Digitalization & Automation

Digitalization, automation and the massive introduction of artificial intelligence is impacting the job market and changing the very nature of work itself. All of this will be greatly enabled by the introduction of 5G and even faster telecommunications platforms. 

Digitalization in its broadest sense is the process of using computers and digital telecommunications networks to do just about anything that lends itself to their use. The impact of using digital technology can alter the fundamental economics of many businesses with enormous consequences.

Automation is the replacement of human labor by machines and this has been going on since the dawn of the industrial revolution. According to Martin Ford, what is different this time is the speed of the advancements in a range of technologies collectively known as manufacturing 4.0. This includes robotics, additive manufacturing or 3-D printing, autonomously driven vehicles, etc.

Artificial intelligence is the use of data analysis and mathematics to tease out useful insight from enormous amounts of data and to be able to do things as result of that insight. Innovations such as natural language recognition and simultaneous translation are also driven by AI technology.

One of things that is driving the digital revolution is the plethora of data now available and the even larger amounts of data which is on its way as more and more devices and activities are connected to each other. The internet of things (IOT) is about adding the capability to store and transmit data to most objects through advanced sensors and electronics creating a web of information potentially connecting most of the our civilization.

  • Conceptual frameworks

One way of looking at the digital revolution is given by my colleagues on the IESE faculty Sandra Sieber and Evgeny Kaganer. The term they use is to look at the digital density of a given space and place or in other words how far has the digital revolution gone in that aspect of human activity.

The idea is to think about what the impact on a specific activity will be when digital density reaches 100% or close to it. Essentially, this means that everything that can be digitized has been and that the full power of automation, connectivity, and artificial intelligence have come into play.

The music industry, for example, was one of the first to experience profound transformation due to the digitalization of music and the repercussions of that are still playing out. You might say that its digital density is high.

Cars and trucks have also become more digital but still have a long way to go in terms of mass acceptance of self driving cars and connected cars.

In their work with managers they typically focus on the tasks that need to be done by customers and then think about how digital technology, automation and AI can help perform those tasks.

Oxford University’s Carl Frey and Michael Osborne also looked at the tasks that need to be done. Their approach is to break down a specific activity into the degree to which it requires perception and manipulation; creative intelligence; and social intelligence on the one hand and then the value of the task performed on the other.

Machines have been getting better at perception and manipulation but still lag far behind people in many activities. How many times have we seen the simple tests to determine that we are not a robot when recovering a password, for example. The idea is that the more complex the task, the longer it will take for a machine to be able to do it.

Creative and social intelligence are areas where even the best deep learning algorithms have been unable to make too much progress in recent years. There is, in fact, a danger, that expert systems and other algorithms will assume the bias that has been in the data they are suing perpetuating racist and sexist policies over time.

  • Implications

Digitalization and automation are already having an impact on space, role and place and these impacts are likely to increase over the next 10-20 years. Industries with a particularly high degree of digital density such as the music business have already gone through profound transformation.

What brought about the transformation of the music industry was the introduction of technology that allowed people to share music and the proliferation of web sites such as Naptser in June 1999 which made such sharing easy.

The essential logic of the music business for many years was that the costs of producing, manufacturing and distributing recorded music was very high and thus the record companies played a critical role. The companies would find talented musicians, sign them to a contract and then produce and distribute their music in exchange for the lion’s share of the profits.

Individuals who wanted to listen to the music would have to buy the record or compact disc from which the record company would recoup their investment. Pop stars would occasionally go on tour to promote their music and encourage their fans to buy the albums.

Although Napster was shut down in 2001, people learned that music could essentially be free of charge or only cost 99 cents a song on a platform such as iTunes. As things progressed this model gave way to Spotify and other streaming services which fundamentally changed the economics of the business.

Today artists can produce themselves and put their music into the world at relatively low cost. The different players in the industry make very little money from producing music and now the streaming serves as a mechanism to get people to come other concerts where real money can be made.

While the music space has been already transformed by digitalization, other parts of the economy or spaces will follow suit over time.

In terms of role, digital technology has the potential to eliminate a number of roles such as drivers in a world of self-driving vehicles and also to change the way many roles are carried out.

One scenario is that jobs will largely involve human interaction with robots and software systems in a collaborative way. Another is that all types of jobs and professions at the high end of the economic scale will enjoy more longevity as wealthier people will pay more money for a human touch.

While there are many voices expressing concern over the impact on people’s livelihoods and the social fabric of society as a result of digitalization, others believe that we need automation to compensate for falling birthrates in the advanced economies.

In any case what is clear is that there will be a profound impact on many people’s roles as the transformation makes its way from industry to industry in different parts of the world. 

In another work, The Technology Trap, Carl Frey, insists that these changes will be as dramatic to a number of current roles as earlier technological improvements were to professions such as gas lighters, elevator operators and the people who once manned the telephone switchboards.

In his prescient book published in 2001, The Future of Success, Robert Reich believes that the best jobs would go to the geeks and the shrinks as he called them which are the people who will build the digital future and the product managers and marketing types who will figure out business models to make the new ideas economically viable.

Digitalization is also having an enormous impact on place as a number of cities around the United States and the world are emerging as technological hubs and others are falling far behind. 

Enrico Moratti goes deeper into the inequalities in The New Geography of Jobs and finds stark differences in wealth and even life expectancy between people living in the emerging tech hubs and others in communities which have been left behind. 

In his book, Who’s Your City? Richard Florida describes a spikey world where wealth and innovation are increasingly concentrated in mega cities and hubs. In his research he has found that people in such places have more to do with others in similar situations, wherever they are located, than with people in other communities in their own countries.

The point that both authors make is that life in the tech hubs will be different for all of the residents regardless of whether their roles are directly related to new technology or if they fulfill other services such as working in the public or services sector.