leslie willcocks, london school of economics - it i praksis® konferencen 2015
TRANSCRIPT
v/ Leslie Willcocks, Professor, London School of Economics
Onsdag den 30. september 2015
IT i praksis® konferencen 2015
Automation and the
Future DNA of Outsourcing:
Are the robots really coming?
Professor Leslie Willcocks
Outsourcing Unit,
London School of Economics
and Political Science
3
IT I Praktis 2015
Recent OU Publications www.lse.ac.uk/management/research/outsourcingunit
Robotic Process Automation
Agenda
The Rise Of Outsourcing:
• Why did the outsourcing market for IT/business services emerge?
• What are the drivers of growth?
• How big is the market?
• Performances, problems and the demand for new models
What is RPA?
• Definition, capabilities differences
• Case studies
• Lessons
• Developments – Jobs, Shoring, Performance
Proposition 1: Will RPA will shift advantage back to domestic locations?
Proposition 2: Will job types and numbers change dramatically?
Proposition 3: Are outsourcing models and economics under threat?
Copyright © Lacity Willcocks and Craig 2015 5
Four Ages of Business/IT
Services Outsourcing
Domestic Offshore All Shores Automation
People centric—people are
the largest cost component
Copyright © Lacity Willcocks Craig 2015 6
Why did the outsourcing market for
IT/business services emerge?
If you earned an MBA in the 1980s, the number one message
would have been, “DIVERSIFY RISK”
Since 1990s, the number one message is “FOCUS ON CORE
CAPABILITIES AND OUTSOURCE THE REST”
Core CapabilitiesDiversify Risk
Copyright 9C) Lacity Willcocks Craig 2015
,7
Why did the outsourcing market for
business services emerge?
If you earned an MBA in the 1980s, the number one message
would have been, “DIVERSIFY RISK”
Since 1990s, the number one message is “FOCUS ON CORE
CAPABILITIES AND OUTSOURCE THE REST”
Core CapabilitiesDiversify Risk
Copyright ©Lacity Willcocks Craig 2015
8
Copyright © Lacity, Willcocks and Craig 2015
9
You cannot just “OUTSOURCE THE REST”…it requires an outsourcing
strategy and detailed management or you end up with…
Core Capabilities
Reducing non-core costs has
always been a key driver BUT…..
Other Drivers of Outsourcing
10
Growth through M&A leading to
decentralization & redundancies
High costs
Bureaucratic, non-standardized
and inefficient processes
Outdated and non-integrated
technology
Many sourcing decisions are prompted by
a desire to clean up a back office “mess”,
frequently caused by…
Copyright © Lacity, Willcocks and Craig 2015
So the outsourcing market
grew and grew…(2014-2018 prediction is BPO 5.6%, ITO 4.6% c.a. growth)
11
Different Outsourcing Performance
Levels Are A Reality………
Cost savings delivered
Meeting SLAs
Good client satisfaction
No cost savings; costs increased
Poor service performance
Low client satisfaction
Cost savings/SLAs improved each year
Business benefits Innovations delivered
High client satisfaction
Marginal cost savings delivered
Acceptable service performance
Marginal client satisfaction
(Source Lacity and Willcocks, 2015)
General Market Trends 2015:
Some Tensions Here!
Customers SAY:• Cost is table stakes
• We expect more help on innovation, digital technology, analytics,
social media
• More partnering, pro-active behaviours
• Move to more business metrics and strategic impact/outcomes
• How do you move us significantly to cloud computing?
• Automation –can you give us an edge?
Customers DO:• Shorten contract length
• Reduce supplier numbers
• Allow bundled services creep
• Put more weight on cost and operations than they suggest
• Dominant coalition perspectives and prior and existing relationships very
influential in decision-making
• Have different levels of maturity – customer-specific approach, including
specific customer education is key. ‘Best practice’ varies by maturity levels.
The Old Model
Provider has about 17-30%
worth of transaction
costs plus margin
+1%-3%
contracting
+10-20%
margin
+4%-5%
governance
+2%-4%
Loss of productivity
How will a provider deliver your cost
savings and still generate a profit?
A provider has to have costs much lower
than the client in order to recover their
transaction costs, generate a profit and still
deliver cost savings to the client!
+4-10%
Better
Practices (optimization;
technology enablement)
+3%-5%
economies of scale (centralization
& standardization)
+10% to 25%
Labor Arbitration
These are the
tools they have
to reduce costs
Copyright ©Lacity, Willcocks, Craig 201514
Part Of The New Model…
Source: www.operationalagility.com
Domestic Offshore Robot Copyright ©Lacity, Willcocks, Craig 201515
What is RPA?
16
Systems of Record
“Knowledge” Worker
“Robotic” Worker
Software that automates a process and
operates the way a human does, by logging on
and off systems
Copyright © Lacity, Willcocks, Craig 2015
How is RPA Different?
17
Lightweight IT: RPA does not disturb underlying computer systems.
