Indian software trade body Nasscom on Thursday dismissed widespread media reports of mass layoffs in the country’s hugely important information technology industry but warned that the sector must reinvent itself.
IT outsourcing has long been one of India’s flagship industries but recent news reports have claimed that major companies, including Tech Mahindra and Wipro, are making thousands redundant due to increased automation.
“The numbers being reported across different sources are incorrect and are not in line with the actual employment progression,” the National Association of Software and Services Companies said in a press release Thursday.
“The industry continues to be a net hirer with talent acquisition continuing across sectors and remains one of the largest employers of the nation,” it added in the statement following a conference in New Delhi.
Several Indian newspapers, including respected business dailies like “The Economic Times” and “Mint”, have reported major IT firms are in the process of gradually laying off thousands of staff, although the companies themselves are yet to comment on numbers.
Nasscom claimed that 170,000 new jobs had been created in the recently ended financial year and predicted that up to three million new positions would be added by 2025, but conceded that there was a slowdown in the rate of hiring.
It also called for employees to learn new skills to help companies’ keep up with demands for newer and more innovative technologies.
“Going forward the focus for companies will be on skills and proficiency levels rather than scale, hence it is becoming imperative for employees (both current and potential) to skill themselves in domain specific requirements,” it said.
Nasscom says that the IT outsourcing industry employs nearly four million Indians and saw revenues of around $154 billion.
India has been popularly termed as the “back office” to the world as companies, largely in developed nations, subcontracted work to Indian firms, taking advantage of the country’s skilled English-speaking workforce.
But there are concerns it is losing its sheen as companies move towards automation and seek newer technologies while there are also fears over US President Donald Trump’s curbs on H-1B visas, which allow aspiring Indian engineers to work in America.
Tata Consultancy Services Ltd (TCS), Infosys Ltd and Wipro Ltd are grappling with falling revenue per employee and operating margins as Indian software firms struggle to generate revenue from new businesses such as data analytics even as demand for old services weakens.
Declining revenue per employee (RPE), a measure of how well a company delivers value-added work to clients, rebuts claims made by companies that they are generating more business from offering solutions in areas generally classified as social, mobile, analytics, cloud and Internet of Things. Since there is no common definition, digital for now remains a fuzzy word.
“The biggest issue with digital is the lack of clarification and definition of what it is,” said Phil Fersht, chief executive officer (CEO) of US-based HfS Research, an outsourcing-research firm. “For most of the Indian majors, they include the whole ‘SMAC Stack’ which is social, mobile, analytics and cloud, where many traditional IT contracts can be sugar-coated.”
Declining RPE and profitability are key reasons behind Indian software companies planning to cut their existing workforce as employee costs account for over half of their total operating expenses.
For both TCS and Wipro, RPE has declined in the periods since these companies started to report business from digital technologies.
TCS claims digital revenue accounted for 17% or $3 billion of its $17.58 billion revenue at the end of March 2017. A Mint analysis shows that despite the country’s largest IT firm reporting a 71% increase in digital revenue from the time it first reported digital revenue at the end of June quarter in 2015, overall RPE declined 7.1% by the end of March quarter.
Ditto for Wipro. India’s third-largest software services company saw its RPE decline 3.2% in the last year despite the management’s claims of 28% growth in digital revenue.
Infosys has until now shied away from disclosing revenue from digital technologies. However, the management has been most vocal on using artificial intelligence and automation platforms and over the past 33 months, CEO Vishal Sikka has spoken on steps taken to move away from deploying armies of engineers to manage the IT infrastructure of clients based in the US and UK.
Still, Infosys’s RPE has fallen 3% since October-December 2014, Sikka’s first full-quarter as CEO.
Over the past decade, faster computing power and higher internet usage across the world has made Fortune 1000 companies look at newer technologies like data analytics to run their business better. Offering solutions by using data-crunching technologies command a high price even as automation tools are fast changing the way outsourcing companies traditionally did business of either managing computers or offering customer support to clients and client-run businesses.
So what explains this divergent trend of a fall in both profitability and RPE despite strong growth in digital?
First, home-grown IT firms generate tiny business from offering next-generation solutions and bulk of the digital revenues are simply re-badged old traditional work.
“Take for example a classic work like ERP (enterprise resource planning) upgrade to support a subscription billing model. Now that project to any IT services vendor worth their salt is being classified as digital revenue, is this really digital?” asked Ray Wang, founder of Constellation Research, a technology research and advisory firm.
For this reason, a few executives believe that a better metric to evaluate health of an IT firm is to see the growth in data analytics.
“We are moving in a world which is seeing a data explosion. How do you eventually make sense of large sets of data? A true test is how can I make my company better monetize this,” L&T Infotech Ltd CEO Sanjay Jalona, said in an interview earlier this month.
L&T Infotech, India’s sixth largest IT outsourcing company, reported a 9.3% dollar revenue growth in the year ended March 2017 to end with $970 million in revenue, thanks to a 35% increase in business from data analytics. L&T Infotech also improved its profitability from 17.2% at the end of the March quarter last year to 18.9% even as RPE jumped by 9.3% to $48,832.5.
Both TCS and Infosys do not disclose revenue from data analytics.
