Adopting robots will cause a business’s profits to decline at first

It turns out robots have a 'U-shaped' effect on profits.
Loukia Papadopoulos
Representational image of a robot working.jpg
Representational image of a robot working.


Researchers from the University of Cambridge have found that investment in robots can cause a firm's profits to first decline before rising again, resulting in a so-called  'U-shaped' effect on profits.

This is according to a report by TechXplore published on Thursday.

The study was based on industry data from the UK and 24 other European countries between 1995 and 2017. The research found that low levels of adoptions coincided with negative profit margins however higher levels led to successful profits.

"If you look at how the introduction of computers affected productivity, you actually see a slowdown in productivity growth in the 1970s and early 1980s, before productivity starts to rise again, which it did until the financial crisis of 2008," told TechXplore co-author Professor Chander Velu from Cambridge's Institute for Manufacturing.

An opposite effect

"It's interesting that a tool meant to increase productivity had the opposite effect, at least at first. We wanted to know whether there is a similar pattern with robotics."

"We wanted to know whether companies were using robots to improve processes within the firm, rather than improve the whole business model," said co-author Dr. Philip Chen. "Profit margin can be a useful way to analyze this."

For their work, the scientists analyzed entire sectors, primarily in manufacturing where robots are most commonly used.

"Intuitively, we thought that more robotic technologies would lead to higher profit margins, but the fact that we see this U-shaped curve instead was surprising," said Chen.

"Initially, firms are adopting robots to create a competitive advantage by lowering costs," said Velu. "But process innovation is cheap to copy, and competitors will also adopt robots if it helps them make their products more cheaply. This then starts to squeeze margins and reduce profit margin."

A series of interviews with an American medical equipment manufacturer was also employed as part of the study’s process.

Not an easy process

"We found that it's not easy to adopt robotics into a business—it costs a lot of money to streamline and automate processes," said Chen.

"When you start bringing more and more robots into your process, eventually you reach a point where your whole process needs to be redesigned from the bottom up," said Velu. "It's important that companies develop new processes at the same time as they're incorporating robots, otherwise they will reach this same pinch point."

Ultimately, to drive successful profit margins after robotic adoption, the researchers recommend that robots be fully integrated into the business model to unleash their full power..

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