THE FUTURE OF WORK IN JAPAN: ACCELERATING AUTOMATION AFTER - COVID-19 - MCKINSEY

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THE FUTURE OF WORK IN JAPAN: ACCELERATING AUTOMATION AFTER - COVID-19 - MCKINSEY
Transformation Practice

            The future of work in
            Japan: Accelerating
            automation after
            COVID-19
            Digitization has played a key role in reducing the spread of the
            virus and promoting a safe recovery. Now, it’s even more critical
            to the country’s longer-term economic health.
            by Maya Horii and Yasuaki Sakurai

                                                                         © Just_Super/Getty Images

June 2020
Japanese leaders have long promoted                                                 their operations and retrain workers to deliver
    productivity improvements to drive economic                                         more value. The McKinsey Global Institute (MGI)
    growth. That has become an even greater priority                                    estimates that Japan will need a 2.5-fold increase in
    as the country’s low birth rates and rising life                                    productivity growth over the next decade simply to
    expectancy have reduced the domestic workforce                                      maintain its recent GDP-growth rate.
    (those aged 15 to 64 years) to 59.7 percent of the
    total population. Even with efforts to hire more
    women, retirees, and foreign workers to boost the                                   The looming labor shortage
    labor pool, Japan’s demographic shift threatens                                     Even with those productivity gains, Japan is likely to
    to stall GDP growth for the next decade. The key                                    face a shortage in labor supply. To compensate for
    to sustained economic growth is not just finding                                    the challenge of a shrinking workforce, companies
    workers but also transforming how they work                                         have to deliver more. Prior to the pandemic, Japan
    through automation.                                                                 was on track to automate 27 percent of existing
                                                                                        work tasks by 2030. While that could replace the
    That task has become a more urgent priority, as the                                 jobs of 16.6 million people, it would still leave the
    COVID-19 pandemic has forced an unprecedented                                       country with a shortfall of 1.5 million workers in
    drop in economic activity. The pandemic is also                                     ten years (Exhibit 1). What’s more, the tight labor
    accelerating a shift toward digitization to reduce the                              market could make it difficult for employers to free
    spread of the virus while enabling more people and                                  up people and resources to develop the new growth
    processes to move online. That moment could prove                                   opportunities that could emerge with automation.
    to be a catalyst for Japanese employers to automate

    Web 
    
    Exhibit
    Exhibit 1 of 

    Even
    Even with
          with automation
                automation and
                            and expanding
                                  expanding labor-force
                                             labor-force participation,
                                                         participation, Japan
                                                                        Japan is
                                                                              is likely
                                                                                 likelyto
    face a shortage  of 1.5 million workers by  2030.
    to face a shortage of 1.5 million workers by 2030.
    Projected change in labor demand, millions

         2016 labor force                                                                                                                           66.5

                                                       Jobs lost through automation (base scenario)                            –16.6

                                                       Growth in existing jobs                                                              +7.7

                                                       New-job creation                                                                             +4.7

         2030 net labor demand                                                                                                               62.3

         2030 net labor force                                                                                                              60.8

                                                                                 1.5 million worker shortfall
    Source: Japan Institute for Labour Policy and Training; O*NET OnLine; Statistics Bureau of Japan; McKinsey Global Institute analysis

2   The future of work in Japan: Accelerating automation after COVID-19
Companies can get ahead of the trend. In 2017, MGI                                       56 percent of the work activities being done across
published research that found Japan’s potential                                          Japan, enabling companies to lower costs and
for automation exceeded that of countries such as                                        boost productivity despite a shrinking workforce
Germany and South Korea (Exhibit 2). Researchers                                         (Exhibit 3).
estimated that automation could displace around

Exhibit 2
Japan leads
Japan leadsthe
            theworld
               worldin
                     in the
                        the potential
                            potentialfor
                                      forjobs
                                          jobsdisplaced
                                              displacedby
                                                        byautomation.
                                                           automation.
Full-time-equivalent (FTE) jobs potentially displaced by 2030 by age group, millions

                      30
                                                                                 Japan          23

                                                                                   42
                      25                                             43                                              35
                                                           27              41             39 38
                                                                                   21
                                                       13                  44       24 29            22
                                                 8              16
                                                                                                                          30
                                            11         31                   7    28
                                                                 40
  Share of            20                                                                        34
                                                                                   37      33
current work
  activities                                     32
                                       36
displaced by
automation¹                                      20
2016–30, %             15                                  26                            FTE jobs displaced, millions
                                               17
                                          14                                                              120
                                      9
                                 6
                                  3 18                                                                    60
                                 4                     25
                                  10    15
                                 2 5                                                                      15
                                     12                19
                                                                                                           1

