Robots have ‘U-shaped’ effect on business profits, new research shows

Image by Faisal Mehmood from Pixabay

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Adopting robots has a U-shaped effect on a company’s profits, driving them down to start with before they rebound and rise, according to new research from the University of Cambridge.

For the study, the Cambridge researchers looked at industry data from the UK and 24 other European countries between 1995 and 2017. They found that while low levels of robot adoption can have a negative effect on profit margins, higher levels can help increase profits.

The researchers say this phenomenon is because of the relationship between reducing costs, developing new processes and innovating new products. Many companies initially adopt robotic technologies to decrease costs and it's easy for their competitors to follow suit. But as levels of adoption increase, technologies can be used to innovate new products, thereby increasing revenue. But as levels of adoption increase and robots become fully integrated into a company's processes, the technologies can be used to innovate new products and drive increased revenue.

“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,” said Professor Chander Velu from Cambridge’s Institute for Manufacturing, co-author of the research. “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 analyse this.”

The results are reported in the journal IEEE Transactions on Engineering Management.

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