Automation and the Evolution of Process Structure in Services

I was particularly interested in the Process Structure and Strategy section of Chapter 2.  My post will begin with an overview of key concepts and terms.  Following this, I will briefly introduce a report from McKinsey and Company on automation’s anticipated impact on work.  Finally, I will attempt to bridge the key concepts and terms from the textbook to McKinsey’s analysis.

Krajewski and colleagues make a distinction between the process structure in service companies vs. manufacturing companies.  Both of these matrices are based on the same overarching factors, (1) level of customization, and (2) nature of process flow.  For the purposes of this post, I will primarily be focusing on the process structure that exists in services, but it is important to note that many firms have both service and manufacturing aspects.

In regards to services, the textbook uses the “customer-contact matrix” to evaluate service-orientated process structures.  The authors describe customer-contact as “the extent to which the customer is present, is actively involved, and receives personal attention during the service process,” (52).  In the service-oriented matrix, customer contact is a proxy for the degree of customization required for each customer interaction.  Let’s use the Ritz-Carlton as an example to flush out this idea more.  On one end of the customer-contact/customization spectrum sits the concierge at the Ritz-Carlton in New York City.  The concierge is a physical presence at the hotel and delivers personal attention to hotel guests.  Furthermore, the hotel concierge’s services are highly customized to meet each guest’s needs and workflow to deliver exemplary service to each guest is highly individualized  The customer-contact matrix categorizes the hotel concierge as a front office position.  On the opposite end of the spectrum from the concierge sits an employee that manages the payroll for Ritz-Carlton employees.  This individual likely has little to no interaction with customers and performs a rather standardized process for each employee.  The customer-contact matrix describes this type position as “back office.”  In between these two extremes exist “hybrid office” positions, roles that require processes “with moderate levels of customer contact and standard services with some options available,” (53).

The book provides some color on the role of automation in service processes.  For instance, Krajewski et. al. suggest that automation can reduce service costs in similar ways that it can reduce manufacturing costs.  Furthermore, automation can improve quality by increasing consistency.  The authors do caution that volume is often needed to justify expensive capital expenditure on automation technologies.  Given how quickly robotic automation and artificial intelligence have developed (and will continue to develop), I would like to introduce a recent McKinsey article on the impact of automation technologies on jobs, skills, and wages.  “Where machines can replace humans—and where they can’t (yet) ” can be found by following this link.  I highly recommend taking the time to read the full article, but I will provide a few key takeaways and relate them back to the customer-contact matrix discussed in the preceding paragraph.

The McKinsey article does not only examine specific jobs that could be replaced by existing automation technologies but examines over 2000 specific tasks and determines whether or not which parts of jobs can be automated.  One of the article’s most powerful statistics estimates that, on average, “one-third of the time spent in the workplace involves collecting and processing data,” (McKinsey 2017).  For the purposes of this discussion, I’d like to highlight one other aspect of the McKinsey article: the types of processes and tasks that can be automated with existing technology, and those that can not.  For example, physical labor in predictable environments, data collection and processing, and transportation and logistics present the easiest opportunities to automate.  The article suggests that the activities that will be the most difficult to automate “involve managing and developing people,” (McKinsey 2017).  Furthermore, activities involving decision-making and creativity have the least automation potential after the management and development of people.

I’d like to draw a connection to the textbook material and the textbook’s customer-contact matrix in regards to the distribution of jobs across the front, hybrid, and back office work.  I would be curious to know learn about specific data across each of these distinctions, but in general, it seems reasonable to expect that the back office work—work that requires little customer interaction, little management of people, minimal creativity, and predictable workflows—is ripe for automation.  The number of “back” office is likely to decline significantly as automation is adopted by companies to cut costs and decrease the likelihood of human error.  Furthermore, as the McKinsey article insinuates, the concierge role is likely to change as well.  There will still be a need for a concierge, but some of their tasks will likely be aided by automation technologies.  I am especially interested in the distribution of jobs across these classifications because it seems likely that, as companies save money on back-office positions, there will be additional money to spend on front-office and service-oriented positions.  This means that the Ritz-Carlton can provide an even higher level of service (via a greater number of concierges), and even that some lower-end hotel chains might have additional resources to budget toward the implementation of front-office, service-oriented positions.