                        5        1

                             0                        20                  40              60                    80         100

                                                                     GDP per capita 2030,
                                                                     $ thousand (2010 real)

 Age
Exhibit 3
    More
    More than
          than half
               halfof
                    ofwork
                      worktime
                            timein
                                 inJapan
                                    Japanisisspent
                                              spenton
                                                   onrepetitive
                                                      repetitive activities,
                                                                 activities, two-thirds
                                                                             two-
    of which can be automated.
    thirds of which can be automated.
    Time spent on total                            Sample                             Automation
    work activities in 2016, %                     occupations                        potential, %

     Processing data                               Payroll officers
                                    16                                                                           70
                                                   Transaction processors
                                                                                                                           56%
                                                                                                                        of activities and
                                                   Legal-support workers                                                  occupations
     Collecting data                18                                                                           70
                                                   Mortgage originators                                                     are highly
                                                                                                                         susceptible to
                                                                                                                           automation

     Predictable                                   Production workers
                                   22                                                                          67
     physical work                                 Machine operators

     Unpredictable                                 Gardeners
                                    12                                                               38
     physical work                                 Construction laborers

     Stakeholder                                   Personal caretakers
                                    15             Salespersons                                 24
     interactions

     Applying                       11             Artists                                      23
     expertise                                     Scientists

     Managing                       6              CEOs                                    11
     others                                        Project managers

    Source: O*NET OnLine; Statistics Bureau of Japan; McKinsey Global Institute analysis

    To achieve even minimum targets for such growth                                    The next wave of digital innovation
    will require a new mindset and approach to                                        To prepare for a more automated future, leaders can
    leadership. Employers should start with a focus                                   accelerate their own efforts at digitization and take
    on training and reskilling people to fill between 11                              action in four key areas:
    and 12 million new positions that Japan is likely to
    need by 2030. Along with demand for more data                                     — Commit to digital transformation at the top.
    scientists, there will be a need for people with skills                             Managers cannot lead a revolution that they
    in technology, analytics, and business to “translate”                               don’t understand. Senior executives need to
    automation into innovation and growth. Employers                                    enhance their own digital capabilities to drive
    will also need to incorporate skills training into                                  change from the top. That means learning about
    the jobs of existing employees and work with                                        the implications of digitization, machine learning,
    government agencies to encourage more labor-                                        and artificial intelligence (AI) for their businesses.
    force participation while minimizing disruption,                                    It also means going beyond workshops to see
    especially to vulnerable populations.                                               these technologies in action, perhaps through

4   The future of work in Japan: Accelerating automation after COVID-19
Web 

Exhibit   4of 
Exhibit 

To
To adapt
    adapt to
           to automation and compete
                              competein   in the
                                              thedigital
                                                 digital age,
                                                         age,employers
                                                              employersneed
                                                                        needtotooffer
                                                                                 offer
skills
skills training
       trainingand
                 andinnovation
                     innovationatatall
                                    allcompany
                                        companylevels.
                                                   levels.
Program initiatives by management level

              Top executives                             Managers                                     All employees
        ● “Go & See” visits to                   ● Digital assignments to                ● Online programs to enhance
          cutting-edge digital                     enable on-site training                 digital skills in different functions
          companies and start-ups                  and development of best               ● Peer coaching and designated

        ● Frequent workshops and                   practices                               “change agents” to drive digital
          briefings to build                     ● Digital-skills training and             practices throughout the
          management capabilities                  briefings                               organization

Enhancing digital skills                                                             Reinforcing a culture of innovation
Capabilities accelerating value                                                      Elements of digital skills and practices
creation for customers

                                                                                     ●   Data-driven digital insights
●   Innovative solutions                                                             ●   Agile work styles
●   Data/digital stacks                                                              ●   Integrated customer experiences
●   Partnerships/ecosystems                                                          ●   Digital-enabled operations
●   Digital organizations                                                            ●   Design thinking
●   Talent and corporate cultures                                                    ●   IT systems

