Message from the Chair – Robotics Revolution: Digitizing While Downsizing

WandaBy: Wanda Lopuch, Chairwoman of the Board, The Global Sourcing Council

The digital revolution has arrived. It is in all corners of the world and all industries, especially the outsourcing industry.

It dazzles us with the allure of entering the future here and now. It seduces us with images of doing everything we do better, faster, and more productively. And yes, it frightens us with brutal economic consequences: jobless growth, wealth without workers, increasing the divide between the few who successfully ride the digital wave and the overwhelming majority of those who do not and will not have an opportunity to do so.

Gone are the days of enterprises generating both wealth and employment. Kodak of yesterday with 130,000 employees is being replaced by Instagram of today with 13 employees. Google and Facebook, digital giants of the 21st century, have a combined global workforce of 50,000 employees. In terms of employment, they are not a match to brick-and-mortar employers of the last century, which had labor forces of millions. Even Foxconn, the Chinese icon of modern manufacturing, has been trimming down its 1.5 million strong workforce as more robots can perform more tasks, better, faster and more reliably.

These trends are game changers for the outsourcing industry which, for two decades, impressed business analysts with its value proposition of lower labor costs. Countries such as India or the Philippines built entire sectors of economies based on the appeal of lower cost destinations. Today, the appeal of cost reduction through outsourcing is gone! The outsourcing craze is being quickly replaced with the robotics craze. Effectiveness, efficiency and better service are winning.

The outsourcing sector faces the challenge of adjusting its labor arbitrage model to the new realities of robotics, the cloud, and the Internet of Things. This means one thing: downsizing while digitizing. Such a shift promises to be painful. It has already started. The latest 2014 “Horses for Sources” survey demonstrates that 60% of surveyed companies are planning to reduce labor in 2015.

This dichotomy of the digital shift is well captured by two headlines: “How Digital Labor Reduces Business and IT Costs” and “Digital Revolution Will Kill Jobs, Inflame Social Unrest”.

As we are about to enter 2015, we will be navigating this conflicting landscape of the digital revolution with the promises of innovation, efficiency and speed, and the ethical questions about the role of business in society. The answers are anything but simple.

To kick off this discussion, we have asked five thought leaders and business practitioners to share their views on the excitements, challenges and concerns of entering the digital revolution.

  • Bobby Varanasi, Chairman, Martyzel, South-East Asia
  • Frank Casale, CEO, Institute for RBP, USA
  • Luis Robbio, CEO, Belatrix, Latin America
  • Chip Wagner, CEO, Alsbridge, North America
  • Daniela Zuin, Marketing Director, IPsoft, USA

I hope you enjoy the following conversations.

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Varanasi_Headshot100x100

Bobby Varanasi, CEO, Martryzel Consuting Inc.
Board Member, Global Sourcing Council
Board Member, IAOP

 


Wanda Lopuch: 
Bobby, There is a great level of excitement around Robotics Process Automation (RPA).  Who benefits most from bringing robots to BPO?  What are the major benefits of RPA?

BV: Yes Wanda, the excitement is quite high. Primarily owing to it being the latest trend to hit the stands (as they say). Application of robotics has been a highly proven endeavor across many sectors (Healthcare, Nano-technologies, Hi-tech manufacturing). Learning from such applications has today created the ability to pre-program robots to undertake “scripted” tasks.

This is where RPA comes in: the ability to complete (without errors) scripted activities cannot be denied. Extending this competence to encompass aspects (where decision-making and responsiveness to markets is crucial) is yet to be proven, notwithstanding the euphoria around it, if I may say so. The benefits of RPA are perhaps a bit over-emphasized given its modernity. Commercially speaking, it perhaps makes sense to deploy robots for scripted low-end tasks, thereby freeing up individuals to pursue higher value goals. Does that translate into reality? It is a more complex question.

RPA’s benefits may range from zero defects (reminds me of factory assembly models) to complete control on costs (a CFO’s dream). Beyond that, however, I am skeptical of the benefits. Perhaps one could argue there are other benefits to be had. But that almost always leads to deriving such benefits in controlled environments. I would therefore be quite sanguine to view RPA as more than what it can guarantee – control over the “not so important yet necessary” things to be done to keep organizations humming. Taking an outside-in view, I would argue that when organizational models themselves change (from the traditional command-and-control to partner-and-enable ones) RPA loses steam (on lines similar to how Six Sigma has in the past few years).

WL: Bobby, you are active in Asian markets.  Do you foresee a significant impact of the digital revolution, and specifically RPA on the outsourcing sector of Asia?  Do you see a potential for outsourcing jobs being lost to automation processes?

BV: Well, digital revolution and RPA are not complimentary to each other. The former aims to leverage technologies to bridge significant gaps between those that participate and those that do not, in productive economic endeavors. The latter premises itself on modernizing hitherto traditional operating approaches (be they processes, or rule-based tasks) that could collectively be termed “information sentinels”). I am inclined to think that RPA is not the solution to woes plaguing developing economies (most tellingly amongst fast-growing consumer economies of Asia). Rather it will perhaps find a place among some of the foremost companies to a limited extent.

