Nearshore Americas

Cliff Justice on Automation’s Challenge to Labor Arbitrage

There has been a lot of buzz about the value that increased automation brings to outsourcers and their clients. But not all automation is created equal: it comes in many forms, and providers are at different maturity levels.

“Many outsourcers are developing an automation strategy, but there is no clear leader, and the playing field is level,” says Cliff Justice, Partner and U.S. Leader, Shared Services and Outsourcing Advisory at KPMG. “The cost and capabilities of the technology are reaching a level which makes it competitive with offshore labor.”

That presents a challenge to those providers who have been too reliant on labor arbitrage. While labor costs are expected to affect the competitive landscape for years to come, there is no doubt that innovative automation strategies can provide ongoing, repeatable value. And once in place, the initial investments in automation can deliver huge savings, with labor costs effectively irrelevant.

[box type=”shadow” align=”alignright” ]What is automation outsourcing? Many companies are turning to automation over traditional outsourcing in order to make certain business processes more efficient. Automation means having robots or artificial intelligence carry out tasks that were previously handled by human labor. Benefits include quicker results, the elimination of human error and reduction in wage costs, thus allowing for maximum allocation of resources and employees. Automation also cuts out the hidden costs of offshoring work and any difficulties that arise from distinct business cultures. [/box]“Automation is not a labor arbitrage play,” says Justice. “In fact, it makes geographic presence less of a factor of the overall cost. But there are mixed results because the more advanced solutions are only recently reaching a price point that is competitive with offshore labor.”

Given that there are mixed results on customer satisfaction with offshore labor too, automation has the potential to provide a more reliable and satisfactory experience – assuming it is done right. The risk and challenge is that a poorly planned automated system can build in frustration and create real pain for all involved. And, despite all the talk, there is still plenty of work to be done.

“Automation is still in its infancy,” says Justice. “This is a generational change as we move from labor-based services to capital-based services. There will be an evolution of expectations, and plenty of hype.”

The shift toward increased automation for providers can be seen as many CIOs opt for shorter contracts and smaller engagements, with areas like vendor management and governance brought in-house. By adopting automated systems, they can keep an eye on things by ensuring that software updates, licensing, and maintenance are taken care of. And, over time, automation combined with cognitive computing is expected to become more advanced, moving beyond simple transaction processing, such as in finance and IT, to advanced services that require high levels of knowledge and judgment.

The Value of Artificial Intelligence

“As cognitive computing – aka ‘artificial intelligence’ – converges with applications and robotics, the effect will be massive and disruptive,” says Justice. “Cognitive computing systems such as Watson and IPSoft are exciting and highly analytical decision-support platforms.”

These technologies and others use advanced artificial intelligence, combined with natural language processing technology, to interface easier with the user. The result, says Justice, is that as enterprises digitize and data becomes more accessible, the capabilities of machine intelligence becomes more precise and valuable.

And in terms of taking advantage of this trend, captive or shared services organizations may have an advantage, in that they can sandbox for internal customers. From here they can get more direct feedback, a better understanding of business requirements – all while working under more generous and flexible timelines.

“Advanced shared service organizations – or Global Business Services entities – have an advantage in being able to design and control the processes across functions,” says Justice. “These organizations can provide standards and infrastructure to optimize and adopt automation.”

For these players, automation removes the pressure for tough decisions such as whether a solution will be resourced in house or by an external provider. Managing external providers, and tracking scope-creep, can be an ongoing headache, with automation offering sustainable long-term solutions. In effect, whoever automates first – and successfully – will build long-term competitive advantage. For those outsourcers who sit on the sidelines, business will be lost: either to competitors or to those large organizations that are building up their in-house automation capabilities.

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But there are risks, too. Automated systems are hackable and could result in massive breeches if not designed and built to the highest standards.  “One hack, one glitch, and there could be liability on a scale perhaps well beyond one human mistake,” says Justice. “The risks must be assessed and mitigated, and this area of risk and security will be a thriving industry.”

That opportunity will only grow, because automated systems can integrate well with advanced data analytics, and provide a robust backbone in regulated and compliance-based industries. A company like IPSoft, for example, has its IPcenter platform, which removes a significant amount of manual work and supports information-gathering across complex environments by using IT service robots to assess network composition, database capacity, and the efficiency of virtual environments.



Tim Wilson

Tim has been a contributing analyst to Nearshore Americas since 2012. He is a former Research Analyst with IDC in Toronto and has over 20 years’ experience as a technology and business journalist, including extensive reporting from Latin America. A graduate of McGill University in Montreal, he has received numerous accolades for his writing, including a CBC Literary and a National Magazine award. He divides his time between Canada and Mexico. When not chasing down stories, he is busy writing the Detective Sánchez series of crime novels.

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