A few weeks back, I read about a factory in China that installed robotic assembly lines. Everything went according to plan: costs dropped dramatically, 24/7 productivity met expectations, and quality surpassed existing benchmarks. Now, I find myself thinking about the factory owner and wondering what happened to him. I hate to think he's languishing in some godforsaken prison cell. But I can’t imagine China’s leadership overlooked his colossal blunder. The owner undoubtedly believed he was doing a good thing - showing his factory (and by extension, China) could maintain competitive costs despite rising labor rates. Instead, he’d run a successful robotics proof of concept for all his western customers. The owner didn’t think it all the way through. He also didn't understand that when the low-cost party’s over, it’s over.
The similar thought runs through my head when I read about offshore BPO providers developing financial and accounting outsourcing (FAO) service offerings based on robotic process automation (RPA)
technologies. Same thing - the low-cost party’s over. Now, no one’s turned out the lights - they’ll stay on for a while. But eventually they'll go out, because there’s not a compelling reason to keep them on.
I don’t say this because RPA is flawless or covers every financial or accounting process requirement. It doesn’t. But it does address enough F&A needs to eventually deprive outsourcing providers of the critical mass of work they need. Global delivery and labor arbitrage was a clever innovation whose implementation is more difficult than many good providers made it appear. It comes with an overhead easily absorbed by large numbers of FTEs. Drop the number and the business model becomes problematic.
Financial and Accounting outsourcing numbers are already slowing down. According to the Everest Group report - Finance and Accounting Outsourcing (FAO) Annual Report, 2015, - “The market is approaching maturity, with growth rates tapering to approximately 6 percent in 2014 from double-digit growth in 2012.” “As the market matures, many buyers are looking to technology as a source for added value and cost savings,” said Swapnil Bhatnagar, practice director at Everest Group. “One example is robotic process automation, which can yield a cost reduction ranging from 15 percent to as much as 60 percent.”
Its unlikely this outsourcing service line will disappear, robotic automation technology relies on willing adoption by companies and some organizations are very late adapters. From a proactive perspective, FAO will survive with a significantly different business emerging from a three stage transition.
Technological expertise: providers are currently investing in either third party robotic technology, developing their own, or hedging bets with a mix of both approaches. While there are some examples of enterprises implementing robotic software on a large scale, providers currently have an edge in experience and expertise.
This value proposition will be tenuous and difficult to maintain. robotic automation is not AI, and established vendors such as UiPath, Blue Prism, and Automation Anywhere are the source for much of the technology currently being incorporated into provider service offerings. If providers develop proprietary technology, customers will see it as a potential dependency and risk. If they don’t, customers will eventually wonder why they are paying a markup on technology they could buy themselves.
Process Re-engineering & Best Practices Expertise: finance & accounting outsourcing providers have a real value and story to tell in this area. Customers only know their finance and accounting processes – providers have experience and lessons learned from many such processes. Robotic process automation is so inherently efficient it can deliver savings even from inefficient processes. When the technology is deployed in rationalized processes, the benefits are truly optimized.
While process design expertise is a solid value, it’s also a complex proposition which requires a significant market footprint to properly engage and communicate it to customers. Some providers have a strong presence in North America and Europe. The business model of some minimizes permanent headcounts in those major F&A markets, and that will put them at a disadvantage.
New Labor Model: one never knows, but the odds of providers maintaining a critical mass of FTEs in the face of robotic automation seems long – at best. However, headcounts won’t drop to zero. As noted in a recent post, processes are frameworks of activities – which are aggregation of tasks. Robotic process automation will assume many tasks and some entire activities. But people will be left. The most logical labor model for providers will exclude offshore delivery – the critical mass simply won’t be there – but will include re-badging and near-shoring.
Re-badging is a circumstance in which an employee retains his role but switches from the payroll of the customer to the payroll of the provider. Valuable knowledge is kept available to the company, the provider gains management control of key employees and those employees retain employment.
Near-shoring shifts work offsite to a proximate time zone so worthwhile labor arbitrage can be achieved with a streamlined delivery overhead. In addition to cost savings, near-shore deliver centers offer flexibility and scalability well beyond what is possible in most onsite circumstances.
FAO and RPA can co-exist but not without some wrenching changes. Providers are already aggressively accepting robotic process automation and making strikes to incorporate it as part of their service offerings. Conforming business models to the reality that RPA undercuts the FAO global delivery model will be a much greater challenge. Those providers who can leverage process expertise with a reformulated delivery model will survive. Those who deny the party’s over – won’t.
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