Saturday, May 9, 2015

AECOM and the Quest for Labor Productivity in 2065

The current issue of ENR magazine has their annual list of the top 500 design firms in the United States (ENR link).  What makes this year different is their look-back to the engineering world of 1965 - - what firms were around in 1965 and which ones have disappeared.

The interesting point to the article in my mind was how the world has changed since 1965 in terms of engineering consulting labor productivity.  I defined that as revenue divided by the number of employees.  As with all organizations, it is a good macro-indicator of the long historical march of technology and investment.  The engineering consulting industry is no different than the widget manufacturer - the goal is to increase output for a given employee.

The important idea embedded in the ENR 1965-2015 look-back is how technology has changed the industry and the nature of labor productivity improvements.  Imagine a world of 1965 characterized by slide rulers, manual drafting, and typing pools.  If you were the CEO of a consulting firm in 1965, you would have been thrilled with labor productivity of $10,000 per employee.  Fast forward 50-years to 2015 and think about all the technological changes that have impacted the nature of engineering consulting. From the HP calculator to CAD to MS Word/Excel to the iPhone - we have all felt the influence of technology over the last 50-years.  We have seen and experienced a unique period in our economic development as it relates to productivity improvements.

The #1 firm on the ENR list is AECOM (link to their fact sheet).  Their current labor productivity is $195,000 per employee ($19.5 billion in revenue with approximately 100,000 employees).  Most firms in the top 500 firms have seen similar impacts to their labor productivity since 1965 on a non-inflation adjusted scale - growth from the $10,000 per employee range to around $200,000 per employee.  I will make the argument that this huge growth has been fueled by investment and adoption of labor saving technology.

Looking toward the next fifty years is always a challenge.  In the case of AECOM and all the others on the ENR 500 list, they want their labor productivity to grow at a rate faster than the inflation rate. Assume that the next 50-years holds the same technological promise as the previous 50 - we want annual labor productivity increases in the order of 6% annually (assuming an annual inflation rate of 4% over the next 50 years).  This means that in 2065, the labor productivity for AECOM needs to be approximately $3,500,000 per employee.

The question that one arrives at is what new and advanced technology will support this rate of labor productivity growth over the next 50-years?  The current issue of The Economist has a cover story - Artificial Intelligence: The Promise and the Peril - that highlights our probable technological future in terms of technology and labor productivity growth.  The changes from 1965 to 2015 will seem mild compared to the world of 2065.  The robot and AI economy will have huge impacts on the top 500. From janitors to surgeons to bridge designers, virtually no jobs will be immune to the rise of the machines.  Whether you are training to be an airline pilot, a retail assistant, a lawyer, a financial trader or a project engineer for AECOM, labor saving technology is whittling your numbers - as we have seen with the ENR 500, drastically so.  In 2000, financial services employed 150,000 people in New York.  By 2015 that had dropped to 100,000.  Over the same time, Wall Street's profits have soured.  Up to 70% of all equity trades are now executed by algorithms.  Almost any job that involves sitting in front of a screen and manipulating information will be disrupted by the rise of machine learning and Cyborg design engineers over the next 50-years.  This has both promise and pitfalls.

Pick your job and career very carefully in the context of what the next 50-years holds.  Many jobs at the AECOMs of the world will be lost to machines.  Most will not - technology gives as well as taking away.  The rise of the machines will enhance the skills of project managers with strong people, communication, and empathy skill sets.  The future will enhance the abilities of those whose jobs it does not replace, giving everyone mental skills possessed at present by only the few.  The best of AECOM will become better in the march toward 2065.

The ENR 500 list will be an interesting read in 2065!!

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