From an outsourcing standpoint, the opportunity to leverage RPA is substantially low (and I could even argue that its contribution doesn’t even warrant any deliberations at this point in time). There are three principal reasons for this:

First, almost all conglomerates structured as complex intertwined corporations across Asia offer significant opportunities for traditional outsourcing to provide solutions around transparency, standardization, removal of duplicity and greater (overarching visibility) to the conglomerate’s performance. Unfortunately this opportunity is yet to be leveraged.

Second, outsourcing in its traditional form is dead for most economies (and companies within). A blended model that incorporates modern technologies, channels, platforms, services and insights into tangible solutions is what corporations are looking for. The outsourcing supply marketplace unfortunately is not helping here (with their fragmented approaches toward provisioning).

Third, from a national standpoint, most economies are tied to economic growth and job creation (there is no room to pick and choose between the two) hence jobless growth is out of the question, and whose consequences are too many to even comprehend (least of all social anarchy and structural collapse of fragile balances that govern most social contracts in Asia).

These three reasons are substantially impactful enough for outsourcing models in the region to stay away from any solutions that adversely influence these components. Outsourcing will therefore have to navigate from within, and create solutions relevant for the countries and companies in a manner that doesn’t divest itself from local realities.

WL:  Robots bring efficiency, reliability. When doing so, they are replacing workers. Should we be concerned about it? Who should be concerned about it?

BV: There are two ways to look at this question. From a technology standpoint, robotics undeniably (in its greater form, not just RPA) does replace jobs, while bringing in efficiencies and reliability. The geeks would of course argue that it opens up new virile opportunities too, for hackers and digital intruders that were hitherto unimaginable. Assuming control elements (through comprehensive laws and policies governing critical national information infrastructure initiatives) could be brought to bear, the attendant threats could perhaps be contained.

Switching gears, from a human standpoint, global population is slated to hit 9 Billion by 2050. Today’s unemployed population stands at approximately 500 million (not including those that make a living in various countries in what are collectively known as the unorganized sector, or in non-economic jargon, cash economies within economies). If we are not viewing this group of people as an immediate problem or relegating their insignificance to a multi-generational malaise, we may be in for a set of nasty consequences socially and politically.

The trend of technology replacing workers is not new. A look at the impacts of six Kondratieff waves (starting in 1780 through to now) gives us sufficient examples of jobs having been created, and jobs having been lost. During the first four waves, while each wave translated to more “new” jobs created than “old” ones lost, the fifth wave (1970-2010) reflected more job losses than new ones created. The sixth one has only added to the woes through jobless growth (an unprecedented trend not seen in the past 250 years).

Is this worrying? Absolutely yes, and I think everyone should be concerned about it – most of all leaders of fast-growing private sector industries, policy-makers and the youth. A collective emphasis on making job creation a component parcel of growth is not just socially responsible, but an imperative if we are to avoid an apocalypse of massive proportions that could stem from joblessness. Corporations can no longer divest themselves of job creation all in the name of technology modernity. The importance they place on strength of their balance-sheets needs to be replicated with their social accountability as well.

The outsourcing industry has created approximately 5 million jobs in its first two decades, while only a tenth of the same in its third decade. The trend has already begun. Hence if I have to choose between technologies that replace humans to deploying humans into productive endeavors, I would pick the latter.

Frank Casale100x100-2
Frank Casale, Founder and CEO of The Outsourcing Institute (OI) and
the Institute for Robotic Process Automation (IRPA)

 

 

WL: Frank, you have introduced the term SHiBLA to the industry. Please explain to the GSC community what SHiBLA is.

FC: SHiBLA means “Shift Beyond Labor Arbitration” and it refers to the shift that is taking place as we speak. If you think about it, a good majority of IT, ITO and BPO services have been based on low cost offshore / nearshore labor for the past 20 years. Digital labor a/k/a robotic process automation (RPA) is beginning to make this model irrelevant. CXOs now have an alternative. One that is much more attractive. It involves more software and less people. It’s better, faster and cheaper. You will see more and more decisions go the way of RPA over the next 24 months. Hence, the shift. Hence, SHiBLA.

WL: There is a great level of excitement around RPA. Who benefits most from bringing robots to BPO?

FC: For the BPO customers its 100% goodness. For the BPO service providers, it will be a mixed blessing. The dramatically lower price points (25-40%+) will enable them to attract and win new business.

However, this will also diminish the value and loyalty of their base accounts. If you thought you had a $1 billion dollar account base with let’s say an 80% re-up rate, you now may have a $600 million account base with a 50% re-up rate. Expect a big shakeout. We are predicting that as much as 40% of the ITO/BPO service providers will be acquired, merged or just plain out of business by 2020.

WL: Robots bring efficiency, reliability. When doing so, they are replacing workers. Should we be concerned about it?

FC: We should all be somewhat concerned. Like all disruptive technologies and or business models workers will be displaced. The internet did this, outsourcing did it as well. The debate among people on the inside of this new RPA wave is around the question: is this disruption different than previous disruptions? Will this disruption drive more aggressive cuts quicker? Will many more workers end up jobless? Is it possible that there won’t be many new roles for these displaced workers to cross-train into?

