The Productivity Puzzle
In this episode of The Human Capitalist, host Trent Cotton delves into a perplexing issue: why AI-driven productivity gains aren't translating into increased profitability for many companies. According to McKinsey's State of AI report, while 80% of companies report increased productivity due to AI, only 37% have seen this reflected in their profit and loss statements. > 80% of companies say that AI made their employees more productive. Only 37% can say that it reached the P&L. — Trent Cotton
Where Did the Gains Go?
Trent explores three possible explanations for this disconnect. The first theory is that the productivity gains have simply evaporated. The rapid adoption of AI, with nine out of ten organizations using it regularly, hasn't led to expected profit growth. > Nine in 10 organizations in that McKinsey data say that they now use AI regularly somewhere in the business. — Trent Cotton This could be because companies aren't effectively mapping out how AI has absorbed tasks and what work still requires human involvement, a mistake Trent admits to having made in a prior role. > We said, well, we can take this staff down, cut it by 75%, throw in some automation, and all will be well. It was not. — Trent Cotton
The second theory, supported by research from the Apollo Group, suggests that firms are capturing AI's gains through wage compression rather than job cuts. This research found that occupations with significant AI integration experienced wage growth lagging 6.7% behind those with minimal AI usage. > Occupations where AI was the largest share of the work, real wage growth after 2023 ran 6.7% below the occupations where AI barely shows up. — Trent Cotton
The Invisible Productivity
The third theory posits that the productivity gains are there, just not visible. Culture Amp's survey found that 71% of employees feel more productive with AI, yet there's little difference in workload perception between heavy AI users and those who don't use AI at all. > 71% of employees say that AI makes them more productive. — Trent Cotton This suggests that while productivity has increased, the relief hasn't been felt by employees, and opportunities for career advancement remain unclear.
Finding Solutions
To address these issues, Trent emphasizes the need for a strategic approach. Organizations must examine the handoffs and gaps in their processes to understand where productivity gains are being lost. Building a value of work matrix can also help identify which tasks AI has taken over and why these aren't translating into profit.
