The Fourth Industrial Revolution is Underway, Are You Ready?

5 Key Insights from Klaus Schwab's Book You Can't Afford to Ignore

photo courtesy of Web Tomorrow

The Fourth Industrial Revolution by Klaus Schwab is a book that everyone should take some time to review because it lays out a comprehensively sober assessment of the momentous changes already underway—changes that will forever alter the way we live and work.

As you look through the catalogue of evidence presented in the book, you’ll notice that there are reasons to be both highly optimistic and deeply pessimistic about what’s about to happen.

Like a Polaroid instant print, an image of the implications is emerging but that image is not perfectly clear, at least not yet.

We need to pay attention.

And whatever your own interpretation of the known facts may be, it is clear to Schwab, as it is to most economists who are peering further down the road than most, that humanity needs to buckle its collective seat belt. We’re in for a massive dose of unprecedented change.

Millions of people in the U.S. and around the world will be affected and, according to informed estimates, as many as half of all current jobs will be automated in the next 10 to 15 years. And as with all the technological tsunamis of the past, there will be winners and losers.

The winners, of course, will be those who understand that great change is coming and get ready, not just to tolerate the transition, but to help drive it! Not to survive, but to thrive! The losers will be those who ignore the warning signs, fail to understand the drivers of change, and do little more than bemoan the unfairness and injustice of the upheaval once it finally arrives at their doorstep.

In times of powerful change, the last thing you need to do is fight to hang on to the status quo. Instead, focus on your own sphere of influence—what can YOU do, where you stand, with what you’ve got, right now?

To quote Mr. Schwab: “There has never been a time of greater promise or greater peril.”

The question is, what are you going to do about it?

But before we can answer that, we need to further understand what’s happening:

Key Aspects of the Fourth Industrial Revolution

1. Digital Synergies Across Domains

One of the key differences between the 3rd and 4th industrial revolutions is the way that digital technologies have emerged and developed into all-powerful and pervasive digital platforms. Machines are smarter and better connected than ever before (i.e. the Internet of Things) and this trend is accelerating at a blindingly fast pace of months, not years.

Given the power, efficiency, interconnectedness and scalability of technological advancements, they more easily and speedily cross-over into entirely different industries or domains which previously operated in silos.

To illustrate the point: Think of a surgeon in the not-so-distant future. She has access to a massive online platform or database of human organ replication instructions based on a patient’s exact DNA. The surgeon is thus able to print a kidney in the hospital’s highly specialized organ replicator (3D printer) and can then supervise the work of the robot who will be performing the actual surgery. And all this from a remote location 6,000 miles away.

“It is the fusion of these technologies and their interaction across the physical, digital and biological domains that make the fourth industrial revolution fundamentally different from previous revolutions,” writes Schwab.

2. Winner Takes All Tendencies

Digital technologies are not only enabling the “harmonization” and creation of synergies across previously disparate domains, they allow for rapid growth driven by unprecented economies of scale.

As Schwab notes, “ Digitization means automation, which in turn means that companies do not incur diminishing returns to scale (or less of them, at least).”

Nor do they incur any significant marginal cost as digitization allows for the creation of additional products or capacity at zero marginal cost. In past revolutions, producing more products or adding additional capacities usually meant hiring more workers. Not anymore. Companies enjoying digital advantages can function with as little as 10% of the workers required by companies dependent on physical labor or physical infrastructure.

These winner takes all tendencies may exacerbate economic inequality, which is already at worrisome levels, even in many of the worlds most advanced economies.

This is already evident as GDP growth and the “jobs recovery,” following the recession of 2008, has been tepid at best. Companies awash in cash are not investing in hiring more workers at the same rate as in past recoveries. Many economists are even talking about “secular stagnation” and our economy as being “stuck in neutral.”

This situation is likely to worsen as we move further into the Fourth Industrial Revolution.

3. The Rise of the Precariat

There’s a hideous new word that is starting to enter the modern lexicon: precariat, as in precarious + proletariat

According to wikipedia, precariat refers to:

a social class formed by people suffering from precarity, which is a condition of existence without predictability or security, affecting material or psychological welfare. Unlike the proletariat class of industrial workers in the 20th century who lacked their own means of production and hence sold their labour to live, members of the Precariat are only partially involved in labour and must undertake extensive “unremunerated activities that are essential if they are to retain access to jobs and to decent earnings”.

Specifically, it is the condition of lack of job security, including intermittent employment or underemployment and the resultant precarious existence.

But it’s not only about job insecurity, it is also about losing formal rights and protection as workers. This will become a huge challenge for policymakers as time progresses.

4. The Hollowing-Out of the Jobs Pyramid

If you think of the jobs picture as a pyramid—with low-skill, low-paying jobs at the broad base and high-skill, high-paying jobs at the narrow tip—the middle of the pyramid (where most jobs are) will tend to be hollowed out as technology advancements continue to eliminate more jobs or squeeze their wages.

For years now, companies have been seeking to simplify job descriptions in order to facilitate productivity, efficiency, and profitability and this trend will likely continue. This begs the question: is the work you are currently doing susceptible to simplification, automation or outsourcing? Is it repetitive and procedural in nature?

If so, you have much to be concerned about.

In fact, up to half of all jobs are in danger of disappearing and many will not be replaced with new and better jobs, as in prior industrial revolutions. This job destruction will be permanent.

Schwab cites the findings from an Oxford Martin School study that looked at “the potential effect of technological innovation and unemployment by ranking 702 different professions according to their probability of being automated.”

According to that study, some of the jobs most in danger of being automated include:

  • Telemarketers
  • Tax preparers
  • Insurance appraisers
  • Umpires, referees, and other sports officials
  • Legal secretaries
  • Hosts and hostesses, restaurant, lounge and coffee shop
  • Real estate brokers
  • Farm labor contractors
  • Secretaries, administrative assistants, except legal, medical and executive
  • Couriers and Messengers

Conversely, the jobs least in danger of being automated include:

  • Mental health and substance abuse workers
  • Choreographers
  • Physicians and Surgeons
  • Psychologists
  • Human Resource Managers
  • Computer Systems Analysts
  • Anthropologists and Archeologists
  • Marine Engineers and Naval Architects
  • Sales Managers
  • Chief Executives

5. Businesses Will Feel the Pressure Too

Although capital may be able to substitute for labor, not everything will be hunky-dory for the corporation. The consumer will remain king and these customers, greatly emboldened by technology and data, will become even more demanding than they are today. Consumers will be able to exercise great pressure on corporations and, coupled with the fast rate of technological change, market transformations, weather-related disrruption of supply chains, and the “whack-a-mole-like” emergence of scrappy competitors, the business environment will be far from smooth sailing for corporate big wigs.

Schwab notes, for example, that in the last 50 years alone, “the average lifespan of a corporation listed on the S&P 500 has dropped from 60 (years) to 18.”

Business volatility is here to stay and it will likely grow.

There will be great need for visionary leaders and employees able to solve complex problems amidst ambiguous or uncertain circumstances. This will create lots of opportunity for those ready, willing and able to take advantage of it.

In my next post, I’ll outline some of the ways you can start getting ready, right now!

photo courtesy of Web Tomorrow