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5 Lessons from history on AI, automation and employment

History tells us that in the long run, technology is a net creator of jobs. Is this time different? Technology adoption can, and often does, cause significant short-term labour displacement, but history shows that in the longer run, it leads to the creation of a multitude of new jobs and unleashes demand for existing ones, more than offsetting the number of jobs it destroys, even as it raises labour productivity. An examination of the historical record highlights several lessons. Here are five

1 Employment in some sectors can decline sharply, but new jobs created elsewhere absorb those that have been displaced

All advanced economies have experienced profound sectoral shifts in employment, first in agriculture and more recently in manufacturing, even as overall employment has grown. In the United States the agricultural share of total employment declined from 60% in 1850 to less than 5% by 1970, while manufacturing fell from 26% of total US employment in 1960 to below 10% today.

Other countries have experienced even faster declines: one-third of China’s workforce moved out of agriculture between 1990 and 2015.

Throughout these large shifts of workers across occupations and sectors, overall employment as a share of the population has continued to grow. New industries and occupations have emerged to absorb workers displaced by technology.

History shows that technology has created large employment and sector shifts, but also creates new jobs.

2  Employment shifts can be painful

Even if enough new jobs have been created to offset those displaced by technology, the shifts can have painful consequences for some workers. During the Industrial Revolution in England, average real wages stagnated for decades, even as productivity rose. Eventually, wage growth caught up to and then surpassed productivity growth. But the transition period was difficult for individual workers and eased only after substantial policy reforms.

3  Technology creates more jobs than it destroys, including some you can’t imagine at the outset

New technologies have spurred the creation of many more jobs than they destroyed, and some of the new jobs will be in occupations that cannot be envisioned at the outset. One study found that 0,56% of new jobs in the United States each year are in new occupations.

Most jobs created by technology are outside the technology-producing sector itself. It is estimated that the introduction of the personal computer, for instance, has enabled the creation of 15,8 million net new jobs in the United States since 1980, even after accounting for jobs displaced. About 90% of these are in occupations that use the PC in other industries, such as call-centre representatives, financial analysts and inventory managers.

History shows that technology has creates new jobs

4  Technology raises productivity growth, which in turn boosts demand and creates jobs

Robust aggregate demand and economic growth are essential for job creation. New technologies have raised productivity growth, enabling companies to lower prices for consumers, pay higher wages and distribute profits to shareholders. This stimulates demand across the economy, boosting job creation. Rising productivity is usually accompanied by employment growth: it raises incomes, which are then spent, creating demand for goods and services across the economy.

5  We all work less and play more thanks to technology

Over the long term, productivity growth enabled by technology has reduced the average hours worked per week and allowed people to enjoy more leisure time. Across advanced economies, the length of the average workweek has fallen by nearly 50% since the early 1900s, reflecting shorter working hours, more paid days off for personal time and vacations, and the recent rise of part-time work. This growth in leisure has led to the creation of new industries, from golf to video games to home improvement.

Although the historical record is largely comforting, some people worry that automation today will be more disruptive than in the past. Could it be different? Or will the historical precedent hold? The current view is that the answer depends on the time horizon considered (decades or centuries) and on the pace of future technological progress and adoption.

On many dimensions, we find similarities between the scope and effects of automation today compared with earlier waves of technology disruption, going back to the Industrial Revolution. However, automation going forward might prove to be more disruptive than in recent decades – and on par with the most rapid changes in the past – in two ways. First, if technological advances continue apace and are adopted rapidly, the rate of worker displacement could be faster. Second, if many sectors adopt automation simultaneously, the percentage of the workforce affected by it could be higher.

In short, history is quite reassuring about the impact of technology on employment. While for some workers new technology can be highly disruptive, in the long run, if the past is any indication, creation will triumph over destruction.

AUTHORS l Susan Lund is a partner of the McKinsey Global Institute, where James Manyika is chairman and a director

© 2018 McKinsey & Company Online. This article was originally published by McKinsey & Company, http://www.mckinsey.com

The urgency of shaping the Fourth Industrial Revolution

In the 47 years since I founded the World Economic Forum, I have witnessed first-hand that when we change the way we talk, we begin to think differently too. Likewise, changing the way we think leads to changes in the way we act. This is true for all of us – whether you are a private citizen at home or making consequential decisions as a head of government, the language we use and the way we think about the world shapes our subsequent behavior

The shift in attitudes and approaches toward shaping the environment agenda over the last decade is quite a good example of this. When, in 2005, the World Economic Forum began to advance cross-sector dialogue and highlight the potential for public-private cooperation to help meet pressing global environmental challenges, such as climate change and water security, there was an absence of substantive collaboration among influential stakeholders on these sorts of issues. People tended to talk about and act on environmental challenges in quite separate ways, depending if they were working in government, business or civil society organisations, for example.

