Photo Credit: A man moves his finger toward a robotic hand at the IEEE-RAS International Conference on Humanoid Robots in Madrid on November 19, 2014. AFP

Recent data is for half a million employees being made redundant over the next 5 yrs. due to automation. Is it true? And what is that the industry, companies and employees can do about it.

The first half of the next decade will bring a lot of pain to the Indian IT business as automation sets in and we go through the transition from people to technology + people. But the real opportunity is still available to people, as the enterprise still craves more human-centric skills at scale that cannot be fed into an AI platforms. These are challenging times, but the change brings the opportunity.

The Manpower Shrinkage

Technology has and will continue to fundamentally reshape the world. But the largest move is not from more people creating more technology but of machines creating technology and delivering services. As that happens, the job market shrinks. World Bank President Jim Kim said in March 2017 that technology could fundamentally disrupt the pattern of traditional economic path in many societies and threatens 69 per cent of the jobs in India and 77 per cent in China. However it the relative wage that will determine the relative pace of automation and it is here that the Indian IT industry is most vulnerable since the cost structure is closely linked to the ability of the customer in developed economies to absorb this cost.

The Trend

In the technology-led businesses AI and Automation are already present — whether as the evolution of autonomous cars or as software that writes itself. Consider this,

• Google’s Deepmind can now read lips better than humans and play and beat different 30 video games at the same time. It is writing its own algorithms to better itself. And to translate languages where no translation has previously existed.
• IBM Watson can now not only read a physician’s notes but also go through a massive library of related information and figure out, say, a particular type of rare cancer.
• Chatbots are already being used by Amazon and Facebook to automate responses.

And this is just the tip of the iceberg. However, a large part of the Indian IT outsourcing industry is directly being impacted by different levels of automation creeping into its customers. To expand their operations a US-based customer today is not looking at additional headcount, but at automation. More insurance claims processing requires a platform to scale for the extra work. Greater IT infrastructure management requires more cloud-based orchestration tools then. Not more people. So the scale and/or productivity gain is coming from autonomics management, and not headcount.

Worldwide the total IT Service and BPO industry employed 15 million people in 2015, with ~3.5 million in India, ~1 million in Philippines, ~5 million in North America and ~4 million in Europe. The impact of automation on this global industry of 15 million IT services and BPO employees is expected to be a net decrease of 9% or ~1.4 million jobs. Of this, India’s services industry workforce is expected to shrink 500,000 by 2021 – a decline of 14-15% (explained below)[1]

The workforce is in three categories: low-skilled, medium-skilled, and high- skilled. Low-skilled employees conduct simple entry-level, process-driven tasks that require little abstract thinking or autonomy. Medium and high-level employees undertake more complicated tasks that require experience, complex problem-solving, the ability to learn on-the-job, and to work autonomously. In terms of impact, it is the low-skilled Indian services workforces that will be most impacted.

The Impact on Indian Industry

India’s services industry is set to endure the largest negative impact with a 14% decline in its workforce. India is set to lose 640,000 low-skilled positions by 2021, which amounts to a decrease of 28%. This is largely because of the repetitive nature of India’s outsourcing service. [2]

At the same time, though, India is expected to create 160,000 positions, or 14% growth, at the mid-level. But with 640,000 low-skilled jobs at risk, being offset by just 160,000 mid- or high-skilled jobs, this will be a net job loss of 500,000 through 2021.

The impact of automation is already being felt. The industry added 200,000 employees in FY16 as compared to 230,000 in FY15. This is ample indication of the fact that automation has begun to replace jobs that were earlier done by humans. The industry expects to add around 200,000 employees for FY17, the same number of employees added as in FY16. The combined net additions of employees of TCS, Infosys, Wipro, HCL Technologies and Cognizant during the October-December period stood at 28,182, down 38% from the year-ago period. [3]

The IT services industry is estimated to have required 16,055 engineers to generate every additional $1 billion of export revenue in 2015-16, compared with 31,846 engineers in 2009-10, according to NASSCOM. This is a near doubling of the efficiency of labor. Services companies are likely to see lower hiring, pointing to increasing automation and productivity.

