Transformation Speed Bump Delays Automation Adoption

Analytics and automation have sparked a resurgence in the utilization of business process outsourcing (BPO) by large corporations, with two immediate impacts.

Firstly, automation is stripping out labor and lowering fees associated with service delivery. Secondly, by providing insights from transactional revenue streams, analytics is adding enhancements that further increase customers’ value from BPO.

The IT services vendors selling the new value proposition face three major obstacles, which require a sophisticated and patient go-to-market strategy. IT services vendors must overcome their clients’ initial reluctance to change their processes or the way they manage talent. Once vendors help clients address to their processes and people, the clients will still demand a clear path to a rapid return on their investment. Specifically:

1. Organizational change: TBR believes strategy-led consulting sits poised for strong growth over the next several years. However, organizations need help comprehending the myriad of ways that emerging technologies can quicken their time to intelligence. Firms must start with a blank sheet of paper when evaluating the new technological capabilities around digital, analytics and cloud, while keeping an ever-watchful eye on security and data sovereignty laws.
2. Talent change: In today’s human capital market, IT services vendors find themselves with talent shortages around critical emerging technology developments. Infrastructure management for on-premises assets requires vastly different skills than managing virtualized cloud infrastructure assets, for example. In the near term, BPO services can ameliorate the talent shortage by leveraging prebuilt IP assets configured to address a client’s specific business process.
3. Proving it: Customers expect immediate proofs of concept and a rapid return on investment. BPO clients remain challenged to understand full automation’s impact on business processes and talent. The vendors that take the lead on automation and educate their clients on how it will lead to business value from faster time to outcomes have the advantage.

On each point, TBR heard directly from IT services vendors in Central and South America, who noted the following:

• “Major barriers include some automated process obligation, which can turn into the high-risk area of information sharing. Companies are adopting [BPO automation] to access the benefits; however, that comes with certain costs, such as job costs, the high cost of implementing initial process restructuring and the need to upgrade the IT department to leverage the market efficiency.”
• “In South America, different clients have different policies and government policies to meet, so we have to ensure [when introducing additional automation to BPO services] that the SLAs (service level agreements) are met and improved upon, and compliance of systems and procedures as per the guidelines, which at the moment is somewhat difficult to do.”
• “The main barriers our clients raise with implementing automation tools [are] related to the traditional model of companies, which is a labor-intensive work system. An upgraded business model would reduce the number of [full-time employees].”
• “At the moment, we find a few barriers toward adaptation of automation, including reduced support and investment by management due to vague understanding of future ROI (return on investment) from automation in different industries and slow ROI since it takes a year or two at least to recognize a sizable impact on revenues.

BPO Continues to Grow in Fits and Starts, with Automation as New Fuel

As shown in the chart above, IT services vendors have had a bumpy ride with BPO over the past five-plus years. While BPO’s share of benchmarked vendors’ revenues has increased, sequential revenue growth has been erratic, with spikes above and below a baseline of 0%. Transformation creates a speed bump, but TBR believes that is a bump only, and not a roadblock, as the imperatives behind automation — reduced cost, improved upgrades and competitive advantage — can be accelerated by analytics, which BPO vendors have developed in recent years.

The challenge in Central and South America remains talent: can IT services vendors looking to add automation and analytics to their nearshore U.S. offerings find the talent to handle rapidly changing emerging technology demands and constantly evolving client expectations? TBR believes the immediate answer to that question remains muddled, but should become clear in 2015 as companies such as HCL, Wipro and Accenture invest in automation technologies, analytics platforms and top talent.