A second issue is that even a strong growth from next-generation technologies is not enough to offset the decline in demand in the traditional areas of work.
“In some sense, there is an inflection point, where the pricing pressure for traditional business is still high. Some of our largest customers de-grew and so it impacted Mindtree. So despite the strong growth in digital, I cannot really tell you when this higher growth in digital will be able to offset the decline in traditional business,” said Mindtree Ltd CEO Rostow Ravanan.
IT in manufacturing is changing fast as companies introduce technologies that reach beyond the factory boundary in line with trends such as Industrie 4.0 and the Industrial Internet of Things (IIoT). At the same time executives are looking to make organisational changes that place the customer at the centre of an extended supply chain in which their manufacturing plant is just one, albeit important element.
The complexity of information technology in this context is increasing while skills remain scarce. As experienced IT professionals leave the industry and retire it becomes even more difficult to deliver new technology projects that impact deeply on the organisation.
Traditionally the CIO would look to outsourcing IT to specialised providers who provide the necessary skills and delivery capabilities.
However, are these partners adequately prepared for the next generation of technology in manufacturing? Do they have the skills and vendor relationships necessary for success? Do the old models of outsourcing still apply when much of the digital transformation programme must be driven deeply from within the manufacturing business itself, and where executives will need to be much more hands-on in matters digital?
No longer will it be adequate for the CIO to have a single outsourced contract for all IT. The future requires a combination of multi-sourced and in-house digital capability where functional executives like marketing, manufacturing, supply chain etc. each take ownership and drive relevant digital business initiatives themselves. The traditional CIO role might in time morph into a Chief Digital Officer, but this role change alone still does not address the need for a comprehensive overhaul of the way IT is managed and the increased role of senior executives in this process.
In the past, IT outsourcing has tended to swing like a pendulum between in-house IT and outsourced IT, and back. Reversing an outsourcing decision is very difficult, but does happen when the business changes, the vendors do not perform or the initial objectives of the contract are no longer aligned to the new business priorities.
Where manufacturing companies look to outsource IT
On paper, outsourcing promises some quick wins where complex and difficult areas of technology can be handed over to a specialised service provider allowing the company to focus on the core manufacturing business. But is it as good in practice?
Some typical IT outsourced functions include:
• System integration: system integration projects that involve several different proprietary technologies are complex and need specialised skills.
• Vendor management/aggregation: the concept of ‘one throat to choke’ appeals to the CIO to manage the interfaces between multiple technology vendors.
• Application development and support: software development requires specialised skills with a short half-life. Software companies are usually best positioned to attract and retain the best application development and support skills.
• Application implementation projects: certain complex projects like a new ERP implementation require experience with the application. These projects often have some unique characteristics which require specialised project management expertise (such as Agile methodologies), and require a joint project management function that include both the business experts and the outsourced technical project team.
• Specialised consulting: often short-term consulting interventions are necessary to address specialised technology related topics such as system security. On other occasions the business needs to drive significant changes to business processes and organisation, requiring independent consultants. These assignments are usually temporary in nature and are expensive. Often the business is not left with the in-house skills at the end of the project to sustain the change and a retainer with the consultant is necessary going forward.
• Infrastructure support: traditional IT infrastructure such as networks and communication systems are rapidly becoming commoditised, but there is still a need for specialised expertise to design, implement and support these systems in industrial environments.
• End user support: IT services such as help desk and desktop support are often outsourced to a provider who can leverage economies of scale to offer this service more cost effectively than you can in-house.
The need to review outsourcing relationships
As a manufacturing company, you cannot of course abdicate your deep understanding of what is changing in your core industry (manufacturing). You need to make sure the outsourced partner remains aligned with your priorities through regular reviews that ideally involve the whole executive team.
Remember that outsourcing companies play in a different industry and have a different business model to you – this will create some tension alongside your own long-term strategic objectives.
During the reviews, remember that the outsourcing provider is also faced with skills challenges. Skills in areas such as Industrie 4, IIoT and SaaS are in short supply industry wide, and no-one is immune to this problem. Challenge your provider to prove they are attracting the best talent in the industry to serve your business.
Costs will increase
It is incorrect to assume that manufacturing companies outsource IT to save costs. There may indeed be savings in the short term, but ultimately the outsourced partner is there to make a profit from you. It may still be worth paying a premium to be able to focus on your core business functions, but then be prepared to increase the budget for this. It helps not to look at IT services as a cost, but rather to drive added value at every interaction.
Capacity building
The dynamics of the technology environment make it very difficult for manufacturing companies to develop and sustain in-house IT capacity and skills. At the same time, owing to cost cutting over an extended period, manufacturing budgets are stretched with a remarkable percentage of IT spend allocated to ‘keeping the lights’ on, and relatively little funding available for new initiatives. The reality is that this situation is at odds with the need for strategic digital transformation programmes.
Developing deep technical capabilities in-house can be a long and expensive process – while hard skills can be acquired through training, many of the softer skills only come through time and experience; as well as exposure to many projects and situations across the industry.
Over time you grow dependent on the outsourced partner, making it very difficult to end the relationship without damaging your business. Key people supporting applications and technologies are often employed by your partner and the services contract will normally prevent you from employing these people directly and ending the relationship.
