Labor Arbitrage, Automation and Customer Service

The feature article in the NY Times Magazine yesterday told the story of IBM's AI team creating a credible Jeopardy contestant.  Clearly the IBM team has made some progress since Deep Blue beat Garry Kasparov in May of 1997.  The computer may not win, but IBM will win a great deal of attention during the event next fall.  Probably both great technology and great marketing.

While reading the article, some roads converged in my technology imagination, mostly in the areas of labor arbitrage, automation, and customer service.  The effects of these changes are going to be felt slowly over some time -- but they will be significant.

Labor Arbitrage

We are a decade into the Internet enabled off-shoring movement fueled mostly by low cost labor.  Technology innovations only happen when the innovation is ten times better.  Offshore labor does not have to be 1/10th the onshore cost, but it needs to be at about a third in order to work.  If we are paying $9 per hour onshore for something that can be done for $3 per hour offshore -- the inefficiency of distance and the added cost of travel and/or transport can be overcome.  If onshore and offshore labor rates converge, off-shoring will become less compelling.  This convergence can happen by offshore labor rates rising as competition for workers and living standards are raised in offshore markets, or as onshore labor rates fall.  Wait, how can onshore labor rates fall?  Through automation.

Automation

Everywhere we look we see automation.  Cars are still being built in this country because robots do most of the work.  We see the combination of automation and self service every time we go to the bank machine or the grocery store.  Google signs up customers without any salespeople -- which is automation displacing labor in yet another way.  The IBM Watson project may seem too theoretical to start displacing humans, but as the NY Times piece points out, the first application may be in the call center.  Giving the computer the job of answering customers complex questions.  Just like on the manufacturing line, the bank machine, or the grocery store, the computer does not have to answer all of the questions, just a good percentage.  When the human's job becomes handling the extreme exception and managing the machine -- the skills required and the associated pay are each increased significantly.  At the end of this road lies a customer service capability for companies who have never operated in that mode.

Customer Service

Search for "Google Lack Customer Service" and you can read for days about how Google just does not do it.  This is a cause for relief by some of Google's more customer centric competitors.  When IBM delivers to Google an engineering driven answer to this deficiency it will be as big as any significant change in an ecosystem.  Kill all of the wolves and the elk population goes through the roof.  Google is not the only engineering driven company that will benefit.  HTC and many of the other sophisticated OEMs, will be able to accelerate their evolution from manufacturer for others to full competitor.  The ecosystem will never be the same.

Earlier this year I heard a presentation by Jaron Lanier where he gave the low cost labor countries like India, China, and the Philippines 20 years to get up the education ladder far enough to be safe from the flood caused by automation.  Could be 20, I would guess 10.

Know Your Place and Your Responsibilities

A few years ago I took a trip to India.  I was fortunate to meet many of the leaders of the business community in the capital city of New Delhi.  Like many people from the US I found myself in surrounded by people educated much better than I was, and I was prepared for that.  

I was not prepared for the widespread accepance by the elites that the good of the nation was more important than the good of any individual family dynasty.  Sure, they may have just been saying this, but there was some evidence to support it.  You may recall that just a couple of decades ago there were state protected monopolies in India for oil, cars, and just about every other major market.  These were owned by families and as we learned in Econ 101, protected monopolies are not efficient.  Somehow these powerful individual interests were put asside at what must have been an unnerving threat of financial risk to the people in power in exchange for an uncertain payoff as the Indian economy entered the open  world markets.

Now surely these families were seeking any advantage they could secure as they crossed the chasm.  But even so it was a show of defference to the greater good that we could learn from.  While in India the evidence of the caste system is one of the things that you just cannot avoid thinking about.  Being from the US, I do not believe the caste system will bring benefits to India.  I cannot help but marvel at the way the worlds largest democracy incorporates this complex history in a way that may just work.  

This past week I was fortunate to be part of a conversation at Mark Anderson's Fire conference about alternative energy.  Mark has done an amazing job with Fire and he continues to push the people attending to think of new things about how the future could be.  A few years ago he started the CTO challenge.  He assembles the CTOs at the conference into a team and challenges them to think hard about a big problem.  Not unlike a code-a-thon, this 48 hour effort is not expected to solve everything, but to apply a burst of creativity and concentrated energy with the hope of advancing the ball down field a bit.

This year the challenge was to think deeply about how to scale alternative energy.  Many ideas were presented, and along the way it was just assumed that any viable ideas must steer around the vested interests of coal and oil because those elites would never give up their singular pursuit of their best interests (or give up their lobbiests).  

At that moment it struck me that just maybe the responsibility the elites in India feel a for the best interest of their nation comes from the caste system.  Could it be that a horrible construct that condemns people to their place for generations also conveys a responsibility to the people at the top to do the right thing?