The BPO industry is staring into the headlights of the emerging “as a service” economy. This industry as we know it is approaching 20 years old but has never been faced with so many opportunities or threats. There have been a number of challenges over the years including open architecture, software as a service, ERP, cloud and now RPA. However, RPA is different as it challenges the very heart of what BPO is about – people and labour arbitrage. The reluctant response from the BPO industry is a rather haphazard set of paper partnerships and bold statements about growth in revenue and margin whilst shedding headcount.
Here are three good reasons not to use BPO providers as your partner for your automation projects (with two more to come in the next instalment):
- Conflict of interests
The transition of a process to RPA, AI and other types of automation within an existing BPO contract creates a fundamental challenge to BPO providers. Their KPI’s are driven by overall revenue, revenue per employee and contract margin. In fact most providers are open about their desire to increase revenue and margin per employee through the use of automation. Just take a look at Wipro’s announcement declaring a reduction of headcount through automation of 47,000 roles in three years. Technologies like RPA today can cost a fraction of the amount it costs to hire, train and retain even the cheapest offshore resources. Why then do the major outsourcers believe that automation will be the source of their revenue, growth and profitability? Either they ALL believe that they will gain massive market share or they believe that buyers will be prepared to take a substantially less than proportionate share of the reduction in cost.
- Business People Outsourcing
The business process outsourcing business is fundamentally a people management activity as reported recently in Ian Barkin’s insightful blog “BPO = Business People Outsourcing”. I maintain that the main reason that companies outsourced and in particular sent work offshore was that whilst they understood the cost differential and wanted to benefit from the labour arbitrage, they just didn’t have the “will” or capability to manage a remote workforce in a country and labour market that was not familiar to them. The continued growth, albeit starting to slow down, in offshoring shows that this is a powerful model even with attrition running at reported levels of between 15% and 25%. However, the BPO’s according to several well researched reports from HfS, have never achieved the market’s expectations around technology and innovation. So with that in mind and the fact that digital labour is cheaper and does require the offshore workforce, I assert that the main reason to outsource the work to a BPO is evaporating.
I’m sure the offshore BPO players will attempt to claim the technology high ground and will invest heavily to try and lead in order to maintain market share. In fact, I think the Indian players will morph into automation providers and slowly shift away from BPO, ‘business people outsourcing’ that is. This will challenge their revenues and absolute margin to the extreme but they have little choice other than at a minimum to try and maintain market share.
On the other hand, they certainly have an opportunity in terms of availability of talent. The abundant supply of graduates from India is mind blowing with reportedly more than 9 million new graduates every year. I’m not sure what the consequences of such over-supply will be ultimately but in a world where it still costs less to employ a robot I think there is trouble ahead. The question remains as to whether the talent available has the skills and knowledge to reign in an automation and AI era. A subject for another day is whether this will be the fuel behind a massive increase in availability for crowd sourcing.
- Consistency across GBS
The notion of global business services (GBS) as an advocate, leader and driver of efficiency across multiple platforms of outsourcing, technology and shared services is a well-recognised best practice. Many organisations have not taken the plunge yet but those that have are realising the power that a portfolio approach gives you and the control it enables due to great extent through the retention of your knowledge assets, greater control where required (for example as it relates to your customers experience) and the ability to cherry pick where the best value can be derived from external providers.
Automation technology provides the GBS organisation with the platform through which they can architect and dynamically redesign the end to end process. It provides glue that connects the components of a multi sourced solution in a very flexible way. The volume of straight through processing that otherwise would be sent to outsourcing partners or shared services can be substantially automated through a complex rule book. This then means that commodity pricing can be used to outsource basic input tasks that require “brains and eyeballs” and that higher value added exception handling can be retained and dealt with by experienced staff who are capable of making decisions or even redefining the rules of the automation. This also negates the need for complex BPO contracts and enables the use of internal resources dynamically if capacity is available.
(To be continued…)