The Future of Work How AI and automation are changing the nature of - - PowerPoint PPT Presentation

McKinsey & Company

The Future of Work

How AI and automation are changing the nature of work

McKinsey & Company 2

Machines have only recently started to match human capabilities in areas such as image and speech recognition

Source: J.R, Pierce, “Whither Speech Recognition?”, Journal of the Acoustical Society of America, October 1969; The Economist; Kleiner Perkins; McKinsey Global Institute analysis

2013-2019

Machine speech recognition error rate, % Human range

1969

Academic article on speech recognition J.R.Pierce Bell Telephone Laboratories, Inc. The Journal of the Acoustical Society of America, Vol. 46, No.4, (Part 2), 1049-1051, October 1969 “Speech recognition has glamour. Funds have been

• available. Results have been less glamorous. General-

purpose speech recognition seems far away. Special-purpose speech recognition is severely limited. It would seem appropriate for people to ask themselves why they are working in the field and what they can expect to accomplish.”

6 8 2013 14 15 12 16 2017 23 5

McKinsey & Company 3

20 35 10 25 30 60 70 65 85 80 90 75 40 80 55 50 45 90 2095 40 50 30 60 70 100 20

SOURCE: McKinsey Global Institute analysis

Machines could already replace 50% of hours worked, and by 2060, might have overtaken human capabilities in all work activities

~50%

• f current work

activities can be automated

Time spent on current work activities Percent Technical automation potential

McKinsey & Company 4

40 70 50 55 80 25 60 35 90 65 85 40 30 2095 75 45 20 30 10 20 50 60 70 80 90 100

Time spent on current work activities Percent

SOURCE: McKinsey Global Institute analysis

Adoption scenarios Technical automation potential

However, technical feasibility does not equal adoption

McKinsey & Company 5

The net impact of automation and AI on the number of jobs is also likely to be positive, but with significant worker transitions

5 Jobs lost Jobs gained 3 Total net jobs New jobs

• 7

1

Projected employment demand in the UK, 2017- 2030 Millions

Source: McKinsey Global Institute analysis

• f the workforce in developed

economies will need to transition

• ccupations or significantly upskill

in the next 10 years

30-40%

McKinsey & Company 6

From a societal perspective, automation and AI will likely result in further polarisation of the working population

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Historical growth in jobs Average education level Median gross hourly pay Vacancy rate Un- employment rate (reversed scale) Likelihood participated in training at work

Top quintile demand growth to 2030 Bottom quintile demand growth to 2030

Source: McKinsey Global Institute Jobs Lost Jobs Gained model; McKinsey UK Occupational Transitions Model; ONS; Bank of England; McKinsey analysis

Labour market conditions for top and bottom quintile

• ccupations in

the UK Z-scores

McKinsey & Company 7

Different local areas are also likely to face different labour

dynamics due to currently different occupational and skills mixes

Bristol Bradford

McKinsey & Company 8 McKinsey & Company 8

Around the world, we see rising discontent

McKinsey & Company 9

AI adopters with a proactive strategy exhibit higher profit margins

SOURCE: McKinsey Global Institute analysis

Operating profit margin of companies with different AI adoption patterns, 2017 %-point difference from industry average, unweighted Extensive AI adopters with proactive strategy Partial AI adopters

• r experimenters

Non-adopters 1.8-16.7

• 4.7
• 5.5

3.2 1.5

McKinsey & Company 10

Executives see skills shortages as a major barrier to transformations, but are not prepared for the shifts ahead

Source: McKinsey Global Institute

• f executives see skills

gaps as a major hindrance in digital transformations

• f executives say their companies

are not adequately prepared to address the skills gaps

~80% ~90%

McKinsey & Company 11

The occupations that are already facing shortages are likely to see the largest increases in demand for talent by 2030

