Business Process Outsourcing (BPO) has become a trend for large enterprises in the last 20 years to shrink the costs by employing people offshore and nearshore to perform most of the high-volume routine business processes. But this now seems to be threatened by the introduction of Robotic Process Automation (RPA). RPA is itself a type of outsourcing, but instead to a person from another country, you are outsourcing the work to a software robot. And because of its increased efficiency compared to people, companies are more and more often now looking into deploying RPA.
A brief History of Outsourcing
Outsourcing is not new to the world. It started in the 1970s when big manufacturing companies realized they might shrink costs by hiring other companies to perform their non-essential processes or those functions for which they had no competency internally. According to The Economist, 70% – 80% of the work to deliver a finished product could be outsourced. Outsourcing support services was the next stage, which appeared in the 1990s as companies began to focus more and more on cost-saving. With the rise of technology and communications innovation, first, some airlines started outsourcing to India, and then IT companies followed. Why India? Because of the education quality combined with the low standard of life. For example, a Java Developer in the USA may have cost $60 000 per year, while in India was just $5 000 annually. Other countries, like China, the Philippines, Malaysia, and even Eastern European nations followed India’s example wanting to take a piece of the outsourcing pie by providing cheap low-skilled workers to execute high volume, rules-based, repeatable work. The advancement in IT and digitalization of the business further helped the outsourcing world to continue growing as more and more data is generated that must be processed daily to be of use for organizations.
Disadvantages of outsourcing
Reducing costs by outsourcing might sound attractive to many, but those who are not new to it know that it has some disadvantages. The quality of the provided services is what comes to mind immediately as poorly executed projects that have to be done all over again by someone else are not uncommon. Depending on the geographical location of the outsourcing business partner, there might be issues regarding the product/service quality, as standards may differ among countries. Language difficulties often lead to miscommunication. A further challenge may be present due to time zone differences, slowing down other processes in your organization. Staff commitment may not be great as people feel disposable but also due to the density of companies outsourcing to their location, they can easily switch jobs at similar employment conditions, which also represents a threat to the data security and compliance with company policies and procedures. And finally, the contracts with the outsourcing companies often bear a lot of hidden costs as the coverage is often strictly described and anything outside the listed in the contract services needs to be paid at premium prices.
Alternatives of outsourcing
Forty years ago it made a lot of sense for companies to start outsourcing their high volume, rules-based, repeatable work that does not require specific skills and is not of significant value. At least it was the only means of saving costs. However, now with the evolution of technology and the rapid development in the area of RPA and AI it just seems outdated.
Robotic Process Automation (RPA) refers to software that can be easily programmed to do basic, repetitive tasks across applications. It mimics human actions manipulating data, passing data to and from different applications, triggering responses, or executing transactions. Or in other words, it can do most of those tasks that are usually targeted for outsourcing. And different than people RPA can work 24/7/365, without the need to take breaks, vacations, or sick leaves, maintain a high level of motivation, and be error-free.
RPA is itself a type of outsourcing but instead of assigning the work to a human, it is assigned to a bot. In the context of an entire organization, it is not here to replace people, however, but to free them from the mundane repeatable tasks so they can focus on more value-adding work. This may still sound scary for the outsourcing industry as RPA can be done completely in-house quickly and inexpensively thus companies can eliminate many of the downsides of outsourcing while reaping the majority of its benefits.
Is outsourcing going to disappear?
The short answer is no. Outsourcing will continue to be considered as a cost-effective option for those jobs that require human interaction, like call centers. An interesting turn, however, is that exactly outsourcing companies are becoming the biggest adopters of the RPA technology as it allows them to enhance their offerings and lower their transactional costs.
On one hand, RPA may be the best friend of outsourcing. For example, in a contact center, can help agents respond faster, keep their motivation higher, and increase customer satisfaction by reducing the waiting time. To support agents to be able to respond faster when a client calls RPA can be used to collect all the information the agent may need (across legacy and modern systems), recognizing the caller by their phone number. Based on the type of problem RPA may automatically collect diagnostic information and do it much quicker than a human agent would do, and if needed log a ticket for the client. It can also present to the support agent a script to say to the client, so even lower-skilled employees could provide higher quality service. This way by simplifying the agent experience, patching information from different systems, and presenting it in a structured way to the agent accelerating the time to service the client contact centers can benefit from reduced response time, reduced average handling time, and increased case capacity. For the end client, this all translates into better service for a lower cost.
On the other hand, companies that are looking into reducing their costs but do not want to experience the disadvantages of outsourcing may find RPA a viable option. According to McKinsey Global Institute, 25% of the occupations in America consist of more than 70% of activities that can be automated. This does not only provide huge cost-saving opportunities but also by releasing employees from those mundane tasks they have more time to focus on more value-adding activities, like interaction with clients or doing work directly contributing to the primary business goals of the company.
In conclusion, the world is becoming more and more expensive and in most, if not all businesses every cost is coming under the microscope and every drop of cash is being aggressively preserved. Ensuring the right costs are being incurred to achieve the right objectives is key. Pursuing cost-efficiency through outsourcing is still a viable option and it will never be fully replaced by RPA, but implementing RPA for those tasks that do not require human interaction and decision making based on fuzzy logic can drag costs even further down and provide other benefits like improved correctness and accuracy that were not possible before. If you want to know how to do that contact us at .