How Will My Workforce Be Impacted by the Digital Economy?
It is a question that all CEOs must ask themselves as innovation, technology, automation, and globalization redefine the very nature of employment. The world economy revolves around people having jobs and supporting their families. However, at the current pace of change, employees at all levels of the organization are wondering whether they will have jobs tomorrow. It’s an issue that company leaders need to deal with today.
Consider some of the highly disruptive changes we have already seen in major industries around the world: Facebook is the largest media company but creates no content of its own. Some of the largest software vendors, like Google and Apple, don’t build the apps that they sell. Companies like Uber, Airbnb, Skype, and Netflix have become, respectively, the largest taxi, accommodation, telco, and movie providers in the world without owning any taxis, hotels, telco infrastructure, or movie theaters.
And the disruption won’t end anytime soon. By 2027, 75% of the companies in the S&P 500 will be companies that are not in the index today.1 By 2030, 10% of the largest companies in the United States will be virtual corporations with less than 10% of their workers working in an office at any given time.2
While companies need to prepare for the future, it is also important that they act on the changes occurring right now. According to IDC, “By the end of 2016, 65% of large enterprises will have committed to become information-based companies, shifting the organizational focus to relationships, people, and intangible capital.” Additionally, “By 2020, 60% of the G2000 will have doubled their productivity by digitally transforming many processes from human-based to software-based delivery.”3 If your enterprise is not on the path to doubling productivity in the next four years, you will be significantly behind your competitors.
Underpinning all this change is the digital economy, which is defined as the digital connection of people, companies, devices, processes, and systems across all areas of the global economy. As everything and everyone becomes digitally connected, this hyperconnectivity will enable the rise of a new workforce, which includes artificial intelligence (AI), robots, and drones. These digital “employees” will force us to rethink our traditional management and workforce constructs and to develop a new vision for how a successful company operates.
Meanwhile, the digitization of the workforce is creating adverse effects, including an economy that is increasingly insecure and reliant on contingent workers; a declining market for manufacturing jobs; a new generation with vastly different expectations for their work life; and technologies that break the traditional aspects of geographical, managerial, and organizational structures. Success will be defined by how we as companies adapt to these changes when we learn, interact, motivate, engage, connect, and create value for employees as well as for the society around us.
In the Digital Era, There Is No Knowledge, Only Data
The driving factor for competitive advantage in the future is data. Some 200 billion devices will be connected in 2020 through the Internet of Things.4 By creating in excess of 507 trillion gigabytes of data each year,5 digitization has the potential to strain our ability to derive meaning and value from this data deluge. Yet companies must learn how to manage it. In the digital era, data is becoming the critical foundation for decision making, edging out personal knowledge as a prime competitive differentiator.
As impressive as we might consider our collective human knowledge, it cannot match Big Data’s ability to gather the kind of instant insight required to stay competitive in the marketplace today. This leaves us in the uncharted territory of a hyperconnected world in which successful businesses, executives, and employees need to rely fully on data-driven insights to run their businesses.
A Hyperconnected World Is Driving the Rise of the Digital Worker
This need for data, combined with hyperconnectivity, leads us to a new era, where Peter Drucker’s “knowledge worker” has given way to the “digital worker.” The traditional premise of the knowledge worker who gathers, processes, and moves data around while spending valuable time creating reports is clearly ending as increases in computing power and data analysis speed force companies to move to predictive- and scenario -based decision making.
The digital worker is defined by the ability to have actionable, live data available at anytime and anywhere, which enables live reactions and decisions (see Figure 1). Because of the new levels of speed and insight gained by digital workers, they have time to take on new responsibilities in the organization and become critical resources in decision making, learning, productivity, and overall management of companies. For executives, time that would previously have been spent micromanaging organizational and knowledge management processes can now be devoted to more valuable activities, such as innovation.
The shift to data-driven decision making could not come at a better time for executives. Their environment is becoming increasingly complex, with more stakeholders to consult as well as more diverse and more demanding responsibilities to manage. Meanwhile, they are dealing with geographically dispersed teams and have even less time with their direct reports. While data-driven insights and real-time decision making will dramatically change the day-to-day schedules of executive leaders in terms of decreased time spent on analysis, administrative processing, and decision making, the ability to effectively manage these new realities in the digitized world is what will make the leaders of the future stand out.
For companies, the goal is to move from a state of continuous, real-time information gathering to a state of “Live Business,” in which not only is information real time but the organizational structures, business and decision-making processes, and resource allocations are in essence liquid and able to shift in the moment, based on the needs of customers. As a result, the future of work requires companies to react in the moment. However, the ability to do so is determined by a company’s ability to redefine its business processes to become more flexible, sensitive, responsive, and predictive.
