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Is artificial intelligence the right solution for you?

April 22, 2019

By Martha Sullivan, CPA, CVA/ABV, CM&AA, CEPA
Partner, Succession Planning Practice Leader

Martha leads HK’s succession and exit planning services division and is a regular contributor to Wisconsin’s InBusiness digital magazine.

Everywhere we go, we are all hearing the same thing: Finding and keeping employees is a bear. No community, industry, or company is immune. The problem is vexing, persistent, and like one of Harry Potter’s dementors, sucks the very life out of us as managers, owners, and co-workers.

It’s little wonder that many companies are rushing to automate many of their tasks. In a recent report from the Brookings Institution, approximately one quarter of all jobs in America are at risk of automation. For the employee, this is a significant threat, especially for those who are low skilled. For the employer, this presents both opportunity and the need for investment. Office, production, transportation, and food preparation are the largest sectors in sight of automation due to the routine, physical labor, or information collection/processing nature of the tasks involved, though the findings recognize that almost all occupations will be affected by technological change and artificial intelligence.

However, geographic differences exist in the reported data. For example, the research indicates that 44 percent of the tasks performed in jobs in Madison are susceptible to automation relative to all the 406,690 metro-area jobs held. Just an hour east, the risks are higher. The Greater Milwaukee area’s 865,040 jobs are at 45.5 percent risk. Each community’s job composition profile drives the risk.

Those jobs that are more “secure” from being replaced by automation include professional and technical roles that have higher educational requirements and those low-paying jobs in personal care and domestic service. These roles demand more non-routine activities that may be more abstract and/or require higher degrees of social and emotional intelligence than the average robot can muster.

The implications of the study are important for an entrepreneur and business owner to wrap their minds around. The opportunities for efficiency gains and lower human resources challenges are appealing. In some industries, such as restaurants and bars, it may become mandatory where annual turnover runs over 70 percent. Automation reduces the risk faced in labor shortages, providing more reliable service and product delivery to customers. The return on that investment impacts profitability and the value of the company in the long run.

However, automation initiatives are not for the faint hearted. It’s an investment that may have longer-term payback horizons, but not short-term paybacks. Automation projects demand considerable research, evaluation, implementation (process mapping, data conversion, testing, etc.), and training, all of which take time — one of our most precious resources. They require plenty of our other most precious resources: money. The payback period depends on how proven the technology is, its ease in implementation, and in-house acceptance. How will our customers accept it? Are the automation tools off the shelf or are you creating your own? Has the market settled in on the pricing for the technology? Early adopters tend to pay a higher price, but they are also the early adopters, so they have the potential to reap the rewards of being first to market.

All business owners face crucial questions considering automation: Do I want to make the investment? Can I afford to make it? To not make it? How patient is my capital? The stakes are high.

As discussed in the Know When It’s Time to Harvest post, decisions such as this cut to the heart of whether a business owner has gas in the tank to continue to grow his or her business or whether he or she wants to move on and do something different. When you choose growth, you know that your return on investment will take time. You are presumably OK with that. You are willing to put in the time, energy, and capital, and wait for the return.

However, many owners — baby boomers in particular — are feeling the gas gauge sliding toward “E.” According to the Fourth Quarter 2018 Market Pulse Survey published by the International Business Brokers Association in conjunction with M&A Source and Pepperdine Private Capital Markets Project, retirement is the number-one reason driving business owners to sell their businesses. The number-two reason cited was burnout.

I believe labor shortages are fanning the flames of burnout. It impacts our employees, sure, but what about the impact on our owners and therefore the business? When owners are burnt out, efficiency, decision-making, effectiveness, and profitability all suffer. These symptoms show up in the financial statements quickly, creating a direct and negative drag on the value of the business. Buyers focus on the last 12 months of results. They don’t give extra credit for the fact that your company has kicked tail for nine of the last 10 years. If the last or current year financials are showing signs of burnout, the price will go down. It’s best to go to market when results are trending up, not down.

If you’re considering automation as a solution to your labor shortage challenges, you know it’s a complex decision tree. Where does your company fall in the scheme of future automation and artificial intelligence? Where do you sit personally, as a business owner, on the question of investment and energy? What is your plan?

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