Today, though much work remains to be done, a decade of significant public-private engagement involving all types of stakeholders, has shaped a new, more collaborative agenda for action, such that business leaders, civil society heads and policy-makers talk, think and act about the need to protect Earth’s biosphere in quite a different way than 10 years ago. Indeed, in 2015, nations of the world – after a collaborative design process − agreed that the 17th Sustainable Development Goal itself be entirely focused on advancing global partnerships for the environment and sustainable development.

It’s therefore extremely gratifying to see that, since the publication of my 2016 book The Fourth Industrial Revolution, we have started to change the way we talk about technology and its impact on the world. More and more people are becoming aware of the power of emerging technologies to transform our economies, our societies and even who we are as human beings. Discussions in the media are now often concerned with questions of ethics, values and the social impact of new technologies. It’s common now to ask how artificial intelligence might be used to influence us, whether cryptocurrencies are more effective for promoting social inclusion or criminal activity or to worry about what kind of skills we need to develop in order to thrive in an era where technologies are both more pervasive and more powerful. The term ‘The Fourth Industrial Revolution’ has become common parlance, conveying the magnitude of the changes underway.

The challenge, however, is that we don’t have a decade to slowly shift mindsets before moving to act on the challenges surfaced by the Fourth Industrial Revolution. The speed, scale and scope of change that is underway today, coupled with the fact that entrepreneurs, companies and policy-makers are already creating rules, norms, techniques and infrastructure around new technologies, means that in 10 years it will be too late. The structure of new technologies will be more or less set, and the perspectives and values of those who created them will be firmly embedded within the many technologies that surround us and which have become part of us.

Our understanding of previous industrial revolutions is that, while they create huge wealth and opportunity, they also create significant harm: many people miss out on the benefits entirely, and it is most often those populations with the least voice or power who bear the negative consequences. It is therefore not good enough for us to leave the evolution of our technological future to chance, or to trust that market forces will create the future we want. Instead, we need to talk, think and act today.

That’s the motivation behind my new book, Shaping the Fourth Industrial Revolution. It seeks to expedite the way we understand, discuss and make decisions around emerging technologies. It outlines the most important dynamics of today’s technological revolution, highlights important stakeholders that are often overlooked in our discussion of the latest scientific breakthroughs, and draws upon more than 200 leading global thinkers to explore 12 different technology areas crucial to the future of humanity.

Thinking and acting round the Fourth Industrial Revolution demands a new type of leadership – an approach we call ‘systems leadership’. Systems leadership in this context doesn’t just mean leading on the design of the technologies themselves but also acting as a leader on how they are governed and the values they exhibit in how they affect people from all backgrounds.

New ways of thinking and acting are required from all stakeholders, including individuals, business executives, social influencers and policy-makers. But the different power and roles of stakeholders means there are different opportunities for governments, businesses and individuals to grasp today.

The most urgent task facing governments is to open the space for new approaches to technology governance. In particular, governments need to adopt the concept of ‘agile governance’ of technologies, matching the nimbleness, fluidity, flexibility and adaptiveness of the technologies themselves and the private-sector actors adopting them. This means thinking not just about what new rules might be needed but finding entirely new ways to create and update rules over time in collaboration with other sectors.

For businesses, the most important strategy is to experiment more, while simultaneously investing in people. The Fourth Industrial Revolution is still in its early stages, and the potential of new technologies is far from fully understood. However, we can anticipate some of the revolution’s dynamics, including the fact that disruption more and more often emanates from the periphery of industries and organisations. Only by directly experimenting with technologies can organisations see for themselves what they can do. Given that experimentation is best done by those closest to a business, this also means making concerted efforts to upskill employees and embracing an entrepreneurial mindset.

Finally, for citizens, the most important action is to be engaged on these issues, making their voices heard as voters, consumers, employees, members of civil society organisations and community leaders. Those of us lucky enough to be alive today have a responsibility to future generations to ensure they can live and find meaning in a sustainable, inclusive, technologically-driven future.

