Robotic Process Automation: We’re at the Cusp of Something Big – But Only if the Industry Can Get its Head Out of the FTE Model

Remember when you heard the term "multifunction" mentioned in hushed whispers at Shared Services conferences? About 10 years ago? And remember also when a couple of firms out of India started obsessing about "data analytics"? About 5 years ago? And then the constant chattering about Global Business Services? Just a few years back? Those early converts were visionaries, as it turned out. For though each new iteration may take half a decade to really take hold, those early trickles have turned into a flood, the impact of which is felt around the world. Today, there’s a new acronym to take note of, and you’ll be seeing more and more of it bandied about. RPA stands for Robotic Process Automation, and it promises to be a shape-shifter for the service delivery sector. Those who are paid to know these things agree that we are standing at the cusp of something big, though it may take years before we see real returns. A recent webinar hosted by analyst firm HfS Research brought together a mixed group of practitioners for an "ultimate robotic automation" debate. Although all participants agreed that it’s still early days, what was undeniable was the fact that deploying "robots" will mark a game changer for the industry. The question is: who will be driving it and how far can it go? To understand what’s driving this latest shift we need, first, to accept the whole-scale digitalization of the workplace, said HfS Research CEO Phil Fersht. He highlighted a recent survey, which found that 28% of respondents were currently undergoing wide scale business process transformation as a result of technology changes. Fast-forward two years however, and just about half the respondents expected to find themselves there. Other research spotlights "automation to reduce manual activity" as a key driver of transformation. Whatever angle you take, Fersht said, the result is the same: digital transformation is revolutionizing the workplace. Never is that statement more true than now, with RPA knocking at the door. If the last decade was about labor arbitrage, this decade is about replacing that labor with expert systems. So what is it about? SSON recently posted an article outlining robotic process automation, which offered a general introduction to what is, in truth, still a slightly murky space. At its most elemental, RPA is about transactional or rules based processes being managed by a virtual robot that engages with applications through your screen’s interface. It’s not a macro code nor is it a piece of automated software. It’s essentially about cognitive capability. Charles Sutherland, EVP of Research at HfS, is spearheading the firm's analysis of robotic process automation. It's not a question of whether RPA will take hold, he says. It's a matter of when. At this stage, it's mainly on the provider side, he says, that we are seeing signs of embedding RPA capability, but it may just as likely be an inhouse operation that implements it. Chetan Dube is the CEO of IPSoft, one of today’s leading RPA developers. If the last decade was about labor arbitrage, Dube explained, this decade is about replacing that labor with expert systems. To offer some perspective of what Dube is talking about: knowledge workers currently make up 20+% of the global payroll and 9% of its workforce. If we assume that a third of this work could be addressed by robots, as Dube believes it could, the impact on both the market and on cost is immediately apparent.As one of the token "scientists" among the practitioners, Dube outlined a couple of different approaches to RPA: First, is to emulate human behavior through key words recognition–i.e., programming a robot to do what humans would do. Second, is to develop true cognitive computing capability, based on critical learning algorithms, as IBM has been doing recently with Watson. Next, is to focus on vertical industry solutions, for example in healthcare. Where industries share similar processes there is an opportunity to invest in robotics and for all companies in that sector to benefit from cross-pollination, he explained. A final approach differs in that it doesn't try to emulate humans, but rather takes the desired output and creatively addresses its resolution. This is similar to the idea that when humans first wanted to fly they didn't design planes with flapping wings. Instead, they studied aerodynamics and came up with a different solution. As Dube puts it, "cognitive emulation of output" would, in fact, be far more effective than simply cloning gray matter. It’s the final game-changer in an already shifting space. But let’s get back to the real world. How is RPA going to play out in practice? One of the webinar participants, Lee Coulter of Ascension Health, manages 24 services through his SSO. He is a perfect example of a practitioner who sees a lot of potential in RPA. "A full 50 to 60% of all the work done in our Shared Services organization is transactional or rules-based," he explained "which means that the impact of potentially replacing humans with robots is enormous." And it’s not as complicated as you may think. Coulter explained that in collaboration with one of the leading developers in this space, his team had recently "in a matter of only four hours, built a robot that could potentially replace half an FTE." That makes developing robots for your inhouse operation suddenly a very credible strategy – one that could actually be put into practice. An additional attraction to folks like Coulter is the fact that implementation allows you to bypass centralization and does not require "changes to systems" or the involvement of IT. In fact, it’s the business operations that