Automation vs sourcing a strategic framework

Helping Clients Leverage Global Services & Sourcing

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Copyright © 2016 Neo Group, Inc. All Rights Reserved.

AUTOMATION VS. SOURCING A STRATEGIC FRAMEWORK

AUTOMATION VS. SOURCING: A STRATEGIC FRAMEWORK


INTRODUCTION

Few topics garner more attention on the hype cycle

these days than automation and the related topics

of cognitive computing, software robots and digital

transformation in general. Hardly a week goes by

without another conference, another webinar or

another research report discussing the benefits of

Robotic Process Automation (RPA), as well as the

amazing cost savings just around the corner for

those who embrace it. Those voices will get louder

as more and more companies develop their own

success stories, and the technology is refined for

easier adoption and implementation.

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These trends can’t help but affect the market for global sourcing. For the last 15-20 years,

global sourcing has been the go-to approach for organizations looking to reduce cost,

increase flexibility and build strategic partnerships with their vendors, many of whom are

some of the most innovative companies in the world. But as automation gains more and

more traction in the market, what does that mean for the traditional sourcing model? What

are the circumstances that would lead a company to place its bets on automation instead

of outsourcing? Are both models here to stay or is automation going to cause the global

sourcing model to wither away.

One approach companies are taking to address this question for the short term is to put

the onus on their sourcing vendor partners to help them navigate the automation

challenge. Indeed, the more aggressive vendors are proactively bringing automation ideas

and solutions to their clients who are in the process of being seduced by the automation

story, before needing to defend to a client the value.

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INTRODUCTION


Copyright © 2016 Neo Group, Inc. All Rights Reserved. 4

But to a large extent, that approach is less than ideal. While vendors do use automation to bring

real value to clients, even the best of them do not have interests that are 100% aligned with their

clients in this area. To take an obvious example, the BPO vendor with 500 FTEs working in

Chennai on insurance claim processing is potentially not going to move as aggressively as

possible on their own accord to adopt the technology that could mean the elimination of 25-50% of

those roles, along with the associated revenue. This is not to say that they do not have their

client’s interests at heart – just that those interests are different from their own.

Despite this potential divergence of interests, global sourcing is not going away completely any

time soon. Nevertheless, the challenges that automation and digital transformation pose mean

that companies will need to think clearly to incorporate everything in overall plan and roadmap.

• What are the key factors that should determine when to do what?

• How should everything fit together?

• What new skills need to be built up?

These are some of the questions that this paper will explore.

INTRODUCTION



Given the newness of automation as a set

of technologies, it is worth taking a minute

to review the different flavors. One useful

way to think about automation is to classify

different technologies according to how

advanced the cognitive functions are that

the software is replacing. Here is a

taxonomy that illustrates the continuum of

different automation technologies as well as

Digital Transformation

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A QUICK SET OF DEFINITIONS



Technology/ Service Definition/ Example

Data Center Automation Low-level automation of simple processes within IT. Examples: Runbooks, scripting

Robotic Process Automation Execution of programmed tasks – usually at desktop. Task is rules-based,

repeatable and definable, usually with same result every time. Often involves

connecting two or more systems at the interface level, replacing an FTE working on

more than one system. Example: Password resets.

Autonomics Process has multiple variations that require some sort of decision. System learns by

applying algorithms. Process exceptions often still handled by a human. Data is less

structured and the system often operates by connecting to server level. Example:

Accounts payable processes

Cognitive Computing Data is unstructured but with some patterns. Process often has no logical,

definable and repeatable component. The mechanism for action is based on the

system running through scenarios rather than following predefined rules and can

involve external data sources. Example: process exception handling

Artificial Intelligence Similar to Cognitive Computing but with no language patterns and completely

unstructured data. Scenario-based mechanism. Example: IBM Watson Jeopardy

demo.

Digital Transformation Any technology-driven program that fundamentally changes the way a company

interacts with its stakeholders, including customers, suppliers, employees, partners

and the public. Usually involves multiple elements, including organizational change

management, new products and new skillsets.

DEFINING AUTOMATION



KEY QUESTIONS TO ASK

IN BUILDING AN

AUTOMATION ROADMAP

As automation continues to gather momentum,

many business leaders are being pressured to

come up with an automation roadmap. Given the

fast-moving development of these tools, it can

often seem like a daunting task. But whether a

company is just starting out on their automation

journey or have already been at it for a while,

figuring out the answer to a few key questions is

crucial.

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AUTOMATION ROADMAP

1. How big a role will automation play in the future of your particular industry?

Automation evangelists often speak as though the technology has the potential to affect every function

within any organization in a transformative way. But that may not make sense in some industries. In the

early days of the internet penetrating business, a number of industry-specific marketplaces sprang up that

were supposed to mediate between buyers and sellers and replace old-fashioned relationship-based

selling with automated auctions. It soon became clear that it was very difficult to swap out those

relationships so most of those marketplaces died out. But a few did adapt and survive. Some industries

today will likely see a similar reluctance to embrace automation when it comes to transforming core

operations.

While this doesn’t preclude deploying it for tactical purposes on non-core processes, it does mean that

automation will not rise to a strategic-level concern. We can predict that certain creative industries, like

book publishing, will not view automation with the same level of strategic concern as, say, insurance, to

take a very obvious example. Each industry is likely to have its own timetable with regard to how much

and how quickly automation will drive transformation.



AUTOMATION ROADMAP

2. What is the internal appetite to be a leader in automation?

The appetite for any company to be on the leading edge of any trend is certainly related to the perceived

strategic importance of that trend, but it is also of course related to the cultural and management specifics

of that particular organization.

