- October 7, 2019
- Posted by: Ramkumar
- Category: Digital Transformation
Seismic shift in Outsourcing
The outsourcing model is undergoing a seismic shift ever since the emergence of the Global Delivery Model.Clients want to move away from their existing outsourcing contracts with its vendors.
Customers want to replace these relationships with bots that can perform transactional tasks.Since outsourcing agreements are often tied up with clauses, it becomes far difficult for the customer to eliminate workers contracted to a service partner.
As a result, customers are forced to initiate layoffs of it’s own resources and then use these savings towards software investments.
In addition, customers have decided not to bring back the outsourced work in-house.They want their service partner to automate fully the activities before it is transitioned back to customer site.
So one thing has become clear – Outsourcing offers little future value.
Can Automation and AI create additional jobs in outsourcing
- There is a significant optimism provided by the IT and other tech firms that Automation and AI can create significant additional jobs, far more the amount of jobs that it takes away.
- When we look at the 2019 state of operations study done by KPMG across Global 2000 companies, the results altogether show a different picture.
- There is a significant degree of change in the mindset of the Operation leaders to reduce reliance on outsourcing.So the question is:
How are companies looking to run their business operations?
- More than half of the enterprises want to replace their existing service partner with a new partner as they are not satisfied with the services provided.
- The remaining half wants to embed significant automation in their current engagement.
- Some customers have decided to bring back their outsourcing jobs inhouse, as they have lost confidence in the vendor’s delivery model.
So, what will be the future of Outsourcing?
- The number of staff traditionally deployed to run business operations have seen a dramatic reduction over the past few years.This is due to advancements in technology and willingness by enterprises to embrace automation.
- Earlier, functions like Finance had more than 100 people working on the operations side, but now due to advancements in software along with innovative labor arbitrage model devised by outsourcing firms, this has reduced the headcount to a handful.
- The same theory extends to other business functions like Procurement, HR and IT.Infact IT has been most affected by this.The industry has seen an osmosis with labor movement from enterprises to outsourcers.
- At the same time, labour intensive outsourcing firms who are highly reliant on people and earn revenues by staffing people have continued to follow the same process.They see very little incentives to move to digital as it would impact their bottom line/topline.Unless vendors are contractually committed to move towards Automation and digital, they continue to stick to the status quo.
- This reluctance from outsourcing companies have prompted RPA firms like UI Path, Automation Anywhere and Ant Works to make significant investments in implementation staff as they are not happy with outsourcing firms reluctance to incorporate AI/automation into their people focused delivery models.
Firms are bypassing Staff intensive outsourcing processes to move to Digital
- The outsourcing models no longer exists and companies want to engage outsourcing vendors only in the near future to replace the staff performing labour intensive processes with Digital.
- This is more visible in Banking sector where banks want to replace their customer support executives with conversationally intelligent cognitive solutions.Many banks have realized huge savings after incorporating this move.
- In case of banks having outsourcing contracts with vendors, the only way to move to digital is to demand to the vendors to replace outsourcing activities to Digital during contract renewals or bring it back inhouse to do it themselves.
What should the Outsourcing Service Providers do?
- The key for service providers is to develop aggressive adoption programs to create Digital ROI.
- Over the period, the digital models have also evolved from simple apps to Chatbots/RPA to now conversationally intelligent platforms.
- Earlier many enterprises were asked to invest a huge amount upfront in order to get a cognitive/RPA solution that would function without manual intervention.This did not have success because companies were not ready to invest huge money and were not convinced of the benefits that it might reap.
Hence service providers who can help enterprises to transition their existing processes to digital and remove the layer of people delivering them would be the Winners.
Outsourcing will be replaced by Digital technologies
- Companies are clear in their approach towards outsourcing. They are interested to maximize profits.
- So the stated goals of enterprises is to a)Reduce Operating costs and b)Transition to Digital.
- Hence firms are interested to invest in partnerships that will help them to accelerate their move to Digital.
- Their stated focus is to target manual resources who are engaged in outsourcing and replace them with Digital technologies.
As Enterprises have decided to move away from Outsourcing models to Digital, service providers should take the following actions.
- Retain the most profitable customers.
- Acquire customers from competitors to mitigate losses as customers are reducing their outsourcing engagements.
- Develop programs that help clients leverage the benefits of automation and AI.
- Hire digital talent to realize the above goals while at the same time forge deep partnerships with Software companies to work together.