HfS Network

Automation will destroy, then save outsourcing: The industry has spoken

April 15, 2017 | Phil Fersht

For those of you who made our New York Digital OneOffice Summit a couple of weeks ago, we had a rumbustious mix of seasoned outsourcing buyers, service provider leaders, advisors and robo vendors under one roof to cogitate, discuss and argue where the hell the industry known as outsourcing and operations is truly heading. Let's just lay down what the hell is really happening in the only unvarnished way we know how...

There is a fast realization that the outsourcing industry has reached a phase of almost insufferable tension.  Why?

Several of the RPA (Robotic Process Automation) solutions vendors are painting an over-glamorous picture of dramatic cost savings and ROI. RPA software firms are claiming - and demonstrating - some client cases where ~40% of cost (or more, in some cases) is being taken off the bottom line. While some of these cases are genuine, there are many RPA pilots and early-phase implementations in the industry that have been left stranded because clients just couldn't figure out the ROI and how to implement this stuff. This isn't simply a case of buying software and looping broken processes together to remove manual efforts... this requires real buy-in from IT and operations leaders to invest in the technical, organizational change management, and process transformation skills.

Buyers are backed into a corner with broken delusions of automation grandeur as their CoEs fail. Buyer leaderships are being fed all this rosy information and are under incredible pressure to devise and execute an RPA strategy, with some sort of set of metrics, that they can demonstrate to their operations leadership.  Many are quickly discovering they simply do not have the skills inhouse to set up automation centers of excellence and are frantically turning to third parties to help get them on the right track.

Outsourcing consultants are selling RPA before they can really deliver it. Sourcing advisors are claiming they are now "RPA experts" who can make this happen, while struggling to scale up talent bases that can understand the technology and deal with the considerable change management tensions within their clients.  RPA is murky and complex, and not something you can train 28-year-old MBAs to master overnight.  Meanwhile, we are seeing some advisors simply do some brokering of RPA software deals for small fees, only to make a hasty exit from the client as they do not have the expertise to roll-out effective implementation and change management programs. 

RPA specialist consultants few and far between. Pure-play RPA advisors are explaining this is not quite so easy and requires a lot more of a centralized, concise strategy.  There are simply not enough of these firms in the market, especially with Genfour having been snapped up recently by Accenture. With only a small handful of boutique specialists to go around, these firms can pick and choose their clients and command high rates.

Service providers will set the pace, but many will destroy each other in the process. Service providers are claiming they can implement whatever RPA clients need, but are not willing to do it at the expense of reducing their current revenues. Meanwhile, smart service providers are aggressively implementing RPA into their own operations to drive down their delivery costs and reduce their own headcount.  So we can expect to see providers aggressively attacking competitive clients with automation-led solutions that should create unbearable pricing pressures for service providers looking to retain the talent they need to implement this stuff. Hence, services providers will be hell bent on destroying each other and the winners will be those who eventually succeed in winning more work than they lose amidst all the destruction. This is a war of many battles being fought - and the winners will be those who are in this for the long haul, who can absorb some short-term losses to pick up the larger spoils further down the road when they have a fully equipped intelligent automation delivery capability that can deliver highly-competitive and profitable As-a-Service offerings.

The good news is that half of today's buyers want to turn to service providers to make this work

When we privately polled 60 senior outsourcing buyers, at the recent HfS New York Summit, on what would improve the quality and outcomes of their current services relationships, the answer was pretty conclusive - half want to work with their providers to rollout their automation and cognitive roadmaps, while only a third think they should pull back work in-house to figure this stuff out for themselves:

The Bottom-line: The automation gauntlet is now in full effect and the casualties will mount up as the outsourcing industry plays out its most perilous battle for survival yet.  But all is not lost if we eye a longer-term prize...

So we've reached crunch time. Whichever way we look at it, RPA has created a lethal environment, which was only just coming to terms with providers and buyers working together to get the basics of delivery right. Most outsourcing buyers have to look to automation to save their jobs and please their ambitious leaders, no longer content with the ~30% they saved on offshore-centric outsourcing just a few short years ago (see our recent State of Outsourcing and Operations data on 454 major buyers). 

