Escaping the Dead-End of Labor Arbitrage: Robots Are Staffing the Back Office

Contributors: Saurabh Gupta and Rajesh Ranjan Despite the nomenclature, today’s "robots" are not the R2D2 and C3P0 droids that those of us from the Star Wars generation might envision. Instead, the robots at the center of today’s revolution are software programs used to automate business activities such as accounts payable and receivable, transaction processing and order management, and IT service management. Programming Business Rules into Software Robotic Process Automation - more commonly referred to as simply "robotics" - is the use of software that mimics human actions to interact with multiple applications in a "non-invasive" manner to execute rule-based and repetitive transactional processes. The difference with the usual automation is the "non-invasive" nature of intervention. The robots do not have direct access to back-end databases but access and input information through existing user interface layer, similar to human FTEs. Here’s an example: suppose you need a new laptop computer. According to your company’s policies, you must fill out a purchase request, get it signed by your immediate supervisor, and submit it to your departmental administrator who then ushers the request through another series of approval steps—one involving the IT department, one involving your departmental budget officer, and, finally, one involving your company’s purchasing agent. You know the drill: it’s a lot of emailing or paper shuffling and a lot of back-and-forth between departments which collectively access a variety of computerized systems (e.g., email, an inventory database, an accounting package, etc.) for key bits of information. In the end, a good deal of human time and effort is expended in the process, a process that costs the company money but adds little value. At its core, this laptop requisition and purchasing process is simply a series of steps to which pre-defined rules are applied. With Robotic Process Automation, these steps and rules are programmed into software that accesses other computer systems at the user interface layer (similar to human FTEs), and "Voila!" A process that used to involve multiple human beings is now "robotized," increasing efficiency and predictability and ultimately lowering FTE costs. Business Automation for the Cloud Generation None of this is really new. In fact, robotics is somewhat inspired by the Microsoft Office macros we learned to use "back in the day" to save time on repetitive spreadsheet tasks, but today’s version of robotics uses more sophisticated macros that can run across your computer system and a number of your applications. So, technically, robotics technology is not really new, but it is being talked about in new ways. In fact, you might say robotics is improved wine in a new bottle. Escaping the Dead-End of Labor Arbitrage Robotics is generating a great deal of buzz and has taken a place of prominence in trending topics. Why? Let’s look at the answer from both a demand-side and a supply-side perspective. From a demand-side point of view, robotics offers outsourcing buyers a way to go beyond labor arbitrage. Buyers can employ robotics to handle millions of tasks that humans used to handle, except much more quickly, cheaply and efficiently. The robotic solutions can work 24/7/365 with consistency and accuracy; therefore, buyers are able to reduce staffing levels and HR issues while improving service. Automated processes also enable buyers to meet higher standards of security, risk mitigation and compliance, because the "virtual FTEs", once the processes are fully tested and automated, can produce error-free results that are typically fully documented, and are traced and audited. Bottom line: robotics can help buyers reduce costs and free up humans to do more high-value tasks. From a supply-side perspective, the technology has evolved to a more useful and impactful state. The maturation of the technology has been boosted by cloud computing. The robotic software solutions are now "in the cloud" rather than on thousands of desktops and thus are relatively easy to deploy. Hurdles: Ill-Defined Processes, Fuzzy ROI The amount of manual work that providers can automate is significant, but there are roadblocks and challenges ahead. For starters, figuring out what can be automated is no small task. Processes that are stable and well defined are the best candidates for automation, but not all process meet those criteria. In many cases, manual intervention may still be required, especially for processes that have hundreds of criteria or exceptions on a granular level. In other instances, processes may be so fragmented that they need to be transformed before robotics can be applied. Or to put it another way, robotics automates what already is; it doesn’t make the process smarter. For now, fixing bad processes is still a job for humans. Another challenge is making the business case for a robotics investment. What will it cost? What will it save? Theoretically, for a well-defined, stable process, a provider might invest up from a few thousand to $100,000 to pilot the solution, test feasibility and implement, and the result could be as high as a 70 percent reduction in cost—a quite significant net effect. However, the cost of implementing a robotics solution can vary considerably depending upon the process itself and how optimized it is to begin with. How do you estimate this in advance, and how do you prioritize this in relation to your other organizational needs? Implications for the Outsourcing Industry Although robotics most surely will create significant disruption in the outsourcing industry - SSON online editor Barbara Hodge has described it as the "impact felt around the world"- we have very little to measure and document at the moment. Our prediction is that providers who adopt robotics solutions early will gain a competitive advantage in the short run, but because the technology is not "rocket science," we expect it to commoditize pretty quickly. We likely will see a few new service provider entries with automation as their core competency, and we expect the demand for automation talent to rise. Overall, the robotics trend will drive providers to get workflow processes in tip-top shape. Although we see the most movement on the provider side now, we also expect to see in-house operations jumping on the bandwagon soon. A surge in repatriation, reshoring or DIY is possible if clients opt to implement robotics in their own processes. However, outsourcing service providers have a head start on automating processes and redeploying human assets to higher value service tasks. At least one thing is for certain: robotics will drive disruption in outsourcing contract structures. The application of robotics essentially cannibalizes fees that are based on FTE and reduces margins in cost-plus contracts, so providers with long-term cost-plus contracts will find themselves in a bit of a bind. Thus, providers must quickly figure out how to pass on costs or share benefits in a new style of contracting, likely using more transaction-based and outcome-based pricing. Early Leaders in Process Automation Software vendors in the field include business process specialists Blue Prism, which is based in the UK, and IT infrastructure-focused IPsoft, which makes its headquarters in New York City and which offers autonomic rather than robotic automation. —These companies are touting some big-name brands on their client lists and sharing a few appetite-whetting case studies. But the industry is hungry for more concrete examples, success stories and intra-industry knowledge-sharing. As we expectantly observe where and how this stage of the robotics revolution plays out, we already have a glimpse of the next frontier. We have already met robots that no longer have every function programmed but rather exhibit learning behavior and are capable of making informed decisions and "judgment calls." IBM’s Watson, a cognitive system that bested two champions on the television game show Jeopardy!, is one example. Imagine the potential impact these cognitive robots will have when, on a steady diet of big data, they help humans apply the power of business analytics to workflow processes. Indeed, it may not be long yet before we find R2D2 and C3PO running the back office. Note: this is from a regular blog series, Sherpas in Blue Shirts, posted by Everest online.

Escaping the Dead-End of Labor Arbitrage: Robots Are Staffing the Back Office

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