If Automation Reduces Payroll, Why Aren’t Things Cheaper?

WOLFSBURG, GERMANY - MARCH 07: Employees walk below automated conveyors moving partially-assembled Volkswagen Touran and Tiguan cars at the Volkswagen factory on March 7, 2012 in Wolfsburg, Germany. In 2011 Volkswagen achieved record results, with profits of EUR 15.8 million and production of over 8 million cars worldwide. (Photo by Sean Gallup/Getty Images)

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That’s a very fair question. Thankfully I have the answer. Payroll is usually the most expensive part of running a large or small business. Businesses are always looking for ways to reduce business costs. But they want to do it without sacrificing product quality, customer service and confidence, while staying competitive in the marketplace. One way to do that is with automation.

Technology In The Workplace

In today’s world a single farmer can till and plant several times the acreage of a farmer twenty years ago. But consider the cost of the equipment that makes that possible. The farmer can do more and may make more but that equipment is going to take time to recover that initial investment.

Henry Ford developed a more efficient way to build automobiles using the assembly line idea. Over the years, assembly line workers were replaced by robotics that could do the same work just as efficiently.

Computers have streamlined production, employee efficiency, record keeping, business analysis and a host of other benefits to small business. Computer scanners decrease your checkout time in grocery stores.

Can you imagine a grocery cashier inputting every item by hand into an adding machine? That’s the way it used to be done.

If Production and Efficiency Increase Sales — Why The High Prices?

Because technology also carries some costs that decrease the bottom line. Companies invest in technology and that involves investment that is not recouped immediately. Equipment is depreciated over time.

Look at your own household. You purchase a new energy efficient furnace for your home. Eventually the saving in energy will pay for that purchase. However, the furnace still comes with a price tag in the form of household debt.

So even though you’re heating and cooling your residence for less there are payments that reduce your profit (disposable income) by the cost of the monthly payment for the furnace.

Even if you budgeted and paid cash, there was still a budget reduction to accumulate the dollars to make the purchase in the first place.

More Innovation; Same Dollars

Pull out your cell phone. The cell phone you have now costs about the same as it did five years ago. But it has ten times the features and power of the old phone. No need to pull out an antenna any more.

Touch screens, apps, cameras, video are all standard today. Not sure you can buy a phone that doesn’t have photo capability.

Look at your home computer. You can buy one for less than $200.00 at most computer stores. It can do more stuff than one that cost $1,000 just a few years ago.

Some Final Thoughts

Technology improves our experience and often keeps prices in check. Better products emerge at more favorable prices. While human workers will never be totally eliminated automation often increases jobs.

The more items are produced the more people are required to bring those products to market. Look at Amazon. Here’s a company that started shipping just books and has branched out into selling everything. No store front, just a whole lot of people processing and shipping orders. Technology is the future whether we like it or not. We can all use it to our advantage.