In a famous essay published during the Great Depression, economist John Maynard Keynes wrote “Economic Possibilities for our Grandchildren.” This essay gave a light of optimism that people badly needed at the time. Keynes predicted that future generations would be far better off, but he did forsee a major threat which he described as ‘like a plague or disease’: technological unemployment.
Keynes said that this threat would rise “due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.” At that time, few people understood what he meant, but he assured them that they would hear a lot about this in years to come…
More than 80 years later, the villain of the story is slowly revealing itself: the algorithm. “Algorithms are now changing the world, and what’s more, they are assisting in the destruction of the middle-classes and the widening gap between the rich and poor,” Alan Kohler said in his recent ABC news report.
In this post I look at why algorithms will destroy many good businesses, which industries will be most affected, and what you can do to defend yourself – before it’s too late.
What are algorithms and how do they work?
The algorithm was invented by a Persian mathematician named Muḥammad ibn Mūsā al-Khwārizmī more than a thousand years ago. It is defined as a step by step procedure for calculations but it’s only in the last 10 or 20 years that people have applied the use of algorithms to manage the huge amount of data on the Internet – as a tool to make decisions without human intervention. The biggest companies in the world such as Google, Apple and Facebook are all essentially algorithm-driven.
The problem we are facing today is the reality that algorithms are now replacing jobs – fast. Even Bill Gates said that in the coming years, automation technology would eliminate most of human work. Bill Gates, in a talk at The American Enterprise Institute, said that “Software substitution, whether it’s for drivers or waiters or nurses … it’s progressing. … Technology over time will reduce demand for jobs, particularly at the lower end of skill set. … 20 years from now, labor demand for lots of skill sets will be substantially lower. I don’t think people have that in their mental model.”
When will it affect us?
It’s already happening. As seen in the video above, Google, for example has a driver-less car now. Did you know there are already ten jurisdictions in the world where these driver-less cars operate? If apps like Uber already have the taxi industry shaking in their boots, how will they cope with driver-less vehicles? Short answer: taxi drivers probably won’t exist in ten years. Likewise truck drivers – all freight vehicles will be powered by artificial intelligence (A.I). If you are an owner-driver in the transport or taxi business, it might be a good time to sell – soon these licenses will be worthless.
Maybe you’re a professional and think ‘death by algorithm’ won’t affect you? Think again…
Industries to be most affected by digital disruption
Deloitte recently released a compelling report that outlined the likely impact of ‘digital disruption’ – death by algorithm – on Australian businesses. It’s not pretty reading. Deloitte identified 13 industries comprising 65% of the Australian economy that are facing significant disruption by 2017. Yes, that soon. Here are the list of industries due to be most heavily affected in the short term:
- Real estate
- Business and professional services
- ICT and media
- Arts & recreation
So in case the penny still hasn’t dropped for you: if you have a business in law, mortgage broking, financial planning, real estate sales, recruitment, human resources, consulting, publishing, finance, accounting, or retail anywhere in Australia – you should be worried.
What you can do to protect your business
There’s no doubt that algorithms will destroy many good businesses, and in the long-term they will quite likely wipe out some industries entirely. If you are a small or medium size business owner or manager, here are my online tips for defending your enterprise:
- If you haven’t already done it, profile your customer.
- Build a strong web presence. Your old crappy site won’t cut it anymore.
- Invest in a digital strategy – you need a plan.
- Build a mobile site – 50 per cent of web search is now on smartphones
- Start blogging.
- Learn how to use social media effectively
- Use a web-based CRM (yes, an algorithm!) to make your business more efficient
- Do a business video to stand out & attract customers
The most important thing is to have a plan: more than ever you need a solid digital strategy to build a good online footprint & fight this threat, head on. There is no stopping the age of the algorithm and digital disruption – it is simply too powerful. And I haven’t even touched on 3D printing and the vast implications this has for manufacturing & retail. But like any great period of change it will present opportunities for the well prepared to survive and thrive, even as others fail.
The choice is yours: will you adapt in time?