IT Robots May Mean the End of Offshore Outsourcing

Robots vacuum floors. They pick and pack boxes in warehouses. They win at Jeopardy. And soon they may take IT and business process work away from offshore outsourcing providers.

Take U.K.-based startup Blue Prism, which makes a software development toolkit and methodology designed to enable business users to create software robots to automate rules-driven business processes.

Blue Prism calls it “robotic automation.” James R. Slaby, research director for sourcing security and risk for outsourcing analyst firm HfS Research calls it “the newest labor option in the global business services toolkit” and “offshore killer.”

“It’s the automation of various business functions: taking work traditionally done by humans and implementing it in software. And that resulting software runs largely unattended to execute those functions, as opposed to requiring human interpretation and input of data,” Slaby says.

“Indian vendors have thousands of staff doing similar work now with high rates of turnover and rising costs due to inflation. Autonomics are making the offshoring of tasks irrelevant.”

It’s best-suited for routine work that doesn’t benefit from the value that the human brain provides, such as completing a benefits application that requires accessing three different systems, but no human analysis, says Slaby. “The routine kind of work you might entrust to low-level data entry clerks or entry-level IT staffers are good places to start.”

[Related: Will Your Next iPhone be Built by Robots?]

The software robots “replicate the work of real human beings–trained in the same way and subject to the same systems controls as users to protect transactional integrity and physical security of customer data,” says Pat Geary, Blue Prism’s chief marketing officer.

Unlike technical scripting tool kits or “macros” for performing basic functions, Geary says Blue Prism’s offering is focused on scalable enterprise process automation for “the world’s largest back offices.”

But it comes at a much lower cost that flesh-and-blood enterprise software development. “Traditionally, a project would have been scoped and then a solution designed, built, tested and deployed by developers and dedicated specialist IT resources. The governance required of these projects makes it uneconomic to service the ‘long tail’ of automation requirements,” says Geary. “So in reality, the only option available to businesses was to outsource or offshore the workload, to reduce input costs.”

Blue Prism says its robot full-time equivalents (FTEs) cost a third of offshore FTEs. And once the customers learn the system, which takes two to four months, they can scale up virtual FTEs instantly. Currently Blue Prism has 1,000 robots up and running at customers including Telefonica, Fidelity Investments and Experian.

People Today, Robots Tomorrow

Meanwhile, New York-based IPSoft, which calls itself an autonomic IT service provider, says that the “infrastructure of tomorrow will not be managed by people, but by expert systems.”

The company’s self-governing IPCenter has the capability to detect, diagnose, remediate and escalate events and incidents, to learn from what it experiences, and to assimilate that learning into a shared knowledge library. And the company is expanding into business process automation as well.

[Slideshow: Attack of the (Mostly) Cool Robots]

“Autonomics have the ability to absolve mankind of mundane chores,” says Jonathan Crane, IPsoft’s chief commercial officer. “This is true not only in IT support, but in any systematic business process. The Indian vendors have thousands of staff doing similar work now with high rates of turnover and rising costs due to inflation. Autonomics are making the offshoring of tasks–so often considered the solution to optimize ITO and BPO tasks–irrelevant.”

Within a year, one enterprise customer with more than 10,000 servers previously overseen by humans had automated 75 percent of management and troubleshooting and reduced its infrastructure headcount by half, according to Crane. A financial services firm integrated IPCenter into its trading platform to diagnose and fix failed income trades, reducing troubleshooting time from 40 minutes to 40 seconds.

Companies like IPSoft and Blue Prism are a serious threat to outsourcing providers, says Slaby of HfS Research. “But it’s also a huge opportunity for the outsourcers that get on board with the technology early enough.

The work these robots and autonomics do are the sweat shop tasks that occur in the back-office and IT–“the kind that contribute to the outsourcing industry’s horrible employee churn problem,” says Slaby. “And it provides another labor-arbitrage tool to help outsourcers compete for deals on price.”

Indeed, both Blue Prism and IPSoft count IT service providers and consultancies among their customers, who use the technology to quickly and cheaply automate business and IT processes on behalf of clients. And new competitors are cropping up in the space. “It’s a logical extension of the development of ever more sophisticated software development environments, of increasing levels of abstraction from machine code,” says Slaby.

Danger, Will Robinson

But robotic automation faces several challenges. “Its novelty and the relatively small size of the vendors promoting it makes it tricky to introduce into staid, risk-averse enterprise environments,” says Slaby. And enterprise IT may not take kindly to the tools. “They don’t usually like the idea of software being produced outside of their control, and it has the potential to make them look slow or unresponsive to business unit needs,” Slaby says.

Finally, not every IT or business process is suitable for automation. “A business process requiring human perception or nuanced human judgment based on years of experience is less suitable,” says Slaby, “which, of course, is a good thing for those of us humans who still want to contribute valuable work to our employers.

Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, on Facebook, and on Google +.