Automation: Disrupt or be disrupted

According to ISG’s inaugural Automation Index, the first data-driven research to quantify the impact of automation on IT outsourcing (ITO) and business processing outsourcing (BPO), automation may cause future-mode costs to decrease as much as 66 percent and cause productivity to increase 30 percent, depending on the IT tower in scope.

If that is the case, why are incumbent ITO and BPO providers showing resistance to these new technologies?

At first blush, it is quite understandable why incumbents would resist. After all, investing in automation cannibalizes their current revenue as they transition from human labor to digital labor. But while providers are hesitating to implement their best automation tools and capabilities with their current clients, they are all too eager to offer them to new prospects to win business in a highly competitive market.

Though this may be a tactic to protect short-term revenue, it may prove to be counterproductive in the medium term. The outsourcing industry is founded on long-term strategic partnerships between buy-side enterprise clients and capable service providers—partnerships that rely heavily on trust and transparency. Short-sighted and self-serving strategies are counter to a basic tenet of outsourcing: mutual success.

Providers will be able to resist market trends and competitiveness for only so long. It’s time they embrace the notion that proactively offering the benefits of automation to existing clients will do wonders for the relationship. The trust and goodwill created by such decisions ultimately will lead to sustainable growth that more than offsets any short-term loss of revenue. Providers that are slow to accept this fact may actually encourage their clients to talk to competitors.

A precedent has already been set. As risky as it may seem, cannibalizing a set of products or a revenue stream is a proactive and smart way of staying ahead of the competition and retaining market share. You can’t stand in the same spot while the world around you changes. Enterprise buyers need their service providers to drive cheaper, faster and better operations to help them stay competitive in their core business, and their expectations for the gains from automation—higher productivity, increased efficiency, faster response time and improved accuracy—is already high.

The bottom line for service providers? Be quick to act on irreversible trends such as automation or you will have plenty of time to deal with the consequences.