How to Make Automation Pay off: Think Big, Start Small, Validate and Move On

Dr. Jing Bing Zhang, Robotics Research Director, IDC
Dr. Jing Bing Zhang, Robotics Research Director, IDC

Dr. Jing Bing Zhang is Research Director, Worldwide Robotics and Asia Pacific Manufacturing Insights, IDC Asia/Pacific. Zhang is also among the world’s leading experts on the commercial application of robotics technology.

His research focuses on commercial robotics and robotic process automation, and how they will shape tomorrow’s workforce, drive digital transformation, open new revenue streams, and change the way work gets done.

As a futurist, Zhang expects exponential growth for automation in industries like banking, insurance and financial services, which he says are all ripe for disruption and digital transformation.

In this big-thinker conversation, Zhang reveals why the rise of robotics and automation goes beyond streamlining administrative and transactional tasks, to taking advantage of faster, better service delivery, and enhancing the customer experience.

Read the full Q&A below.

Appian: Good morning Dr. Zhang. And welcome to Digital Trailblazers. So, let’s start with the big picture. Last year, IDC and other industry experts predicted that spending on commercial robotics would accelerate innovation, create new revenue streams, and change the way work gets done. Have your expectations been met?

Zhang: Yes, but let me put it in context. Our IDC FutureScape: Worldwide Robotics 2017 Predictions [published in November 2016] referred to commercial robotics and the adoption of physical robots across industry sectors, like manufacturing, healthcare, retail, utilities, and construction.

Overall, we’re seeing a strong uptick in interest in physical robots and RPA.

Appian: In its 2017 survey, IDC also said that 50% of companies prioritized robotics as their top pick for tech investment. So, what’s driving that prioritization?

Zhang: That data is based on a survey we did in early 2017. We interviewed execs from 1,050 companies worldwide, covering major markets in Asia Pacific, Europe and America.

The survey covered many industries, including manufacturing, healthcare, retail, government and utilities.

In the manufacturing sector, the number one business priority was improving the product and service quality offered to customers. And, the number one concern was the rising cost of labor.

Appian: What about other industries like healthcare and retail? How are companies in these sectors leveraging robotics and automation?

Zhang: For healthcare, the top priority was improving overall patient experience. For retail, it was providing better service to the customer.

So, quality and time to service—how fast you deliver service to customers—are major drivers of automation, especially robotic technologies. That’s because robots offer better agility, precision and consistency than human labor.

“But what we’re seeing now, is that in addition to quality and cost benefits, customers are also looking at the value that automation offers customers, from searching for a product, to ordering it, to using it.”

So, companies are responding to the need to keep up with customer expectations. And these expectations are constantly changing.

Appian: So, customer expectations are a major driver of commercial automation. And these expectations are changing faster than they ever did in the past.

Appian: Speaking of automation, I’ve read news reports that China is investing more than double what the U.S. is spending on robotics. What do you make of that?

Zhang: If you dial back in time about 25 or 30 years, China enjoyed a competitive advantage because of cheap labor. But that advantage is diminishing. This is why China is betting so big on automation, robotics and artificial intelligence. They want to upgrade from a cheap labor base and low-cost manufacturing to high-tech manufacturing. In fact, China is now world’s largest robotics market.

“They’re also making a big push into artificial intelligence. The truth is, China has set a goal to become the world leader in artificial intelligence, as well as the “premier global AI innovation center” by 2030. So that’s the backdrop to what’s going on in China. The other thing, which many people aren’t aware of, is that there’s a shortage of labor in China.”

Appian: A labor shortage in China? That sounds counterintuitive. How’s that possible? They’ve got a huge population.

Zhang: There are over a billion people in China, so it’s easy to overlook the underlying threat of a labor shortage there. Thirty or forty years ago, many people downplayed the importance of automation in China, because of the country’s huge population.

In 2010, there were 110 million people 65 years of age and above in China; by 2030, the number will increase by more than 100 million, according to the United Nations. By 2050, more than a quarter of the population will be over 65.

“But, according to a United National labor report, the workforce in China peaked in 2015. From that time forward, till the foreseeable future, China’s labor force will lose about one million working-age people per year. Considering that one industrial robot can replace three to four people, China will need to install approximately 275,000 industrial robots every year to overcome its demographic shift.”

Appian: So, it sounds like China is facing a huge automation gap?

Zhang: Last year, China installed about 86,000 industrial robots, which is not even one-third of what is needed to match their 2015 labor force requirement. So, for factory managers in some parts of China, the number one worry is the threat of a human labor shortage, especially after the long holiday around Chinese New Year.

Chinese consumers are also more sophisticated now—and more demanding. Which means that manufacturers there need automation to meet the rising expectations of consumers.

Something else to think about is that the advantages of cheap labor are diminishing, because the U.S. can also set up factories with robots. And, because of that, the cost of labor is shrinking faster and faster, as a percentage of total operating costs.

This is why so many people in Asia and the Asia pacific region worry that manufacturing will go back to the U.S.

Appian: On a related note, the shoe company Adidas is building a robot-powered, on-demand, sneaker factory in Atlanta, where running shoes will be made by a team of robots, and a small human workforce, in what Adidas is calling a “Speedfactory.” Is this just automation hype, or is it for real?

Zhang: It’s real. These automated factories will manufacture a series of shoes specifically designed for six of the world’s biggest metropolitan areas.

Their first Speedfactory has already opened in Germany. And Adidas said that it would open another 74,000 square-foot facility in Atlanta, which will employ about 160 workers.

