Outsourcing has for some decades now been a cornerstone of many corporate cost cutting measures, with highly educated and relatively cheap foreign countries providing a means to reduce back-office and customer services costs. Digital automation is however, on the cusp of providing an even lower cost proposition for many corporates, resulting in ‘no shoring’. According to A.T. Kearney, the recent development of ‘business process as a service’ is expected to place further pressure on the outsourcing market, already troubled by the taking off of low-cost standardised RPA solutions.
Automation has the potential to greatly improve productivity, while freeing humans from repetitive and often relatively boring tasks. Concerns are abound however. Since many of the tasks no longer require skilled human intervention, companies will end up increasing their margins without increasing employment – resulting in mass unemployment and potential misery for the middle classes. Recent changes may soon come to affect not merely domestic developed markets, but also the outsourcing markets, such as emerging economies, as companies begin a process of ‘no shoring’.
Over the past decades, the outsourcing market has enjoyed explosive growth, countries such as India and China became service and manufacturing hubs on the back of their skilled population and low-cost profiles. The move saw prices for products and services drop across the western world, while the quality of life of outsourcing workers tended to improve. Outsourcing remains a key feature of business life, however, according to the ‘On the Eve of Disruption’ report by A.T. Kearney, two successive revolutions may come to stifle the future growth of the industry: robotic process automation (RPA) and business process as a service (BPaaS).
The benefits of robotic process automation (RPA) are considerable. As it stands, around a quarter of back office workers spend time performing tasks that are repetitive and rule-based. Those tasks can, in many instances, be automated by robotic processes that are up to three times faster than the average human, work around the clock, are more accurate and are consistently available. The cost for the RPA now comes in at around one-third as much as an offshore employee and one-fifth as much as onshore staff. Furthermore, RPA can be easily scaled based on requirements, and therefore do not require the complexity of employment conditions. As a result, RPA can produce savings of between 25% and 50% in select back-office processes.
RPA has been around for some time and has helped, for examples, reduce Barclays Bank employment footprint by 120 full-time equivalent employees, while for Telefónica O2 the use of RPA saw its 160 robots automate 15 core processes and nearly half a million transactions per month, claiming that a three-year return on its RPA investment stands in excess of 650%. A number of consulting players also have entered the market in recent years, with Alsbridge launching a RPA service line and Capgemini joining with UiPath to provide a RPA offering.
RPA represents the first wave of automation. The second wave is following quickly on its heels and may come to rapidly overtake it. BPaaS, like other ‘as a service’ offerings, provides a means of cost effectively engaging with RPA processes, whilst not needing to invest heavily in the infrastructure and in-house knowledge to deploy it. BPaaS is provided by a vendor that has a standardised service that is capable of meeting the respective needs of a range of customers. BPaaS is by definition an outsourced introduction of RPA for a company, and is provided through a cloud-based service.
There are several benefits that are projected to come with a growing BPaaS market. One is that the service provided has a variable cost base, with customers paying a fee per unit of output or acquiring some type of usage-based subscription, as opposed to a software licensing fee (for RPA) or the classic amount per employee (in traditional outsourcing). The second major factor in its expansion is that it dramatically lowers the entry barriers, opening the floodgates to smaller and newer companies emerging from the proverbial garages in innovation centres around the world. Companies can be selective in the kinds of processes they need automated at their specific growth stages, allowing for cost effective scalability without costly infrastructure or human commitment.
According to A.T. Kearney’s analysis, the BPaaS market is now worth almost $18 billion, a considerable amount despite being a modest share of the roughly $160 billion global BPO (business process outsourcing) market.
The effect of RPA and its standardisation in BPaaS means that ‘no shoring’, where back office processes are done automatically through digital means, may come to compete with the traditional outsourcing markets. This will have a range of consequences for players in those markets, as well as for their employees and respective government policies. A shift towards supporting the development of RPA and BPaaS operators in local markets, as well as the talent to support them, may be required to compete with automation. Further, wider discussions around automation and its effects on human labour too need to be had in light of potential social disruption.
The consultancy concludes: “Moreover, host countries that have been relying on BPO to create hundreds of thousands of jobs may find that their citizens are up against a ruthless new competitor for highly standardised, mature, high-volume business processes. The advent of RPA and BPaaS means policy makers will need to prepare for the end of ‘easy’ BPO work opportunities, where equipping workers with basic language and literacy skills was sufficient to make them employable to handle routine processes.”