Today’s future-of-work discussions often center around the changes that new frontier technologies will bring to the labor market. With these shifts, however, comes a demand for new skills and key changes to the structure of the ‘typical’ work environment. Dr. Jacques Bughin, Senior Advisor at Fortino Capital, discusses the changing labor market and the economic, technological, and social challenges of the future as they apply to those entering the workforce.
This year’s NRI theme focuses on “digital natives”, those who have grown up under the ubiquitous influence of the Internet and other modern information technologies. In your view, what are some of the implications of growing up in the digital age?
JB: General purpose technology (GPT), like today’s digital technologies that can be exploited in every use case, in every sector, and in every country, has always radically changed the socio-economic fabric of our world. Think about how electricity helped drive the industrial revolution and ushered countries into an era of significant productivity growth that helped the take-off of wealth and well-being of much of the world’s population. But it also created a pattern of work, where people moved from the home and agriculture to factories. This led to a radical change in workdays, the rise of management and unions, the rollout of paid vacations, or a new education system from just elementary school to high school and beyond, so that people would learn new processing skills for this new era.
Digital technologies are doing the same thing. There has been a wide-ranging debate about whether digital technology is powerful enough to bring about the same changes seen in the industrial revolution. The debate has been started in particular by Professor Gordon, who has argued that it is not. The evidence runs counter to this view: digital technologies are demonstrating a major shift in productivity, and in some ways of greater magnitude than previous GPTs. In recent work I conducted with AccentureResearch, we took an in-depth look at how large global companies such as Reliance, Dassault, Toyota, HSBC, and many others are moving to a new AI factory model that relies on effective technology architecture powered by data and algorithms to manage their operations. We are seeing an emerging mass of companies that are really scaling this new model and demonstrating very high productivity, of an order of magnitude that we have never seen with IT alone. So digital, especially reinforced by new, advanced technologies, will make the difference.
This difference will be accompanied by many socio-economic changes. First, the nature of work will shift to creative and analytical tasks, companies will adapt their boundaries and expand across industry ecosystems, and work for home will be a core component of labor, in addition to the gig economy. We see as well how digitization is reaching the last mile, with services like Amazon Prime, Uber and others; we witness how influencers can really shape people decisions in sectors like fashion and luxury good, we see as well how social media can lead to more social involvement, but also contributes to a bifurcation between the extremes in society, etc.
Thus, digitization is really going to change a lot of behavior and the social fabric of our society. This will only expand along the power and absorption of frontier technologies.
In your view, how have the skills demanded by the labor market evolved in recent years? What must be done by educators, governments, and other stakeholders to ensure that the talent produced by educational institutions reflects the necessary mix of knowledge, technical skills, and social competences?
JB: The adoption of new frontier tech, like Artificial intelligence has indeed led to dire warnings that these technologies might replace a large part of jobs. Backing up this fear of a “workless future.”, some studies such as by Frey and Osborne (2013) had calculated that above half of all US jobs were at risk of being automated. John Maynard Keynes wrote his essay Economic Possibilities of our Grandchildren, predicting that by 2030, the “most pressing problem in developed economies would be how to fill our leisure time.” But looking outside this extremist view, more realistic research highlights that jobs are often correlated with strong productive innovation, as innovation pushes growth faster than technology displaces jobs.
The catch here is that technologies must bring fundamental, and not “ so-so” innovations, and for this to happen, we need the right complementary skills to make the innovation pursued by the market, or if this is a social innovation, by the public authorities.
Viewing jobs as a bundle of tasks, not only are a large part of tasks too complex to be handled by the current state of smart algorithms, but others require complementary human talents in the form of more creative, social and engineering skills. Those findings are not terribly new. In an article with Nobel Prize winner Chris Pissarides, we both had conjectured that the most important employment challenges will be the skill uplift associated with the diffusion of smart technologies.
Thus, skill is of critical importance—and today, most education systems, whether developing or developed, are no longer pushing on the skill set required for the new revolution. Remember that AI will displace jobs, first in developed countries, where companies are more digitally savvy and the workforce is expensive– thus Europe and US are in the first line.
During the industrial revolution, the education system was totally revamped, mandating that people go to school up to 16 or 18 years old, and universities opened their doors to a much larger set of students. Companies started to conduct their own on site training, and countries invented apprenticeship at scale. We are to rebuild the same vision for the next revolution. The bad news is that the education revolution often takes a decade to unfold, while the needs are now. The good news is that digital is starting to offer many online platforms for building skills. Wearing my hat of VC Advisor at Fortino, we are investing rather a lot in the ed tech sector, through companies such as Berlin based Peers and Belgian based Mobietrain or still TechWolf. Those companies are building online AI based platforms for skill building and matching that democratize learning inclusively. The ed tech sector will be a core component of this revolution, and as digital apps, they would easily invade the developed countries, allowing them to catch up on this education revolution.
While the skills demanded by the labor market are evolving, today’s young talent is also playing a role in shaping new ways of working and organizing, and distinguishing itself and its values economically, socially, and politically from its predecessors. Which players are in the best position to attract and develop today’s young talent?
JB: Before giving a straight answer, let’s first look at what the future may bring in challenging current labor market orthodoxies. In work with Susan Lund at the McKinsey Institute, we had pinpointed a few key changes. The first is that work might shift from well-defined occupations to project-based work. Organizations hire most people for well-defined jobs, but the more tech-driven the world becomes, the more jobs will be done on-demand and project-based. In this environment, the organization of the future will likely externalize talents more and play on project based than what they do today. This fits to the young culture, more inclined to work when they want, rather than continuously.
The second change will be the shift towards independent work. Especially digital savvy and young people who hold traditional jobs have told us in various research that they prefer to be independent workers, with greater autonomy and control over their hours. Those people often will rely on the gig economy, not only for basic tasks, like driving through Uber and Deliveroo, but for engineering tasks on TopCoder.
The best companies are also those that look at real time credentials rather than background and past academic credentials. Many companies are not understanding that for their purpose, academic credentials are a poor marker of worker success, and what matters in skill/will at the moment. Also, online communities will matter more than firms and other institutions such as unions in the long term. For example, the US Freelancers Union does not do the job of representing the workers for wage negotiations and right protection; its members benefit from networking events and online discussion forums, as well as group-insurance rates.
Finally, work will be less shaped by a company’s future than its ecosystem. Apple’s based mobile platform hosts millions of applications that created millions of jobs; likewise SMBS on eBay have been five times more able to export their product services internationally than other SMBs in the US.
Those dynamics (platform based, real time skill based, online community based, project based, etc) implies that the nature of work is changing dramatically and that companies that will reap the best returns to digitization will be those that embrace those new labor changes so as to fully integrate smart human and smart machines into a new operating model for success.
Digital natives like Google and others are already investing dramatically in those human resources management changes- as are some other incumbent firms. I believe that those pioneers are right to shape the future of work for good.
Dr. Jacques Bughin is a senior advisor to Fortino Capital, a VC firm specializing in B2B Saas, the CEO and owner of MachaonAdvisory, and a venture partner at Antler. He is currently teaching business strategy at Solvay Business School and serves as a member of the Portulans Institute Board of Advisors. Dr. Bughin was a director in McKinsey’s Brussels office and supported clients in their Media and Entertainment, Corporate Finance, and Strategy Practices, in addition to co-leading the Digital Economy Initiative. He also acted as director of the McKinsey Global Institute (MGI), the firm’s business and economics research arm. He worked for McKinsey for 28 years. Dr. Bughin received a PhD in economics, operations research, and strategy from Université Catholique de Louvain in Belgium.