“The level of automation in these factories is incredible. Adidas is using this Speedfactory concept to produce customized shoes—on demand—for consumers in specific cities, based on local environmental factors, habits, and consumer lifestyles.”

Appian: That’s a remarkable story. It really says a lot about the benefits of automation and customized manufacturing. But the flip side of that story is the fear factor, the fear that automation will replace people. Is this something we should be concerned about? What do you make of the fear and loathing of automation and job displacement?

Zhang: There is nothing to hide. There will be job displacement. But most of the jobs that will be lost, will be jobs that people don’t want to do—jobs where people can’t match the consistency and quality of automation. Or, it could be that automation displaces work that is dangerous for people to do.

Appian: So, you expect to see automation add more high-quality jobs to the economy, like managing and supervising, and creating stuff. On the flip side, though, you expect low-wage, low-skilled jobs to disappear.

Zhang: Yes. Low-skilled, repetitive, labor will be replaced. There’s no doubt about that.

“At the same time, though, automation will create lots of higher-skilled jobs related to artificial intelligence, robotics, machine learning and data science. People will need to be re-skilled to work with robots. There will be less demand for routine human labor that requires production and assembly-related skills.”

Appian: So, net-net, will we see an overall job creation benefit from automation?

Zhang: Yes. But workers will need to be re-skilled for the jobs of the future.

Appian: So, what’s the takeaway for business leaders…what should they be doing to prepare for this labor force disruption you’re talking about?

Zhang: Some business leaders are already recognizing the need to prepare for these mega trends, moving forward. They know that they need automation to increase the total life cycle of their products and services, and improve the total experience of consumers using their products.

“The Industry leaders are going a step further. They’re actively using technology to respond to changes in customer demand. But some companies are still in a “wait-and-see” mode. Others will miss the trends altogether. But the early adopters? They will gain an advantage on their competitors.”

Appian: As you look into the future, how so you see automation changing traditional business and industry?

Zhang: Organizations will no longer be able to compete based on cost or quality alone. You’ll need to look at your total offering—your product is just a part of that.

Appian: What about companies that want to take advantage of automation but don’t know where to begin. Where should they start?

“If you’re not sure where or how big to start with automation, do a prototype to validate a concept. Then, learn from that and move forward. Think big and start small—you just can’t afford to do nothing.”

Appian: By 2020, IDC predicts that 60% of all robots will depend on cloud-based software solutions. Which sounds like the cloud is playing a big role in the adoption of automation.

Zhang: So, what we’re seeing is that some companies are not buying robots, but leasing them—like the way you’d lease a car. The technology in these machines is evolving at a very fast pace. So, it’s better for users to lease the robots, so that the vendors can constantly upgrade their capabilities, monitor usage, and schedule service via the cloud.

Appian: So, companies are bench-marking the cost of leasing robots against the hourly rate of human labor?

Zhang: Yes. Also, if you think about it, the resources and upfront capital investment required to purchase a robot is beyond the reach of many small and mid-sized companies. Then, there’s the challenge of maintaining robots and upgrading them. Most small companies just don’t have the resources or skills to do that.

This makes the concept of “Robot as a Service” a viable business model to extend the benefits of robotics to small and mid-sized companies.

Appian: Strategically, how should business and IT leaders be thinking about the challenges of taking advantage of physical and software robots? Also, which industries have the greatest risk exposure to the automation trend?

Zhang: I think that RPA and physical robots are not really that different. One focuses on physical work, the other on brain work. There are many categories of companies that will be disrupted by these technologies. I think the companies that have the most to worry about are outsourcing companies—Business Process Outsourcers (BPOs).

“In the past, these companies profited from cheap offshore labor, for things like data entry, where you relied on people to key information into systems, retrieve data, compare it, and make a decision.  Moving forward, companies will use robotic process automation to do this kind of work.”

Appian: So, when you have rule-based, standardized, workflows, and simple, repetitive, high-volume tasks, RPA can do that kind of work 24x7x365…

Zhang:  That’s right. There’s no benefit to outsourcing that kind of work to Malaysia, India, or China, as companies did 10, 20, or 30 years ago.

The playing field is leveling out now for most countries, in terms of using RPA. Of course, the BPOs are at risk—they can no longer rely on armies of cheap overseas labor.

Nor, can cheap labor match the speed, scalability, accuracy and ability of RPA to keep up with changes in regulations and compliance. So BPOs will also need to leverage RPA.

“But back to your question about what strategic challenges business leaders should be thinking about…The most important challenge with adopting RPA is figuring out where to start first. My advice is to focus on the low hanging fruit. Have a strategic plan, think big, start small, validate, and move forward.”

Appian:  In wrapping up, what are your top 3 predictions for RPA in 2018 and beyond?

Zhang: I think we’ll see exponential growth in 2018. And that growth will be across industries, but especially in banking, financial services and insurance companies.

Second, I think healthcare and logistics companies will be next to benefit from RPA, because they have lots of data to process. And data fuels automation. Third, there will be consolidation—M&A activity— inside and outside industries, based on RPA in 2018.

Appian: What about the convergence of RPA and AI? Do you expect to see more of that happening in 2018?

Zhang: Yes. Companies are already talking about how to build artificial intelligence into RPA. My perspective is that this will not happen so fast.

Yes, combining AI with stock market investments, that’s already happening. Maybe 3-5 years down the road, we’ll have an intelligent version of RPA.

But right now, I think there’s still a lot of work companies can do with traditional RPA.

The Digital Forecast in 2018