Tuesday, December 29, 2015

The Great Disruption: From Brawn to Brain (excerpt)

During 2016 and beyond, I will continue to investigate a new long-term theme: “The Great Disruption.” It is increasingly obvious that technology is disrupting business models. That’s what it has always done. It just seems to be doing it faster and in more industries than ever before. For example, previously I discussed how technological innovations are increasingly disrupting the energy and finance industries.

In the past, technology disrupted animal and manual labor. It speeded up activities that were too slow when done by horses, like pulling a plow or a stagecoach. It automated activities that required lots of workers. Assembly lines required fewer workers, and increased their productivity. The focus was on brawn. The Great Disruption is increasingly about technology doing what the brain can do. Today, I extend the analysis of The Great Disruption to the implications of the rise and proliferation of smart machines.

Smart Machines I: LOL or COL? Robots with artificial intelligence are coming. Should we laugh out loud--happy that they will do lots of our dirty work? Or should we cry out loud--fearing that they will take away all of our jobs? Perhaps the most significant disruptive force at the forefront of technological innovation is the meeting of machines and hyper-connected systems, according to a March Wired article. “Smart machines” are the birth child of this powerful combination. There isn’t a single agreed-upon definition for them yet. That’s probably because they are undergoing major development for a multitude of applications. In essence, smart machines are computing systems that are capable of making autonomous decisions, like robots and self-driving cars.

Like smartphones, smart machines are about to penetrate the world in a major way. In 2014, industrial robot sales increased by 29% to the highest level recorded for one year, according to the International Federation of Robotics. We humans can laugh about it or cry about it. Either way, the robot revolution is going to disrupt the way we work. Here are a few compelling reasons why the coming of robots is so important:

(1) Cost of a bot. At least two different types of manufacturing robots can currently be purchased for the cost of about a low-salaried employee. Baxter, the world’s first dual-arm collaborative robot for manufacturing, has a current base price of just $25,000, as listed on the Rethink Robotics website. Foxbots, also used to perform routine manufacturing jobs, cost about $20,000 per year, according to the December 2014 Harvard Business Review (HBR). Still, the fully loaded cost of purchasing and operating a robot varies widely across applications.

Several industries are on the verge of reaching, or have already reached, the point where it’s cheaper to employ robots than humans, according to a BCG note. For example: “A human welder today earns around $25 per hour (including benefits), while the equivalent operating cost per hour for a robot is around $8 when installation, maintenance, and the operating costs of all hardware, software, and peripherals are amortized over a five-year depreciation period. In 15 years, that gap will widen even more dramatically,” the analysts calculate.

(2) Ideal vs. idle workers. “Automation is inevitable. It’s a tool to produce abundance for little effort. We need to start thinking now about what to do when large sections of the population are unemployable through no fault of their own. What to do in a future where, for most jobs, humans need not apply,” said a C.G.P. Grey YouTube video as quoted in a 9/5 Barron’s thought piece. In the same regard, HBR warned that “we will soon be looking at hordes of citizens of zero economic value. Figuring out how to deal with the impacts of this development will be the greatest challenge facing free market economies in this century.”

Robots ultimately may make better employees than humans in a lot of ways. They don’t need to take bio breaks, eat lunch, go home to see their families, or sleep. And you won’t find them making trips to the water cooler, getting involved in office politics, or otherwise losing focus from assigned tasks. They can work anywhere and won’t hesitate to relocate. They can operate in dangerous environments without requiring employers to worry about lawsuits. They won’t care, complain, or get frustrated unless they’re programmed to do so--or learn to on their own.

Seriously, though, companies are sure to reap productivity boosts and labor cost savings from the use of robots and other smart machines, especially as they become smarter and more affordable. On its Q3 earnings call, Amazon executives touted the benefits of using robots over the cost: “[The] capital intensity [of our fulfillment centers using robots] is offset by their density and throughput. So it’s a bit of an investment that has implications for a lot of elements to your cost structure, but … pairing our associates with … robots to do some of the hauling of products within the warehouse has been a great innovation for us. We think it makes the warehouse jobs better and … our warehouses more productive.”

It’s not easy to estimate just how many human jobs will be replaced by robots. A 2014 Gartner presentation indicated that one in three jobs will be taken by smart machines by 2025. According to a lengthy 2013 Oxford paper, around 47% of total US employment is at high risk of automation over the next decade or two. Two high-tech industry pundits writing in HBR recently forecasted that nearly 30% of today’s workforce will be of no economic value by 2025. Forrester’s less extreme projection is that “16% of jobs will disappear due to automation technologies between now and 2025, but … jobs equivalent to 9% of today’s jobs will be created.”

Net, net, lots of jobs will be automated, but new kinds of jobs will be created too. Indeed, an engineering degree may be required for humans to remain competitive in the workforce. Of course, humans are still required to create and enhance robots as well as attend to their ongoing maintenance. Further, creative humans with soft skills unlikely to be matched in the robot world will certainly be more likely to be employable than low-skilled laborers. Before we know it, most humans at least will be required to work alongside robots.

Smart Machines II: They’re Here! As smart machine technology becomes more affordable and more widely adapted, it’s unlikely that any industry or occupation will remain untouched by its transformation. Robot labor has already had a transformational impact on goods-producing industries. More slowly adapting to the use of robot workers are service-related industries. However, many service-oriented fields are on the cusp of rapid transformation based on recent advances in robotic engineering. Let’s take a look at some examples by field.

