Corporations in the U.S. began offshoring work in the 1990s to save costs. The whole logic was predicated on finding cheap labor that possessed adequate knowledge to execute a business process. This is all about to change with automation. Automation, which uses algorithms and artificial intelligence to do tasks now done by humans, could reshape the entire IT services and business process outsourcing (BPO) landscape. We could end up bringing offshored work back to the U.S.—only to put it on smart machines.
Many of the tasks that were outsourced and sent offshore were those that could be specified and monitored easily. When work was hard to specify it was also difficult to write contracts for its completion, so it didn’t get outsourced. Take, for example, administrative banking transactions. Banks could specify the workflow and processing logic clearly, and it could be orchestrated via technology. The location of the work no longer mattered, so it went to countries with low-cost labor and good English skills—most frequently India.
Offshore outsourcing became a thriving industry. Today, however, automated systems and “robotic process automation” (we don’t like the term, so let’s just call it “process automation,” shall we?) are performing structured administrative tasks. If smart machines can perform tasks that are outsourced already, work would now migrate to places where automation is prevalent. As it turns out, the US is the leader in automation, as well as the biggest consumer of offshore outsourcing. That suggests a tectonic shift in the economic landscape for outsourcing buyers and sellers.
Such a dramatic change has not been lost on large outsourcing firms. Several of them are preparing for this future by entering the automation fray themselves. Cognizant Technology Solutions Corp. recently acquired TriZetto, which has a platform for health-care automation. Wipro Ltd.507685.BY +0.91% is using machine learning algorithms to help with its internal help desk support. The firm has now created an artificial intelligence platform called HOLMES that uses computer algorithms to reduce human effort in many of its customers’ industries. Tata Consultancy Services is working on an AI platform called Ignio to help build applications quickly and get more out of its infrastructure management capability. Infosys Ltd.500209.BY +0.31% has announced a major investment in automation capabilities as well.
These firms see a more automated future, and want to make money when work is done by machines rather than people. We don’t think their work in this space is too far along, however. There are other startups that are already making this capability available in the marketplace. IPSoft Inc. and Rage Frameworks Inc. in the U.S., and Blue Prism in the UK, are companies that have already delivered process automation offerings to customers. Blue Prism customers Telefonica O2 Ltd. and Xchanging (an outsourcing company spun out of Lloyd’s) have already brought back home some of their offshored work to be done by “robots” (actually computers, so let’s just call them that, shall we?). Rage Frameworks has focused on automated processes for financial services firms. IPSoft has focused primarily on automating IT management processes thus far, but is broadening that focus with its “Amelia” intelligent interaction system.
We spoke with one company, KMG International (a substantial international oil company based in Romania) that has already used IPSoft’s product IPCenter to automate many of its IT management tasks. Marcel Chiriac, the company’s CIO, said that he led an effort in 2013 to restructure an out-of-control outsourcing agreement. One aspect of it involved working with IPSoft to automate many straightforward IT tasks, such as network and infrastructure management and gas station technology monitoring. There are automated scripts running on a couple hundred “automatas” (hey, it beats calling them robots) that do things like disk space monitoring and file deletion, automated rebooting of frozen PCs, and setting up new employee email accounts. He showed us a report that 73% of recent trouble tickets were resolved without human intervention. Mr. Chiriac says his company has saved some money by automating some previously outsourced services (even given the low labor costs in Romanian outsourcing firms), but his primary concern is the quality of the service. And that’s been high; not only do trouble tickets get resolved quickly and automatically, but his IT infrastructure has had no unplanned outages in the last 15 months.
Work has already moved around the globe to exploit labor arbitrage. In the future, owners of these automation platforms may dictate where work gets done. One driver will be where data scientists and automation programmers are most easily found. With many of these platforms originating in the U.S., outsourcing will come full circle. Labor costs forced the US to send work to distant shores, but it may be pulled back by automation.
Another driver of the location of automated work may be electricity costs and green energy availability. Once automated, the biggest line item in the cost of a process might be computing costs or electricity consumed to keep data centers and computers cool. Cold places with natural energy sources will have an advantage. Perhaps the new center of automated outsourcing will be Iceland!