Robotic process automation can reduce the need for people to perform high-volume IT support, remote infrastructure and back-office processes
The manufacturing and automotive industries were the pioneers of process automation. In these sectors, automation has transformed the shop floor and assembly line. Now automation is transforming the outsourcing sector and creating new business models. Robotic process automation (RPA) also referred to as rapid automation (RA) has gradually been gaining momentum in the market since 2012. Historically, players in the outsourcing market built a multi-billion industry by relying on cost and labour arbitrage to capture work. However, this is about to change with the emergence of RPA.
At its core, RPA is the use of software to manipulate existing application software to process a transaction or complete a process. RPA can dramatically reduce the need for people to perform high-volume IT support, workflow, remote infrastructure, and back-office processes. The IT services companies can adopt RPA into their existing services like various forms of testing of software/applications, IT support for various IT infrastructure services like IT help desks, data centre and server support, network support, and other areas of IT maintenance; and data entry or transfer from legacy systems to ERP systems.
The potential of RPA is attracting the interest of outsourcing providers, IT consulting/ advisory firms, and enterprises alike. It has become one of the key talking points in the business process outsourcing (BPO) and IT services market and a key discussion point in financial negotiations. Various research studies have estimated the benefits of RPA to enterprises. It is widely accepted that 40 per cent of existing business process services are likely to get impacted by RPA with a 40 per cent lower cost impact. Software robots are estimated to cost one-third the price of an offshore full-time employee (FTE) and as little as one-fifth the price of an onshore FTE.
The benefits of RPA are manifold
Software robots are 100 per cent accurate. They eliminate the need for human intervention and the possibility of human errors. RPA leads to reduction in process cycle times and delivery costs. As previously highlighted, RPA can accomplish tasks at one-third the price of an offshore FTE. RPA can work on a 24/7/365 mode, which leads to higher productivity. It is flexible and scalable as robotic tools can be easily replicated across processes, geographies and business units.
It also leads to enhanced process compliance as the RPA software can be programmed to follow the SOP, without skipping any step. It also generates an extensive audit trail which enables real-time SLA reporting and provides an extra level of assurance during testing and production.
RPA: An opportunity or a threat?
It depends on what side of the spectrum one is viewing RPA from. From the perspective of enterprises or end clients, RPA can lead to significant benefits such as improved efficiency, reduction in the number of FTEs required to handle a process, cost savings, and improved ability to reach meet the SLA targets and KPIs. For instance, a leading global bank engaged a pure-play RPA provider to automate a wide range of processes such as personal loan application processing, branch risk monitoring and fraudulent account closure among others. This enabled the bank to reduce their bad-debt provision by £175 million annually and also save on 120 FTEs.
RPA, however, is a threat to existing BPO players who do not have such capabilities. The threat to the larger established BPO players will come from both – the clients and the competition. Due to the fact that RPA is relatively straight-forward to implement for low-end processes, many enterprises are likely to take a ‘Do it yourself’ (DIY) approach and engage with third-party providers only on a consultative basis.
For instance, one of the leading American media companies implemented a virtual service desk robot from a pure-play RPA provider. The service desk robot was able to handle more than 60,000 customer calls on a monthly basis. More importantly, this led to the replacement of the incumbent outsourcing provider, which happens to be one of the leading Indian IT services firms.
BPO players will increasingly face heat from pure-play RPA providers, who are likely to be seen as more agile. The competition against BPO players will be more intense in the deal renewal market, as pure-play RPA providers are focusing on positioning their value proposition beyond labour arbitrage and basic process efficiency.
Another threat from RPA will be to the job market. The BPO market is estimated to employ more than 1 million professionals in India. It is estimated that another million professionals are employed in the Philippines. Assuming that RPA can replicate the basic transactional tasks, and impact around 20 per cent to 40 per cent of the processes, RPA will have the potential to impact the BPO job market across these outsourcing markets. But RPA has its own challenges which limits its mass adoption
While RPA is gaining traction in the market, there are sceptics who still believe that software robots cannot do as good a job as people in delivering business processes. Their view-point is not entirely unwarranted.
RPA is best suited for processes that are rules driven. In case of processes, where the standard operating procedure (SOP) is subject to frequent change or when the SOP is not comprehensive, RPA would likely lead to processing errors. Frequent changes to the SOP will also require changes to the existing code and redeployment of the RPA software.
In a manual process such as invoice processing, a mistake in one invoice can be corrected, whereas a software robot will likely replicate the same mistake across all invoices. This could lead to significant problems in automated process in the absence of proper monitoring. Conversion of a type-1 error to a type-2 error is a significant risk in RPA.
RPA is also not conducive in dealing with scanned images and unstructured data such as e-mails and attachments. RPA software cannot read a free-flowing e-mail and processes where data comes in from e-mails will need human intervention. What outsourcing players need to do to survive in this disruptive environment?
RPA has the potential to dramatically alter the dynamics of the outsourcing market. While traditional BPO players have reported operating margins in the mid-teens, pure-play RPA service providers have reported margins exceeding 20 per cent. As a result, RPA is a proposition that the BPO players cannot afford to ignore.
Large global and Indian outsourcing vendors, who built their business on the offshore-delivery model, will need to alter their strategies to address the opportunities and threats that RPA brings. The threat to the larger established BPO players will come from the fact that more clients are likely to include “RPA capability” as a selection criterion when outsourcing.
While RPA is likely to cannibalise existing revenue streams of the BPO players to an extent, BPO players can offset this by adopting an annuity-based business model where the players generate revenues by selling robotic software and also by managing every robot that they operate for their clients.
Traditional BPO players will need to look at RPA from a long-term perspective instead of looking at RPA as cannibalising existing revenue streams. RPA will enable BPO players to move up the value ladder and focus their energies on more complex and analytics-based work and leave low-end voice and transactional processes to robots. RPA will also help the BPO players to reduce internal costs. Traditional IT services companies need to integrate such robotic capabilities into their standard solutions and offerings, such as a part of the infrastructure management or testing services.
The transition will be tough and BPO/ IT services players and enterprises need to prepare for change. Service providers will need to tweak their strategy to be able to communicate to their clients as to why they are still relevant in the new era of RPA. In-house RPA expertise and partnerships with the pure-play RPA service providers will be critical in developing this value proposition.
Providers who have a strong knowledge of existing systems (including processes and sub-processes) and can effectively identify and reconfigure them by leveraging RPA to bring in efficiency will be successful. While RPA may eliminate a few mundane, repetitive job roles, it will create new opportunities in creation of RPA software, customisation for specific business processes and implementation to ensure quality of service.
Nishant Bansal, Assistant Director – Knowledge Services, has also contributed to this article.