Leadership
The success of any outsourced relationship strongly depends on good leadership, both in the client company and the outsourced partner. A long-term strategic view of the relationship is important to overcome the inevitable obstacles along the way. Many digital technology initiatives will take 3-5 years to implement. The key will be flexibility, relationships that are based on give and take develop over time and require a deeper level of understanding that this is not a zero-sum game. Offering the outsourced partner meaningful incentives related to your success is worth considering.
The question of leadership goes beyond you creating a position for Chief Information or Chief Digital officer – ultimately managing IT in manufacturing also boils down to good business acumen which should be present in every member of your executive team.
The traditional benefits of IT outsourcing to nearshore locations have included geographic proximity, time zone alignment, cultural affinity and shared language. The one area these adjacent providers have not been able to compete with their offshore counterparts on has been price.
But that could change as robotic process automation (RPA) takes hold. The automation itself will begin to chip away at the offshore competitive advantage of labor arbitrage. But more importantly, argues Marcos Jimenez, CEO of Softtek North America, it will highlight areas in which nearshore providers excel: proximity, agility, and flexibility. A nearly 20-year veteran of the Mexico-headquartered company, Jimenez has doubled the profitability of Softtek’s U.S. and Canadian business since taking it over in 2011.
CIO.com talked to Jimenez about the potential impact of RPA on the global IT and business process outsourcing market, new demands from customers for outcome-based engagements, the role of digital labor management in the future of IT services, and best practices for RPA success.
CIO.com: Traditionally, what have been the key criteria for customers choosing between offshore and nearshore models?
Marcos Jimenez, CEO, Softtek North America: One traditional advantage of nearshore has been flexibility in accommodating requests outside the specific parameters of contractual obligations and statements of work. Let’s say, for example, that a customer asks a member of an application development coding team to collaborate in real time to meet a deadline. It’s typically easier for a nearshore provider to accommodate that request because we are working concurrently with clients and matching their work schedule—including the same holidays. Under the offshore model, meanwhile, the most experienced people work on different time schedules, since senior people in countries like India typically don’t want to work night shifts.
So, when a U.S.-based client has an urgent request they need to either rely on a less experienced person or they need to wait. So under the offshore model, it’s more difficult to go outside the lines of defined roles and processes. And that’s a problem as today’s fast-paced digital world demands agility.
There’s also the obvious geographic advantage of proximity. For U.S.-based customers who have to regularly visit service provider operations, traveling to Mexico vs. Mumbai becomes a lot more convenient and productive.
In terms of staffing, the dramatic growth of offshoring has over the years contributed to high turnover rates, as staff constantly seek new opportunities. Nearshore providers tend to have lower turnover and more stability.
All of that said, by virtue of their ability to effectively leverage labor arbitrage, offshoring has clearly had the advantage when it comes to price. In that arena, the nearshore model has historically not been able to compete. And, of course, for many customers in many situations, price is the key factor in making a sourcing decision.
CIO.com: How have you seen that dynamic begin to shift?
Jimenez: At Softtek, we’ve been able to leverage RPA and other types of automation to shrink the traditional price gap between offshore and nearshore.
In the last year, we’re also seeing more interest in nearshore based on our managed services offerings, with fixed price annual cost rather than just labor arbitrage and rate per full time equivalent (FTE). Our clients are asking us for year-over-year annual cost or efficiency improvements with a strong focus on automation.
CIO.com: Can you share an example of what might have tipped the scales in favor of the nearshore approach for one of your customers?
Jimenez: Many of our customers are looking to agile development methodologies to drive innovation quickly and in a cost-effective manner. Agile requires close collaboration between different teams. So you can have a U.S.-based team at a client site working with remote teams in Monterrey and Latin America, which makes collaboration easier. If the teams are in the U.S., India and Europe, that works well for the “follow the sun” model where you have teams handing off development work at the end of each day, but it tends to be less effective for agile.
One specific example is a major U.S. airline customer of ours. After working for more than 10 years with large Indian providers, this customer consolidated all of their application services with Softtek. The airline had more than 500 FTEs in a labor arbitrage model and faced significant challenges accelerating response time and innovation. In addition to offering a competitive price, Softtek transformed the application management model from labor arbitrage to SLA-based, digitized governance, and lean sigma to drive innovation and continuous improvement.
CIO.com: It’s clear how automation could erode the labor cost advantage of offshore providers. But how about the role of IT service provider in helping customers implement RPA internally?
Jimenez: The provider’s role is to work with the customer to assess the automation opportunity, define the processes and functions that will be automated, and implement the automation software. The actual software can be either a third party’s, such as Blue Prism or IPsoft, or a home-grown solution. The provider also typically oversees the transition and change process and then manages the new environment on an ongoing basis.
The extent of the provider’s involvement can vary depending on the situation. In some cases, the tool developer will be directly involved in the implementation, while in others the tool will be licensed to the service provider. Indeed, as the market matures, the major automation tool providers are figuring out how they want to position themselves in terms of doing implementation work vs. simply licensing. That will certainly play a role in the competitive landscape going forward.
CIO.com: What threats and opportunities does RPA pose for offshore and nearshore providers?