At this early stage of the automation revolution, we have often seen that the desire to be a leader is driven

by one or more passionate individuals who take on the role of internal evangelists.

Crucially, however, that passion needs to be nurtured and supported by senior leadership. That continued

support is necessary because becoming a leader, which means building an internal center of knowledge

and excellence that is independent of any outside vendor influence, almost always involves large amounts

of trial and error. A good example is USAA, which set out more than 4 years ago to achieve leadership in

automation, secure in the knowledge that it was bound to be strategic and transformative to their business.



AUTOMATION ROADMAP

3. How important is it to move as quickly as possible?

While many organizations may determine that automation is important to their future, not all feel a need to

move as quickly as possible.

The key determinant here is of course the environment a company faces. If competitors are moving more

quickly in terms of digital transformation, for example, and are embracing automation as a key component

of that transformation, then there is no question that speed is of the essence.

Similarly, if there is an opportunity to leapfrog a competitor by achieving huge improvements in customer

service, cost leadership or new product development, then that is also an impetus to move quickly. While

it may be considered a truism that for most businesses speed is a competitive weapon, in reality

organizations can’t be moving at full speed in all functions at all times. If the competitive environment is

such that other priorities are more important than automation, then that is an important factor to keep in

mind when building an overall automation roadmap.



AUTOMATION ROADMAP

4. How much control is there of key processes?

Most large organizations have embraced global sourcing to one degree or another, and many small and

midsize ones have too. But the degree to which they have, and whether they are reliant on sourcing

partners for strategically important functions or just use global sourcing tactically, varies widely.

Some industries, like banking and financial services have seen outsourcing rates as high as 40% or more.

Other industries are at a much lower level.

Determining what the level of investment in automation should be and what the sequence should be is

certainly hugely dependent on the degree to which a company has control over those processes that are

potentially subject to being automated.



As we stated at the outset, while under

a lot of pressure, the traditional

outsourcing model, whether a pure

FTE, Time-and-Materials model or a full

Managed

Services model, is not going to

disappear and be replaced by

automated software. Most organizations

will evolve into using a combination of

both tools to achieve their strategic

objectives. But for the strategic planner

at an organization just getting started, it

is helpful to think about a few basic

principles:

AUTOMATION VS. SOURCING:

A PORTFOLIO APPROACH



This approach assumes that an organization is fairly inexperienced with automation and

may or may not have control over a process in terms of how dependent they may be on a

sourcing vendor.

The key is to determine the strategic importance of a given process, and then determine

what the right role is for the sourcing vendor and the right capabilities that need to be built

internally.

In addition, there are the other variables that were discussed earlier.

What is the internal appetite to build a robust internal capability?

How important is a given process in the transformation of an

industry?

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AUTOMATION VS. SOURCING



This is the “low hanging fruit” of automation. There’s a good chance your sourcing vendor is already

building capabilities in this area with their work with other clients. You can leverage your existing

governance and management model. All that really matters is that you are capturing an adequate share of

the vendor’s own investment in automation.

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Low Control – Low Strategic Process Value:


This is the area that has the most options in terms of how to approach an automation roadmap.

Depending on a company’s appetite for building an internal capability, it can start pilot projects with RPA

on simple processes, in conjunction with a software vendor, or it can solicit its sourcing partners to present

new solutions. If an internal capability is warranted, then the most important success factor will likely be an

effective internal champion that can build the management and oversight processes to oversee the easy

first steps, and build up to harder more strategic and advanced process areas.

High Control – Low Strategic Process Value:



If a vendor already has control over a process and that process is ripe for strategic transformation through

automation, then it is incumbent upon the vendor to demonstrate that it has the capabilities and

experience to partner with the client. Thus the first step should be to explore what capabilities a vendor

has and whether the contract needs to be considered for insourcing or a move to another vendor. In

general, if a process is highly automatable but still strategically important, it is better to insource it. If only a

small part of it is able to be automated, then it is better to keep it with a vendor, the relevant question then

being which vendor.

Low Control – High Strategic Process Value:


These are the areas that are ripe for true automation-driven digital transformation programs led by a

company’s own internal team. Depending on the specifics, it might make sense to build on the capabilities

developed on less strategic processes to take on these more important ones. If a company is under

pressure to move very quickly, that might not be a possibility. In that case, working with a capable advisor

to determine strategic and execution options is of paramount importance.

High Control – High Strategic Process Value:



Neo Group Can Help

The global sourcing landscape is constantly evolving. For a deeper discussion on planning and executing

a successful globalization strategy, contact one of our lead advisors.

Atul Vashistha Brad Pickar Hemant Puthli

CEO & Founder Partner & SVP Partner & SVP

[email protected] [email protected] [email protected]

Kevin English Pankaj Sharma Vikram Naaidu

Partner & SVP Partner & SVP Partner & SVP

[email protected] [email protected] [email protected]

About the Author

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Brad Pickar has over 25 years of experience in the technology and services sector, and is an

accomplished executive in the consulting, professional services, technology integration and global

sourcing fields. Brad specializes in sourcing strategy, internal communications and vendor negotiations.

mailto:[email protected]








About Neo Group

Founded in 1999, Neo Group helps organizations meet business objectives and address business

challenges by leveraging global services and sourcing. To learn more about Neo Group, please visit

www.NeoGroup.com.

About Supply WisdomSM

Supply WisdomSM is a unique cloud-based service that provides data and intelligence for sourcing risk

and opportunity monitoring of global countries, cities and suppliers. To learn more about Supply

WisdomSM, please visit www.SupplyWisdom.com.

No part of this report may be reprinted/reproduced without prior permission from Neo Group.

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Automation vs sourcing a strategic framework

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