Impact on companies

Infosys, India’s second-largest software services exporter by revenue, hired 5,719 people in the first nine months of this fiscal, down from 17,196 in the same period the previous year. In the third quarter, Infosys ‘released’ about 2,650 full-time employees’ worth of effort in application maintenance, package system maintenance, BPO, and infrastructure management, taking the total number to 9,000 in a year. Wipro’s target was about 4,500 in April 2017. The employees who are released are trained to work on more advanced projects.

The rapid adoption of AI platforms will create higher demand for up-skilled engineers in niche areas which will result in a steady decrease in demand for entry-level or lower-level engineers for tasks such as coding, back office maintenance, and applications testing. Half a million employees to be re-employed elsewhere is a large number, not to mention the armies of ‘fresher graduates’ leaving the colleges — essentially low-skilled employees neither willing nor capable of learning new skills and new ways of working. India needs to focus on new avenues to create services jobs, where it has strength in numbers and strength in potential.

Three things for companies to do

1. Move into more engineering services and analytics, with there being such proficiency for data and technology from services talent.
2. Do more automation! Companies that help their customers automate will be the next generation of outsourcing. Wipro launched an AI platform (Holmes) in 2016 followed by TCS (Ignio) and Infosys (Mano). The objective is for IT firms to achieve non-linear revenue growth for themselves, and efficiency for their customers.
3. Look for niches with customers where your management is directly involved with your customers’ management in decision-making, problem-solving and creative + strategic processes.

Impact on sectors

While automation and the resulting redundancy is a reality it should be remembered that this is not the first time it will happen. For instance in the United States the share of farm employment fell from 40 percent in 1900 to 2 percent in 2000, while the share of manufacturing employment fell from approximately 25 percent in 1950 to less than 10 percent in 2010. However in both cases, new activities and jobs were created that offset those that disappeared though not in the same industry.

Outside of the IT sector and at a global scale sectors such as manufacturing or accommodation and food services, both of which have relatively high automation potential, compared with the proportion in sectors with lower automation potential such as education. Clearly automation potential is high in sectors such as manufacturing production, and lower in the job titles such as management which involve decision making and critical thinking.

In the IT sector impact this bias will show clearly in the most data-collection and data-processing led verticals such as Finance and Accounting, Medical Process Outsourcing. Everest Consulting estimates that 80% of offshore IT jobs and 30%-40% of finance and accounting jobs in India will be eliminated by automation. Telemarketing, Software Testing, all-types of billing and claims management.

Three things the industry should do

1. Work with the education system to create the right talent: The industry must create a workforce with knowledge of computer science as against just coding, mathematical, analytical and statistics skills, communication skills, and a working knowledge of business intelligence tools.
2. Change onboarding processes: Most onboarding focuses on developing narrow skill sets that most employees should have learnt at the college level itself, when they should be focusing on creative thinking, and more managerial skills, including critical decision-making and problem-solving.
3. Innovate: Indian IT has seen inflection points before. 2000 AD brought with it Y2K and its scenario of possible doomsday but the IT industry innovated to catch the internet trend, and, subsequently, the inflection called Digital. The industry has however always been customer-led, and consistently avoided investment in innovating on basic technology creation.

Re-skill or Perish

The industry focus has to move from hiring to re-skilling, and re-skilling quickly. As a whole, the industry is hiring fewer fresher graduates. Given the macro environment, people are hiring more onsite. And while jobs at the bottom of the pyramid are the first to get automated, there are still ways to stay relevant as an Indian IT professional.

Three things for employees to do

1. Move up the IT development value chain: If you have the background and experience, please develop the skill and expertise to grow into data analytics, engineering design, cloud, digital automation.
2. Move across the value chain: There are functions outside of software development where you can leverage your IT skills and create value, so do consider business, sales and marketing management, etc.
3. Move into adjuncts: There are several non-IT sectors that are thriving currently, but are starved for professionals with technical backgrounds who can thrive on creative and communication processes, such as content development, education, and more.

Conclusion

It is not as if all jobs and business is being lost. There will be new jobs created in the future to focus on higher value work, and this will require the workforce to evolve their skills to take on roles with higher degrees of complex problem-solving, creativity, and emotional intelligence. It only means that companies and individuals that resist innovation and rest on legacy skills won’t be around in half a decade.

References:

[1] The HfS future workforce scenario through 2012

[2] The HfS future workforce scenario through 2012

[3] Centrum Broking