Jimenez: At a high level the threats and opportunities are the same for offshore and nearshore providers. The basic threat is that RPA undermines established models of service delivery, while the basic opportunity lies in delivering more value to customers more efficiently.
For large offshore providers, the most pressing immediate threat is the cannibalization of their labor arbitrage-based BPO businesses. This threat will continue to extend to their IT services business. There’s also the issue of how to redefine their business models. There are lots of headlines about the large India heritage providers scaling back on hiring and how, rather than adding 10,000 new people, they are looking at cutting staff or redeploying large numbers of staff.
There is a big opportunity here for second tier traditional offshore providers—as well as for nearshore players—to challenge the tier one with a more advanced portfolio of services that relies significantly on automation.
Nowadays, every business owner has probably already tried outsourcing, or at least considered it as an option. Be it IT, accounting, or customer support, there are many ways to apply this practice to almost any business.
Aside from that, how safe is outsourcing and why use it after all? Why look for workers overseas, when you can hire someone next door and have them work in your office?
Well, according to statisticbrain.com research, there are many reasons why businesses choose outsourcing:
Reduce or control costs
Gain access to IT resources unavailable internally
Free up internal resources
Improve business or customer focus
Accelerate the company’s reorganisation / transformation
Accelerate a project
Gain access to management expertise unavailable internally
Reduce time to market
Despite some open criticism, India remains one of the top outsourcing destinations. This is especially true for UK businesses, due to the cultural ties between the two countries. Yet, that could be changing soon. Nearshore outsourcing locations, including Eastern Europe, are winning a solid market share offering a number of competitive advantages.
Why UK businesses prefer outsourcing to Europe over India?
Over the last several years, Eastern Europe has been steadily making a name as a global outsourcing destination. Currently, five out of the top 20 countries listed by AT Kearney’s 2016 Global Services Location Index are located in the region. Among the most attractive countries for outsourcing in Eastern Europe are Poland, Bulgaria, and Romania. Judging by our experience as an outsourcing company, Ukraine remains the most financially attractive outsourcing destination in Eastern Europe.
The IT industry in the region is quite mature. A huge number of global tech companies already have R&D centres in Eastern Europe, including IBM, Google, Samsung Electronics, Adobe, Oracle, Microsoft, and Accenture.
When talking about the UK companies, they tend to choose nearshoring to Eastern Europe because of its geographical proximity, minimal time difference, and cultural affinity.
Other benefits of outsourcing to the region include:
Full compliance with the International Standards for software development and general business operations
Safe and convenient financial transactions
Cultural compatibility and sound international business ethics
Huge IT talent pool (formed by high popularity of tech education and large number of higher education institutes, and combined with insufficient inner demand for these specialists)
However, some companies are still hesitant when it comes to outsourcing.
The most common concerns when outsourcing to Eastern Europe
● Eastern Europe, including Ukraine, is geographically distant. It is difficult finding a reliable provider half-way across the globe, especially when it comes to such a vital business process as software development.
Solution: As mentioned above, outsourcing is a common business practice these days, used by large corporations to small companies worldwide. Regardless of your location, you can tap into the global talent pool and choose the best suited mix of skills and expertise for your project. To find a reliable provider, you can study their portfolio, or use websites like clutch.co or Appfutura.com to see honest customer reviews and feedback.
With only a 2-3 hour flight from most Western European countries, including the UK, travelling to Eastern European countries is easy and convenient. Personally meeting with the development team to discuss all questions related to the project is important to most clients, and is considered by most to be an essential aspect to the development of a strong customer/client relationship.
Geographical proximity also means an insignificant time difference. For example, the Ukrainian time zone is GMT+2, which was very convenient for our clients from the UK. You will always be in sync with your team, which is only 2 hours ahead. When you start your day at 9 am, your team will already be hard at work.
● Outsourcing is too troublesome. Why look for developers overseas if it is possible to find someone local to do the job?
Solution: Regardless of the company’s location, prior to starting any business relationship you will need to do some background research online. Finding the references and portfolio of a Ukrainian company takes as much time as searching for the corresponding info about your local provider.
On the other hand, when choosing local providers, you are limited in the skills & experience that you can source on-site. With outsourcing you are not bound to any particular country, so you can easily find the specialists of any level or experience, even in a very specific knowledge domain.
● I’m afraid that the quality of the product will be substandard. I’ve heard about Indian developers. The software will have bugs and performance issues, the code won’t be documented and the company will steal and re-sell my source code. They might even vanish halfway through the project and I wouldn’t even be able to file for any damages.
Solution: All these questions denote only one critical issue – trust. Indeed, it’s hard to rely on a company/team that you haven’t even met in person. However, outsourcing wouldn’t have become so popular if these problems were impossible to solve.
The quality of software is ensured with the help of solid QA processes and proper coding standards, which include code documentation. You can request a code sample or review the company’s previous works to assess their quality. Again, honest clients’ feedback or personal references can tell you all you need to know about the company and their work.
If you are able to contact the company’s previous or current customers, this means that you won’t be their first or their only client. Thus, they won’t disappear in the process or ignore your calls.
As for the IP rights and code ownership, we always recommend signing a standard Non-Disclosure Agreement that will help you protect your property. Moreover, no reputable company will put its good name at stake by trying to make money out of your property rights.
