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Outomation – The next wave for corporate efficiency

An article from CIO agenda: 2009 publication.

Outsourcing and business process automation have been used by many organisations over the last decade to improve the efficiency and effectiveness of their performance. Many have successfully used third-party suppliers to deliver processes like IT support, call centers, manufacturing, and financial services in an effort to focus attention on core business initiatives that add value to customers and shareholders. While outsourcing has had its failures as well as successes, there is no question that it has enabled companies to operate more efficiently by leveraging the capabilities and scale of specialist suppliers.

Organisations have also focused on ways in which business processes can be streamlined and automated to lower costs. In much the same way that car manufacturers in the 1970s and 1980s moved to near total automation of production, so this effort to automate business processes has extended beyond manufacturing to almost all business sectors from claims processing in insurance to billing in telecommunications.

Moving through 2009, the problem for organisations is that the wave of quality and cost benefits from outsourcing and business process automation has largely dried up. Simply put, they have banked the savings from large outsourcing contracts over the last 15 years and there are few new incremental savings to be found. The days when an outsourcing supplier could confidently tell a CEO that he could save them ‘30 percent’ are long gone. And while offshore outsourcing offers some additional leverage through labour arbitrage, the saturation of the Indian market and the relative immaturity of new locations (such as China) present CEOs and CIOs with limited opportunities for a new wave of cost savings without more innovative thinking.

Yet as the pressure to cut cost remains, leading edge companies are beginning to adopt a more radical approach: ‘outomation.’ By leveraging globalized provision of outsourced services together with experience in process automation, there is the potential to redesign and re-source in one go and once again achieve the 30 percent-plus savings seen in the initial wave of outsourcing.

The foundations of outomation are long established in manufacturing where, for example, carmakers have shared platforms and competitive glassmakers have built factories together. Now these principles are being brought to the IT-enabled services that dominate today’s economy. Organisations are beginning to identify processes that can be simultaneously automated and outsourced as part of a single transaction.

Suitable processes tend to have common features:

  • they can exist on shared or virtualized infrastructure

  • they can be shared with competitors without compromise

  • service source and delivery is location independent.

IT processes are leading the way, under pressure, for 1980s-like outsourced

savings. Good candidates for outomated services will tend to:

  • have the capability to be a uniform service regardless of location or role (eg desktop support)

  • follow standard processes (eg software testing, HR, payroll)

  • have consolidation as a design feature (eg server farms)

  • be necessary to the business but not a differentiator( eg network management)

  • be improved through a higher degree of industrialization (eg workflow).

Leading companies such as Google are intuitively implementing outomated services by fully automating their end-to-end transactions through its ‘mega’ data centers. PA now observes that the next wave of companies are looking for the supplier community to bring this type of innovation to bear for their organisations. The top tier of IT and business process outsourcing companies will over the next five years maximise their global presence (particularly in India, China, and Eastern Europe), leveraging growing sector experience to take control of clients’ processes and drive efficiency while, at a minimum, maintaining quality.

The real upside for the CEO and CIO is not only a potential decline in the cost of running core business processes but also the opportunity to reengineer the entire IT investment portfolio so it is more focused on business transformation than business operations. The successful CIO in 2015 will likely command a budget that is well balanced between operations, growth, and transformation. Today, at least 75 percent of IT budgets are typically spent on simply running the business as is. The economic benefits associated with outomation will enable companies to turn their IT investment portfolio on its head. Increased automation will drive a step change in the IT cost to ‘run the business’ and free up operational and capital expenditure to reduce overall IT spending and increase investment in growth and transformational activities.

So what does the trend toward outomation mean for the CIO under pressure to deliver more for less in 2009, and beyond? There are two key areas for focus: Firstly, outomation needs to be considered by the CIO as an opportunity rather than a threat. While outsourcing can be perceived as reducing the prominence of the in-house IT function within  an organisation, paradoxically outomation, when properly applied, will add to its importance. This is because it will place the CIO and his or her team at the center of efforts to automate processes, which in turn will drive increased shareholder value in the coming years. To deliver high value, the CIO will also need to be the Chief Automation Officer.

Secondly, the CIO needs to identify who are to be his or her trusted partners for efforts toward outomation. This will need to be an active collaboration between customers and suppliers who will both yield benefits for the efficiencies and innovation that outomation will bring. Some suppliers simply will not (or choose not) to ‘get it.’ These suppliers will remain tied to the classical outsourced model and will inevitably be driven into offering more and more commoditized prices at lower margins. These will not be the chosen partners of innovative companies for the next ten years. Other suppliers will embrace the impact of automation on their outsourcing model and lead their customers through to the next stage of cost and performance improvements. And what is the simplest and most reliable test of whether a supplier understands the imperative of outomation? Just investigate if the supplier itself is outomating.

For a copy of our entire CIO publication or to speak to a PA expert, please contact us.

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