Bangalore, Delhi, Manila, Cebu City, Shanghai. CIOs have traveled far afield in search of cheap labor for business process outsourcing (BPO). But according to a recent report from Cliff Justice, principal, Shared Services and Outsourcing Advisory at KPMG LLP, there’s no place like home for the best deals on BPO projects.
That’s provided home can take advantage of advances in robotic process automation (RPA). Not to be confused with the robots in metal pants, software-based RPA uses artificial intelligence (AI) and machine learning capabilities “to handle high-volume, repeatable tasks that previously required a human to perform,” writes Justice.
According to “Bots in the Back Office: Business Process Outsourcing (BPO) Withers as Robotic Process Automation (RPA) Grows Up,” software will trump geography for labor arbitrage: “Rising global labor costs are causing BPO to become unsustainable at the same time as technologies are advancing and converging in such a way that they can not only augment work, but replace workers.”
New class of ‘digital labor’
As traditional business process automation — one of IT’s principal jobs in the enterprise — is combined with machine learning, data analytics and “cognitive inventions,” a new class of digital labor will arise that can do the work of humans — faster, better and cheaper — no matter where those humans reside, the report states.
The cost benefits of BPO labor arbitrage, typically between 15% to 30%, will be outmatched by the 40% to 75% cost reduction that can be delivered by labor automation, according to KPMG. That’s a lot of money and potentially a lot of jobs: The global BPO sector is a $300 billion industry, employing more than 3 million people.
Who is in the crosshairs? The millions of call center workers employed globally, for starters. But any human job that involves “largely transactional, low-end, repeatable tasks” is fair game for RPA, says Justice. And as RPA matures, higher-level jobs are also subject to being done better and faster by software robots.
As my colleague Sue Troy reports in her story, “Cognitive robotic process automation poised to disrupt knowledge worker market,” over the next 10 years, “the work of 110 million to 140 million knowledge workers around the globe may be handled by cognitive robotic process automation systems.” But Justice, who cited the figures at the recent World BPO/ITO Forum’s Global Sourcing & Cloud Summit in New York, cautions that displacement doesn’t equate with 140 million jobs lost. The economy and demand for knowledge workers will continue to grow, he said, and a portion of the displaced workforce will be freed up from doing repetitive clerical and administrative tasks to focus on higher pursuits, including innovation.
KPMG: 5 factors that spell doom for BPO
What’s not up for debate is that the appetite for offshore outsourcing is changing, as companies elect to do smaller deals and fewer of them. Citing KPMG research and market trend data published in The Wall Street Journal, Justice points to what’s happened at companies in India — still the leaders in offshore outsourcing — where the value of deals worldwide shrank to $120.4 billion in 2014 from $206.8 billion in 2010. The number of deals decreased 61% between 2010 and 2014, to 1144 from 1805.
The report pulls out five factors that spell doom for BPO:
- Shrinking talent pool due to global demographic trends
- Escalating labor costs in emerging markets
- Expanding capabilities of robotic technologies
- Internet of Things making devices smarter and reducing need for human intervention
- Increasing influence of platform-centric cloud service providers
Justice reports that traditional service providers are embracing the new operating models introduced by RPA. Let us know what you are doing with RPA.
For more information on how RPA is poised to shake up the ITO/BPO marketplace, see my interview with Carnegie Mellon’s Andy Wasser.