Transparency is a vital element to the success of an outsourcing project. Talking to your team regularly and monitoring their progress is achievable through the use of modern communication tools, tracking systems, and cloud-based collaboration platforms. That is why it doesn’t matter where your team is located, as long as all the processes are properly set up.
How to outsource software development the right way?
While there is no silver bullet or one size fits all approach to outsourcing software development, choosing the right partner is a huge step toward success.
To make sure your provider can be trusted, ask the right questions when hiring a software development company. While experience and references are extremely important, you should also make clear of such routine issues as testing, support, and communication.
Transparency and professionalism should be fundamental for any provider. Having a reliable and skilled team with transparent internal processes on board, even if they are working from another country, is the key to success.
Remember all those juicy reasons why companies jumped into outsourcing? Like driving out cost, standardizing processes, perhaps even finding a few nuggets of innovation along the way with better access to talent and technology? Well our new 2017 State of Operations and Outsourcing Study of 454 major enterprise buyers gives a pretty gloomy picture of the current value impact of today’s outsourcing engagements:
What made us happy in the past no longer passes muster
If there was ever one home-banker benefit from outsourcing, it was always the ability to take 30%+ off the bottom line cost of running a process or set of processes.
The VPs and below are those who are managing the engagements – and not even a third of them view their engagements as being very effective at driving out significant cost or making their operations more flexible and scalable. Their bosses are slightly less cynical, but still the vast majority is underwhelmed.
“But how can they be unhappy, we saved them so much money?” I hear frustrated providers cry…
Well, the answer is quite simply that those costs have been removed from the balance sheet – they no longer exist. Managing operations in a global environment is now the new normal – money that was saved was a onetime experience in the past. It’s like trading in your Hummer for a Prius… you don’t think to yourself, everytime you fill up with gas, “Wow, I’m saving $50 per tank”, but you might even think, “Hmmm… maybe I’ll get a fully electric car next and save even more on my running costs”.
We can go on to bemoan the disappointing lack of effectiveness from analytics, automation and cognitive from over four-fifths of outsourcing engagements, but we know clients are unlikely to have invested actual funds in these areas as part of most of these engagements today – they are getting what they have paid for in the past.
All is not lost as many operations leaders want their service providers to change with them
However, the next wave of engagements have to be set up in a very different way to bring back delights to these jaded customers, which is where the brighter news appears:
What’s encouraging here is that buyers, by and large, do not view their service providers as mere efficient cost take-out vehicles, which was how well over half viewed them a couple of years ago. While 43% of SVPs and above see service providers as competent partners who can deliver the goods, another 35% actually view them as real innovation partners who can work with them to achieve co-defined business outcomes. This is a breakthrough for the services industry.
The Bottom-line: The door is wide open for ambitious providers willing to invest in developing their talent, but closing firmly shut for those perpetuating what worked in the past
There has never been a time in the history of services where we’ve arrived at such a pivotal turning point – what used to work for clients is now commodity, and those service providers wanting to avoid this drain-circling spiral into transactional insignificance must make serious investments in their internal capabilities to partner with their clients. This means more people who can work in close proximity to their clients with real capabilities rolling out automation roadmaps, designing digital business models, working with clients to develop predictive data models and smart cognitive strategies. Sadly, there isn’t much of an available pool of eager college graduates ready to leap into these roles at low wage rates, so providers need to reinvent themselves radically as true learning establishments and universities for their emerging talent… ambitious people will want to invest their careers with firms who are prepared to invest in their talent. The future isn’t about buying packaged consulting, it’s about partnering with services firms whose stakeholders want to co-invest in themselves and their clients with a long-term vision and definitive plan. The model has changed forever… and we can only watch, learn and work with it as it unravels piece by piece.
How outsourcing companies are satisfying the needs of FinTechs who are eager to enhance their digital strategy and capabilities.
The amount of FinTech companies outsourcing, has risen exponentially over the last year, and this trend has largely been due to financial startups realizing that they now have the ability, to have their entire technology operation outsourced. The big motivation factor for FinTechs is that by them outsourcing will enable them to be competitive within the global banking industry. This flexibility to outsource stems from most of them not having a fixed place of operation, and rather they offer their financial products and services online to clients worldwide.
The consensus amongst FinTechs who have already used outsourcing companies is a high level of satisfaction due to the minimization of their costs, but also in receiving increases in the speed and quality of their processes. The major driver for the rapid growth of outsourcing companies recently has been because of big data analytics. This is due to financial startups simply not having the capability nor resources to analyze big data inhouse. Thus, many have decided to outsource this process to those providers which have the analytical tools and software to deliver their required analysis.
Another area which has been identified for rapid growth is the outsourcing of software development by FinTechs. Although some companies may have the requisite technology, what they will often not have is the necessary development skill sets within their teams.
More recently there has been an interesting shift within this area, with many leading outsourcing companies, deciding to partner alongside certain FinTechs to help them better achieve their software objectives. The creation of these partnerships, has ultimately given these companies the opportunity to increase their current market share. This has led to many established retail banks being forced to swiftly increase their pace of digital adoption to stay relevant, and stop mass client attrition to these agile financial startups.
