Welcome to the era of outsourcing stability. Now let’s automate stuff

August 10, 2016 | Phil Fersht

Question: Why are we becoming so obsessed with Automation and As-a-Service relationships?

Answer: Because outsourcing has worked so effectively, we can now look to new levers to pull to find that next threshold of value 

Question: Will the next person who says “Outsourcing is just so Passé" get a punch in the face?

Answer: Yes

Barely three years’ ago, we were still lamenting that nagging lack of innovation in outsourcing relationships and the inability of service providers to deliver those transformational delights to their clients after they had come through with their promised cost savings. But let’s face it, the FTE-based labor arbitrage model has really worked – and a lot better than we thought it would, during those heady days of offshore screw-ups. I can barely remember the last time I sat on the receiving end of a group of clients throwing their service providers under the bus because they couldn’t get the procure-to-pay transition right, or got caught sneaking through change-orders to fix their dodgy coding.

Service relationships are more stable than ever, but focus is shifting to As-a-Service delivery and Intelligent Automation

You only need to look at the intentions of 371 major enterprise buyers towards their outsourcing contract renewals from our new Intelligent Operations Study to get the picture that this isn’t an industry in delivery turmoil, about to self-combust because deal flow isn’t growing at quite the clip it was a couple of years’ ago. In fact, only one-in-four IT services clients today are even considering ditching their current partner, and a even lesser proportion with their BPO provider.  However, many do want to make the switch to As-a-Service contracts:

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The focus on automation is the logical next phase of value once stability of global service delivery has been reached. 

The availability of smart automation tools and platforms from the likes of Automation Anywhere, BluePrism, IPSoft, Nice, UIPath, WorkFusion and Redwood have really been conversation catalysts to get the automation conversation to the table. In fact, most of the buyers we’ve been interviewing in our current Intelligent Automation blueprint are still in the early strategy and roll-out phases of their automation experiments. Moreover, as our research clearly shows, well over half of today's major enterprises have automation plans firmly in play over the next year:

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Bottom-line: From offshoring to efficiency to automation, it’s all a natural evolution

Let’s face facts, when your company hires an outsourcer to provide you with 500 staff to deliver back-office transactional operations, do you really expect this 500 number to stay constant for ten years? Of course not… as operations stabilize, as better technology helps streamline processes, your expectation is always to get the same work done for less hired effort. It’s like when you upgrade your accounting software – do you really expect to have to hire more people to operate it for you? Of course you don’t… you expect better quality for less effort.

So let’s stop berating “outsourcing” as some archaic practice that went out of fashion with the Blackberry. It’s a practice of globalizing operations that we’ve got really good at – and the fact that we’re now obsessing with getting into the weeds of automating processes, is testament to our progress that we’re running our businesses much more efficiently - and digitally - these days.

Posted in: 2016 Intelligent Ops StudyRobotic Process AutomationThe As-a-Service Economy

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1 Comments

13 Comments

  1. Jennifer Howarth
    Posted Aug 02, 2016 05:11 AM | Permalink Reply

    Phil,

    So well articulated! It's high time we recognized the successes of developing out a working outsourcing model. Emerging areas, such as robotics, will only enhance delivery further. This is a new phase of outsourcing, not a replacement of it!

    Jennifer

  2. Ramesh
    Posted Aug 02, 2016 05:45 PM | Permalink Reply

    Spot on Phil. We're seeing an evolution from labor arbitrage to automated delivery because we've mastered the labor model. We're now making outsourcing work even more effectively with better RPA tools and methodologies,

    Ramesh

  3. Pete
    Posted Aug 09, 2016 02:54 AM | Permalink Reply

    Good article.

    A couple of questions for me which it would be good to hear your opinion on are

    For an evolved operationally outsourced blue chip should they task their incumbent BPO provider to undertake the automation OR should the business bring the services back in house and automate themselves OR is there a hybrid solution of the two?

    Then what about operations that have not yet been outsourced. Is it best to undertake RPA on these first OR go straight to a BPO firm who can own the end to end operation and drive out / share the benefits accordingly?

