{"id":2424,"date":"2019-08-20T00:39:00","date_gmt":"2019-08-20T00:39:00","guid":{"rendered":"http:\/\/localhost\/projects\/horsesforsources\/straight-to-digital_082019\/"},"modified":"2019-08-20T00:39:00","modified_gmt":"2019-08-20T00:39:00","slug":"straight-to-digital_082019","status":"publish","type":"post","link":"https:\/\/www.horsesforsources.com\/straight-to-digital_082019\/","title":{"rendered":"As 47% of enterprises seek to reduce their reliance on outsourcing… we’re going straight to digital"},"content":{"rendered":"

It’s taken more than 12 years – ever since the first-ever blog post written right here<\/a> – but the outsourcing marketing is on the cusp of its most seismic change since the offshore revolution… the majority of enterprises are seeking to pull away from their stale outsourcing relationships and replace people with intelligent cognitive workers which learn context – or simply bots that perform transactional tasks.  And the reality of outsourcing is that it’s far easier<\/em> for an enterprise to eliminate workers that are contracted via a service partner than have to go through all the painful change and resistance when trying to eliminate their own staff directly with software investments. What’s more, enterprises rarely want to bring outsourced work back inhouse until it has been fully automated and the outsourcing offers little future value.<\/p>\n

All the lovely fluff about “automation and AI creating jobs” is being proved to be utter claptrap for the services industry when we look at fresh new data from the 2019 State of Operations and Outsourcing Study across 355 operations leaders in the Global 2000, conducted with the support of KPMG:<\/p>\n

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Click to Enlarge<\/a><\/em><\/p>\n

What’s shocking here is the degree of change in mindset<\/em> from operations leaders since a year ago, where 62% were still pretty gung-ho positive about investing in their outsourcing model, which has nose-dived to only 28% this year, and a startling 47% actually seeking to decrease<\/em> their reliance on outsourcing.  So if they’re looking at new models to deliver their business operations – and traditional outsourcing no longer fits the bill – what are they looking to do?  Let’s take a deeper look:<\/p>\n

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Click to Enlarge<\/a><\/em><\/p>\n

In short, up to half of major enterprises are looking to find another provider to break their years of painful status quo, while a similar number are looking to embed significant automation into their current engagement. About one-in-six are looking to pull the whole lot back in house and have given up on the delivery model. <\/p>\n

Why this change to outsourcing… and why now?<\/span><\/p>\n

When we look at our reliance on staff to run our operations, we’re seen a substantial reduction over the last couple of decades, mainly due to advances in software applications that embraced process standards (and natively automation).  For example, most G2000 enterprises had hundreds of people running finance processes a decade-plus ago, and likely barely have 50-100 based on advances in financial software, combined with efficient outsourcing labor arbitrage models delivered by the likes of Accenture, Genpact, Capgemini, and WNS.  Procurement probably had 150 and today barely needs 30… and HR is down to its barebones across most large enterprises.  The division most affected by outsourcing – IT – has shrunk from the thousands to the hundreds in most major enterprises over the past two decades.  Net-net we’ve been through a very long, sustained period of labor osmosis from enterprises to outsourcers, while shared service functions have stayed largely static.<\/p>\n

At the same time, people-driven outsourcing engagements have continued to deliver similar process work back to its enterprise clients with the same number of staff, where the outsourcers have had little incentives to make investments in automation and digital technologies, unless they can directly benefit financially, or have contractually agreed to reduce staff numbers over the course of a long term contract.  We are already witnessing the likes of Automation Anywhere, UiPath and AntWorks making significant investments in their own implementation staff as they are frustrated with their lack of traction many outsourcers to incorporate automation and AI technology into the people-focused delivery models. <\/p>\n

The new solution is to bypass staff-intensive processes and go “straight to digital”<\/span><\/p>\n

The big change we are seeing now (and we’ll share more data to back this up shortly) is that the outsourcing models we know and love have long reached their saturation points, and the only real value enterprises can get from them (in the near future) is to remove the number of staff delivering the work and replace<\/em> them with digital technology.  For example, a bank we spoke to recently that is replacing hundreds of staff whose job it is to create customer appointments with a conversationally-intelligent cognitive worker solution.  The savings are massive.  However, if the bank had outsourced<\/em> those workers, the only way to force their service provider to replace them with a digital solution would be to demand it upon contract expiry, or bring it back inhouse and do it themselves.<\/p>\n

The key is for software and services providers to develop aggressive adoption programs to create the real “straight to digital” ROI<\/span><\/p>\n