The rise of the digital worker is a differentiating factor in the shift to Live Business because companies gain insight into both internal and external processes. Consider a company of digital workers that is not only able to predict and respond to ever-changing internal workforce needs but can also identify real-time external threats to the business that can impact production, marketing, sales, or service. Based on these instant insights, companies can adapt strategic options related to hiring and firing, resource allocation, and budgeting to meet the need.
One of the most significant and unique benefits of Live Business, from a future-of-work perspective, is the ability to enable and empower the entire organization to play an active role in managing the overall business. If the employees on the floor are able to actively discover issues, optimize processes, and improve output on the fly, significant amounts of time are freed up for innovation, the search for competitive advantages, and increasing customer satisfaction.
Not all employees will benefit from the increased speed and productivity of digitization. Certain job categories are increasingly at risk, which leaves a need for training and reeducating whole job groups toward more digitally native job roles. Automation of certain roles is inevitable and the impact on affected industries will be felt hard by current employees.
A 2013 study by Oxford University and Deloitte researchers found that roughly 35% of jobs in the United Kingdom and 47% of jobs in the United States are at high risk of being automated over the next 20 years.6 Typically, jobs roles that require negotiation, physical assistance or health care, a high level of social intelligence, or the generation of original ideas are more likely to remain in demand. Workers employed as legal secretaries, telemarketers, bookkeepers, bank tellers, post office clerks, receptionists, and taxi drivers, and those in lower-level manufacturing jobs are more at risk for automation.
A recent Deloitte study showed that 13% of respondents plan to increase automation through robotic process automation over the next year, while 56% of finance functions in the United Kingdom could be automated.7 Elsewhere, 505 factories in China have already invested ¥ 4.2 billion (US$640 million) in robots to replace over 30,000 workers, with one of these factories aiming to reduce its current 1,800-person workforce by as much as 90%.8
Whether automation and robotization hit taxi drivers, factory workers, finance functions, or bank tellers, the impact in those fields will be significant and will deeply affect people who have held those jobs for many years or aren’t in a position to upskill or reeducate themselves for new challenges.
For others, however, new opportunities will arise. As live, data-driven business becomes the norm and robots, drones, and AI take over certain positions, new jobs will appear, such as drone traffic optimizers, 3D-printer food chefs, or bio-waste optimizers.
Meanwhile, a 2014 report from the United Kingdom shows that while technology has contributed potentially to the loss of 800,000 lower-skilled jobs, it has likely created 3.5 million higher-skilled jobs, adding £140 billion to the UK’s economy in new wages, for what seems like an overall net-positive trend.9
The Overall Impact Remains Unclear
When looking at the global situation, it is not immediately clear if that overall positive trend is applicable across job groups, industries, or even countries. For instance, if certain technologically advanced countries are able to create more high-skill jobs at home as a result of the automation of the lower-skilled workforce in other countries, the socio-economic results could be dramatic. The net number of jobs lost to robots and automated processes might not indicate it globally, but the impact could significantly recalibrate economic development and growth in adversely affected industries and countries.
The World Economic Forum recently indicated that it expected 5.1 million jobs to be lost globally by 2020 due to automation, and that this loss would be led by a decline in office and administrative tasks, manufacturing, and construction in the first three spots (see Figure 1). On the other hand, business and financial operations, management, and computer and mathematical jobs are on the rise.10
From a geographical perspective, this redistribution and overall loss of jobs doesn’t necessarily fall along the traditional lines of developed versus developing countries (see Figure 3). Rather, it is based on a variety of factors, including specific industry strengths in those countries, the ability and cost to reskill and train a workforce, and the demographic structure of the country, such as how the workforce is aging. The ability to lead the change from the knowledge economy to the digital economy and the rise of the digital worker as a key component of the competitive workforce are also factors.
The opportunity ahead is to allow the digital worker and the future of work to serve as a platform for innovation and business transformation, enabling higher levels of engagement, passion, creativity, and productivity in the digital economy. To make the most of this opportunity, we identified six main areas where the future of work and digital workers are key to business, managerial, and individual success.
Leadership Involves Everyone and Digital Leadership Reaches Everyone
Digital leaders grasp the changes in the larger business landscape and are changing their management approach to reflect this in three important ways.
- Leading by example, in the context of social working styles, allows executives to be visible and approachable for employees and customers alike. It provides a two-way avenue for market understanding, engagement, and interaction.