(1) Manufacturing. Foxconn, the world’s largest contract manufacturer, initially installed 10,000 robots in 2011 and is now doing so at a pace of 30,000 per year. The robots are used to perform routine manufacturing tasks including spraying, welding, and assembly. During the summer of 2013, Foxconn’s CEO said at the company’s annual meeting: “We have over one million [human] workers. In the future we will add one million robotic workers.” (For more on this, see the prior-mentioned HBR article.)

(2) Apparel. Another production example, SoftWear Automation, an Atlanta-based start-up, is changing the way apparel is produced, as discussed in an 11/23 WSJ article. So far, SoftWear’s SewBots can do basic sewing tasks with a few human workers attending to them. Their engineers are working on getting the bots by next year to produce garments from start to finish.

(3) Logistics. In March 2012, Amazon announced its acquisition of Kiva Systems for $775 million. “Amazon has long used automation in its fulfillment centers, and Kiva’s technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow,” according to the press release. Fast-forward to the online retailer’s Q3 earnings call, when Amazon executives said that 30,000 bots were being used in 13 fulfillment centers. That’s double the 15,000 they had in 10 warehouses at the end of 2014. And their intent is to use robots more widely.

(4) Transportation. Previously, we discussed the proliferation of self-driving cars in detail. Recently hitting the roadways of Germany was a test of a semi-autonomous truck. Oh, and, let’s not forget the drones! We have heard a lot about Amazon’s testing of drones for end-to-end product delivery. (By the way, drones have many other applications outside of logistics. See Internet analyst and venture capitalist Mary Meeker’s slide #81-86 and 187-190 for more.)

(5) Restaurants. In a video of a recent Tokyo expo showcase, robots can be seen chopping carrots, mixing ingredients, icing a cake, and wrapping sushi rolls. The clip is titled: “Japan’s chef of the future is a robot.” In the US, the CEO of Panera Bread, a casual dining chain, said on the company’s Q3 earnings call: “Labor is going to go down … as digital utilization goes up, and--like the sun comes up in the morning--it is going to continue to go up … much as you are seeing it happen in Panera today.”

(6) Medicine. The Da Vinci robot is just what the doctor ordered. The four-armed surgeon-operated robot has already transformed the way patients are operated on in a UK hospital, as described in a 5/8 Guardian article. “You can rotate the instruments 360 degrees, so they are more dexterous than the human hand,” said the hospital’s robot coordinator. “We are going into places now that we couldn’t get into before.”

(7) Entertainment. The 12/14 Bloomberg showed a picture of a very creepy-looking robotic baccarat dealer named “Min” at a demonstration in the headquarters of a Chinese entertainment company. Currently, Min can only deal cards, but she’s in the shop to be programmed for interacting with customers. In the near future, robots like Min are expected to be introduced in US casinos.

Smart Machines III: Your New BFF. Indeed, there are certainly many other examples where robots can and will be utilized in the near future. Additionally, lots of new technologies that don’t require physical bots per se are automating jobs in service-related fields like journalism and finance. The point is: The robot revolution isn’t coming, it’s already here--and it’s everywhere! Today’s most impressive humanoid robots possess a variety of soft skills that can be leveraged in a multitude of ways across industries. Here are a few intriguing examples:

(1) Best frenemy. Japan’s Softbank’s cute-young-boy-like robot named “Pepper” demonstrated the ability to identify human emotions on stage at the WSJDLive 2015 conference. Like many of today’s smart machines, Pepper is also able to integrate various developers’ software applications to enhance “his” growing list of useful skills, like taking a selfie, as seen in a 2/15 Japan Times YouTube video.

Not all robots are cute, though. “Russia and China are building highly autonomous killer robots” was the title of a 12/15 Business Insider article. While a robot army may sound like a concept in your favorite science fiction movie, it may soon become a reality. A Russian defense contractor has said it will show prototypes of combat robots within two years, noted the article.

(2) Back to pre-school. Machines are learning the way toddlers do at Berkeley’s technology research hall. There, robots can be found playing with Legos, wooden spoons, model planes, and a set of square and round pegs, recounted Bloomberg in a 9/2 special feature. BRETT, a child-like robot, even takes pauses to think as he discovers the world!

(3) Winning games. Google’s DeepMind AI team has invented a computer that can learn to play and beat humans at video games, as they presented in a 2/26 Nature science journal letter. So robots now are capable of engaging in reinforcement learning, i.e., using cognitive functions to determine how to act in specific environments. In other words, they can program and train themselves.

(4) Walk in the woods. Google’s Boston Dynamics has a robot named “Atlas” that’s mastered the balance and other abilities required to take a stroll through the woods. Though not perfectly nimble yet, Atlas is undergoing training similar to military boot camp. “Researchers kick the robot, throw weights at it or make it walk over rock beds to observe how well it adapts to challenges,” reported the 8/18 NYT.

(5) Hazardous work. The earlier-mentioned Baxter robot has undergone testing in a simulation as lab assistant for Ebola workers, thereby reducing the risk of contagion. PackBots were utilized to search for victims in places where humans couldn’t go at the 9/11 disaster zone. Just last week, the WSJ reported that new robots have been deployed at the scene of Japan’s Fukushima nuclear meltdown to aid in the decontamination process.