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Digital Labor - Impact on Outsourcing

By Raheem Hasan, Co-Founder and President, Institute for Robotic Process Automation (IRPA)

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Raheem Hasan, Co-Founder and President, Institute for Robotic Process Automation (IRPA)

The past two years have seen tremendous technological advancements in robotic process automation (RPA), intelligent automation, cognitive computing and Artificial Intelligence (AI). These disruptive technologies have moved from hype to reality, as the benefits of "digital labor" eclipse the benefits of physical labor. Nowhere more acutely is this felt than by the outsourcing community.  In fact, many predict that within five years, information technology outsourcing (ITO) and business process outsourcing (BPO) service providers that fail to integrate these technologies into their solutions and operational delivery models will be out of business or acquired by larger enterprises. 

“Robots” are revolutionizing the way we think about and administer business processes, IT support processes, workflow processes, remote infrastructure and back-office work.  By handing off repetitive, lower-end functions to robotic software, enterprises will be able to minimize the need to outsource projects to offshore providers.

These technologies will impact all new and existing contracts creating a tremendous power shift in the service provider arena.  Here at IRPA, we took a look at the implications:

The Good:

  • It will be good for enterprises whose existing outsourcing relationships have run out of steam when it comes to new and incremental cost save and innovation. Why  struggle to gain another 5-10% labor cost reduction when you can enjoy labor cost saves of 25-40% or more?
  • For regulated businesses, analytics and reporting will be like nothing that you could have envisioned in a traditional outsourcing engagement. 
  •  In environments where speed and scalability are key, RPA will deliver in spades.

The Bad:  It will be bad for most IT, ITO and BPO providers as the new math will have market prices plummeting. Traditional labor-based pricing doesn’t stand a chance. What will you do when your lowest ‘buy the business’ pricing isn’t even in the ball park?

The Ugly: It will get ugly for offshore players who made history and surpassed the most optimistic growth predictions over the past two decades based on a labor arbitrage model that’s becoming extinct.

For enterprise buyers, onshore and offshore providers, here are our recommendations for adapting to the brave new world of digital labor:

Enterprise Buyers: Educate yourself on these disruptive solutions. Who are the ones doing it, who are the experts and providers. Insist that your current providers embrace these technologies and transform their model so you may gain the benefits sooner than later.

Onshore Providers: It’s all about the pivot. This will be painful for some and impossible for others. For those who make the pivot, you will have the opportunity to win back the business that you lost to offshore competitors.

Offshore Providers: Your strength is now your weakness, the bigger and more vested you are in a low cost labor arbitrage model, the tougher it is to make the transformation. You have a choice.  Conduct layoffs and change what and how you sell, or stick with the current plan and see how it plays out as you watch the market change direction, hurting your market share and cap, only to then have to make those layoffs anyhow, and attempt to rebound from a weaker position.

Regardless of your role, these disruptive technologies are here to stay and are a part of our new found reality.