  4. Francis Carden
    Posted Aug 09, 2016 03:05 AM | Permalink Reply

    Phil, there is no doubting your passion and articulation of this market. Some questions for you;

    I've been selling Robotic Automation to BPO's since 2007 so it's not new really that new but I get the point your trying to make. BluePrism, AA etc., are also not new (10+ years old) and there's certainly no loyalty to a vendor from the service providers. This advent of vendor switching/constant comparison, "experimentation" is indicative of the BPO challenge in my view, not just solved by product! As you say - "current Intelligent Automation blueprint are still in the early strategy and roll-out phases of their automation experiments". Doesn't this beg the question of the technology challenges that BPO's face that enterprises don't. Simply put, why would an Enterprise outsource to a Robot as opposed to building a robot for themselves? If not now, but soon.

    Combine that with the fact, that organizations are well on their way to digitization, or at least about to start on the transformations journey - and those that aren't - well, how will they compete? Digitization is Robotics from within - in the sense, the automation is integration done right!

    Right up there in your chart is Analytics and I am a believer in that in spades. We at Pega, complete our Robotics suite with Workforce Intelligence and Opportunity finder - the idea that automatically identifying the flow of a process, and the automation (or transformation) opportunity, in black and white is essential - especially for the complex processes (which have the most value when automated).. See you soon!

  5. Balaji
    Posted Aug 09, 2016 03:17 AM | Permalink Reply

    Very relevant point, maturity is long overdue. The challenge was also what and when to automate, is it after optimising and fixing a broken process Or automate as-is which could not be a long term solution.

  6. Phil Fersht
    Posted Aug 09, 2016 03:40 AM | Permalink Reply

    @Pete -

    1) Definitely the hybrid approach. The BPOs should have good experience and capabilities to bring to the table, but at the end of the day you know your institutional processes he best, where the risks are and what data you need etc

    2) Honestly, I'd just do the latter - it's like the age-old excuse of "we just need to get our ERP right first" which held up so many outsourcing deals for years. Just outsource and embed the RPA plan into the transition and transformation. Don't use it as an excuse to hold back the broader transformation agenda.

    PF

  7. Phil Fersht
    Posted Aug 09, 2016 04:36 AM | Permalink Reply

    @Francis - it's a bit like the days of outsourcing your ERP project and development work - why do it yourself when you can hire in reasonably-priced services firms, with the skills, to do it for you? RPA is a whole new wave of fixing processes that are worth fixing so they can funcition digitally... and most enterprises today simply do not have the inhouse wherewithall or skills to do a lot of this themselves... they need help. The other issue I have here is that being able to deliver transactonal processes at scale on a 1-many model is the core business of an outsourcer (not a buyer). Hence the place in the industry for the back office outsourcer (see post)that helps enable the digital journey. Most processes that can be automated are not worth the ROI without the right volume of high-throughout, high-intensity volume. But for the outsourcers, they can adapt if they can standardize their solutions effectively,

    PF

  8. Phil Fersht
    Posted Aug 10, 2016 08:20 AM | Permalink Reply

    @Joyce - "standardization" in RPA is really a work-in-progress. I'd point to a couple of aspects here:

    1) we need officially recognized working standards for RPA, which some specialist groups are currently working on (I have involvement with one);

    2) the more the service providers can develop reusable bot libraries around commonly used processes, the more "industrialized" this will become. I like what we are seeing with firms like Automation Anywhere are doing with commonly used processes in areas like F&A and Procurement, but it's also very interesting to observe solutions like Redwood which is growing its business around automating SAP-centric processes. The more we can automate processes that are based on SaaS/ERP workflows, the easier it is to develop common "automation accelerators"...

    3) your point about enhancing systems with solutions such as OCR is very pertinent. I call this "automating the automation"... there are many phases with digitizing and automating processes.