     “Go & See” visits with start-ups or creative                        employees on the benefits of automation and
      partnerships (Exhibit 4).                                          find ways to foster growth while minimizing
                                                                         disruption. To fill the urgent need for people
— Develop ‘business translators.’ Japan’s 2019                           with these skill sets, the best option is often
  strategy for AI points out the need to train                           to help talented employees develop more
  250,000 people annually in fields such as data                         digital capabilities (Exhibit 5).
  science and AI. What employers also need are
  business translators, people who can match                          — Establish flexible work-style models. The need
  that talent and technology with business                              to minimize contact during the pandemic has
  priorities to help transform operations. Effective                    transformed work norms in ways that would
  business translators understand industry trends                       otherwise take years to play out. After the
  and market needs when measuring potential                             pandemic, organizations will need to operate
  innovation. They help educate customers and                           with flexibility—both in where people work and

The future of work in Japan: Accelerating automation after COVID-19                                                                5
Web 
    
    Exhibit   5 of 
    Exhibit 

    ‘Businesstranslators’
    ‘Business translators’play
                           playaacritical
                                  criticalrole
                                           rolein
                                                indriving
                                                  driving change and aligning
                                                          change and aligning
    technologies with business   needs.
    technologies with business needs.
    Responsibilities of artificial-                     BUSINESS SKILLS
    intelligence talent

                                                               Product
                                                                owner
                                                                                                         Business translator
                                                                                                         drives innovation
                                                                                                         and digital adoption
                                                                                                         by bridging technical
                                                    User-                                                expertise with
                                                  experience              “Business
                                                                           translator”                   business needs
                                                   designer

                                          Platform                                      Data
                                          architect                                 scientist

                                          Full-stack            Data             Visualization
                     TECHNOLOGY           developer           architect               analyst    ANALYTICS
                          SKILLS                                                                 SKILLS
                                                Data                          Workflow
                                                engineer                     integrator

        in when they do so. For Japanese companies,                       — Retrain and reskill the workforce. With
        that will create new opportunities to recruit                       increased competition for talent and pressure
        people who could not or would not work under                        to innovate, training and reskilling workers has
        less flexible conditions. Potential recruits                        become a national challenge. Few managers
        include parents with small children, people in                      have the resources to help workers adapt to
        other countries, and those whose personal or                        rapidly changing technologies, especially in
        professional priorities make it difficult to commit                 small and medium-sized enterprises. Workers
        to a traditional office job. Digital innovation can                 also need more flexibility to go where their skills
        further enhance flexibility by giving leaders                       and training are most in demand. Companies
        new tools to foster culture, manage teams, and                      can partner with government agencies to create
        safeguard cybersecurity (Exhibit 6).                                a more end-to-end approach that includes

    With increased competition for talent
    and pressure to innovate, training
    and reskilling workers has become a
    national challenge.

6   The future of work in Japan: Accelerating automation after COVID-19
Web 

Exhibit   6 of 
Exhibit 

A
A digital
  digitalworkforce
          workforceneeds
                   needs flexibility
                         flexibilityand
                                     andaccountability.
                                         accountability.
Practices to adopt for a digital workforce

Cultivate a one-          Clarify                Establish        Accelerate       Leverage digital    Work in small,    Raise
team culture, with        decision-              common           test-and-        tools to create     agile teams to    awareness on
frequent 1-on-1           making and             platforms and    learn cycles     virtual team        build effective   cybersecurity
meetings with             reporting lines        technology       by using pilot   rooms that enable   structures for    risks and best
staff and customers       by reducing            across the       testing to       collaboration,      continual         practices, with
to enable                 isolation              company:         learn about      communication,      iteration and     frequent
transparent               and silos,             shared goals     and adopt        and transparent     adaption to       updates to
communication             making people          require shared   new working      decision            changing          enhance
and collaboration         accountable            tools and        models           making              conditions        compliance and
                          and connected          technology                                                              awareness

     developing training programs and helping match                        recovering from the public-health crisis is both a
     graduates with employers.                                             challenge and an opportunity to accelerate the
                                                                           automation that is critical to the country’s economic
                                                                           growth. If leaders in the public and private sectors
                                                                           can work together to prioritize action, Japan is likely
The COVID-19 pandemic illustrates how rapidly                              not just to recover but also to lead the way in the
the way we live and work can change. For Japan,                            next digital revolution.

Maya Horii and Yasuaki Sakurai are both partners in McKinsey’s Tokyo office.

Designed by Global Editorial Services
Copyright © 2020 McKinsey & Company. All rights reserved.

The future of work in Japan: Accelerating automation after COVID-19                                                                        7
Copyright © 2020 McKinsey & Company
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