example, previously I discussed how technological innovations are increasingly disrupting the energy and finance industries.
In the past, technology disrupted animal and manual labor. It sped up activities that were too slow when done by horses, like pulling a plow or a stagecoach. It automated activities that required lots of workers. Assembly lines required fewer workers, and increased their productivity. The focus was on brawn. The Great Disruption is increasingly about technology doing what the brain can do. Today, I extend the analysis of The Great Disruption to the implications of the rise and proliferation of smart machines.
Smart Machines: LOL or COL?
Robots with artificial intelligence are coming. Should we laugh out loud — happy that they will do lots of our dirty work? Or should we cry out loud — fearing that they will take away all of our jobs? Perhaps the most significant disruptive force at the forefront of technological innovation is the meeting of machines and hyper-connected systems, according to a March Wired article. “Smart machines” are the birth child of this powerful combination. There isn’t a single agreed-upon definition for them yet. That’s probably because they are undergoing major development for a multitude of applications. In essence, smart machines are computing systems that are capable of making autonomous decisions, like robots and self-driving cars.
Like smartphones, smart machines are about to penetrate the world in a major way. In 2014, industrial robot sales increased by 29% to the highest level recorded for one year, according to the International Federation of Robotics. We humans can laugh about it or cry about it. Either way, the robot revolution is going to disrupt the way we work.
Here are a few compelling reasons why the coming of robots is so important:
(1) Cost of a bot.
At least two different types of manufacturing robots can currently be purchased for the cost of about a low-salaried employee. Baxter, the world’s first dual-arm collaborative robot for manufacturing, has a current base price of just $25,000, as listed on the Rethink Robotics website. Foxbots, also used to perform routine manufacturing jobs, cost about $20,000 per year, according to the December 2014 Harvard Business Review (HBR). Still, the fully loaded cost of purchasing and operating a robot varies widely across applications.
Several industries are on the verge of reaching, or have already reached, the point where it’s cheaper to employ robots than humans, according to a BCG note. For example: “A human welder today earns around $25 per hour (including benefits), while the equivalent operating cost per hour for a robot is around $8 when installation, maintenance, and the operating costs of all hardware, software, and peripherals are amortized over a five-year depreciation period. In 15 years, that gap will widen even more dramatically,” the analysts calculate.
(2) Ideal vs. idle workers.
“Automation is inevitable. It’s a tool to produce abundance for little effort. We need to start thinking now about what to do when large sections of the population are unemployable through no fault of their own. What to do in a future where, for most jobs, humans need not apply,” said a C.G.P. Grey YouTube video as quoted in a 9/5 Barron’s thought piece. In the same regard, HBR warned that “we will soon be looking at hordes of citizens of zero economic value. Figuring out how to deal with the impacts of this development will be the greatest challenge facing free market economies in this century.”
Robots ultimately may make better employees than humans in a lot of ways. They don’t need to take bio breaks, eat lunch, go home to see their families, or sleep. And you won’t find them making trips to the water cooler, getting involved in office politics, or otherwise losing focus from assigned tasks. They can work anywhere and won’t hesitate to relocate. They can operate in dangerous environments without requiring employers to worry about lawsuits. They won’t care, complain, or get frustrated unless they’re programmed to do so — or learn to on their own.
Seriously, though, companies are sure to reap productivity boosts and labor cost savings from the use of robots and other smart machines, especially as they become smarter and more affordable. On its Q3 earnings call, Amazon executives touted the benefits of using robots over the cost: “[The] capital intensity [of our fulfillment centers using robots] is offset by their density and throughput. So it’s a bit of an investment that has implications for a lot of elements to your cost structure, but … pairing our associates with … robots to do some of the hauling of products within the warehouse has been a great innovation for us. We think it makes the warehouse jobs better and … our warehouses more productive.”
It’s not easy to estimate just how many human jobs will be replaced by robots. A 2014 Gartner presentation indicated that one in three jobs will be taken by smart machines by 2025. According to a lengthy 2013 Oxford paper, around 47% of total US employment is at high risk of automation over the next decade or two. Two high-tech industry pundits writing in HBR recently forecasted that nearly 30% of today’s workforce will be of no economic value by 2025. Forrester’s less extreme projection is that “16% of jobs will disappear due to automation technologies between now and 2025, but … jobs equivalent to 9% of today’s jobs will be created.”
Net, net, lots of jobs will be automated, but new kinds of jobs will be created too. Indeed, an engineering degree may be required for humans to remain competitive in the workforce. Of course, humans are still required to create and enhance robots as well as attend to their ongoing maintenance.
Further, creative humans with soft skills unlikely to be matched in the robot world will certainly be more likely to be employable than low-skilled laborers. Before we know it, most humans at least will be required to work alongside robots.
Dr. Ed Yardeni
is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.
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