The Experts

What's up?

“One of the tests of leadership is the ability to recognize a problem before it becomes an emergency”. Arnold H. Glasgow.

A McKinsey survey out this week suggested that today’s youth are 3 times more likely to be unemployed than their parents.

Translation – Continued weakness in the labour market, more part time jobs.

My view is that the Industrial Revolution is now the Digital revolution.  

Translation – you cannot cost cut your way to growth on a sustainable basis, sooner or later you run out of costs to cut.  

How Big Data, Cloud Computing and Artificial Intelligence are combining to eliminate jobs and make businesses more efficient. Now, the three technologies are combining to eliminate jobs and make businesses more efficient at an accelerating rate.   

Translation – Deflation, as people continually wait for lower prices as software also replaces jobs, RBA needs to keep it’s powder dry for the future but will look to cut again, their concern is that the liquidity flowing through the world due to ongoing reflation attempts may create bubbles in some asset classes due to liquidity rather than fundamentals.  

Presently, nearly all jobs disappearing pay middle-class wages, ranging from $38,000 to $68,000, according to a recent AP/Washington Post analysis. In the U.S., half of the 7.5 million jobs lost during the Great Recession paid middle-class wages, while the 17 European countries using the euro lost 7.6 million mid-pay jobs from January 2008 through June 2012. Machines and software that can do the work better for a fraction of the cost have likely permanently replaced the vast majority of the lost jobs.

Translation – Governments will continue to stimulate until they see growth pick up, in any economic environment there are still some businesses that do well.  

Advancing technology is poised to steadily move up the pay scale, eliminating more highly skilled workers. Examples are proliferating where big data, cloud computing and AI are boosting profit margins and efficiency, setting the stage for leading technology providers in each sector to have the wind at their backs for decades.

The U.S. unemployment rate continues to hover near 8 per cent, with nearly 40 per cent classified as long-term unemployed, or, in other words, jobless for 27 weeks or more. An additional 5 per cent work part time, but want to work full-time, according to the CIO Journal.   

A growing proportion of persistent unemployment is being attributed to improving technology, with machines and software becoming more powerful, creative and easier to use.

This has made consumers increasingly comfortable relying on it in transacting business, eliminating jobs of bank tellers, ticket agents and checkout cashiers. In the U.S., between 2000 and 2010, over 1.1 million administrative-assistant positions disappeared from the job market, as software let employers field calls themselves and organize meetings and trips.   

The number of telephone operators fell 64 per cent, word processors and typists declined 63 per cent, travel agents dropped 46 per cent, and bookkeepers declined 26 per cent, according to the U.S. Labor Department.

Maarten Goos of the University of Leuven in Belgium calculates two-thirds of the 7.6-million middle-class jobs that disappeared in Europe were due to technology. Big data analytics software is a key enabling technology, because software can sift through data to identify trends faster than humans with greater accuracy.  

For example, Wal-Mart collects 50 million filling cabinets worth of information every hour from its dealings with customers, and a recent Wal-Mart analysis of Twitter traffic led it to increase the amount of “Avengers” merchandise it offered when a new sequel of the superhero movie was released last year. Likewise, Google’s self-driving automobile can only drive by itself by accessing Google’s large collection of maps and analyzing enormous amounts of data from special sensors to negotiate traffic.   

Martin Ford, author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, recently warned: “What is less visible, is that organizations are collecting huge amounts of data about their internal operations and about what their employees are doing.” In his view, computers can use the information to increasingly “figure out how to do a great many jobs” currently done by humans.   

Translation - New world order.

Cloud computing is having a profound impact as well. Five years ago, businesses that needed to track a lot of data would have to install servers at their offices and hire technical staff to operate them. But, now, the information can be stored on the Internet, using services such as Amazon Web Services or Google App Engine, allowing businesses to access the information on demand from multiple devices. The advent of cloud computing is particularly attractive for smaller businesses, which don’t have big technology departments.   

For example, Hilliard’s Beer in Seattle uses cloud software from SAP AG to track sales and inventory, as well as produce required reports for federal regulators. Hilliard’s is consistently finding new applications for the software, most recently using it to track what happens to the kegs it delivers to restaurants, allowing it to retrieve them sooner for reuse. “It automates a lot of the stuff that we do,” says owner Ryan Hilliard. “I know what it takes to run a server. I didn’t want to hire an IT guy.” Similarly, Automated Insights in Durham, N.C. uses cloud software to produce automated sports stories. “We’re able to create over 1,000 pieces of content per second at a very cost-effective rate,” notes founder Robbie Allen. Additionally, artificial intelligence software is increasingly becoming embedded, even in simple devices.   

The Google Now personal assistant can tell you about a traffic jam on your regular route home, suggesting an alternative, while Microsoft has unveiled a system that can translate what you say in English into Mandarin, playing it back in your voice. Companies are using these technologies to streamline operations: Facing a 50 per cent cut in its annual transportation budget, Gary, Indiana’s public school system used sophisticated software to develop new efficient bus routes, enabling it reduce the number of bus drivers from 160 to 80.

Standard Chartered bank in South Korea is expanding its “smart banking” branches that only employ three people and closing traditional branches, which employ an average of eight employees. At “smart banking” branches, customers do most of their banking on computer screens, connecting to specialists located elsewhere by videoconference if needed. So far, the bank has closed a dozen full-service branches, replacing them with smart branches, and expects to open 30 more by yearend.   

A Netherlands furniture-making company only needs four people because it prints the furniture with a 3D printer using plastic recycled from old refrigerators. Prices range from $300 for a chair to $3,000 for a lamp.

Rio Tinto is building the world’s first long haul, heavy-duty driverless train system for $518 million at its Pilbara iron-ore mines in Western Australia. The trains will become operational next year, and are part of Rio Tinto’s “Mine of the Future” program, which includes 150 driverless trucks and automated drills. EBay used its big data analytics expertise from its auction business to analyze every single asset and component of its business to increase efficiency.   

A U.S.-based retail bank uses social-media activities to identify at-risk customers, while an Asian bank analyzes customer-call audio logs to identify insights into their service quality. The methodologies capture firsthand feedback and avoid bias of customer surveys, enabling development of better customer and performance targets.  

Macy’s uses big data to create customer-centric assortments, and analyzes sell- through rates, out-of-stocks and price promotions at the product or SKU level. The approach enables it to generate thousands of scenarios to gauge the probability of selling a particular product at a certain time and place, and optimizing assortments by location, time, and profitability.

Netflix takes all of its customers’ viewing habits and movie ratings, and uses a sophisticated algorithm to generate a 5-star recommendation system tailored for each subscriber.