Can RPA Replace Outsourcing?

A question that has often propped up in last few quarters is “Can RPA replace outsourcing?” In my interactions with various equity analysts who track market performance of IT Service Providers, they have often tried to analyse the impact of RPA on IT and BPO companies – mostly trying to find its negative impact. The point being that RPA can automate many tasks done by software engineers and process analysts, hence it will dent the revenue stream for these firms who traditionally follow FTE based engagements. 

Well, fair point but let’s understand a key fact: the IT and BPO services industry in 2017 was greater than USD 850bn. (Indian IT exports alone amount to USD 126bn as per NASSCOM.)

So the question is actually: Can RPA really replace a USD 850bn gorilla?

Let’s analyse points in favour and against the argument.

Favour -

1. The wages in low cost offshoring locations are increasing, hence the traditional advantage of cost arbitrage is losing steam.
2. Automation will reduce dependency on IT/BPM providers as repetitive and basic tasks can be automated. Since bulk of outsourcing activities are transactional and repetitive, automation will replace outsourcing as well.

Against -

1. We are talking about IT/PBM services. Robots can take over rules-based tasks but “services” require human interfacing. It is a key element.
2. Clients, advisers, and providers associated with the outsourcing industry will vouch for the flux and chaos that is part of it. Rules and Requirements keep on changing and processes change at the whim of business demands. Expectations and priorities shift often. The entire ecosystem is more dynamic than ever – hence RPA has limited use.

So, it may not be entirely correct to say that RPA is eliminating the outsourcing industry. It certainly is one of the disruptions however, and we already see the IT/BPO service industry responding.

RPA should actually be considered as a complimentary addition to outsourcing. With overall increase in usage of technology across the globe, there is a need to access technology providers. Clients need talent and vendors to provide services. Hence outsourcing is here to stay. RPA makes part of outsourcing efficient, fast and accurate. It shifts dependency away from human tasks to an extent that those humans can focus on other areas.

My advice to clients: don’t fall for old fashioned traditional outsourcing deals. Challenge yourself!! They may only serve short term interests but eventually make it a harder transition to adopt emerging technologies such as RPA.

Be aggressive in your approach on outsourcing deals and structure them towards more output driven models. Work out models that allows you to anticipate the output using disruptive technologies.

While it is definitely being disrupted, outsourcing is here to stay. The model itself may change but outsourcing is not going away. Even traditional FTE- or input-based outsourcing models will continue in the near future. The reason is that it is more predictable for both clients and service providers alike and thereby brings more viability.

To conclude, I will refer to a brief statement from Sid Pai in one of his recent articles

“Even disruptors eventually need to go back to traditional business strategies to be viable in the industries they disrupt.”

Note: Ankur writes a regular column on Outsourcing for SSON.