Monthly Archives: June 2017

Workplace automation

 The automation of activities

These preliminary findings are based on data for the US labor market. We structured our analysis around roughly 2,000 individual work activities,and assessed the requirements for each of these activities against 18 different capabilities that potentially could be automated (Exhibit 1). Those capabilities range from fine motor skills and navigating in the physical world, to sensing human emotion and producing natural language. We then assessed the “automatability” of those capabilities through the use of current, leading-edge technology, adjusting the level of capability required for occupations where work occurs in unpredictable settings.

The bottom line is that 45 percent of work activities could be automated using already demonstrated technology. If the technologies that process and “understand” natural language were to reach the median level of human performance, an additional 13 percent of work activities in the US economy could be automated. The magnitude of automation potential reflects the speed with which advances in artificial intelligence and its variants, such as machine learning, are challenging our assumptions about what is automatable. It’s no longer the case that only routine, codifiable activities are candidates for automation and that activities requiring “tacit” knowledge or experience that is difficult to translate into task specifications are immune to automation.

In many cases, automation technology can already match, or even exceed, the median level of human performance required. For instance, Narrative Science’s artificial-intelligence system, Quill, analyzes raw data and generates natural language, writing reports in seconds that readers would assume were written by a human author. Amazon’s fleet of Kiva robots is equipped with automation technologies that plan, navigate, and coordinate among individual robots to fulfill warehouse orders roughly four times faster than the company’s previous system. IBM’s Watson can suggest available treatments for specific ailments, drawing on the body of medical research for those diseases.

 The redefinition of jobs and business processes

According to our analysis, fewer than 5 percent of occupations can be entirely automated using current technology. However, about 60 percent of occupations could have 30 percent or more of their constituent activities automated. In other words, automation is likely to change the vast majority of occupations—at least to some degree—which will necessitate significant job redefinition and a transformation of business processes. Mortgage-loan officers, for instance, will spend much less time inspecting and processing rote paperwork and more time reviewing exceptions, which will allow them to process more loans and spend more time advising clients. Similarly, in a world where the diagnosis of many health issues could be effectively automated, an emergency room could combine triage and diagnosis and leave doctors to focus on the most acute or unusual cases while improving accuracy for the most common issues.

As roles and processes get redefined, the economic benefits of automation will extend far beyond labor savings. Particularly in the highest-paid occupations, machines can augment human capabilities to a high degree, and amplify the value of expertise by increasing an individual’s work capacity and freeing the employee to focus on work of higher value. Lawyers are already using text-mining techniques to read through the thousands of documents collected during discovery, and to identify the most relevant ones for deeper review by legal staff. Similarly, sales organizations could use automation to generate leads and identify more likely opportunities for cross-selling and upselling, increasing the time frontline salespeople have for interacting with customers and improving the quality of offers.

The impact on high-wage occupations

Conventional wisdom suggests that low-skill, low-wage activities on the front line are the ones most susceptible to automation. We’re now able to scrutinize this view using the comprehensive database of occupations we created as part of this research effort. It encompasses not only occupations, work activities, capabilities, and their automatability, but also the wages paid for each occupation.

Our work to date suggests that a significant percentage of the activities performed by even those in the highest-paid occupations (for example, financial planners, physicians, and senior executives) can be automated by adapting current technology.7For example, we estimate that activities consuming more than 20 percent of a CEO’s working time could be automated using current technologies. These include analyzing reports and data to inform operational decisions, preparing staff assignments, and reviewing status reports. Conversely, there are many lower-wage occupations such as home health aides, landscapers, and maintenance workers, where only a very small percentage of activities could be automated with technology available today

The future of creativity and meaning

Capabilities such as creativity and sensing emotions are core to the human experience and also difficult to automate. The amount of time that workers spend on activities requiring these capabilities, though, appears to be surprisingly low. Just 4 percent of the work activities across the US economy require creativity at a median human level of performance. Similarly, only 29 percent of work activities require a median human level of performance in sensing emotion.

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While these findings might be lamented as reflecting the impoverished nature of our work lives, they also suggest the potential to generate a greater amount of meaningful work. This could occur as automation replaces more routine or repetitive tasks, allowing employees to focus more on tasks that utilize creativity and emotion. Financial advisors, for example, might spend less time analyzing clients’ financial situations, and more time understanding their needs and explaining creative options. Interior designers could spend less time taking measurements, developing illustrations, and ordering materials, and more time developing innovative design concepts based on clients’ desires.

