Outsourcing is passe - it’s time for a robot empire
The Economic Times
Technology Sector Leader, EY India
Today robots pick-pack boxes in warehouses; assemble varied objects as small and delicate as smartphones and as large and complex as aircraft engines. Automation is making rapid inroads into IT and business processes, transforming human to system and system to system interactions. This raises a pertinent question for customers-why outsource when you can automate to get the cost advantage?
Intelligent automation presents itself as the best-suited solution for majority of rules-driven processes being outsourced today (infrastructure management or IM, business process management or BPM and application management and testing) - redefining the offshoring versus on-shoring debate.
While there is a scope to bring down the headcount by over 50% and reduce costs up to 70% in an optimally automated IM contract, automation also poses a dilemma for enterprises--adopt a cost-effective automation fix to solve technology problems or choose an end-to-end automation solution which may require a higher upfront investment?
Robotic process automation and artificial intelligence (AI) are poised to redefine IT-BPM industry. Robotics has played a pivotal role in transforming the shop floor and assembly lines in the manufacturing sector. Now, software robotics is gaining traction across healthcare, insurance, banking and BPM industries. Robots can automate workload of 1.5-2 full time equivalent (FTEs) jobs in IT-BPM industry and still generate net saving of $10,000 per job i.e. work delivered by 2 FTEs at a cost of $40,000 can be performed by a robot, generating net savings of $20,000 by year two of deployment.
Similarly, the AI technology has come a long way since 1997, when an intelligent machine defeated the world chess champion. Sophisticated robotic traders powered by AI techniques dominate the present-day stock exchanges, accounting for 70% of transactions in the US. AI applications will become pervasive across industries with evolving self-learning capabilities to further improve productivity.
While there has been a lot of rhetoric around the threat posed by automation to the traditional IT outsourcing model; it also presents an opportunity. As automation adds 10-20% cost savings beyond what offshoring already provides, enterprises will deploy saved IT budgets on other innovative technologies. Such a trend has been observed in the past when lower offshore billing rates enabled enterprises to reduce their IT costs significantly while IT services spending continued to soar (2003-08, 2010-12).
That said, recent initiatives by Indian IT services providers vindicate that they saw this coming, and are taking a lead in innovation. Majority of the players have launched their automation platforms, made acquisitions, set up separate digital units and established partner and startup ecosystems.
Service provider (SP) initiatives are moving beyond automation-friendly services to nontraditional customer-facing enterprise applications to offer efficiency and cost benefits. For instance, AI platform of a tier-I Indian IT services player uses machine learning algorithms to create digital virtual agents for next-generation customer services solutions.
Advances in intelligent automation are ushering in a gradual shift from people-centric to technology-centric business models-debunking the idea that technological expertise of an enterprise is directly linked to its headcount. In April 2012, a photo-sharing startup, employing 13 people, was acquired for $1billion--giving it a valuation of ~$77 million employee. Fast-forward two years, an over-the-top messaging company, which employed 55 people, was acquired for $19 billion--~$345 million employee.
Automation technology applications have so far barely seen the tip of the iceberg. Indian SPs should not fall prey to short-sighted approach that views automation cannibalising their existing revenue streams. Unlike the software product industry, automation product landscape does not have globally recognised brands. This is a unique opportunity for Indian SPs to build indigenous platforms and products and dominate this space.
There is a wide held belief that while automation may disrupt jobs and businesses across industries, it will also fuel the demand for holistic SPs who can help clients with long-term solutions (product architecture and application design) as well as medium-term productivity enhancements through intelligent automation.