Algorithms suggest devastating productivity hikes

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Disruptive technologyThe fact that robots, computers and machines will replace humans in work is probably true.

It’s not going to happen tomorrow and it won’t happen suddenly. But there’s huge evidence across all sectors that it is happening slowly right now.

So we can speculate that some final state, in which there is no concept of work, will occur maybe a hundred years from now.

That is of course, complete speculation. It might happen sooner!

It is critical though, that every manager thinks about how technological advance in tools for aiding human work will change in the coming five to ten years.

In that time period, the key artefact of technological progress will be the algorithm.

The Algorithm

Humans process information. Then they act on that information. An algorithm is a process. It’s a process for taking in information, thinking about it and delivering it in a useable form that can then be acted on. Let’s take some examples.

  • A software engineer in a firm that designs and sells tools for architects takes in a product manager’s requirements for a new architectural design application. She merges those requirements with what she knows about solutions and the various regulations and norms. She then writes a program that enables an architect, using a computer, to prepare a drawing for a new house.
  • That architect takes in a client’s requirements. He then manipulates that information in the computer program along with a huge body of knowledge about style, materials and planning rules and building regulations to produce a drawing of something to be built.
  • The builder reads the architect’s drawings and, considering the existing built environment, launches a process that orders material and merges various material together, in approaches defined by a body of knowledge and a host of regulations, to yield a new dwelling or extension.
  • And an accountant learns the way in which the builder wants to treat the various assets and charges associated with this and several builds, and then takes in a host of receipts and bills to generate a trial balance and ultimately a trading account. That trading account is useful to the builder’s management and informs management decisions.

The important thing about each of these is that human activity processes information from multiple sources to inform a decision and generate intention to act. Given a will, that intention translates to an activity. There is an input of creativity and originality but in essence each is a rules-based process. That creativity and originality is, in some processes, substantial but in others it’s minimal. The rules of the processes are learned at school, in an apprenticeship, at university and with experience. Humans then become skilled at running rules-based processes – they become skilled at running algorithms. Work becomes automated.

Enter Automation

Algorithms Suggest Devastating Productivity HikesAn algorithm runs in each of these jobs – software engineer, architect, builder and accountant. In the simplest case, the algorithm is run entirely in the worker’s brain. But as robots, computers and machines become more intelligent and dexterous, and as jobs become more and more complex, the algorithm will run in both the human and in the robot, computer or machine. Ultimately, at some time in the distant future, the human won’t be part of the process – they’ll be redundant.

Within the process of change, the algorithm can also be transferred to others.

Take the algorithm used in converting the drawings into a building. Traditionally the builder would use discrete materials in his or her process. But there’s nothing to say that part of the algorithm could not be transferred to a factory where walls and roof are prefabricated by a prefabricating algorithm. That then modifies what’s left for the builder to do on-site. The builder’s algorithm has been modified, simplifying the builder’s job.

Opportunity and Demise

Now, in simplifying the builder’s job, there are two possible outcomes: the builder’s job is de-skilled or, alternatively, it is enriched and up-skilled. He could simply regress to become a low skill installer. Alternatively he could rejoice that the least interesting and least demanding part of his job has been automated and he can now build many more houses with greatly increased quality. The builder could even integrate the architect’s activities within the building business allowing the builder to discuss requirements with the client, place orders on the factory and then manage the implementation, thereby making the architect redundant.

Changes in algorithms provide opportunity for some and demise for others.

So what drives the algorithm’s effectiveness and scope – and hence what drives the role that the human has in each process? The answer is the capitalist system that we all engage with. Every manager seeks greater effectiveness on behalf of his or her principal or shareholder. Greater effectiveness drives greater profit.

Benefits and Blights of Automation

If the software engineer can draw a diagram and compile the code in a few minutes, they can develop more tools in a day. And if the architect can input a high-level sketch of the agreed client requirements and print a drawing in minutes, they can do more drawings in a given time. The production of each item becomes more efficient but the added value and price per item drop.

The discussion about what happens if the added value reduces is huge and beyond the scope of this blog – because it suggests an ever reducing price of goods. If demand rises, all is well, but if in the long-term demand stays the same, that gives the economy a problem. And those engaged in on-site services will be plagued with long journey times and short periods on site. Where the on-site period is billable but travel not, the viability of such businesses is threatened. There are many examples of the disturbance that technology will bring.

In the short term let’s assume that all other things are equal and higher efficiency means more turnover and profit. In essence, the more effective the algorithm, the greater the turnover and profits that each firm in the chain will enjoy. And those who invest in the various firms in the chain will enjoy greater return on their investment.

The management of each firm is therefore striving for the optimum algorithm for their business. And in the short term, all firms benefit.

Algorithms Suggest Devastating Productivity Hikes

Technology is the generic name for robots, computers and machines. And technology and people are a duality. Any process can have less of one and more of the other. Technology is defined by its function – what it enables its human user to do. We’ve already seen that this leverage of human function is on the rise. And humans are defined by their competencies and behaviours.

The issue for the manager is the speed of that rise – the degree of change from mostly human aided by little technology to little human aided by substantial technology. It’s the speed of that change that puts pressure on the manager to adjust his firm to optimise competitive advantage considering prevailing technology.

So an algorithm is a process. Today, that algorithm in most firms is run mainly in humans aided by robots, computers and machines. Tomorrow it will be a different balance of the two.

Understanding algorithms and the rate of change of the balance between technology and human workers is key to achieving competitive advantage and key to developing a sustainable business.

This rate of change over time will vary by industry. In accounting for example, new applications like Xero’s algorithms suggest devastating productivity hikes over the coming few years, de-skilling routine accounts production on the one hand, whilst demanding up-skilling for interpretation on the other.

If you’d like to understand how to manage the advances of technology and it’s effect on your workforce, call us now. If you’d like to hear more, come along to the March of Technology seminar.

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