The jury is still out. Suffice to say we are in for a real ride here.

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Luis Robbio, Founder and CEO of Belatrix

 

 


WL:
Luis, Belatrix operates in Latin America, including countries such as Argentina and Peru that have been facing serious economic, social and political challenges. What is your opinion about the robotics revolution, or a “third wave”?

LR: My opinion about this trend, could easily be qualified as schizophrenic thoughts. Here are three different “schizophrenic” perspectives:

As an engineer, I have been trained to look for the productivity and efficiency as a goal by itself, without considering side effects. A good doctor will save a life without asking if the person is a great person or not; his or her mission is to save lives. One of our missions in business is to reduce cost, to do more with less, using fewer resources including labor.

As a passionate reader and observer of economic trends and its effects on society, I have to recognize that there is a problematic tendency on concentrating wealth in the hands of fewer and fewer people. There is continuous growth in the wealth inequality, increasing the gap between the richest and the lower income members of our society. Such a trend is not conducive to further balanced development of any society.

The third angle of my schizophrenic view comes from a political perspective. One of politicians’ missions should be to “level” society, by reducing the power of the rich and providing opportunities to the poor. What a challenge considering that most efficiency will be obtained by investing capital concentrated in the upper level of society, and the return will go back to the upper class. This will increase power and income of those who already have capital, and decrease labor requirements; this in turn, will hurt the middle and lower class. At the beginning of this process of automation, the less educated people of our society will be hurting most.

The engineer in me says: It looks like a dangerous loop. I do not have answers to my schizophrenic dilemma. It is important though to recognize this dilemma.

At the minimum, we must pay close attention to these trends. We must look for solutions. Individuals, private sector and governments must be actively engaged in addressing concerns associated with this “third wave” combination of factors.


Chip Wagner, CEO of Alsbridge

 

 


WL:
Beyond the promise of better, faster, cheaper, there are other consequences of the digital revolution. For starters – downsizing is happening as we speak. Productivity increases. Profit margins grow. What a wonderful time to run a business. Or is it? Should we be concerned about other trends in the robotics revolution?

CW: Robotic process automation/autonomics/cognitive computing are all points on a continuum of artificial intelligence. “Labor as a Service” is the latest entrant in the Everything as a Service economy that we find ourselves in. Does this trend create the potential for job displacement and business disruption? Absolutely. However, this dynamic has happened before and we’ve witnessed significant labor displacement that, while painful, was not cataclysmic.  Within manufacturing, the automotive sector is perhaps the best example we can use to visualize how automation and robotics have changed production processes and displaced human labor.

What we are seeing now is the migration of that same logic and the application of technology to the white collar world. It is happening and, quite frankly, it is inevitable. New jobs will emerge, new businesses will be created, but the days of job growth based on people doing repetitive clerical tasks may be dwindling.

I do see this as cause for concern – some people will lose their jobs and will have to acquire new skills, some companies will go out of business and other companies will have to re-invent themselves. Significant and sometimes painful change will take place. But again, the underlying dynamic driving this change is essentially the same one that has characterized economic and social development throughout history. In that context, while we should certainly be concerned, we have no choice but to adapt.

Zuin, Danielle100x100
Daniela Zuin, Marketing Director, IPsoft

 

 


WL:
Beyond the obvious dazzle of better, faster, cheaper, there are other consequences of the digital revolution. For starters – downsizing is happening as we speak. Productivity increases. Profit margins grow. What a wonderful time to run a business. Or is it? Should we be concerned about other trends in the robotics revolution? Who should be concerned?

DZ: Cognitive technology will trigger far more than incremental efficiencies in business processes. Just as the industrial revolution of the past transformed economies so will the digital revolution fundamentally change the way in which we live and work. Cognitive technologies introduce the concept of “virtual labor” into our daily life. These virtual employees will form a core part of the workforce in future and are forcing us to rethink the relationship between man and machine.

We will need to re-define the roles involved in business operations in order to capitalize on the power of the technology we have at our fingertips. This means new roles for the human workforce; handing off processing repetitive tasks to our virtual colleagues so we can move up to focus on analytical tasks that utilize the wealth of data we have pouring into our businesses.  It will allow us to shift the focus of our human capital onto high-value, customer-focused strategies and away from non-differentiating “keep the lights on” operations.

The challenge of how we manage the transition from our current organizational models to those we will adopt in the digital economy is a priority for the stability of our society. There is no denying the disruption will be deep as it impacts millions of people around the world.

The new roles we define will require new skills. Re-thinking the content and process of education across the lifetime of working adults as well as that of our children, will require collaboration from multiple stakeholders. Public bodies, large businesses, investment markets and the technology providers must join forces in order to create a proactive plan to support the re-deployment of workers into new roles.  We have an opportunity to prepare ourselves for one of the most exciting periods of change seen in centuries and it requires us to lift our sights from narrow individual considerations to broader perspectives.

The GSC welcomes you to submit your comments on this special panel discussion. Please contact us at: contactgsc@gscouncil.org We will share your views with the community.

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