We should, therefore, all be part of building aspirational visions of the future, influencing how technologies are developed and adopted. As we change the way we talk, we change the way we think and create new opportunities to act. Let’s act, together, now, to make those aspirational visions of the future real for as many people as possible, all around the world.

AUTHOR l Klaus Schwab is the founder and Executive Chairman of the World Economic Forum, Geneva

© 2018 Word Economic Forum. This article was originally published by Word Economic Forum, http://www.weforum.org

Cloud technology and SME success

In South Africa, small businesses employ the most workers and contribute the most to GDP. Their prosperity directly corresponds to the country’s. But they are only as good as their tools – and cloud technology is an increasingly important tool. Here’s why

Chances are the rise of cloud computing probably hasn’t escaped your notice. Software as a Service application allows you to sign in from any connected device with no data loss and superior scalability; Platform as a Service tools enable you to develop applications easily; Infrastructure as a Service removes the need to invest in hardware – freeing up resources and space for the business. We’re entering an age where cloud technology is no longer optional, but essential.

Xero’s 2018 Technology Adoption Report highlights this. It reveals that 44% are already using cloud tools and enjoying a great number of benefits. Some 70% say they’re using this technology to save time – claiming that overall, they claw back more than 10 hours a week. When you have 10 hours a week more than your competitors, you have more time to prepare, focus on important tasks, and develop your strategy across crucial areas.

A further 52% go even further, claiming that cloud technology helps them save money. This obviously makes a serious difference to businesses in terms of having a deeper pool of resources, but it also puts a company in a better position when it comes to scaling up – and allows it to demonstrate a healthier cash flow to investors, partners, and shareholders.

Indeed, cloud technology has a prominent part to play in the future of South African small business economy: overall, 58% of businesses say it features in their business plans for 2018.

Enhancing efficiency

Small businesses are particularly attracted by the opportunity to improve or eliminate time-consuming administrative tasks and processes. Overall, 49% have said that cloud automation has boosted their overall efficiency – particularly when it comes to tasks such as pursuing invoices and getting paid on time. The advent of apps such as GoCardless, eWay and Stripe has brought concepts such as ‘smart payments’ (triggered when money arrives in your customer’s account) to the fore. These tools require far less involvement from the business, and facilitate faster transactions, greater security, and healthy, reliable cash flow.

But the availability of real-time data has been especially important for these respondents. Being able to access business-critical information from anywhere, and on any device, has made collaborating with colleagues and extracting insights much easier: some 38% have even suggested that it improves business continuity.

Democratising data in the worldwide workplace

In 2018, you don’t have to be big to benefit from big data. The information that was once the exclusive domain of larger providers are now available to a much wider corporate audience. Thanks to cloud technology, quality, breadth, depth, and availability of data are improving quickly, and costs are falling at the same time – democratising insights in an affordable, easy-to-consume way.

For instance, Spotlight Reporting allows CFOs and accountants to supply truly globalised reports, forecasts, and more to business owners in whatever regions an organisation operates in. This means that wherever your team is, it’s singing from the same hymn book.

Indeed, a crucial benefit of cloud technology is the way it transcends geographical borders. The early days of a business – where finding office space to lease or buy – can be the most challenging. Every penny you spend is a penny that could be spent elsewhere, but it’s equally important that your office is in a location that’s accessible to your employees, attractive to your clientele, and conducive to effective collaboration.

While you’re searching for your perfect workplace, many employees will prefer to work remotely – and indeed, consultants such as accountants (who work across multiple clients) may prefer to do so long after you’ve settled into your new space. Some 33% of survey respondents are especially pleased that cloud technology has facilitated remote working – allowing anyone, from anywhere, to access the information they need to discharge their job duties.

Connectivity issues

That said, the onward march of cloud technology is not quite as fast as it could be. Many small businesses concede that their existing setup isn’t quite up to scratch. Overall, 63% believe that reviewing their IT infrastructure is a high or medium priority, and 45% acknowledge that they could be doing more in terms of tech adoption. Of our respondents, 52% claim they’re just keeping up.

Though many have made great efforts to integrate cloud tools into their everyday working experience, there is clearly still work to do. Certainly, there are barriers that they can’t overcome on their own: the lack of connectivity is a problem for 41% of South African businesses, and if you’re outside a major city, poor Internet service can hamper even the most determined attempts to introduce new technology to your company. The Government needs to provide incentives to drive adoption in 2018 to improve economic performance.