So, in the meantime, for all the reasons outlined above, this industry will literally go into a destructive war over automation. The skills to make automation a massively profitable reality are few and far between, while greedy corporate leaders demand cost savings that simply are not achievable if their organizations fail to make the necessary investments and partnerships to make this achievable. Did companies become world class at HR overnight because they bought an expensive Workday subscription?  Or stellar at sales and marketing because they slammed in a Salesforce suite?  So why should they become amazing at cost-driven automation simply because they went and bought some licenses from an RPA vendor promising bot farms and virtual labor forces?  

RPA and Intelligent Automation have sparked a major war in the worlds of outsourcing and operations, where many battles are being fought - and the winners will be those who are in this for the long haul, who can absorb some short-term pain in order to benefit from the larger spoils further down the road. While automation is killing outsourcing today - costing many people their jobs, their reputations and destroying the profitability of legacy engagements, those who can hunker down, focus on self-contained projects where they can fix one broken process at a time, can get stakeholders onside by demonstrating meaningful, impactful outcomes without major resource investments, will be the winners.  Start with one process at a time, prove how to fix in, then onto the next, then the next... that is the only true way to be successful in this destructive automation-infested world. 

Posted in: Cognitive ComputingRobotic Process Automation

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1 Comments

20 Comments

  1. chip wagner
    Posted Apr 16, 2017 09:43 AM | Permalink Reply

    Many great points in your post Phil. Providers are struggling mightily with RPA/automation in general and most are reluctant to cannibalize their revenue streams. Some might argue that there is a conflict of interest present in that scenario anyway. Many have built proprietary cognitive Watson like AI capability which is far upstream from RPA and basic cognitive, but that has little to do with RPA. Enterprises want to develop RPA COE's and need help to do. There are only a handful of scale size external RPA firms with greater than 100 team members; ISG is one of them. Genfour's acquisition by Accenture simply removed another good but sub scale player from the landscape.

    Change management is a HUGE factor in success in implementing RPA and ISG's capability there is a combination of legacy Alsbridge's offering and the formidable capability found in its prior acquired entity TracePoint.

    RPA's promise is real, large and realizable in very short timeframes. Help is available if enterprises want it.

  2. James
    Posted Apr 16, 2017 10:23 AM | Permalink Reply

    Phil - best piece anyone's written on the topic - gets right to the heart of the issues with RPA. Completely agree automation has created major tensions across the whole industry. I love the words of wisdom you leave us with: "Start with one process at a time, prove how to fix in, then onto the next, then the next".

    Brilliant stuff - you are a credit to this industry!

  3. a pande
    Posted Apr 16, 2017 11:52 PM | Permalink Reply

    thanks this cheap and cheerful works for only so long . this is a good summation. am a fan of automation as humans break and often misbehave bye have a good week

  4. Ajay Tibrewal
    Posted Apr 17, 2017 12:24 AM | Permalink Reply

    Great stuff Phil, Practical thinking and true facts reflect clearly in the writing. The industry with its past experience of many such disruption like ERP, IVR, factory modelling, CRMs, automation software, workload and list is endless. Agree RPA trumps them all but the basics of success will remain same. Investment, intent, partnership, practicality and reliability.

    The article is aptly titled.

  5. Nagesh Mallikarjun
    Posted Apr 17, 2017 01:03 AM | Permalink Reply

    Dear Phil,

    Appreciat a very well written article on the current and latest crossroads situation the IT industry in particular is facing today.

    Two great learning or observations one need to carry from this article are these:

    1. How to measure the ROI from RPA => A lot of what is seen or heard in this is mainly an extension of basic metrics that releve around cycle time reduction, worktake out etc.,. However unless and until there is a clear and scientifc relational metric associated with RPA and efficiency gained, organizations and vendors would be fooing themselves that they are ahead of rest in teh automation journey

    2. Skills required to sustain and succeed -. Change Management primarily along with the right strategy and technical skills in specific areas are the key to sustain a long haul RPA journey which seldom customers or service providers are acknowledging in the scenario where there is a RAT race as to who would succeed in this new challenging era. But if we fall for the bait of having to be first without having vetting our strategy and solutions effectively, we would fail our customers as well. So institutionalizing it internally before heading out would be a good strategy to focus on for all interested in RPA
  6. Pankaj Parikh
    Posted Apr 16, 2017 09:55 PM | Permalink Reply

    Phil- Great synopsis. As always the truth is always somewhere in between the extremes. It will take some good buyers, good providers and great consultants to truly set the tone for automation driven future which is closer then ever before now.