own and control deployment, introducing an additional dealmaker – speed – into the equation. "Control" means you can react faster, and you are more nimble. "Speed to deploy is a game changer for us," said Coulter, echoing what many of you around the world are probably thinking right now. [eventpdf] Ian Barkin, Global Head of Innovation at Sutherland Innovation labs, said that his team is already piloting robots with some of Sutherland’s clients. It’s not such a hard sell, as the market has already adjusted to macro formulas and character recognition, so much of the basic ground work to getting robotic automation accepted has already been done. "People get it," Barkin explained. Many developers are touting RPA as some kind of magical turning point in terms of their collaborative relationships with clients, though those of us who have been watching this space would point out that we’ve heard it all before. Just as RPA proponents today, BPO providers have been citing "pivotal change" and claiming transformative discussions with customers for years. Indeed, much of what was promised has, in fact, transpired, though not all. The concept, therefore, is not new – but the mechanisms and the channels are. Given the groundwork laid by BPO providers over the past two decades, RPA will certainly fall on fruitful ground. The market should be ripe and ready. The big question, as HfS's Charles Sutherland puts it, is: what does the advent of the robot mean to outsourcing as we know it? The provider market should certainly be on alert, he warns. While it's too early to try to map robotic process automation to FTEs or human standards, he expects to see the current "land and expand" strategy spread quickly. What’s certain, and it’s a sentiment that was echoed in this debate, is that RPA has the potential to break the model that the outsourcing industry is so carefully balancing on, namely one based on leveraging low cost FTEs. It will also surely change the way that service providers are coming after clients. What remains to be seen is how the BPO market will react: are they developing their own version of RPA already? Will they partner with some of the more advanced developers? Or will they tear up their blueprints and start afresh? The other question is one of cost: how will providers share or pass on the cost-benefit of RPA? (Some estimates quote RPA as saving two-thirds over offshore FTEs.) This question is, in truth, no different to the question we have been asking for years with regards to BPO innovation. And it's a question that has not always been satisfactorily answered, perhaps because the incentive for the provider was not always made clear. RPA may be different. What may have a greater impact is replacing the FTE-based pricing model, which folks like Lee Coulter believe will fall by the wayside, with a business outcome-based pricing model. The challenge will be how to define cost for an "outcome". BPO discussions over the past 4-5 years have been touching on this very same question. RPA may just force an answer much faster. What seems certain at this stage is that RPA wills drive huge disruption into outsourcing contract structures. IPSoft’s CEO confirmed that most customers are already insisting on outcome-based pricing. In fact, it’s fairly common to have 50:50 gainsharing clauses written into contracts, he said. Pradip Khemani, Director of Global Business Services for Blue Shield of California, agreed and noted that a number of providers were showing flexibility in adopting such new pricing models. Those that don’t move with the times, he warned, run the danger of weakening their value proposition and will probably be left behind. Sutherland’s Ian Barkin believes "every provider out there" is already evaluating RPA to some degree. Some have developed similar applications for their market, others are quietly concocting new solutions. One prerequisite for developing a scalable solution, however, is that providers need to have a robust workflow engine operating in the background. Not all do, said Barkin, as many exist almost entirely inside a client’s environment. These folks will find it harder to scale and leverage RPA successfully within their own operations. The other challenge for providers is whether clients may not beat them to the prize by implementing RPA themselves inhouse, warns HfS's Charles Sutherland. However, just as the BPO market exists because customers prefer to have someone else do the heavy lifting, it's entirely plausible that these same customers will prefer to work with a third-party to implement and manage RPA within their processes. The smart providers will already be gearing themselves up by investing accordingly and managing clients’ expectations. The big question, according to Sutherland, is: who will drive this shift? A final note… With markets changing at the incredible speeds of today, it may be that the absolute winner in this space is a company we have not even heard about yet. Coulter referenced Gartner’s Magic Quadrant listings, comparing a ranking of leading providers in 2005 to a similar ranking in 2012. Only one company listed in 2005 was still listed in 2012. "We may not yet know the name of the major industry players who will be manipulating this space in the next 5 to 10 years", Coulter said. It’s a warning and a promise in one. Editor’s note: We’ll be interviewing some of the leading provider firms over the next fortnight to find out how they are positioning themselves for RPA. So keep an eye on this page – better yet, sign up as a free member today and we’ll email you once it’s posted live.

Robotic Process Automation: We’re at the Cusp of Something Big – But Only if the Industry Can Get its Head Out of the FTE Model

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