In recent years, we’ve seen many of these digital models evolve – from simple software apps, to chatbots, RPA tools and now more conversationally-intelligent cognitive workers (such as IPSoft’s Amelia, IBM’s Watson, Automation Anywhere’s IQ Bot, TCS’s partnership with Amazon Connect, HCL’s Lucy and Wipro’s solution of Holmes with Avaamo).  However, the earlier models where enterprises were being forced to invest multi-millions upfront just to get a cognitive or RPA solution actually functioning without constant human intervention and training, have failed, with the notable inability of IBM’s Watson solution to reach anything like the heights the firm had promised because the market a) wasn’t ready and b) wasn’t convinced the massive outlay would reap massive rewards.  And the high-profile struggles of many RPA solutions to replace people with technology (merely augment processes) threaten the rapid rise of those solutions as investors pile on with unrealistic expectations.  So the answer is staring us in the face, and it’s pretty straight forward… the winners in this tough new transition market are those which can guide enterprises to take existing processes and move them straight to digital<\/em> and remove the layer of people delivering them. <\/p>\n

The Bottom-line: The only true ROI which created the traditional outsourcing model is now repeating itself with digital solutions<\/span><\/p>\n

As much as we can spin wonderful stories about augmenting people and enriching jobs etc., the goal of most Global 2000 enterprises is to maximize profits and the stated goals of C-Suites and Ops leaders are to a) reduce operating costs and b) move away from physical to digital environments:<\/p>\n

<\/a><\/p>\n

Click to Enlarge<\/a><\/em><\/p>\n

The industry has spoken and it’s clear where they will invest – in partnerships that can accelerate the move to digital without all the painful and costly steps to get there.  And the areas most primed to make this happen are where the staff have already been outsourced and the logical next step is to reduce or eliminate them altogether.  <\/p>\n

The challenge for outsourcers.<\/strong> Defend the clients you really want to keep and attack ones from competitors to backfill the inevitable losses as the model shifts from people to digital.  This means you need to develop programs that get your clients leveraging the benefits of automation and AI quickly by hiring talent to make this happen, and forging deep, mutually-be partnerships with software firms to work with you.  As we recently discussed at our Robotic Business Outsourcing Roundtable<\/a> in London, outsourcers face a stark choice between embracing digital models that require less labor, or fading into insignificance.<\/p>\n

The challenge for enterprises. <\/strong> Forcing your service providers to cannibalize your business is not an easy task, but if you are willing to work with them to build real digital models that work and become a showcase client for them, you should find a cooperative (and hopefully) ambitious partner to work with you.  If you do not, then look further afield for partners willing to invest in your business. If noone wants to transform your operations your business clearly isn’t very attractive (especially if you got a cheap deal to begin with) so you may well be better off bringing operations back inhouse and digitizing them yourself.<\/p>\n

The challenge for advisors. <\/strong> Today’s environment should be gravy<\/em> for you – I’ve heard from several advisor friends that deal flow is really healthy – and it’s mainly outsourcing renewals demanding digital enablement and less people-centricity.  Hence deal amounts are declining and demanding more complex tech skills to enable new solutions.  Your problem is going to be finding providers willing to embrace disruptive models and work with thinner margins in the short-medium term for longer-term gain.  There are several providers out there willing to be aggressive to “land-grab” deals and increase market share, despite thinner margins and scarcity\/cost of tech talent.  However, you really need to flesh out the providers prepared to put skin in the game, versus those paying lip service. <\/p>\n

End of the day, many of the outsourcing partnerships that got so many of us here are unlikely to be the same ones to take us to the next phase…<\/p>\n","protected":false},"excerpt":{"rendered":"

It’s taken more than 12 years – ever since the first-ever blog post written right here – but the outsourcing…<\/p>\n","protected":false},"author":3,"featured_media":2425,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[867,48,90],"tags":[303],"ppma_author":[19],"yoast_head":"\nAs 47% of enterprises seek to reduce their reliance on outsourcing... we're going straight to digital - Horses for Sources | No Boundaries<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.horsesforsources.com\/straight-to-digital_082019\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"As 47% of enterprises seek to reduce their reliance on outsourcing... we're going straight to digital - Horses for Sources | No Boundaries\" \/>\n<meta property=\"og:description\" content=\"It’s taken more than 12 years – ever since the first-ever blog post written right here – but the outsourcing...\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.horsesforsources.com\/straight-to-digital_082019\/\" \/>\n<meta property=\"og:site_name\" content=\"Horses for Sources | No Boundaries\" \/>\n<meta property=\"article:published_time\" content=\"2019-08-20T00:39:00+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.horsesforsources.com\/wp-content\/uploads\/2021\/12\/5d5b41608ebb7469720920.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"627\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Phil Fersht\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@pfersht\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Phil Fersht\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"8 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.horsesforsources.com\/straight-to-digital_082019\/\",\"url\":\"https:\/\/www.horsesforsources.com\/straight-to-digital_082019\/\",\"name\":\"As 47% of enterprises seek to reduce their reliance on outsourcing... we're going straight to digital - 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