    Pankaj

  7. Jim Hill
    Posted Apr 16, 2017 04:38 PM | Permalink Reply

    Very insightful article. Will be very interesting to see who will be the survivors.

  8. Craig Wells
    Posted Apr 17, 2017 03:44 AM | Permalink Reply

    Phil,

    Finally someone cuts through all the hype to put a realistic view of the RPA space. I like the way you take about the pain we have to go through before the survivors arrive in a much more value-driven as-a-service market place,

    Craig Wells

  9. Dave Wright
    Posted Apr 16, 2017 07:19 PM | Permalink Reply

    Phil - great piece. Yes, it's tough, but you take a lead on showing us the way out of the current malaise...

    DW

  10. Anish kumar
    Posted Apr 17, 2017 04:18 AM | Permalink Reply

    Good read Phil. The phase is truly underway. Execution will seperate the men from the boys. Will be interesting to see who will be the last few standing when the dust settles.

    Best

  11. Pascal Baker
    Posted Apr 17, 2017 05:10 AM | Permalink Reply

    Thanks Phil & Team. I continually make many of the statements above, but it's great to hear another independent voice on the topic. There is too much disinformation flying about saying that Automation can deliver huge benefit and be implemented in ' a few weeks', but you know what they say about something that sounds too good to be true! IA is truly transformative and can deliver significant ROI, but only if applied to the right process areas and delivered with the optimum focus and discipline.

  12. Warren
    Posted Apr 17, 2017 05:16 AM | Permalink Reply

    Phil,

    Interesting that 32% of clients are playing the threatening game. Concern is this forces some service providers to offer unrealistic savings from RPA to save their deals,

    Warren

  13. Phil Fersht
    Posted Apr 17, 2017 10:47 AM | Permalink Reply

    @Chip - good to hear from you. Am interested in ISG's complex technology transformation and change management competencies for RPA - is this an area where you are doing a lot of work with clients? Do you have a specific training program established internally to shift your outsourcing consultants into RPA?

    PF

  14. Phil Fersht
    Posted Apr 17, 2017 10:50 AM | Permalink Reply

    @Negesh - we're seeing an awful lot of legacy outsourcing advisors and service provider exercutive doing a sudden rebrand as "RPA speciialists"! You are so right that these people need to institutionalize it internally before mamking these grandiose claims...

    PF

  15. Nigel Edwards
    Posted Apr 18, 2017 04:13 AM | Permalink Reply

    Very balanced view from HfS on the question of "automation versus outsourcing".

    Indeed clients are looking for partners who can apply the right combination of insight, analytics, automation, platforms and operational solutions to a given customer or business problem versus arriving with a preset solution. Winners will navigate the legacy and the new.

  16. Rahul Prashar
    Posted Apr 17, 2017 06:08 PM | Permalink Reply

    Brilliant article Phil.. Providers must produce Use Cases backed by substantial and quantified benefits to Buyers before long term benefits can be reaped.

  17. Alastair
    Posted Apr 18, 2017 05:49 AM | Permalink Reply

    Terrific all to arms, Phil!

  18. Fabiano Rosa
    Posted Apr 19, 2017 06:10 PM | Permalink Reply

    Dear Phil Fersht

    This is a great article indeed :). Thanks for sharing , Fab

  19. Raul Serrano Ruiz
    Posted Apr 18, 2017 07:01 PM | Permalink Reply

    RPA is a reality and BPO companies need to reinvent themselves to become "advance BPO" organizations ... it is an opportunity, not a threat.

  20. Rajesh Badhwar
    Posted Apr 20, 2017 05:23 AM | Permalink Reply

    We are at the cusp of "creative destruction" - change that will destroy old economic structures and create new ones leading to abundance. History is witness to that as we have seen 3 Industrial revolutions from Loom to steam engines to assembly lines , all these disruptions have led to greater good. And so will AI and cognitive sciences !

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