According to research conducted by Deloitte Global, there are now several reasons why FinTechs should use an outsourcing company, and a select few of these are:
The reduction in costs due to no longer a need for various processes to be maintained inhouse.
Once having outsourced their processes, this will then enable FinTechs to focus on their core products and services.
Using an outsourcing company often solves capability issues, and this then contributing to major enhancements in customer service for clients.
Bringing onboard an outsourcing company, will often add intellectual capital to FinTechs which will be critical to helping them with the adaptive and changing needs of the industry.
I thus firmly believe that going it alone in this highly competitive industry without use of an outsourcing company could prove fatal for many overconfident FinTechs just starting out. The motivation factors for using outsourcing companies in 2017 are compelling, especially since this will contribute to FinTech companies competitive advantage. This will ensure that they can continue to adapt, evolve, and succeed within a financial services industry that is constantly being disrupted by innovative technology.
Emitting a gentle whirring noise, it travels across the warehouse floor while two arms raise or lower themselves on scissor lifts, ready for the next task.
Each arm has a camera on its knuckle. The left one eases a cardboard box forward on the shelf, the right reaches in and extracts a bottle.
Like many new robots, it’s from Japan. Hitachi showcased it in 2015 and hopes to be selling it by 2020.
It’s not the only robot that can pick a bottle off a shelf – but it’s as close as robots have yet come to performing this seemingly simple task as speedily and dextrously as a good old-fashioned human.
One day, robots like this might replace warehouse workers altogether.
For now, humans and machines run warehouses together.
In Amazon depots, Kiva robots scurry around, not picking things off shelves, but carrying the shelves to humans for them to select things.
In this way, Kiva robots can improve efficiency up to fourfold.
Robots and humans work side-by-side in factories, too.
Factories have had robots since 1961, when General Motors installed the first Unimate, a one-armed automaton that was used for tasks like welding.
But until recently, robots were strictly segregated from human workers – partly to protect the humans, and partly to stop them confusing the robots, whose working conditions had to be strictly controlled.
With some new robots, that’s no longer necessary.
Take Rethink Robotics’ Baxter.
‘Reshoring’ trend
Baxter can generally avoid bumping into humans, or falling over if humans bump into it. Cartoon eyes indicate to human co-workers where it’s about to move.
Historically, industrial robots needed specialist programming, but Baxter can learn new tasks from its co-workers.
The world’s robot population is expanding quickly – sales of industrial robots are growing by around 13 per cent a year, meaning the robot “birth rate” is almost doubling every five years.
There has long been a trend to “offshore” manufacturing to cheaper workers in emerging markets. Now, robots are part of the “reshoring” trend that is returning production to established centres.
They do more and more things – they’re lettuce-pickers, bartenders, hospital porters.
But they’re still not doing as much as we’d once expected.
In 1962 – a year after the Unimate was introduced – the American cartoon The Jetsons imagined Rosie, a robot maid doing all the household chores. That prospect still seems remote.
The progress that has happened is partly thanks to improved robot hardware, including better and cheaper sensors – essentially improving a robot’s eyes, the touch of its fingertips, and its balance.
But it’s also about software: robots are getting better brains.
And it’s about time, too. Machine thinking is another area where initial high expectations encountered early disappointments.
Attempts to invent artificial intelligence are generally dated to 1956, and a summer workshop at Dartmouth College for scientists with a pioneering interest in “machines that use language, form abstractions and concepts, solve kinds of problems now reserved for humans, and improve themselves”.
Then, machines with human-like intelligence were thought to be about 20 years away.
Now, they’re thought to be… about 20 years away.
The futurist philosopher Nick Bostrom has a cynical take on this.
Self-improvement = superintelligence?
Twenty years is “a sweet spot for prognosticators of radical change”, he writes. Nearer, and you would expect to be seeing prototypes by now. Further away is not so attention-grabbing.
It’s only in the last few years that progress in artificial intelligence (AI) has really started to accelerate.
Specifically, in what’s known as narrow AI – algorithms that can do one thing very well, like playing Go, or filtering email spam, or recognising faces in your Facebook photos.
Processors have become faster, data sets bigger, and programmers better at writing algorithms that can learn how to improve themselves.
That capacity for self-improvement worries some thinkers like Bostrom. What will happen if and when we create artificial general intelligence – a system which could apply itself to any problem, as humans can?
Will it rapidly turn itself into a superintelligence? How would we keep it under control?
That’s not an imminent concern, at least. Human-level artificial general intelligence is still about, ooh, 20 years away.
But narrow AI is already transforming the economy.
For years, algorithms have been taking over white-collar drudgery in areas like book-keeping and customer service. And more prestigious jobs are far from safe.
Software is getting to be as good as experienced lawyers at predicting what lines of argument are most likely to win a case.
‘Secular stagnation’
Robo-advisers dispense investment advice.
Algorithms routinely churn out news reports on the financial markets and sports – although, luckily for me, it seems they can’t yet write feature articles about technology and economics.
Some economists reckon robots and AI explain a curious economic trend.
Erik Brynjolfsson and Andrew McAfee argue there’s been a “great decoupling” between jobs and productivity – how efficiently an economy takes inputs, like people and capital, and turns them into useful stuff.
