Robots cause company profits to fall - at least at first

Researchers have found that robots can have a -U-shaped- effect on profits: causing profit margins to fall at first, before eventually rising again. It's important that companies develop new processes at the same time as they are incorporating robots, otherwise they will reach this same pinch point Chander Velu The researchers, from the University of Cambridge, studied industry data from the UK and 24 other European countries between 1995 and 2017, and found that at low levels of adoption, robots have a negative effect on profit margins. But at higher levels of adoption, robots can help increase profits. According to the researchers, this U-shaped phenomenon is due to the relationship between reducing costs, developing new processes and innovating new products. While many companies first adopt robotic technologies to decrease costs, this -process innovation- can be easily copied by competitors, so at low levels of robot adoption, companies are focused on their competitors rather than on developing new products. However, as levels of adoption increase and robots are fully integrated into a company's processes, the technologies can be used to increase revenue by innovating new products. In other words, firms using robots are likely to focus initially on streamlining their processes before shifting their emphasis to product innovation, which gives them greater market power via the ability to differentiate from their competitors.