Copyright © Lacity, Willcocks, Craig 2015
What RPA enables
18
RPA
Because of ease of use
and IT
“lightweightness”, the
threshold of processes
worth automating is
substantially lowered
Three Case Studies
Head-
quarters
Company
Size
RPA
Adoption
Year
# robots
2015
UK
£5 billion
21,500
2010 >160
UK 11,500 2005/2008 300
UK
£700 million
8000
2013 27
Copyright © Lacity, Willcocks, Craig 2015
Npower
Three Case Studies
# processes
automated
# RPA
transactions
per month
Business
Value ROI
35% of back
office
(15 core
processes)
400,000 to
500,000
Faster delivery
Better service
quality
Higher
compliance
Unbeatable
scalability
Strategic
enablement
FTE avoidance
FTE
redeployment
FTE savings
650% to
800% 3-
YR
35% of back
office 3 million200% 1-
YR
14 core
processes120,000
30% per
process
Copyright © Lacity, Willcocks, Craig 2015
Npower
Surprises
21
Myth 1: RPA is only used to replace humans with technology
Reality 1: RPA at Xchanging was used to do more work with the same number of people
Myth 2: Business operations staff feels threatened by RPA
Reality 2: Business operations staff at Xchanging welcomed the robots as valued “new hires”;
npower —RPA team cannot keep up with the demand from operations
Myth 3: RPA will bring back many jobs from offshore
Reality 3: Xchanging automated offshore processes and kept them offshore
npower & O2 reshored processes but not jobs
Myth 4: RPA is driven only by cost savings
Reality 4: Clients had a mature understanding of multiple operational benefits and strategic
payoffs, with cost efficiencies being one driver amongst many.
Faster, more accurate, more scalable services
Myth 5: RPA replaces an entire person’s job
Reality 5: RPA replaces the dreary part of a person’s job
One Virtual FTE really might equal 20% of work of five human FTEs
Myth 6: A whole process needs to be automated to get a great business case
Reality 6: All three cases automated sub-processes Copyright © Lacity, Willcocks, Craig 2015
Lesson Learned
C-Suite support for best
business value
N/ACEO talks
about RPA
RPA in
annual report
Business operations
leads RPA
Secure operation team
support
Brought IT on board
early
Brought IT on board later
Optimize first
Develop criteria for
“automationability”
Reuse Components
View RPA as
complementTo BPMS To ERP
Copyright © Lacity, Willcocks, Craig 2015
Finding: RPA and Outsourcing Best
Target Similar Processes…….
23
Process Attributes Suitable for Outsourcing and RPA
Value
recommended for
outsourcing
Value
recommended for
RPA
Volume of transactions High High
Degree of process standardization High High
Degree to which process is rules-based High High
Degree of process maturity High High
Degree of process stability
Degree of interoperability
High
High
High
Does not matter
Number of exceptions
Degree of process complexity (ambiguity)
Low
Low
Low
Low
Degree of process complexity (# steps)
Degree of process interdependence
Low-Medium
Low
Does not matter
Does not matter
Degree of compliance risk
Degree of business value
Degree to which costs are understood
Low
Low
High
Can improve
Low to High
High
Copyright © Lacity, Willcocks, Craig 2015
Generic Attributes of
Automatable Processes
24
Wayne’s
heuristic:
Automation must
be able to save at
least 3 FTEs
Volume vs. Complexity:
uses time as a heuristic of
complexity assessment—
simple tasks take people
fewer than 4 minutes;
complex tasks take 30
minutes
Copyright © Lacity, Willcocks, Craig 2015
Proposition 1: Will RPA shift advantage
back to domestic locations?
Wipro announced in Sept 2014 it will reduce headcount
by one third over next three years because of
disruptive technologies like automation and AI1
Infosys recognizes labor arbitrage will be increasing
difficult to sustain; spun off its technology into a
subsidiary Edgeverve2
TCS will layoff between 5,000 and 25,000 workers
(may be driven by high cost of experience—laying off
+8 and may hire “freshers”)3
1 Times of India Dec 2014; 2 Everest June 2014; 3 Hindustan Jan 2015 Times
Copyright © Lacity Willcocks and Craig 2015 25
Copyright © Lacity, Willcocks, Craig 2015
Proposition 2 – Will job numbers
and types change dramatically?
Which Jobs?
http://www.npr.org/sections/money/2015/05/21/4082345
43/will-your-job-be-done-by-a-machine
Copyright © Lacity, Willcocks, Craig 2015
Add In New Technology Capabilities –
IBM’s Watson and Cognitive Automation
Watson won $1 million against Brad Rutter
and Ken Jennings in 2011.
Watson had access to 200 million pages
of structured and unstructured content
consuming four terabytes of disk storage
including the full text of Wikipedia, but was
not connected to the Internet during the
game
Train Watson with Subject Matter
Experts. So if a query looks like this, this
is a good response.
Watson uses its Natural Language
capabilities to dissect a query, then search
the data, and present about four possible
answers, ranked by probability of
correctness. Watson also shows the
evidence for the suggested answers.
LITERARY CHARACTER APB
$200 : Wanted for a 12-year crime
spree of eating King Hrothgar's
warriors; officer Beowulf has been
assigned the case
Copyright © Mary C. Lacity 2015 28
IBM’s Watson: The Future?
Watson increasingly commercialized, with about 1000 users.
Watson can be replicated in a single box.
Watson can protect propriety data that is not shared with other clients.
Current clients include Baylor College of Medicine, Sloan Kettering,
MD Andersen.
http://www.slate.com/blogs/moneybox/2013/05/17/watson_oncology_diagn
ostic_medicine_without_the_doctor.html
Copyright © Mary C. Lacity 2015 29
Proposition 3: Are Outsourcing
economics and models under threat?
30
5% to
10%
10% to
20%
20% to
30%
30% to
40%
>40%
Centralize X
Optimize & Standardize X X
Relocate to low cost
location
X X
Automation X
Some service automation adopters reporting
huge savings:
• Paying £1 million per year on RPA that
used to cost £20 million;
• ROI of >600% in 3 years
YOU BET!