- Leading with passion engages the entire company in the core business objectives, which is especially important given the increasingly global and disparate nature of teams. Digital leaders that use all available tools to convey passion and common purpose bring another dimension of success.
- Leading by learning demonstrates the new way of working by studying, discovering, and adapting on the fly, thus encouraging employees at all levels to develop their own innovation, learning, and leadership capabilities.
With the rise of the contingent workforce and the overall globalization of work, leaders often find themselves putting significant effort into building cohesive teams from a demographically diverse pool of short-term employees or contractors. The challenge includes ensuring that digital workers are intelligently incorporated into a continuously changing workplace. Managers must integrate a distributed contingent workforce with digital workers, enabling them to work effectively as a team and achieve real-time analysis and decision making. At the same time, managers must develop the next generation of leaders who can actively take responsibility for innovation and engagement over time and lead the company to the next level.
In a world of contingent workers and job-hopping, the challenge of securing the right people for the long-term survival of the company is underlined by the fact that 86% of companies believe that leadership is one of their top challenges, but only 10% believe that they have a good succession plan in place.11 Combined with the fact that only 44% of executives believe they currently have enough organizational and leadership experience and skills to drive their company’s digital strategy,12 it becomes clear that there is a both a generational and organizational problem that needs to be addressed.
The ability to get the broader organization involved in a much wider range of decision-making processes while integrating cohesive but diverse teams – even if for short-term projects – provides dual benefits: improving live performance and ensuring that companies have a wider base of employees from which to nurture future leaders. Finding these leaders will be challenging, due in part to short-term, contingent workforce. Building leaders with people skills, problem-prediction skills, and leadership skills will be key for the future of leadership.13 Successful companies will prioritize the need for this through the very culture of the company and the ability to go beyond the traditional hierarchical organizational and managerial construct.
Without Engagement You Are Going Nowhere Fast
As new generations enter the workforce, their priorities involving work are shifting the ways that companies conduct business. SAP has studied this area extensively through numerous research projects with Oxford Economics, The Wharton School of the University of Pennsylvania, and Baylor University. The talent pool’s perception of work has shifted from gaining steady employment and career advancement to following their passions through work and making a tangible impact on society.
While 38% of millennials in developed markets still aspire to become leaders within their organization, it’s the opportunity to take on personally meaningful work that drives their productivity and success.14 In fact, 53% of millennials would work harder if their organization actively made a difference to others.15 The digital economy provides new levels of corporate transparency; the ability to measure the impact of a much wider range of assets, tactics, and strategies; and direct access to partners and organizations across the world. Thanks to the rise of the digital economy, the post-millennials, also known as Generation Z, have the potential to realize personal goals and improve engagement across the board.
However, even though 87% of companies recognize that culture and employee engagement are top challenges, less than half have established programs that engage and retain their employees.16 Companies with higher engagement have, on average, net profit margins four times greater than those with lower engagement and enablement, which makes attention in this area mandatory.17
Engaging the workforce begins with employee satisfaction. This is realized by enabling employees to make full use of their skills to support not only a job but also their passions: working in a safe environment, achieving a healthy work-life balance (physically and mentally), receiving recognition for a job well done (monetary as well nonmonetary), managing career progression, and having influence over the tasks at hand.
However, one of the primary problems in achieving a higher level of satisfaction and engagement is that only 28% of millennials say that their employers are making full use of their skills.18 Feeling underutilized while having higher career aspirations will eventually lead employees to seek greener pastures elsewhere. While the increasingly freelance-oriented economy allows executives to source new resources quickly, keeping a core group of top talent still needs to be a priority.
Employee engagement drives employee satisfaction, collaboration, innovation, retention, and ultimately, business performance. Consequently, it cannot be relegated to an internal issue of lesser importance. It needs to be a front-and-center discussion about a real impact on not only employees but on the future of the company.
Benefiting from Technology Means Being More Human
Addressing business issues in real time. Getting direct responses from executives. Building formal and informal knowledge networks for real-time sharing of information, creative collaboration, and team building across physical boundaries. In a live enterprise, these are everyday requirements for conducting business, but what cannot be overlooked is the effect that these Live Business characteristics can have on elevating engagement across the company.
The importance of real engagement is not limited to internal employees; it also applies to interactions with vendors, partners, and customers. The prominence of mobile and cloud technology, connected networks, social media, and the Internet of Things is helping companies bring all stakeholders together to engage in more direct, real-time, and meaningful networks that offer real business value to all parties.
