Digitalization is the cause of large-scale and sweeping transformations across multiple aspects of business, providing unparalleled opportunities for value creation and capture, as well as being a source of major risk.
But how much has digitalization already affected today?
Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.
This begs the question: is digitization something new or perhaps an existing trend?
There is no doubt, however, that the complexity of these transformations, the impact they have cross-industry, and the pace at which they are occurring is truly unprecedented.
Business leaders across all sectors are grappling with the strategic implications of these transformations for their organizations and industry ecosystems. Digital is changing the entire industry value chains as it transforms the nature of business.
The rise of industry-leading platforms, supported by the explosion in the breadth and depth of data available, accelerates and amplifies the impact that digital technologies are having. These shifts are disrupting business models for existing enterprises, forcing them to fundamentally reconsider their businesses, while giving rise to smaller, more nimble players who embrace the opportunities digitalization affords to challenge industry status quos.
To change at the pace of digital, players across the value chain will need to think about their structure, employee skills, hiring practices, and how they collect and analyze data to drive data-centric business models.
They will need to consider their existing business relations and how to form new partnerships inside and outside the ecosystem. Finally, they must effectively engage and maintain trust with consumers and their rapidly shifting expectations.
However, the most important question remains, how will digitalization affect the global labor market?
Rapid and continuous technological developments are transforming the skills required for most existing jobs, creating completely new types of roles, and also rendering obsolete entire sets of current job functions.
According to research, it is estimated that more than 50% of existing professions could theoretically be replaced. According to a US Department of Labor report, 65 percent of today’s schoolchildren will eventually be employed in jobs that have yet to be invented.
This not only has significant implications on how these children have to be educated and trained. It also implies that the current workforce may have to question the longevity of their existing employment and how they can ensure they are earning a living in the mid-term, given the changing nature of the labor market and the jobs available. However, digitization should not be seen as something negative.
Let’s look at it this way, In traditional industries, efficiency gains through greater automation help make products and services more accessible, thus increasing demand for them. Paradoxically, the introduction of ATMs or ATMs and checkout scanners in the United States has boosted employment in both bank branches and the retail sector.
Automation also increases competitiveness and prevents the relocation of work to low labor costs. The German industry is a great example.
Jobs are only put at risk when productivity increases, i.e. when fewer workers produce more. However, productivity growth is slowing in almost all advanced economies. Last year, productivity growth in the services sector in Europe rose by just 0.2%, from an industry average of 0.7%. Economists call this phenomenon a “productivity crisis”, the main reason for which is the lack of investment in technological development.
It is also worth noting that the speed of transformation created by technology is overestimated. If we have heard in a society that in the whirlpool of information and technology development, there is a feeling that the world is turning faster and faster, then in reality it takes a long time for innovation to spread on a large scale worldwide.
For such a change to take place, the investment needs to reach a critical mass, as well as extensive experience in implementing innovation – especially in industrial processes.
It must be emphasized that digitalization is leading to structural changes in our economy. We must therefore avoid traps by focusing only on their net impact on the labor market.
The nature of the jobs available in the future is more important. Digitalization indeed increases the pressure on lower skill levels. However, it does not reduce the total number of hours worked but reduces the number of hours worked by people with fewer skills. In particular, routine work with low complexity, which does not require human interaction, is at risk.
The impact of digitalization on employment is very specific and requires individual responses. In Germany, robots and artificial intelligence pose less of a threat to jobs in the (already highly automated) manufacturing industry than to positions in the service sector, such as the offices of banks and insurance companies.
Some sectors, such as transport, are experiencing the full power of digitalization. And who says there will be no more surprises? Even purely “digital” activities could themselves fall victim to digitalization. Why employ human programmers when computers are now able to learn and generate code directly?
What about demographics?
Demography and digitalization are mutually beneficial. Looking ahead, as birth rates fall and the proportion of older people in the population increases, automation and digitalization will be able to provide valuable help not only in engaging where there is a shortage of human resources, but also in replacing hard, physical work that can and does cause health problems.
As for education and its role in the labor market, it is expected to have an even greater impact in the future. Education will determine whether a person will be able to enter the labor market or not. But here education should not be understood as the presence or absence of a higher education diploma, but as real skills and technology-oriented logical and practical skills.
In particular, when thinking about the impact of digitalization on the labor market, it is necessary to think far and wide that workers will need new skills and qualifications, but who will provide this education? Is everyone responsible for their further education? Is it the employer’s responsibility? And how to train people in companies that are lagging on the digital front?
Schools and universities also need to adapt. Non-linear thinking, creativity, problem-solving skills, and, above all, communication are still the main human activities. So it is not knowledge that is needed, but skills. And skills need to be taught.
When choosing a job, young people already attach great importance to the purpose and meaning of their activity. This poses new challenges for companies that want to attract enthusiasm and keep employees on board. Loyalty to employers is declining, but finding a job and choosing a “big role” will become a common practice.
The sense of belonging is no longer determined by organizational ties, but by professional experience. Therefore, a management style that appreciates and fosters personal relationships will be the key to retaining employees in the digital age.
An aspect that will affect the future of corporate culture will be the shift to flexible working methods, shifting focus, and presence to focus and results.
Especially for employees who are just starting their careers, they have significant freedom to choose where and when the work is done. If knowledge resources become as flexible as capital in the future, employees will expect to be trusted by the company rather than controlled.
Also, changes due to digitalization will take place not only at the level of employees but also at the level of supervisors, because companies will need new types of managers who will be able to be aware of business efficiency in change processes while moving the company to new business models.
Finally, new forms of work will require someone to represent the interests of employees. When employers become customers and ordinary employees become service providers, there is a change in the balance of power between the contracting parties. And to maintain social cohesion in an age when working relationships are becoming more virtual, it will be necessary to develop new solidarity and organize themselves.
We hope you found this blog post useful and interesting. We will continue to publish this type of educational content on and around digitization and automation!