6 thoughts on “Automation and the Evolution of Process Structure in Services

  • January 25, 2018 at 8:58 am
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    Andy,
    This is a great topic with far reaching implications in many business sectors. As you’ve mentioned, jobs which require little customer contact and have repetitive work (those which the customer-contact matrix refer to as ‘back-office’ jobs) have a high likelihood of being automated in the future. Although a more automated workforce seems like an inevitable future, many workers ignore the possibility that their jobs could be on the chopping block. In a study done by the Pew Research Center “65% of Americans expect that within 50 years robots will be doing much of the work now done by humans—but 80% believe it will happen to other people’s jobs, not their own”. This is both because automated processes have more potential to replace repetitive processes than the average person may realize, and also because many people underestimate how ‘back office’ and replaceable their position may be. One field with great potential to be automated in the future is the accounting and finance sector (PwC finds accounting to be the most at risk field for automation within the next 20 years). Although the conservative decision-making expertise of a professional accountant will never stop being in demand, much of the data collection tasks necessary to make these decisions can be delegated to machines. Accountants will continue be absolutely necessary since accounting and tax parameters have many gray areas which require a professional to determine. Although nobody can predict the future of automated technologies and processes it is clear that their advance will greatly shake the business sector.

    -Matt Thomas

  • January 25, 2018 at 7:00 am
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    Hi Andy –

    I was particularly drawn to your post because in my macroeconomic theory class last spring we spent a lot of time explaining the effects of automation and technology on the labor markets. I was able to read the article you linked in your post and I found it very interesting. I think for me, personally, it changed the viewpoint on the situation from what technology CAN automate to what technology CANNOT automate. There is usually an air of cynicism around the topic of automation in the workforce because we see people losing jobs, disposable incomes falling, demand falling, firms adjusting their inventory levels… and the chain reaction continues. What people tend to overlook in this argument are the (many) advantages that human kind still have over technology.
    From the chart on technical feasibility in the article, I remembered the saying that I have learned in many classes: “a computer is only as smart as the one who programmed it (us)”. Computers are good at predictable work and work that would probably make a human feel ‘automated’ if they were performing it on a daily basis. However, there is still the majority of jobs (~70%) that are unpredictable, and require much more than a black and white answer. As the reading said, only 30% of 60% of jobs currently could be automated, this calculates to only 18%.
    For an example, a calculator can spit out a certain number on your math test, but it cannot decide to re-compute that number because it was not a ‘rational answer for the problem’. When we break a computer down, we find binary code. Computers are processing everything at their core with either a ‘0’ or a ‘1’, making much of their essence one-sided. This is much unlike humans, which when broken down are extremely complex. Humans were made to not only pinpoint grey areas and address grey areas, we ourselves are grey areas, with varying purposes and experiences that allow ourselves to have internal struggles when making decisions.
    I think moving forward as business people into this automated world we must accept our 18% losses currently and rejoice over the higher productivity we will see in these areas. However, we must also appreciate the complexity of human rationality and understand that we have a KEY advantage over technology. We have the emotion, the culture, and our guiding standards of ethics to help us make decisions – something a computer does not. I think when working harmoniously, human rationality and technology efficiency can the ability to dually increase the future of productivity.

    Thanks for sharing!

  • January 24, 2018 at 10:46 pm
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    Andrew,

    I found this blog post to be an interesting and helpful analysis of the connections between the concept of a “customer service matrix” and the overall trend of automation in the workforce. Your inclusion of your own personal work experiences helped to illustrate the differences between “front office” and “back office” jobs and the different responsibilities and tasks associated with them. After reading the link that you provided, I am sure that automation in the workforce is an unstoppable trend that is exponentially progressing. Because of this, any job, regardless of level of customer contact, will be affected in some way by automation, either by total replacement or augmentation. That being said, “back office” jobs are at a much greater risk of becoming fully automated.