The rise of the social enterprise is a great example of how companies are starting to use technology to enable collaboration among employees, partners, and vendors. The competitive advantage can be substantial if customers can communicate directly with company executives through social media. Partners can address any supply chain issues in real time with all appropriate parties, and employees are enabled to collaborate effectively across geographies, teams, and internal hierarchies. If these same businesses are incorporating collective social feedback into a single platform, there is great potential to increase customer satisfaction, overall business insight, and employee retention.
The critical success factor created by this technology is not just the ability to connect the right people with each other. Connecting them while also enabling a meaningful way of interacting in real or near-real time dramatically increases the sense of a more humanized, one-on-one interaction in spite of it being digital.
Workplace Simplicity Drives Productivity
As globalization and changing demographics increasingly affect corporations, the complexity of doing business has been on the rise. Certainly, massive amounts of new data, complex employee/customer/vendor/partner situations, and new rules and regulations are changing the landscape for many businesses and creating clear obstacles for those not ready to manage the changes. According to the Economist Intelligence Unit (EIU), 55% of executives believe that their organizational structure is extremely or very complex – even to the point where their profits are negatively impacted.19 The impact of complexity goes further than that though. In fact, 74% of companies believe that the complexity of doing business affects their ability to meet set goals, which is worsened by the fact that only 17% believe their current efforts to curtail complexity are effective.20 The cost is clear, with complexity estimated to be eating up to 10% of profits and having a clearly negative impact on employee morale.21
Even more astonishing is the loss of 45 minutes of productive time per day for U.S. executives. As many as 22% of executives spend more than a quarter of their time managing complexity, and 8% of companies are actively slowing down growth to deal with complexity, which means that productivity is clearly affected.22
In 2015, SAP and EIU conducted a study of executives that showed that solutions for reducing complexity and increasing productivity are not universal. Rather, a successful approach is driven by management as a company-wide objective. Solutions include cross-functional collaboration roles, new digital tools and infrastructure, and redesigned decision-making processes – all hallmarks of a Live Business. These require a culture of collaboration and clearly measurable outcomes. And if done properly, the reward is significant: 76% of executives cite that if they could cut complexity down by half, their company would be at least 11% more productive overall – a massive improvement that any company could use.23
If companies want to stay competitive, this shift is needed sooner rather than later. Predictions tell us that by 2020, 80% of the business processes and products from the previous decade will be digitized, redone, or eliminated due to the power of available information.24
On the flip side, digital workers will be instrumental in leading this change by enabling companies to make use of the preponderance of available data and technology to stem the tide and reduce complexity through more transparent information management, decision-making processes, collaboration, communication, and engagement. If you successfully rally behind the concept of digital workers, you will be able to use their organizational flexibility and adaptability to redesign processes, partnerships, and workflows as a competitive advantage.
A New Workforce in a New Job Market
Both millennials and Generation Z are facing a new work environment in which job security is outdated concept. This high-risk reality, combined with the desire for more work/life flexibility and control as well as job satisfaction, has driven the freelance economy to new heights.
Recent estimates predict that 45% of the workforce will consist of contingent workers by 2017, and 83% of executives estimate that they will increase the use of contingent workers in the coming years.25 In a global and technology-enabled marketplace, contingent and independent contractors can be hired across physical boundaries and work across time zones. In turn, this trend is changing not only how companies manage their entire workforce lifecycle, but also the physical space in which they work. Shared or co-working spaces are a result of the freelance culture, but they are being considered in more traditional contexts as the next generation tries to find the middle ground between autonomy and community.26
Companies need to reconfigure and adjust their physical locations to adapt to an ever-changing digital workforce that is engaged in multiple projects (potentially for various employers), located anywhere in the world, and comfortable with a virtual work style.
To answer the needs of this growing segment of workers, organizations must be agile enough to quickly ramp up employees on any given project, enable collaboration and innovation, and foster team spirit for very diverse teams. Some 78% of employees also believe that it is very important to work for a digital leader or digitally enabled company, and technology will indeed be critical in driving the ability to achieve this agility and collaboration.27 A recent study by Luxembourg-based The Regus Group supports this trend, showing that 68% of global companies saw increased revenue numbers stemming from flexible work arrangements.28
For the new generations in the workforce, these changes are not all that matters. Increasingly, the choice of employer is related to what the company actually does, with 77% of millennials stating that their choice of employer was partly decided by the company’s sense of purpose.29
Despite millennials’ strong emphasis on the importance of companies making a difference to others, 75% of millennials still believe that companies are focused on their own goals as opposed to making a difference to society.30 Clearly, there is room for improvement.
Adopting a more transparent approach to how the company positions its overall purpose, how it monitors and communicates community efforts and impacts, and how employees can get involved or start efforts on their own (with support from the company) will increasingly be competitive parameters that will affect hiring, retention, employee engagement, branding, and customer decision-making processes.