Source: McKinsey Global Institute Jobs Lost Jobs Gained model; McKinsey UK Occupational Transitions and Skills Mismatch models; OBR; ONS; “Using job vacancies to understand the effects of labour market mismatch on UK output and productivity”, Bank of England, 2018; Migration Advisory Committee; McKinsey analysis

Projected growth in employment demand, 2017-2030 %; bubble size = employment in 2017 Occupational Talent Shortage Index, 2019 Average z-score of shortage indicators

0.6 0.4

• 0.4
• 0.8
• 0.6

0.2

• 0.2

0.8

• 10

1.0

• 30
• 20

10 20 30 Administrative occupations: finance Elementary sales occupations Elementary storage occupations Teaching and educational professionals ICT professionals Nurses and midwives

>21.4 <10.6 14.2-17.8 17.8- 21.4 10.6-14.2 Median gross hourly pay for full-time employees, 2018, £

McKinsey & Company 12

Sectoral talent shortages are also likely to be exacerbated

Relative Occupational Talent Shortage Index in the UK

Source: McKinsey Global Institute Jobs Lost Jobs Gained model; McKinsey UK Occupational Transitions Model; OBR; ONS; Bank of England; Migration Advisory Committee; McKinsey analysis

0.26 0.13 0.13 0.50 0.25 0.35 0.30 0.11

• 0.01
• 0.05

0.05

• 0.09
• 0.07

Professional services Information and communication Health and social work Education Finance and insurance Public admin and defence Recreational services Energy utilities Construction Manufacturing Hospitality Wholesale and retail Transport and storage 0.54 0.35 0.22 0.19 0.11 0.08 0.07 0.04

• 0.06
• 0.07
• 0.08
• 0.09
• 0.19

Current Future

McKinsey & Company 13

By 2030, workers are likely to spend more time using social and emotional, higher cognitive, and technical skills

• 14
• 15

8 24 55

Skills

Change in hours spent by 20301, %

Physical and manual Basic cognitive Higher cognitive Social and emotional Technological

Source: McKinsey Global Institute analysis

• 1. United States and 14 European countries

McKinsey & Company 14

Basic digital skills 21.2m

Critical thinking and decision making 10.7m

Leadership and managing others 11.0m Project manage- ment 5.5m Interpersonal skills and empathy 5.8m Advanced communication and negotiation 10.6m Complex information processing and interpretation 6.8m Basic literacy, numeracy and comms 5.7m

It is not just digital and technology skills that will be in short supply

Top 8 workplace skills (>5m under-skilled workers) Top 6 knowledge areas (>1.5m under-skilled workers)

English language 2.2m Mathematics 1.6m Computers and electronics 1.6m Administration and management 1.7m Customer and personal service 2.6m Education and training 1.8m

Source: McKinsey Global Institute Jobs Lost Jobs Gained model; McKinsey UK Occupational Transitions and 2030 Skills Mismatch models

Projected number of under-skilled workers in the UK in 2030 in ‘business-as-usual’ scenario

McKinsey & Company 15

Skills shortages are expected to undermine companies’ financial performance

30 25 25 23 23 Financial performance will suffer Top-performing employees will leave Will not achieve our growth aspiration Will not be able to fully capture value from automation or AI technologies Will not be able to expand into new markets

What do you expect to be repercussions of your

• rganization not being able to get the skills you need?

% of respondents, up to 3 responses

Source: McKinsey Global Institute workforce skills executive survey, March 2018; McKinsey Global Institute analysis

Source: McKinsey Global Institute workforce skills executive survey, March 2018; McKinsey Global Institute analysis McKinsey & Company 15 McKinsey & Company 15

McKinsey & Company 16

Businesses can get ahead through creative talent strategies

Companies need to craft their talent strategy with the same degree of care and attention as their business strategy

A foundational step is to look at the workforce more strategically – and to plan now for future dislocations.

Acquire talent from unconventional sources “Rent” talent from external partners Build skills (existing employees)

McKinsey & Company

The Future of Work

How AI and automation are changing the nature of work