Historically, better productivity meant more jobs and higher wages.
But Brynjolfsson and McAfee argue that’s no longer the case in the United States. Since the turn of the century, US productivity has been improving, but jobs and wages haven’t kept pace.
Some economists worry that we’re experiencing “secular stagnation” – where there’s not enough demand to spur economies into growing, even with interest rates at or below zero.
Technology destroying jobs is nothing new – it’s why, 200 years ago, the Luddites went around destroying technology.
“Luddite” has become a term of mockery because technology has always, eventually, created new jobs to replace the ones it destroyed. Better jobs. Or at least, different jobs.
What happens this time remains debatable. It’s possible that some of the jobs humans will be left doing will actually be worse.
That’s because technology seems to be making more progress at thinking than doing: robots’ brains are improving faster than their bodies.
Martin Ford, author of Rise Of The Robots, points out that robots can land aeroplanes and trade shares on Wall Street, but still can’t clean toilets.
So perhaps, for a glimpse of the future, we should look not to Rosie the Robot but to another device now being used in warehouses: the Jennifer Unit.
It’s a computerised headset that tells human workers what to do, down to the smallest detail.
If you have to pick 19 identical items from a shelf, it’ll tell you to pick five, then five, then five, then four. That leads to fewer errors than saying “pick 19”.
If robots beat humans at thinking, but humans beat robots at picking things off shelves, why not control a human body with a robot brain?
It may not be a fulfilling career choice, but you can’t deny the logic.
For those of you who made our New York Digital OneOffice Summit a couple of weeks ago, we had a rumbustious mix of seasoned outsourcing buyers, service provider leaders, advisors and robo vendors under one roof to cogitate, discuss and argue where the hell the industry known as outsourcing and operations is truly heading. Let’s just lay down what the hell is really happening in the only unvarnished way we know how…
There is a fast realization that the outsourcing industry has reached a phase of almost insufferable tension. Why?
Several of the RPA solutions vendors are painting an over-glamorous picture of dramatic cost savings and ROI. RPA software firms are claiming – and demonstrating – some client cases where ~40% of cost (or more, in some cases) is being taken off the bottom line. While some of these cases are genuine, there are many RPA pilots and early-phase implementations in the industry that have been left stranded because clients just couldn’t figure out the ROI and how to implement this stuff. This isn’t simply a case of buying software and looping broken processes together to remove manual efforts… this requires real buy-in from IT and operations leaders to invest in the technical, organizational change management, and process transformation skills.
Buyers are backed into a corner with broken delusions of automation grandeur as their CoEs fail. Buyer leaderships are being fed all this rosy information and are under incredible pressure to devise and execute an RPA strategy, with some sort of set of metrics, that they can demonstrate to their operations leadership. Many are quickly discovering they simply do not have the skills inhouse to set up automation centers of excellence and are frantically turning to third parties to help get them on the right track.
Outsourcing consultants are selling RPA before they can really deliver it. Sourcing advisors are claiming they are now “RPA experts” who can make this happen, while struggling to scale up talent bases that can understand the technology and deal with the considerable change management tensions within their clients. RPA is murky and complex, and not something you can train 28-year-old MBAs to master overnight. Meanwhile, we are seeing some advisors simply do some brokering of RPA software deals for small fees, only to make a hasty exit from the client as they do not have the expertise to roll-out effective implementation and change management programs.
RPA specialist consultants few and far between. Pure-play RPA advisors are explaining this is not quite so easy and requires a lot more of a centralized, concise strategy. There are simply not enough of these firms in the market, especially with Genfour having been snapped up recently by Accenture. With only a small handful of boutique specialists to go around, these firms can pick and choose their clients and command high rates.
Service providers will set the pace, but many will destroy each other in the process. Service providers are claiming they can implement whatever RPA clients need, but are not willing to do it at the expense of reducing their current revenues. Meanwhile, smart service providers are aggressively implementing RPA into their own operations to drive down their delivery costs and reduce their own headcount. So we can expect to see providers aggressively attacking competitive clients with automation-led solutions that should create unbearable pricing pressures for service providers looking to retain the talent they need to implement this stuff. Hence, services providers will be hell bent on destroying each other and the winners will be those who eventually succeed in winning more work than they lose amidst all the destruction. This is a war of many battles being fought – and the winners will be those who are in this for the long haul, who can absorb some short-term losses to pick up the larger spoils further down the road when they have a fully equipped intelligent automation delivery capability that can deliver highly-competitive and profitable As-a-Service offerings.
The good news is that half of today’s buyers want to turn to service providers to make this work
When we privately polled 60 senior outsourcing buyers, at the recent HfS New York Summit, on what would improve the quality and outcomes of their current services relationships, the answer was pretty conclusive – half want to work with their providers to rollout their automation and cognitive roadmaps, while only a third think they should pull back work in-house to figure this stuff out for themselves:
The Bottom-line: The automation gauntlet is now in full effect and the casualties will mount up as the outsourcing industry plays out its most perilous battle for survival yet. But all is not lost if we eye a longer-term prize…
So we’ve reached crunch time. Whichever way we look at it, RPA has created a lethal environment, which was only just coming to terms with providers and buyers working together to get the basics of delivery right. Most outsourcing buyers have to look to automation to save their jobs and please their ambitious leaders, no longer content with the ~30% they saved on offshore-centric outsourcing just a few short years ago (see our recent State of Outsourcing and Operations data on 454 major buyers).