    So, to reiterate, this is all a work-in-progress and is very dependent on the client's willingness to standardize solutions. I can see a whole wave of RPA developing in emerging SaaS domains such as Salesforce, Workday, Successfactors, ADP etc

    PF

  9. Joyce
    Posted Aug 09, 2016 05:21 PM | Permalink Reply

    Thanks for the post. It is very helpful insights. I cannot agree more on the comment "Most processes that can be automated are not worth the ROI without the right volume of high-throughout, high-intensity volume. I just have some questions on "Outsourcers can adapt if they can sandardize their solutions effectively". Do you mean outsourcers can standardize across different customers' process? Standardize/optimize process can hardly be driven by outsourcers themselvels with out customers' endorsement and support. Sometimes it needs to change the front end and back end of an end to end process, or needs a ERP enhancement. It is not only about how outsourcers design the portion of processes in their scope. Moreover, if the buyer can really do the above, and if there is high-intensity volume, then why not just enhance the system (leveraging OCR, reconcilation tools etc) to automate their processes instead of investing on RPA softwares?

  10. Richard James
    Posted Aug 09, 2016 09:51 PM | Permalink Reply

    Very true, Phil, and the challenge for many of the outsourcers is how to deliver against this model with the millstone of an embedded delivery model (and margin) that militates in the opposing direction. The advent of RPA and AI as practical solutions (yes, they've been around for ages but only recently actually delivering against their promises), means that the need for thousands of workers in offshore locations is less pressing. The outsourcers can definitely provide the expertise at a scale that few clients could hope to match, but this expertise (a) requires a different/complementary skillset to those historically provided, (b) does not have a pressing need to be located in a low cost geography, and (c) is unlikely to drive the same revenue volume.

    For me, it's very interesting that the Onshore vs. Offshore and Outsource vs. Insource arguments have become live issues for the first time in many years.

  11. Sumita Chakrabarty
    | Posted Aug 10, 2016 08:30 AM | Permalink Reply

    Hi Phil, thanks for an excellent article. In which areas of IT Application Development & Maintenance (ADM) do you see Automation becoming more prevalent? In most cases we see Automation applied to L1 tickets i.e. identifying issues and directing them to the appropriate parties. On the other hand we have service providers such as Accenture recently coming out with the myWizard platform which although not productized yet, aims to provide end-to-end Automation across application development, maintenance and testing. To me it's rather obscure where the AD & AM market is headed in terms of Automation. What do clients want/ need from their service providers here? I'm really interested to know your views. Thanks again for your article, Phil.

  12. Francis carden
    Posted Aug 11, 2016 10:32 PM | Permalink Reply

    I couldn't agree more -

    "Most processes that can be automated are not worth the ROI without the right volume of high-throughout, high-intensity volume"

    And this is leading to the battle of the RPA vendors (boy, there are a lot of them now). The advantage when you throw RDA in the mix (Desktop Robotics), is you can automate complex or simple across larger swathes of users (our largest Robotic client has over 20,000 users using assisted/augmented RDA automations). Most of the RPA vendors lack the technology to deliver on (event driven) RDA.

    I think the return of serious cloud/on premise transformation development technologies is the game changer. You shouldn't invest only in tactical without having a strategic digital plan lest you will be out-completed with the Uber/Amazon startup models. Sure you can do it and win some ROI but all you've done is automated bad processes without planning for the future. "Historic" applications cannot be wrapped forever, they must change - and the speed in which they MUST change is accelerating like never before. I never thought I'd say it but legacy applications will not take an enterprise much further giving the speed of the competition in these new models. It's why I love my new company :)

  13. Phil Fersht
    Posted Aug 13, 2016 02:49 AM | Permalink Reply

    @Francis -

    Good thoughts. This is all about designing the customer driven experience and having an agile digital underbelly to enable it (see - http://www.horsesforsources.com/back-office-dead-oneoffice_051216 ). In the old days, it was more about buying technology and trying to retrofit the business around it. Now it's about designing the omnichannel to enable the customer/supplier/employee dynamic and having intelligent algorythms to link it all together in a semi-autonomous self-learning model...

    PF

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