Companies Are Firing the Wrong People

(Bloomberg Opinion) -- The coronavirus crisis will transform the global economy in ways that are hard to anticipate. Consider, for example, automation: As executives face difficult decisions about what to do with their workforces, might they opt for more machines over humans? And what will be the longer-term effect on employment, business and overall prosperity?

Erik Brynjolfsson and Andrew McAfee, both on the faculty at the Massachusetts Institute of Technology, spend a lot of their time thinking about such things. They have written three books together on how technologies such as artificial intelligence will change the nature of work and management. (Disclosure: They are also starting a consulting company, Second Machine Age Technologies.)

I spoke with them about the challenges companies face, the importance of human capital and how best to prepare for the eventual recovery. Here’s an edited version of our conversation.

Roy Bahat: How does this crisis affect how companies think about which problems to solve with talent, and which to solve with technology?

Andrew McAfee: Recessions cause companies to pay much closer attention to their costs. Chief executives become zealots for reducing spending, and labor is no exception. The unemployment claims we’ve seen over the past weeks show clearly that there are, tragically, a lot of layoffs with the Covid recession.

When you look at the history of recessions, there's an interesting pattern: Employment rebounds more slowly after each one. This is because technology keeps advancing -- it can do more and more tasks that used to require humans. After each successive downturn, those tasks don’t go back to people; they remain automated. Since the last recession ended a bit more than ten years ago, we’ve seen the rise of machine learning, the appearance of drones and other kinds of physical automatons, and the explosive growth of the cloud. In short, digital technologies are much more powerful.

But it’s important to realize that this combination of automation and recessions does not cause permanent unemployment. Innovators and entrepreneurs come up with all kinds of new offerings that fuel growth, and many of the tasks underlying these offerings can be done only by people. So employment eventually rebounds. The same thing will happen this time. We’re confident that this recession will not mark the start of large-scale technological unemployment.

RB: The thing a lot of executives are struggling with right now -- as we all grapple with the human side of this tragedy -- is how to cut costs without jeopardizing their companies’ futures. How does technology affect which people they need to keep?

Erik Brynjolfsson: We're seeing a slow-rolling catastrophe right now as trillions of dollars of human capital is being cut loose. Many of those laid off have exactly the skills that will be desperately needed when the economy rebounds. We’ve seen over and over that companies plan layoffs without paying much attention to who they're going to need on the other side of the recession. Then they have to go back and fight the war for talent all over again to get the people and skills they need. There’s a better way.

The smarter way to do it is to reason from the endpoint back and ask, what kind of company do we want to have in the future? What skills will we need to benefit from machine learning and other breakthroughs? There are things that technology just can’t do, and won’t be able to do in the coming few years. Companies will still need people with creative skills, interpersonal skills, problem-solving skills, and in a whole bunch of other areas where humans beat machines. Let's make sure we don't send these skills out the door right now during the crisis, because it’ll only become harder to get them back.

RB: How should companies think about keeping people, then?

AM: The leadership of the average enterprise knows almost nothing about its own human capital. They might know how many employees they have in different jobs, but they don't know what actual skills the people have. That presents a big challenge. It also presents a huge opportunity because we don't think it has to be that bad.

Companies can find good quality information about their human capital. It might not be in the human resources department. But people leave a lot of signals on their LinkedIn profiles, on job posting boards and in online communities. These can tell you a great deal if you're intelligent about listening.

A lot of people that have 80% to 90% of the skills their employers will need. And then it's only a matter of topping them off with the right new skills. That’s a lot easier and less expensive than starting from scratch.

RB: What should a company’s human resources team do?

EB: Take a moment and look at the work you need done at the task level, not the occupation level. A typical occupation has 20 to 30 distinct tasks. Virtually every occupation has some tasks that you can replace with technology, but almost no occupation can be entirely automated. What’s more, many tasks done by humans are made more valuable when amplified or complemented by technology.

There's a big role for re-engineering, redesign, and entrepreneurship to unbundle and rebundle tasks. And take parts of, say, customer service and automate them and other parts and repackage them perhaps into a new job. We’re still going to need, for example, loan officers and personal bankers, but they’ll be doing a very different set of tasks than in the past.

Successful managers will take technology to a more creative level and reinvent work, not just automate it. Managers are one of the main job categories that need to be repurposed here. It takes a particular type of manager to convert a whole bunch of people from doing one type of work to another. So screening the managerial staff for the right people, for the ones who can enable this gearshift, can be a very high-return early activity.

The pandemic is an acid test for good management. People will tend to do things the same way unless they're forced to change. Now, suddenly we're all being required to figure out very quickly whether it's humanly possible to do essential tasks without having people physically commute to work. Sometimes that means doing it remotely. Sometimes it means automating part of the job. Most often, it means mixing, matching and re-inventing.

We've been studying where machines, especially machine learning, can help. We can look at any set of tasks in an organization and score them according to their suitability for machine learning or other technologies. That creates a road map that allows an organization to focus its technology efforts – and, perhaps more important, understand which people to retain to complement the new ways of working. Done right, today’s challenges can be an opportunity for business reinvention and even rebirth.

RB: Are some industries in a better position than others?

AM: Some have longer track records of automating and deploying technology to complement and substitute for labor. Some are laggards, especially in-person service industries. With few exceptions, they have not aggressively embraced the technology. Industries such as retail and hospitality are more exposed to this particular crisis. Industries such as professional services are better equipped to take advantage of remote work or digital technologies.

That said, this pandemic and the accompanying economic shock will change the way a lot of industries operate. We're going to learn very quickly which aspects of in-person service are necessary, and which can be automated.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Roy Bahat is the head of venture capital firm Bloomberg Beta, and a lecturer at the Haas School of Business at the University of California, Berkeley.

©2020 Bloomberg L.P.