Report: Investing in robotics will cause profits to fall temporarily

Aug. 9, 2023
The researchers attribute this U-shaped phenomenon to the relationship between reducing costs, developing new processes, and innovating new products.

Researchers at the University of Cambridge have found that investing in robots can have a “U-shaped” effect on company profits. The research team gathered and interpreted data from companies located in the U.K. and European countries from 1995 to 2017. After analyzing the information, the researchers determined that at a low level of adoption, robots have a negative impact on profits margins. As adoption levels increase, however, profits tend to increase. The researchers attribute this U-shaped phenomenon to the relationship between reducing costs, developing new processes, and innovating new products. According to the team, “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.” The study results were recently published in the journal IEEE Transactions on Engineering Management.

In a recent quote, Professor Chander Velu from Cambridge’s Institute for Manufacturing said, “Initially, firms are adopting robots to create a competitive advantage by lowering costs. But process innovation is cheap to copy, and competitors will also adopt robots if it helps them make their products more cheaply. This then starts to squeeze margins and reduce profit margin.”

Velu continued, “When you start bringing more and more robots into your process, eventually you reach a point where your whole process needs to be redesigned from the bottom up. It’s important that companies develop new processes at the same time as they’re incorporating robots, otherwise they will reach this same pinch point.”

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