The Coming Disruption in BPO

We at Everest Group have been exploring robotics and understanding its potential. What we’re seeing is that it’s relatively easy and cheap to implement. Where it has been implemented to date, it results in somewhere from a 15-20 percent reduction in critical shared services or BPO functions, depending on the transactional nature of the BPO function. If this proves to be true across the industry, we’re looking at disruption of a similar magnitude to the disruption I’ve blogged about regarding workloads migrating from an asset-heavy environment into the cloud.

Explained very simply for those of you who are not aware, robotics is a software program that can take screenshots or data from system such as ERP, apply logic to that and input it back into the system or into another system.

The reason this is disruptive to the BPO industry is that BPO is largely based around activities (such as finance and accounting, HR procurement, invoicing and customer service), which are performed by labor in low-cost destinations. For some providers, a significant or meaningful proportion of their FTEs are dedicated to these activities.

Here’s the issue: if you reduce the number of FTEs by 20 percent, it’s reasonable that revenue will drop by approximately 20 percent. And up to this point, revenues had been growing at 5-6 percent per year. Customers will capture the lion’s share of the benefit of reducing FTEs.

This will further complicate an already-maturing industry that is struggling to sustain growth levels that it has enjoyed for the last five years. Furthermore, in a contracting industry, price becomes a weapon. So we would expect a knock-on effect that pricing will become more competitive as companies struggle to replace revenue from automation by challenging competitor businesses.

The net result is potentially quite disturbing if you’re a service provider and attractive if you’re a customer.

These are early days and we have yet to complete our full study around how widely applicable robotics technology is. But our early analysis leads us to believe that it has serious implications for the BPO industry.