How will process automation impact the future of BPO?
BPO providers face two major challenges which threaten their core business model and future growth potential: an ever-increasing cost base, and a constant requirement from customers to innovate and optimise processes rather than simply provide ‘your mess for less’.
Cost pressures are a particular issue for service providers who have traditionally grown by taking advantage of wage arbitrage in offshore locations. Increased competition for resources in those geographies though is leading to wage inflation, which, combined with currencies which are relatively stable against the dollar, pound or euro, will inevitably lead to a much higher cost-base and eroding margins.
The manufacturing sector dealt with this problem for years by constantly shifting production to lower-cost locations. However, BPO providers have limited room to do the same as the locations with large pools of qualified English-speaking potential employees are already locked into the wage-spiral.
When all the key geographic options had been explored, the manufacturing sector looked to innovative manufacturing processes such as robotics and 3D printing, which, with production then starting to move back onshore, brought advantages such as speed to market, increased flexibility to meet customer demands and minimal supply chains.
The results of a recent Source poll of 20 BPO and ITO service providers shows that many expect to see a similar move in their market towards process automation. These techniques cover a wide range of ground, from autonomic, self-learning systems from companies such as IPSoft which have been used to automate many aspects of IT operation; through to process-automation toolsets provided by companies such as Blue Prism; through to bespoke integrated solutions combining OCR tools, corporate applications and frameworks produced by service providers and systems integrators.
Process automation will deliver benefits to both the customers and providers of BPO services:
- A provider’s cost base will become decoupled from their internal personnel costs – several providers expect to see a very significant reduction in the number of staff required to manage a given volume of transactions.
- As well as reduced fees for the outsourced service (remember – software robots do not require breaks, feeding or sleep) customers will also see innovation in terms of process quality – with the potential for increased reliability, reduced error rates, and faster processing times.
- Providers’ charging mechanisms will shift towards an output-based model with service provider costs linked to customer business outcomes, which can be seen as a win for both sides.
These dynamics will fundamentally change the BPO business model in the years to come. No longer will a BPO provider’s success be determined by the number of people they can employ – it will all be about output, and who can automate more processes than others.
Which means technology will be at the heart of this revolution. Some BPO providers, such as seen in the recent deal between Infosys and IPSoft, will build appropriate alliances with technology vendors; others will try to create their own solutions. The worrying thing from the providers’ point of view though is when clients decide to automate processes in-house rather than entrust them to their service provider. DIY BPO could be the next wave to shake the BPO market at its roots.
About the Author
Duncan Chapman is a Consultant at Source.