Leading in the Future Means a New Perspective on Learning
With a much more distributed and highly contingent digital workforce required for a truly Live Business, managers are finding new ways to create cohesive, innovative, and well-functioning teams. However, team building is not the only focus. It’s also about taking a comprehensive approach to reducing complexity, leading by example, and training the next generation of managers to be true digital leaders. Consequently, a digital worker cannot be managed the same way as a knowledge worker. Leadership must find ways to tap into each employee’s personal motivations and, just as importantly, to create an atmosphere that induces continuous learning, self-development, engagement, and collaboration, especially considering the short-term tenure of more and more employees.
To this end, executives expect to make use of massive open online courses (MOOCs) to improve the training of their workforce over the next three years, which allows for instant access and low-cost training. Moreover, 77% state that over the same time period they will need to focus equally on training both machines and people.31 The advent of the digital worker and the ambition to become a Live Business drives the need for technology-driven learning both inside and outside the company to continuously enable corporate agility, accelerate ramp-up, and promote technological leadership.
For employees and freelancers alike, the digital economy creates an opportunity for continuous learning that is more active and self-directed. This approach brings them closer to their personal passions and increases engagement. As the pressure for enabling a workforce that is more engaged and passionate about their work increases, so will the need for employees who have competencies that can be monetized around those passions.
Because the rise of the digital worker dramatically impacts the way we work, learn, hire, retain, manage, and make decisions, the future of work is linked intrinsically to the future of Live Business. It transforms the way we deal with customers, vendors, employees, partners, and competitors.
By connecting the four areas of digital disruption (workforce, suppliers, assets, and customers), the digital core becomes the platform for future business innovation and enables the advent of a Live Business. Live Business can act as a matrix that links any part of your business process to enable a fluid, nimble, real-time digital business – which is the future of business.
The ability to successfully utilize an ever-changing digital workforce is going to be the catalyst for Live Business and will set the tone for not only the future of work but also the future of the enterprise.
Leading the charge to this future means adopting a new definition of what leadership in the digital economy means for the company. It means adopting and implementing a technological and corporate mindset that enables and inspires managers, employees, and contingent workers alike. It means understanding that being a Live Business is not just a competitive advantage over the next few years but a necessity for survival in the long run.
Michael Rander is Research Director, Future of Work for SAP
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- “IDC Reveals Worldwide Digital Transformation Predictions; Kicks Off IDC FutureScape Web Conference Series” (press release), IDC, November 4, 2015, https://www.idc.com/getdoc.jsp?containerId=prUS40553515
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- “Cisco Global Cloud Index Projects Cloud Traffic to Quadruple by 2019,” Cisco, October 28, 2015, https://newsroom.cisco.com/press-release-content?articleId=1724918
- Carl Benedikt Frey and Michael A. Osborne, “The Future Of Employment: How Susceptible Are Jobs to Computerisation?” Oxford Martin School, Oxford University, September 17, 2013, http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf
- Richard Horton, “The robots are coming,” Deloitte Insight, 2015, http://www2.deloitte.com/uk/en/pages/finance/articles/robots-coming-global-business-services.html
- “Intelligent Machines: The jobs robots will steal first,” BBC News, September 14, 2015, http://www.bbc.com/news/technology-33327659
- Jemma Insall and Ankur Borthakur, “From brawn to brains: The impact of technology on jobs in the UK,” Deloitte Insight, 2015, http://www2.deloitte.com/uk/en/pages/growth/articles/from-brawn-to-brains–the-impact-of-technology-on-jobs-in-the-u.html
- Sam Machkovech, “Robots, other advances will cost humans 5.1 million jobs by 2020,” Ars Technica, 2016, http://arstechnica.com/business/2016/01/report-robots-other-advances-will-cost-humans-5-1-million-jobs-by-2020/
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- Gerald C. Kane, Doug Palmer, Anh Nguyen, and David Kiron, “Is Your Business Ready for a Digital Future?” MIT Sloan Management Review, June 16, 2015, http://sloanreview.mit.edu/article/is-your-business-ready-for-a-digital-future/
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- “Flexibility Drives Productivity,” The Regus Group, February, 2012, http://www.regus.com/images/Flexibility%20Drives%20Productivity_tcm8-49367.pdf
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- “Digital Business Era: Stretch Your Boundaries,” Accenture, 2015, http://www.accenture.com/us-en/_acnmedia/Accenture/Conversion-Assets/Microsites/Documents11/Accenture-Technology-Vision-2015.pdf