    I too have worked what could be considered “front office” job and “back office” jobs. In my experience, I was working for a law firm and was tasked with organizing thousands of legal documents by township and sector. This was a tedious process of data collection and organization that would have undoubtedly been performed faster and more accurately by a machine. However, my “front office” job was as a delivery boy for the mobile app Favor, which is comparable to UberEATS. During my time working for Favor, I interacted with customers much more frequently, and I maintained contact with the customer via text message to give them constant updates on the status of their delivery. But the more I think about it, the more I realize that aspects of my job could also be automated. Automated text messaging is already something many companies utilize, and the car I was driving to get from location to location will eventually become fully automated as well. The automation of the world’s workforce is rapidly approaching and will undeniably affect all jobs in some way, with those that require higher levels of customer contact fairing slightly better than “back office” jobs, which will be the first to witness these changes.

  • January 24, 2018 at 9:24 pm
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    Andrew,
    Technology will continue to advance as long as humans are around. In this day and age, we are at a time where automation is very common. I agree that automation can replace back office jobs even in industries where you may not think it will be able to work. I spent my summers in high school working at a restaurant. Sure, you cannot replace the servers that interact with customers or the manager. There is one area where I think automation or robotics could in every restaurant, there is a person in charge of handling dirty dishes. Technology has brought us far enough that we can load the washer and have the dishes cleaned in under 15 seconds. But this still requires a person to work the machine. According to the Mckinsey article, I would say that this is “predictable physical work”. With the advancement of technology, it is possible to see a more automated dishwashing process. Doing so would streamline the work process while also making it more efficient. However, decision making and management are still necessary in a company.

  • January 24, 2018 at 4:42 pm
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    Andrew, the rapid growth of technology is undeniable, and I loved how you tied that topic into the customer – contact matrix. I am in full agreement with your analysis of the situation: back-office jobs are much more susceptible to replacement with technology than the front-office jobs that require a lot of human interaction. I’ve held two moderately professional jobs during past summers, and both of these positions fell on opposite ends of this matrix spectrum. After my freshman year, I worked as a Cutco cutlery salesman. I would call clients and customer recommendations to ask if I could present my product to them in their home. Surprisingly, almost everyone who answered said yes, and even more surprisingly, almost everyone who watched my demo bought something. This seemed to be the case with every salesperson in the office. In-person sales demonstrations were and continue to make the most money for the company. Online sales barely even compare. That sales job could never be fully replaced by technology. The human touch and the ability to understand and adapt to new situations are the two biggest reasons for in-person success. The next summer, however, I worked at SEI Investments in the Philadelphia area. There, I worked in the back office moving electronic files, examining data for errors or mismatches, and filling out internal databases. Every single job I did there could one day be overtaken by a machine. It definitely didn’t make me feel as valued or as important as I did when I sold Cutco.

    One field that I am curious about in regard to technology is education. From kindergarten to college, is it possible for teachers and professors to be potentially replaced by technology in the future? At the moment, I don’t think they can be replaced due to the significant amount of human interaction required within our educational system. However, receiving a fully automated education is not unfathomable. About 20 years ago, teaching was a profession that solely relied on the instructor’s ability, knowledge, communication, and delivery of class concepts and topics. Every year since, new technology has been introduced to the classroom to influence and improve the way students learn. Is it possible for students to receive a fully automated education in the future? I’d love to hear some thoughts!

    • January 24, 2018 at 10:45 pm
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      Nicholas, I agree having a fully automated education isn’t feasible. In education, the human aspect to teaching is something that will never be taken away and is just a fact of human life. Which is also the case with many other professions. There are some things that can never be replaced as you mentioned (the human touch and the ability to understand). On the contrary, I think human society is on track to become more automated. Which can be both good and bad. My high school as well as my sister’s high school have switched to completely using IPads. These students no longer have to carry textbooks or even notebooks. Everything a student needs is on an IPad. I personally think I wouldn’t succeed in this environment. But it could be the way the new generation learns and it very well may be the standard for years to come. There already is software (Rosetta Stone) out in the market that are designed to teach new languages. So it wouldn’t surprise me if we see something similar being implemented in schools that teach mathematics and the like.

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