This blog is the first of seven in a series looking at six disruptive forces and their implications for BPO. Some of these are widely talked about, others less so. This first blog sets the scene and looks at the impact of robotics. Subsequent blogs will consider the implications of:

Analytics  becoming all-pervasive and increasingly predictive

Labor arbitrage is dead – long live labor arbitrage

Digital renews opportunities in customer management services

Will Software Destroy the BPO Industry? Or Will BPO Abandon the Software Industry in Favor of Platform Components?

The Internet of Things: Is this a New Beginning for Industry-Specific BPO?

The final blog will evaluate the short- and long-term impact of each of these disruptive forces individually and collectively and their potential to deliver “High Velocity BPO” – What the Client Always Wanted.

Let’s start at the beginning. 

Some of the common misconceptions about BPO are that it’s traditionally only been about people and not about innovation. Sorry, it’s always been about both. Another misconception is that BPO used to be about cost reduction but that is no longer the case and it’s now about other types of value. Well even in its infancy, BPO was always as much about service improvement as cost reduction, and to be honest one tends to go with the other anyway. There’s a huge correlation here.

Having said that, client needs do tend to become more focused over time, so let’s take a quick look at how BPO client needs are evolving. Then at six of the potential disruptive forces impacting BPO. Probably should be in a Porter analysis but let’s be less formal. Finally let’s take a look at what this means for BPO going forward. We’ve coined this as “High-Velocity BPO”. A bit of plagiarism here but I think it does the trick.

Clearly, what BPO buyers want varies considerably from service type to service type. But let’s start with the example of a very mature and conservative back-office process. In this area, organizations tend to start by asking for two things:

• Can you get my organization into the top quartile in terms of cost?
• Can you help my organization improve my processes? I’m not quite sure what that means but you are the experts, show me.

Within this desire for process improvement, standardization is often a key element, as is a desire for improved business agility. Then, by the time organizations get to second or third generation BPO, they have generally sorted out the first level of process standardization, have implemented lots of global delivery, and want to build on these. So they still want nirvana but they are starting to understand what nirvana looks like. So they are increasingly thinking about business outcomes on an end-to-end basis, & global process owners, & integration into, or setting up, GBS organizations. Also they’ve done labor arbitrage, so are increasingly thinking about increased automation, and controls & compliance are becoming even more important. Above all, they are looking for a process vision to support them in their business vision. Clients have always wanted nirvana, but it takes them time to work out what it might look like & how to get there.

It’s no longer about cost reduction, is it? Well ultimately, there are only three business outcomes that matter:

• Can I grow my top line?
• Can I increase my margin?
• Can I do both of these while maintaining a healthy cash flow and not going bankrupt?

So the need for cost reduction is as strong as ever. Arguably the new factor here in recent years is the increased need for business agility, which increasingly demands some form of transactional pricing and a willingness to support reduced volumes as well as increased volumes. That can be a real differentiator.

BPO has always worked best when the agenda has been driven by a small number of high level business outcomes; the difficulty has been in managing and making changes to the end-to-end value chain. Certainly disruptions such as GBS should help here, providing an end-to-end process view and a single process owner.

So what are some of the disruptive forces impacting BPO?

Well the robots are coming; is this the end of BPO? One potentially disruptive force is RPA, which is certainly receiving headlines as a BPO killer. So where is RPA currently being used and what are the implications for BPO? Initially, the main usage of robotics is for getting data from one or more applications to another, making intelligent deductions & matching in support of data enrichment and filling in missing fields. A bit like macros on steroids. Loosely coupled with existing systems rather than changing them. The advantage of RPA is that it seems to be achieving a 30% plus cost take-out where employed and very quickly. Implementation times seem to be taking 1-3 months, with a further 3-month period for change management. So RPA is quick and easy.

So where vendors have sometimes been slow to implement the wider process change they knew was possible, due to potential impact on FTE-based revenues, robotics has been making vendors act fast. So partly about getting to their clients before anyone else, including their internal IT department, does. Also robotics has probably been the biggest single driver of pricing changes from FTE-based to fixed price and transactional based. No supplier wants to be caught implementing robotics with a FTE-based pricing model still in place. So robotics has probably generated a bigger change in renegotiation of pricing mechanisms than many years of process cost benchmarking.

Robotics also generates additional challenges for BPO vendors beyond service pricing, including whether to make or buy the underlying robotics tools. If as a vendor you want to develop your own IP and not share it with your competitors, then you might want to develop your own form of robotics rather than use third-party software, and indeed a number of vendors are doing just this.

The next disruptive force, which I will consider in tomorrow's blog, is analytics.