These interim findings, emphasizing the clarity brought by looking at automation through the lens of work activities as opposed to jobs, are in no way intended to diminish the pressing challenges and risks that must be understood and managed. Clearly, organizations and governments will need new ways of mitigating the human costs, including job losses and economic inequality, associated with the dislocation that takes place as companies separate activities that can be automated from the individuals who currently perform them. Other concerns center on privacy, as automation increases the amount of data collected and dispersed. The quality and safety risks arising from automated processes and offerings also are largely undefined, while the legal and regulatory implications could be enormous. To take one case: who is responsible if a driverless school bus has an accident?

Nor do we yet have a definitive perspective on the likely pace of transformation brought by workplace automation. Critical factors include the speed with which automation technologies are developed, adopted, and adapted, as well as the speed with which organization leaders grapple with the tricky business of redefining processes and roles. These factors may play out differently across industries. Those where automation is mostly software based can expect to capture value much faster and at a far lower cost. (The financial-services sector, where technology can readily manage straight-through transactions and trade processing, is a prime example.) On the other hand, businesses that are capital or hardware intensive, or constrained by heavy safety regulation, will likely see longer lags between initial investment and eventual benefits, and their pace of automation may be slower as a result.


Creating workforce

The promise of the United States. And one of the reasons the country has been able to deliver on that promise is that it has been able to develop the talent it needs to create wealth and to adapt to ever-changing economic realities. But there are concerns that the United States can and should be doing better. This will require policies and actions on many fronts, for example on trade, taxation, regulation, education, and fiscal and monetary policy. In this article, we focus on a single subject: preparing people without college degrees for jobs with promising career paths. The need, for both business and society, is clear.

On the one hand, almost 40 percent of American employers say they cannot find people with the skills they need, even for entry-level jobs. Almost 60 percent complain of lack of preparation, even for entry-level jobs. On the other hand, this “skills gap” represents a massive pool of untapped talent, and it has dire consequences, including economic underperformance, social unrest, and individual despair.

The skills gap takes different forms. In some cases, it is a matter of youth struggling to enter the workforce; in others, it is midcareer learners who have lost their jobs because of factory closings or layoffs, and who now must adapt. Whatever the circumstance, when people are disconnected from the workplace, they often disconnect from other social institutions as well. This is not healthy—neither for those left out nor for the societies in which they live.

Recognizing the importance of this subject, McKinsey has done extensive research on global workforce-development programs and economic strategies.1We have also worked with a number of state, local, and national governments.

So based on our research and experience, we have identified five principles that we believe should be the foundation of workforce-development programs—for funders, participants, and employers

Define geographic assets and identify target professions. To get where they want to go, state and local agencies need to know where they are starting. Even at the local level, economies are complicated.

Independent work

Working nine to five for a single employer bears little resemblance to the way a substantial share of the workforce makes a living today. Millions of people assemble various income streams and work independently, rather than in structured payroll jobs. This is hardly a new phenomenon, yet it has never been well measured in official statistics—and the resulting data gaps prevent a clear view of a large share of labor-market activity

To better understand the independent workforce and what motivates the people who participate in it, the McKinsey Global Institute surveyed some 8,000 respondents across Europe and the United States. We asked about their income in the past 12 months—encompassing primary work, as well as any other income-generating activities—and about their professional satisfaction and aspirations for work in the future.

The resulting report, Independent work: Choice, necessity, and the gig economy, finds that up to 162 million people in Europe and the United States—or 20 to 30 percent of the working-age population—engage in some form of independent work. While demographically diverse, independent workerslargely fit into four segments (exhibit): free agents, who actively choose independent work and derive their primary income from it; casual earners, who use independent work for supplemental income and do so by choice; reluctants, who make their primary living from independent work but would prefer traditional jobs; and the financially strapped, who do supplemental independent work out of necessity

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Those who do independent work by choice (free agents and casual earners) report greater satisfaction with their work lives than those who do it out of necessity (the reluctants and the financially strapped). This finding holds across countries, ages, income brackets, and education levels. Free agents reported higher levels of satisfaction in multiple dimensions of their work lives than those holding traditional jobs by choice, indicating that many people value the nonmonetary aspects of working on their own terms.

