AI Is Coming for Labor Cost First
AI and labor have a complicated relationship (and will for a while, maybe forever).
AI’s first clear ROI is replacing labor costs with less expensive, more accurate, efficient, and more productive agents. AI = labor arbitrage where it can. Where it can will be the most interesting because companies will push AI further and further to replace as much labor cost as possible. The push will cause discomfort and, in some cases, outrage, resulting in being pulled back in some areas. AI, however, is here to reduce labor costs whenever and wherever it can.
A case and point example of the above is at Shopify, where CEO Tobi Lütke recently told employees that the e-commerce company won’t make new hires unless managers can prove AI isn’t capable of doing the job. Other business leaders are warning their staff to adopt more AI, or else. (Link to Wall Street Journal article: https://bit.ly/3EZqFdY.
Where AI can’t replace labor costs, it will augment people doing their jobs to the greatest extent possible, meaning a decrease in the number of jobs needed in certain functions. AI job augmentation doesn’t necessarily mean immediate job replacement and labor cost reduction. Still, in the long run, it does because the augmentation equals fewer people needed to do the job.
Companies have a fiduciary responsibility to leverage AI to be more efficient, productive, and profitable, so it is no surprise executives are using AI to target their largest cost line item: labor. Companies exist to provide a product or service that customers/clients find valuable, which allows them to provide it profitably. Companies do not exist to employ the greatest number of people. The opposite is true.
All is not lost for us humans, though, about AI, as two other clear opportunities are taking shape that will elevate some jobs. First, some jobs will be made incredibly more productive and profitable to companies that AI can power. At Transform Labs, we’re working with clients to use AI to make some jobs exponentially more important to companies because of AI. Second, AI will foster new jobs, business models, and working methods that we can’t yet predict. This doesn’t bring much solace to workers who AI will displace in the short term. Still, in the long term, we will likely see a whole new economy that spurs massive innovation and job creation.
AI needs an initial win as companies figure out how to leverage it best to impact the business meaningfully, which means labor. AI will sometimes be a technical experiment for understanding, learning, and process definition. Still, executives will be forced to quickly transition it from a technical experiment to a business imperative, which means AI needs a financial target and win. Executives will not be able to experiment with AI for long before having to demonstrate a return to the business. AI is thirsty for value, and it will initially come at the cost of labor.