So, in the meantime, for all the reasons outlined above, this industry will literally go into a destructive war over automation. The skills to make automation a massively profitable reality are few and far between, while greedy corporate leaders demand cost savings that simply are not achievable if their organizations fail to make the necessary investments and partnerships to make this achievable. Did companies become amazing at HR overnight because they bought an expensive Workday subscription? Or amazing at sales and marketing because they slammed in a Salesforce suite? So why should they become amazing at cost-driven automation simply because they went and bought some licenses from an RPA vendor promising bot farms and virtual labor forces?
RPA and Intelligent Automation has sparked a major war in the worlds of outsourcing and operations, where many battles are being fought – and the winners will be those who are in this for the long haul, who can absorb some short-term pain in order to benefit from the larger spoils further down the road. While automation is killing outsourcing today – costing many people their jobs, their reputations and destroying the profitability of legacy engagements, those who can hunker down, focus on self-contained projects where they can fix one broken process at a time, can get stakeholders onside by demonstrating meaningful, impactful outcomes without major resource investments, will be the winners. Start with one process at a time, prove how to fix in, then onto the next, then the next… that is the only true way to be successful in this destructive automation-infested world.
Sourcingfocus speaks with Chrissie Lightfoot, one of the World’s Top Female Futurists as well as CEO and founder of EntrepreneurLawyer Ltd and the visionary creator of Robot Lawyer LISA – the world’s first impartial AI lawyer.
We started by discussing Legal Intelligent Support Assistant (LISA) and how she/it can help customers and the legal industry. “LISA is the first impartial AI lawyer that provides guidance and support on a collaboration between two clients, negating the use of human lawyers on both sides. Traditional human lawyers are quite adversarial on non-contentious issues, take for example basic NDA where you would need two lawyers, one for each party. What tends to happen is time and cost increases as lawyers can become involved in game playing to get to a middle ground where both sides are happy. By using LISA, clients remove the time and cost of drafting an NDA, bringing new clients to the service and helping existing ones.”
“Obviously, this is a disruptive technology as it replaces the human lawyer entirely, not once but twice, but this can be hugely beneficial for firms and end customers who have an idea and want to make sure that it is protected going forward. There is a massive latent legal market in the UK that has never been serviced by legal firms, a whopping 54% of SME’s in the UK, in the US it’s 80% and in Canada it is as high as 90%.” As the way we work changes and businesses see an ever diminishing life cycle, LISA will become crucial to the entrepreneurs who want to get down to business.
In the UK, a third of customers have never had the benefit of quality legal support or guidance from seeing a human lawyer because of time, availability and cost. LISA is a huge boon for those customers. “LISA is there to help the incubators, start-ups, growth companies and serial entrepreneurs be more successful by reducing the investment of time and money that many new businesses could never afford.” Like financial technologies that brought banking to those who have never been in the financial system, LISA acts as an enabler bringing new clients into the system. “We are not trying to replace the work of lawyers but allow them the opportunity to focus on the important areas which are more complex.”
LISA frees up highly skilled lawyer so they can focus on the complex things that clients want them for, you don’t get a heart surgeon to stich up a cut because you need them doing what they are best at. “We are not seen as competition as lawyers appreciate LISA doing this process so they can better use their time and efforts.”
LISA herself is a cloud based platform serviced through a URL accessible through a PC or Tablet or Mobile Device which both parties access creating a document that can be signed off and is ready to execute. The way LISA works involves a human lawyer who passed their experience into an AI platform, so you can have the knowledge and experience of that human lawyer (in this case with 25 years of experience) behind a quick and efficient system allowing the two parties to create a document in real time, they can get through building the NDA in 15 minutes.
“The official launch was on the 6th of April but since the soft launch in November 2016 we have had over 1000 uses of the NDA across the world including Europe, Asia, the United States and South America.” LISA is built around English law and English jurisdiction and therefore countries and companies are using it worldwide as English law is revered.
“I’ve set out on this with a real crusade, being an entrepreneur I was always frustrated about the cost and time involved with human lawyers and the lack of communication with the other side, so I thought that there must be another better way. A lot of good human lawyers can be frustrated by the ego or arrogance of another lawyer who wants to fight over a small point that costs the client time and money and the deal isn’t getting done. If you provide the client the knowledge, as they are taking the risk they can choose how to proceed and what decision they want to make. Most business people are down to earth and want to get past the legal and down to business. We are trying to take the adversarial out of everyday legal negotiations between two parties.”
“Any sector has a lot of curiosity about AI and Robotics because there is so much media surrounding it, people want to know what is its usefulness and what is the business and what would be the return on investment. Instead of being enamoured by robots and software and the terminology, focus on the problem you want solving and can you use the technology to solve the crucial problems.” In time, the legal market will come to embrace the use of AI and automation as we learn to trust these systems, it’s already happened in so many markets so it must only be a matter of time before the legal market is the same.
The LeanOutSourcing Blog 