Nonetheless, one of the principal advantages of the cloud is that it extends connectivity beyond the workplace. The faster you adopt, the faster you’ll benefit.

Reluctance to embrace new technologies is understandable. Upgrading processes, software, and infrastructure can take time, effort, and money – and in a struggling economy, all three are precious resources. But clinging on to the systems and tools of yesteryear is worse. The longer it takes to make technology a priority, the wider the competitive gap between you and your nearest rivals. To embrace the cloud is to embrace profit, productivity, and growth.

AUTHOR l Colin Timmis, Head of Accounting South Africa, Xero

Operating your business in the cloud

As ethereal as cloud computing sounds, it simply refers to an external server where you store data. It’s essentially a hard drive on which you lease space. Cloud computing has improved over the past several years and has extended to storage space, software as a service (SaaS) and infrastructure as a service (IaaS)

Deciphering cloud services

With some of the world’s most prominent tech companies rolling out cloud services, cloud computing has become all the rage. Yet confusion about what the cloud is and how it works seems to be growing, not diminishing. It is not just consumers who are puzzled; many business owners, corporate professionals and even some IT people do not fully comprehend this nebulous concept. So, what exactly do companies and techies mean when they refer to the cloud? Let’s shed some light on the cloud and cloud services to help you navigate the bewildering tech talk.

Tackling the cloud

The cloud is nothing more than a metaphor for the Internet, or more literally, the vast array of storage servers around the globe that comprise it. When a file is stored in the cloud, this simply means the file resides on one of those servers and can be accessed through an Internet connection. Cloud applications, such as web-based email, work in the same way; you access the application through a web browser or app on an internet-connected device. Applications and files in the cloud differ from local ones, which are saved locally on a computer hard drive.

What is a cloud-based service?

In the broadest sense, cloud-based services can be any type of web service or application that lives in the cloud and is accessed online. For instance, Google’s Gmail is a cloud-based service, as is Facebook. Both sites are vastly different in purpose but are cloud-based services because of how they operate: you access the service, and the files you save through them, via the Internet.

Differentiating cloud services and service providers

It seems that everyone has a slightly different definition of what a cloud service is and what it should provide. While not all cloud services are created equal, they do provide the same basic functionality. Cloud services provide computing as a service rather than a product, essentially giving you your own personal hard drive in the cloud, or online. You can upload and store your files on the provider’s servers, via an Internet connection, rather than locally on your own computer or another storage device.

There are numerous advantages to using a cloud service. Most appealing is the fact that you can access any of your stored files, photos, music, Word documents and more from any Internet connection on a computer or handheld device. This gives you convenient access to your files no matter where you are. It also ensures you’ll never lose your files if your local hard drive is damaged or stolen.

Truth be told, the cloud is simple and there’s a good chance you are already using some type of cloud-based service. How you utilise the cloud moving forward is highly dependent on your habits and the types of digital content you most frequently use. Regardless, a solid understanding of what the cloud is and how it works will help you stay ahead of the curve when it comes to this revolutionary technology.

An increasing number of businesses are using business intelligence (BI) solutions to spot trends, identify risks and find new opportunities. Using such tools enables your business to transform dense company data into easily digestible insights and make informed decisions to help you maintain a competitive edge. According to a study by IBM and MIT Sloan Management Review, organisations that achieve a competitive advantage with data analytics and business intelligence are 2,2 times more likely to substantially outperform those industry peers who do not use these technologies.

It is rare to find a business today that sticks to strict 9:00 to 5:00 operations. The most successful businesses have become much more fluid, using cloud and mobile technology to broaden their reach and compete within the market. These businesses often need to communicate and share information with customers, partners and suppliers in different time zones and different countries and continents. Cloud storage synchronises information across different devices, allowing you and your colleagues or business partners to view the latest version of a file no matter where you are working or what device you are using. When you use cloud-based productivity and collaboration tools, you can stay on the same page with distant partners and offsite employees, as all can see the most up-to-date content. The cloud also provides high-level security and privacy while ensuring the access control you need.

