by Craig Roth | January 27, 2017 | Comments Off on How Organizations Will Spend the Windfall from Automation
Here is today’s math word problem:
Ollie’s Ostrich Burger has 10 (non-managerial) employees per restaurant. A new robot is introduced that can get the same work done with only 5 employees. How many employees will each Ollie’s restaurant have after installing the robots? Show your work.
Did you say 10-5=5?
That is how most articles I see these days are doing the math. But I’d like to see them show their work, because I see so many more potential answers.
The first point to make is that there are multiple answers. Many articles and casual conversations I’ve had on this issue imply there are no options – that it is obvious the owners will fire half their workers and buy bigger yachts with the extra profits.
My second point is that all the answers are valid possibilities. That’s why you have to show your work. How did you consider factors unique to each situation, such as asymmetric information between a business and its customers, pricing elasticity, desire for short term growth vs profit, competitive pressures, and the relative power of management, employees (through unions), customers, and government?
Here are some potential ways of solving this equation and their implications on stakeholders:
- Run with 5 employees and get a big bump in profit.
- Execs and investors win!
- Run with 5 employees and cut prices for customers
- Customers win! Those Ostrich Burgers are now $1 less, and so are the soft serve shakes with the labor intensive mixins.
- Run with 5 employees and offer more expensive ingredients for the same price
- Customers win! Ollie’s upgrades from frozen ostrich and fries to “never frozen” ostrich and fresh cut potatoes for the same price. Their tastier offerings will surely win market share in the competitive “flightless fowl fast food” (FFFF) market
- Run with 5 employees and open a second restaurant with the other 5 employees. Growth (measured by coverage and total revenue) increases.
- Management wins by increasing the size of their empire and getting more profit, customers win by having a new convenient location, and employees may win since there are some extra opportunities to move up to management.
- Run with 10 employees but less weekly hours per employee and some more idle time to avoid union or government penalties for laying off employees
- Employees that wanted more free time with proportionally less income will be happy. Unions may be happy as they are more powerful for protecting those jobs.
- Run with 10 employees and the same prices for improved selection or product. Offer menu items that are more time consuming, but are better.
- Customers win! Those who might like the new line of Ostrich Tacos and Burritos (which weren’t offered before since they require more prep work) are happy. And fresh buns, now baked daily in each location, use up the free time the employees now have to produce a better product.
At this point you are probably thinking of all the factors I left out. “What if it’s a combination of these options so you wind up with 8?”, “what about the cost of the automation relative to workers?”, “what about corporate social responsibility (CSR) impacts?”, “what about subsequent changes in competition, technology, etc?” Right! There are a huge number of factors that get in the way of solving this equation as “10-5=5”.
When I look at that complexity I think that while the true answer is “I don’t know for sure”, it probably won’t =5 or =10, but somewhere inbetween.
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