Independent work is rapidly evolving as digital platforms create large-scale, efficient marketplaces that facilitate direct and even real-time connections between the customers who need a service performed and the workers willing to provide that service. Today, just 15 percent of the independent workers we surveyed have used a digital platform to find work, but the so-called on-demand economy is growing rapidly.

While this digital transformation unfolds, several other forces could fuel growth in the independent workforce: the stated aspirations of traditional workers who wish to become independent, the large unemployed and inactive populations who want to work, and the increased demand for independent services from both consumers and organizations.

The growing prevalence of independent work could have tangible economic benefits, such as raising labor-force participation, providing opportunities for the unemployed, or even boosting productivity. Consumers and organizations could benefit from the greater availability of services and improved matching that better fulfills their needs. Digital platforms can amplify all these benefits through their larger scale, faster matches, seamless coordination, and richer information signals, enabling trust.

The future of work

The world of work is in a state of flux, which is causing considerable anxiety—and with good reason. There is growing polarization of labor-market opportunities between high- and low-skill jobs, unemployment and underemployment especially among young people, stagnating incomes for a large proportion of households, and income inequality. Migration and its effects on jobs has become a sensitive political issue in many advanced economies. And from Mumbai to Manchester, public debate rages about the future of work and whether there will be enough jobs to gainfully employ everyone.

The development of automation enabled by technologies including robotics and artificial intelligence brings the promise of higher productivity (and with productivity, economic growth), increased efficiencies, safety, and convenience. But these technologies also raise difficult questions about the broader impact of automation on jobs, skills, wages, and the nature of work itself.

Many activities that workers carry out today have the potential to be automated. At the same time, job-matching sites such as LinkedIn and Monster are changing and expanding the way individuals look for work and companies identify and recruit talent. Independent workers are increasingly choosing to offer their services on digital platforms including Upwork, Uber, and Etsy and, in the process, challenging conventional ideas about how and where work is undertaken.

For policy makers, business leaders, and workers themselves, these shifts create considerable uncertainty, alongside the potential benefits. This briefing note aims to provide a fact base on the multiple trends and forces buffeting the world of work drawing on recent research by the McKinsey Global Institute and others

Developments in employment, income, and skills

Challenges in labor markets are growing, household incomes in advanced economies have been stagnating, and there are increasing skill gaps among workers.

 Skills, jobs, and locations do not always match, limiting income-earning opportunities for many

Educational systems have not kept pace with the changing nature of work, resulting in many employers saying they cannot find enough workers with the skills they need. In a McKinsey survey of young people and employers in nine countries, 40 percent of employers said lack of skills was the main reason for entry-level job vacancies. Sixty percent said that new graduates were not adequately prepared for the world of work. There were gaps in technical skills such as STEM subject degrees but also in soft skills such as communication, teamwork, and punctuality. Conversely, even those in work may not be realizing their potential. In a recent global survey of job seekers conducted by LinkedIn, 37 percent of respondents said their current job does not fully utilize their skills or provide enough challenge.

Some of the mismatching is locational: where there is demand for work, there may not be available and qualified workers to be found. This geographic mismatch can be seen across regions within countries, and between countries.

Labor markets are under strain, and talent is underutilized

Unemployment and underemployment are high around the world. In the United States and the 15 core European Union countries (EU-15), there are 285 million adults who are not in the labor force—and at least 100 million of them would like to work more. Some 30 to 45 percent of the working-age population around the world is underutilized—that is, unemployed, inactive, or underemployed. This translates into some 850 million people in the United States, the United Kingdom, Germany, Japan, Brazil, China, and India alone. Most attention is paid to the unemployed portion of this number, and not enough to the underemployed and the inactive portions, which make up the majority of untapped human potential.

Almost 75 million youth are officially unemployed. Women represent one of the largest pools of untapped labor: globally, 655 million fewer women are economically active than men. In a “best-in-region” scenario in which all countries match the rate of improvement in gender gaps (in labor force participation, hours worked, and sector mix of employment) of the best-performing country in their region, $12 trillion more of annual GDP would be realized in 2025, equivalent in size to the current GDP of Japan, Germany, and the United Kingdom combined.