Intelligent Automation – Let’s think about our outsourced service relationships

Whether it’s referred to as Intelligent Automation (IA), robotic process automation (RPA), or digital labor, the potential for increased efficiency and improved performance of business systems through automated processes is massive.  Companies are learning about the tools and techniques available now to capture workflow that is currently performed by personnel and contractors, and translate and migrate those activities to software.  Early adopters are on their way to fundamental transformation of back office and direct business process solutions, and many other companies are in the pilot stage of fledgling IA efforts.

As history shows, all business revolutions are accompanied by uncertainty and complexity.  This was true for the industrial revolution, the computer revolution, and it’s true with the IA revolution as well.  So as companies develop and execute their IA strategies, substantial return on investment (ROI) may take a while.  According to Thomas Hall of KPMG’s Management Consulting practice, it would serve these companies well to look just a bit beyond their internal IA efforts for more immediate returns on advances in automation technology, and focus on their current providers of outsourced IT (ITO) and outsourced business process (BPO) services.  

Global outsourced service providers are rapidly deploying automation into their operating models to drive efficiencies, and numerous providers are capable of doing big things within the scope of services they currently deliver to their customers.  But making sure organizations, as the customer, understand the potential value that can come from leveraging their service providers can be tricky. 

Business process outsourcing took off on a large scale back in the early 2000s, with most savings generated from geographic labor arbitrage and basic process realignment across shared service centers.  Technology played a supporting role, with document scanning and global telecommunications enabling the distribution of work to lower wage locales.  Now, some 15 years later, the technology environment has dramatically improved to enable much greater opportunity through IA — employing automation tools to translate human activity into software. “New tools are available to rapidly implement process automation,” says Hall, which means immediate potential for dramatic decreases in run costs and related increases in quality.  “When software is implemented correctly, it doesn’t make mistakes,” he adds.  “The run cost becomes software maintenance, a fraction of the cost of labor-based service delivery models.  For task-oriented IA solutions, the decision to move forward is a no-brainer.”

So why aren’t buyers of outsourced services seeing massive savings from service provider IA programs?  What are the hurdles and what’s the trick? 

“The contracting terms and pricing structures for outsourced services have pretty much settled during the past 5 to 7 years in a way that doesn’t anticipate rapid adoption of process automation,” Hall explains, pointing out that the commercials in market standard outsourcing agreements can’t handle broad-based automation and implementation of digital labor across a variety of in-scope activities by a BPO service provider.  Also, there are complexities in the enablement of IA that these contracts don’t address, such as threats to the customer’s financial controls and issues with IT security.

Enablers of IA:  Core Systems and Standardization

Setting the service provider contracting issues aside for a moment, let’s think about what’s necessary to enable IA, from basic task automation to more complex, rules-based cognitive solutions.  To really drive savings through IA and ensure meaningful ROI, a company must target a wide range of activities that address a large volume of work.  That is, identify and capture work that’s currently managed by a lot of labor.  If this is sounding familiar, it may be because these are the same characteristics that supported general labor arbitrage a decade ago.  Process standardization is a key enabler of IA, and the level of complexity a company maintains in its underlying core systems is an important variable.  To flesh this out, let’s look at a couple different scenarios.

An industrial conglomerate operates more than 300 different ERP systems, that when consolidated at a group level, compose about 50 some systems. The ability to standardize this diversified company as a whole, for things like financial reporting and accounting, is severely limited due to the variety of needs and the disparity of processes across systems.  In this environment, Hall explains, “It’s possible to evaluate opportunities for IA within distinct parts of the organization, but it’s harder to drive ROI off the investment necessary to harvest all of these smaller opportunities.  Therefore, it becomes difficult for an outsourcing service provider to look at the whole and recommend an automation program for standardization.”

On the other hand, consider a global company that’s already made great strides in consolidating systems and streamlining processes internally, with just one instance of their ERP system — and a consolidated system of record.  This, says Hall, creates a huge opportunity for cost savings. “In this case, the outsourcing service provider has the opportunity to look much more broadly across an entire set of services – end to end – and offer IA solutions that are really compelling for the customer,” he explains. The question then moves beyond customer incentives and towards, “What’s in it for the service provider?” 

“What makes sense is to engage the service provider in dialogue about expanding the scope of the outsourced services,” says Hall, who recommends relying on the service provider to drive the efficiency and quality program end-to-end. “Of course the conversation would be taken by the customer in light of its IA strategy over time: ‘What do we want to do, and when do we want to do it?’”  The opportunity to implement automation on a large scale is much more difficult and will be harder to maintain, which means more expense and less ROI.  But, Hall explains, “The customer and the service provider can agree to do some creative re-scoping of the services to be outsourced, and move forward with a mutually beneficial restructured relationship. Engaging in dialogue early on can pay off well and quickly.”

The Influence of IT Security and Controls

For finance and accounting functions, companies implement specialized financial and IT security controls, and they manage audit processes to ensure compliance with these controls.  In a labor-based service delivery model (whether functions are outsourced or retained by the company), controlling for separation of duties is pretty straight forward.

With IA solutions, however, the software is making the decisions based on a set of rules.  That software is then combined with other bits of information that automate end-to-end processes — so there is no separation of duties paradigm that equates to how people do work.  This makes IT security and controls more challenging, Hall explains. “People who write and maintain software, who don’t necessarily have financial backgrounds, are now in control of these functions,” he says.  “How do you audit separation of duties when the delivery mechanism for those business processes is really a shared suite of application programmers?  How do you ensure financial controls when software is writing to your ERP system?  Software is approving. Software is paying.  The transformation to IA solutions requires a revised framework for controls, whether the IA solution resides in the company or is run by a service provider.”

As operating model for financial controls and IT security fundamentally change in an automated environment, “organizations must shift gears and implement and audit controls in a different way,” Hall says. “To enable potential cost savings of IA in an outsourced services relationship, there’s a lot of ground work to do.”

How to Get Started with Intelligent Automation

No matter how far along your company is on its journey to Intelligent Automation, it’s important to rethink how you’re managing your major ITO and BPO services relationships.  “Whether or not you’re building an IA center of excellence, you can still drive substantial cost savings and quality improvement into your organization by adopting a new IA paradigm through which you manage your outsourced services relationships,” says Hall.