From an IT professional’s perspective, operating a data centre in the cloud has important benefits as well. For one, all the hardware management tasks are performed by the cloud provider. Your servers, switches and storage arrays all become virtual versions of themselves running on pooled hardware managed by a third party. If a server in a provider’s data centre tips over, for example, it is the responsibility of the cloud service provider to seamlessly move your workloads to other hardware – without downtime on your end. That is the goal and, while they’re not perfect at it, reputable providers all boast upwards of 99% uptime.

AUTHOR l Adrian Vaglietti, AV Management Consulting

Industry ripe for disruption

The purpose of insurance – to protect people from financial loss – remains, but the latest technology innovations are set to change the way the market works for the benefit of customers. Incumbent insurers need to embrace change and transform, or they may not be in business for much longer

Th first insurance company was established in the year following the Great Fire of London in 1667. It’s a business model that has changed little since then, but a variety of breakthrough technologies are set to spur a fundamental transformation of the insurance industry. That’s according to a report by The Institute of International Finance, Innovation in insurance: how technology is changing the industry.

According to the report, cloud computing, the Internet of Things (IoT), advanced analytics, telematics, the global positioning system (GPS), mobile phones, digital platforms, drones, blockchain, smart contracts, and artificial intelligence (AI) are providing new ways to measure, control, and price risk, engage with customers, reduce cost, improve efficiency, and expand insurability.

Jaqueline van Eeden, insurance head of IT services company Wipro in South Africa, says a change of internal structure and mindset is required to effect digital change in an industry that is typically process driven and caught up in legacy infrastructure, siloed data, process-oriented red-tape, and a traditional mindset.

‘New technologies are enabling the creation of new insurance products, services, and business models,’ Van Eeden says. ‘These emerging technologies present opportunities for traditional insurers to modernise and reinvent themselves. Importantly, it is also forcing traditional players to respond to new sources of competition from well-funded and agile software companies. As fast as entrepreneurs have been coming up with ideas for insurance technology, investors have been rushing to fund them.’

It’s not hard to see why. Traditional venture capitalists see insurance – with its large, well-established incumbents and well-worn products – as fertile territory for disruption. As a result, disruptors are beginning to make inroads in the market by focusing on unmet consumer demand, bringing down cost, and providing new products and services.

Research by Accenture indicates that rather than viewing these emerging players as threats, innovative insurers recognise exciting new opportunities to work with insurtech start-ups to reach into new markets. With their expertise in technologies, such as AI, IoT, blockchain, big data and analytics, insurtechs represent potential solutions for the kinds of challenges insurers are facing in this increasingly digitised and competitive space.

‘The challenge for traditional insurers lies in how to best take advantage of the opportunity that insurtechs offer to leverage cutting-edge technologies to reach their customers online, through mobile, and 24/7,’ Van Eeden says. ‘The other advantage is that partnering with smaller, nimble start-ups helps to foster a culture of innovation for existing insurers. The partnership set-up enables insurance companies to focus on what they do best, insurance, and insurance technology companies to empower insurance companies to drive digital disruption.’

The rise of the Consumer Age has introduced new insurance requirements from customers who are looking for improved service, lower cost and faster processing times, Van Eeden adds. ‘Today’s customer also demands multiple interaction options, flexible insurance products and far more transparency than ever before. Customers are less concerned about products and more interested in “what’s in it for me?” Millennial consumers in particular demand less human interaction, ease of transacting, the flexibility of transacting how they choose to, and everything instant.’

Van Eeden cautions that an ‘adapt or die approach to innovation is essential and extends well beyond tweaking existing systems. ‘Decades-old legacy IT systems the biggest obstacle to digital transformation. Not only are these systems expensive to maintain, but they have also become more and more complex as newer solutions have been bolted on over time, layer upon layer. In the South African context, insurance companies that are keen to innovate have been hamstrung by what they see as the costs of innovation, but the reality is that it’s becoming more expensive to service and maintain legacy systems than it is to innovate. In fact, the industry as a whole is lagging as a result of the focus on keeping systems running instead of replacing them with newer and better technology.’

Digital technology, which has been successfully embraced by the retail banking industry, offers endless possibilities to engage with customers regularly and sell more policies. Among the most interesting new developments is wearable technology which can be used in health insurance, with fitness bands monitoring policyholders’ health. Vehicle insurers meanwhile can embed devices in cars to reward drivers for safe driving. However, these digital technologies require systems that are linked from the front, through the middle to the back offices, and that’s where the barriers lie.

AUTHOR l Monique Verduyn

Illustrations Liézel Els