leslie willcocks, london school of economics - it i praksis® konferencen 2015

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Outdated and non-integrated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.


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


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


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


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


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


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


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


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

http://www.slate.com/blogs/moneybox/2013/05/17/watson_oncology_diagnostic_medicine_without_the_doctor.html

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!