Ericsson's New Look: Plenty of Robots, Not Many Jobs

Bullshit Jobs, a 2018 book by American anthropologist David Graeber, posits that automation has already ended the prospect of meaningful work for most people. Unemployment has not soared, writes Graeber, because most of us are retained for pointless activities (the bullshit jobs that give the book its title) under a system of "managerial feudalism" that just happens to serve an important social purpose.

While not everyone buys into Graeber's theories, some recent developments in the telecom industry suggest he is not entirely wrong. In May 2018, bosses at the UK's struggling BT suddenly decided they could axe 13,000 jobs without unduly upsetting performance. The roles targeted for termination included "back-office" and "management" jobs, affecting employees Graeber would classify as "duct tapers" and "taskmasters" in his five categories of bullshit jobs.

Similar developments have been happening throughout Europe and the Americas. Since 2015, more than 125,000 jobs have disappeared across 21 service providers regularly tracked by Light Reading, a figure that equals about 7% of total roles. Yet the annual revenues reported by these 21 companies have risen 5% over this period in dollar terms (using today's exchange rates).

Downsizing has been especially dramatic at Ericsson, a Swedish company that makes equipment for many of these service providers. Ericsson finished 2015 with a grand total of 116,281 employees. By December 2019, the number had dropped to 96,032, discounting some 3,400 workers Ericsson recently picked up with its acquisition of Kathrein, a German antenna specialist. More than 20,000 people were deemed "non-core" assets as Ericsson narrowed its focus.

The comparison with service providers is not strictly accurate, of course. Fighting for survival in 2016, Ericsson was forced to sell parts of its sprawling business empire, which then extended into cloud hardware and media territories. Accordingly, reported sales last year were 8% less than in 2015. Nevertheless, at its managed services business, Ericsson cut about 8,000 jobs -- more than a fifth of the total number -- in 2018. Peter Laurin, the head of that division, has attributed those cuts partly to investments in artificial intelligence.

Automation is now hollowing out Ericsson's factories, and it means the Swedish network equipment maker will be able to rely on a much smaller manufacturing workforce in future, the company's networks boss has told Light Reading. Interviewed after last week's publication of 2019 financial results, Fredrik Jejdling said it was "absolutely true" when asked if the development of a highly automated, lightly staffed US manufacturing plant is a sign of what lies ahead.

When it was first announced in June last year, that "smart factory" was set to have just 100 employees on the opening of its doors in Texas. Any lingering hopes it might eventually bulk up its workforce were swiftly dispelled last week. "We are building our new factory in Texas to manufacture 5G equipment for the US market and the North American market," Ericsson CEO Börje Ekholm reportedly told an audience at the World Economic Forum in Davos. "We can supply all of the North American demand with only 100 employees in Texas."

Plans for extreme automation are certainly not confined to North America: Ericsson is making similar investments at existing facilities in China and Estonia. "It is easier to talk about in a greenfield setting, because you don't have a lot of legacy, but these are two big manufacturing plants and they will also carry the same level of automation," said Jejdling. "With this, we will have the most advanced manufacturing among any of our competitors."

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The subject of investments in automation and "digitalization" received considerable attention during Ericsson's fourth-quarter earnings call with financial analysts. Indeed, management talk of new spending on efficiency measures -- coming soon after Ericsson finished its last major restructuring program -- took some analysts by surprise, and may have contributed to the sharp drop in Ericsson's share price on the day of the earnings announcement.

"We think we need to automate order processes and visibility of customer orders and the way we run projects, and all of that should result in efficiency gains down the road," said Ekholm. "Why have we not started before? We said let's get basic processes in order before automating them. We have got the house in order and we can take the next step."

That next step means Ericsson's operating costs will this year rise above the 54 billion Swedish kronor ($5.6 billion) it spent in 2019, said Carl Mellander, Ericsson's chief financial officer. The hope is that good sales growth will more than offset this cost increase, allowing Ericsson to hit its operating margin targets of 10% this year and 12% to 14% in 2022. Last year it managed 9.7%, although only after stripping out restructuring costs and US fines for corruption.

Long-term margins could reach much giddier heights if automation investments allow Ericsson to cut labor costs. Wary of inciting workforce and government panic, hardly any big employers provide guidance on staff numbers, and Ericsson is no exception to that rule. But if automation's impact is felt across managed services, manufacturing, order processes and project management -- as executives say it will -- then many employees could find their jobs have turned out to be meaningless.

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— Iain Morris, International Editor, Light Reading

dikshakakade 1/30/2020 | 3:58:22 AM
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