Digital FTE – How AI can replace people and the hourly rate

Digital FTE – How AI can replace people and the hourly rate

By Sue Ellson GK BBus MPC PCDAA ASA WV SPN MEdPlus AWS

Are you currently a component of an enterprise’s full time equivalent FTE employee number? Have you ever considered how many people in that FTE number could be replaced with a Digital FTE and then ultimately be removed from the FTE number altogether?

The shift has already started.

I recently attended an event where I heard about the concept of the Digital FTE which is already being used in practice.

Unfortunately, I can’t tell you who told me this information, but let me assure you, it is a very reputable source providing business consulting services at the top end of town.

Digital FTE is being used to redefine performance, productivity, pricing, people and profit.

Essentially, when this enterprise calculates an invoice total, they include a line item of Digital FTE.

As an example, let’s say a gig uses the equivalent of 10 full time employees FTE for 20 hours each – the job would then be billed on a 200 hours total hourly rate as agreed at the beginning of the assignment.

But with digital AI tools reducing the 10 FTE to only four FTE, in theory they would ‘lose’ 60% of their revenue on the hourly cost calculation.

So they now include costing for the full 10 FTE where 40% is people FTE and 60% is digital FTE and they charge the 100% hourly rate for the gig and ‘recoup their technology investment.’

Now you may initially think they have just increased their profit by 60%.

But they had to trial the AI, train it to meet enterprise and ethical requirements, test it rigorously and then implement it on an ongoing basis, so there is an upfront cost (and hence their justification for adding it in as a line item).

The six FTE they didn’t use may have been the lowest paid employees doing the ‘hack’ work and they still had to pay the ‘top four’ at the maximum hourly pay rate.

They may have also had to acquire specific expertise not covered by the tools and now the other measurements of productivity and performance in their enterprise need to be recalculated.

So does this mean the end of the ‘hourly rate’ going forward?

Will pricing be based on an ‘outcome’ rather than the time it takes to do it?

What will happen to the rates of pay for people who do work on an hourly basis if their productivity increases exponentially or if it cannot increase exponentially (e.g. labour intensive tasks that cannot be replaced by technology)?

What happens to the people who don’t have the skills to use the tools and how will they support themselves in the future?

Whilst we are measuring in FTE right now, how reliable is this measure going forward?

With full implementation of AI, technically it will only need supervision from qualified people rather than direction.

It could eliminate the need for a lot of entry-level roles in an enterprise.

It will remove the opportunity to ‘learn on the job’ and acquire a depth of knowledge and experience over time.

The existing staff with this deep know-how may remain employed in the immediate short term but who will replace them in five to 10 years' time when they have moved on?

Without a pipeline of people learning on the job or through other roles, how will an enterprise acquire people with the skills they need?

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Will our society be split between people with both an in-depth level of experience and AI skills and those without?

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Managers are often paid according to the number of FTE employees they are managing – and this number could drop dramatically and the digital FTE could be quietly ‘removed’ from their pay calculation.

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What other implications are there?

1. Cognitive Load – how do we ensure that people can perform at their best with technology – the ‘brain load’ factor of using technology is clearly higher than a simple physical task of stacking shelves and working at a higher cognitive rate for eight hours a day may be unrealistic going forward
2. Productivity Measurement – how do we capture and record what the technology is doing for us and how do we manage our workforce going forward whilst understanding the components that are being completed by ‘people’ versus ‘technology’ and manage this transition ethically?
3. Pricing Improvement – are we prepared to move to a value-based economy instead of an ‘hours’ economy? How do we price value provided to a client or customer – will the definition of value change and how can we continue to provide value if technology replaces the human component? How will smaller enterprises continue to exist (or even solopreneurs)?
4. People Improvement – technology is making many daily tasks and jobs redundant (think of the bookkeeper replaced by accounting software). What is the sum game for people? How do we as people live in a society where the technology drives decisions, choices, lifestyles etc and how do we manage the people who can adapt and the people who cannot?
5. Profit Improvement – how we can reduce one of the biggest costs of an enterprise, labour, but how we can also align the right talent with the right tools going forward – in particular, if the technology is taking the lower level jobs, will this prevent the creation of the skills needed for the higher level jobs so do we need to keep some of the lower level jobs in the chain of command to ensure an enterprise has succession capability?

Essentially, I believe that our first priority is to one another – to keep us all afloat.

I predict that the survivors will be the people who establish strong relationships with other people, because we can’t guarantee that the technology will look after us. Our created personal network may be our best hope (yes, I am happy to connect here on LinkedIn!).

We definitely need to reconsider pricing – from an enterprise and a consumer level. What is a reasonable price to pay for the value received and what constitutes a reasonable exchange for someone’s time and skills?

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Ethically, we are honour bound to one another and I sincerely hope that a Digital FTE measure is not another lever used to increase costs and profits and forget about the people it impacts.

Sue Ellson GK BBus MPC PCDAA ASA WV SPN MEdPlus AWS is a former banker who has been in the online world since 2001 when she launched her first website newcomersnetwork.com . Since then, she has written and published five non-fiction books on the topics of LinkedIn, careers, business, marketing and gigsters and is regularly quoted in the media as a career expert. She provides independent consulting, training and advisory services to a variety of individuals and enterprises worldwide. https://sueellson.com

Comments and discussion most welcome below.