Responding to the New Reality: Robots Vs. Humans

As companies weigh the benefits and challenges of increasing automation, local leaders must also evolve their incentives programs.

By Katie Culp, CEO, KSM Location Advisors

These days, almost any consumer can tell you that our country has a workforce problem. From daily, negative retail experiences to delays in consumer product shipping, even my 72-year-old mother knows that businesses are challenged to find the employees needed to meet demands. (And boy, does she verbalize that frustration frequently!) This current workforce problem extends from the retail to the commercial and industrial sectors, and site selectors and corporate executives are feeling the pain and pressure in very real ways.

Every corporate executive involved in a site selection assignment bears the burden of trying to find the perfect location, which used to be defined by cost-effectiveness, likelihood of hiring success, low cost of doing business, and ready infrastructure so that a brand-new operation could be opened in half the time it used to take. Experienced site consultants used to spend (and continue to spend, to some degree) hours upon hours digging through data in order to identify candidate communities with the lowest risk and highest probability of success. Information like available workforce, occupational codes, and levels of employment growth and unemployment provided good support for a more detailed analysis that came from a lot of data and a little bit of hope.

But things have quickly changed. It’s a brave new world out there for site selection. The data that used to provide confidence and reassurance is no longer sufficient and is only a small part of understanding a candidate community’s potential workforce. Believe it or not, it is the anecdotal information about workforce — in addition to the standard research — that increases confidence about a potential location. Can local employers find people to show up every day? What is retention and turnover like? Can employees pass drug tests? Do they job hop over 50 cents an hour? Can any of the local employers actually fulfill their hiring needs, even if it requires paying a premium? Or can employers pay 120 percent of median wages and still end up with an insufficient workforce? Is everyone in the same, rather empty boat?

Evaluating Automation

These and other considerations are prompting — and sometimes forcing — many employers to evaluate operational efficiencies, including automation. Automation frequently yields increased productivity by replacing jobs (typically jobs with lower skill requirements) with “robots.” Many elected and appointed officials struggle to respond to this new reality because for so long job creation was the primary goal and emblem of successful economic development. Now they have to consider new projects with smaller job-creation numbers and must react to existing incentives recipients who pivoted toward a model of automation and more modest job creation.

Oftentimes investing in automation is a huge capital expense, taking many years for a firm to reach a break-even point of covering the initial cost. And while many progressive, tech-savvy industries dive deep into this solution, most of the executives I work with are reluctant to head down a fully automated path. They are seasoned enough to know how well a facility might run if the right workforce can be motivated and compensated to perform capably. They also know that although fancy equipment may be able to replace certain types of workers, it comes with its own risk (the death knell of deals). These executives are betting on a technology that they hope pans out the way their consultants advised them, but personal experience tells them that qualified workers are the safer bet — if they can be found.

What should economic developers do?

The reality of these industry changes is something that economic developers and elected officials need to absorb and absorb quickly. Here are some suggestions:

• They need to find new ways to evaluate the merits of a potential economic development project. Job creation is and should be an important part of the equation, but are there other components of a deal that can make it appealing? Firms embracing new technology and operational efficiencies may create fewer jobs, but this is often happening because they simply cannot find workers for some of the lower-skill positions.

• On the topic of an evolving workforce, local and statelevel officials also need to acknowledge that many employers now allow workers to perform their jobs from the comfort of their homes instead of being physically present every day. Many incentives programs are currently crafted to penalize operations like this.

• Anecdotal workforce data is increasingly important. Local employers may be less likely to speak with prospective employers coming to town since they are viewed as competition for prospective employees. But strong economic developers have their thumbs on the pulse of the local economy and have regular dialogue with existing employers. Understanding which employers are struggling and why can be an essential factor in winning new projects.

• In general, I’d like to encourage public officials to revisit not only their statutes but also their policies that may have become outdated and no longer pragmatically support the very economy they are charged with protecting. Many incentive programs have been slow to evolve, and our team has seen more penalties and economic incentives clawbacks for companies that pivot their operational model to a leaner, more automated approach. Are masses of lower-skilled, lower-paying jobs really better than more successful operations that employ fewer workers but with higher skill levels and at higher wage rates?

How should corporate executives respond?

Corporate executives who find themselves charged with site selection decisions should try to understand the changing landscape through the eyes of public officials and should provide a robust explanation of their operational model and the many merits of a new or expanded operation. They should try to quickly assess what elements of their project are appealing to officials and what elements need careful explanation. Understand the why behind their reactions and how the economic incentives programs are designed. If these programs do not align well with a company’s planned operations, it is best to problem-solve up front and collaborate with economic developers before location decisions and announcements are made.

I see no reason to fear the trend of automation or to imagine a world where robots have replaced significant levels of humans. What I do see is a challenge for communities and employers to work together to facilitate needed skills training so that those at risk of being replaced by automation are prepared to learn new skills and earn higher wages.