CEOs: Labor costs driving automation

In a new study, U.S. business leaders reported that soaring labor costs are fueling an accelerated push toward automation.

In November, Chief Executive Group polled 182 CEOs, and 59% of them said automation and technology investments were their first choice of strategies to offset rising labor costs. That topped all other strategies, including price increases (51%), finding new revenue streams (41%), reskilling existing workers (35%), outsourcing (32%), cost cutting (28%), and job cuts (21%). That won’t automatically translate into a reduction in workers.

Among those surveyed, 88% said they expected to displace less than 5% of their workforce with automation in the coming year, and 40% said they did not expect technology to displace any workers at their firms in the next 12 months. No one responding to the survey expected to displace 15% or more of their workforce with technology. Executives at bigger companies reported larger appetites for adapting technology solutions compared to executives at smaller firms.

Some 62% of executives at companies with less than $10 million in annual revenues said none of their employees would get displaced by automation. That’s compared to only 9% at large companies with $1 billion-plus in annual revenues. If that pattern holds, it could broaden the productivity gaps between larger and smaller organizations with large companies potentially using automation to slow workforce growth—and the highly inflationary costs associated with bringing people aboard—to a greater extent than smaller rivals.

New advances in technology promise to make the existing workforce more productive at every level of the company–not just at the bottom rungs—so the greater the automation effort, the greater the overall advantage, at least in theory. “In the past, we looked at automation in different types of roles, typically at the bottom pyramid, the bottom layer of menial task,” says George Casey, advanced analytics practice leader at consultancy RSM. “What we’re seeing is that throughout the organization, the top-level jobs, our traditional ‘white collar’ jobs, are potentially more at risk because they have a greater return.”