The Impact of Digital Labour on Outsourcing Stanton Jones Research Director & Principal Analyst

The impact of price performance. Technology price performance is increasing exponentially. In the manufacturing sector, have seen this effect for some time in the form of industrial robots. In the services sector, just now starting to see this effect in the form of software that mimics the way a human works and makes decisions. Price Old Equilibrium Performance  Price  Performance

Digital Labour. Software that works like a human, or mimics the way humans make decisions, focused on the automation of knowledge work.

How is this different that what we’ve been doing for the past two decades? Intelligent Systems Machine / Deep Learning Expert Process Automation Scripts & Runbooks Code, or code bundles that automate a process. Workflow based. May perform work as if it were a human. References a knowledgebase. Mimics decision-making. Experts provide feedback on quality of decisions. Learns from data. Assesses probability and classifies results. Does not need experts to provide feedback. Uses biology as foundation to understand patterns, make predictions & develop behaviors. Outsourcing has traditionally focused here While digital labour will focus here.

Emerging motivation for digital labour looks like outsourcing in some ways, and cloud in others. Primary Motivation Outsourcing Digital Labour Cloud Cost reduction Cost avoidance Scalability Speed Consistency

How are companies getting there? Model Pro Con Do it yourself Retain IP. Avoid black box syndrome. Employee morale. Assume risk. Software lock-in. Small COE driving big change. Embed in outsourcing Transfers risk. Leverage industry processes. Focus on outcomes. Incentives often not aligned. Software and process are linked. New business model for providers.

Digital Labour in IT Digital Labour Platform Capacity, Availability, Lifecycle Planning Incident, Change, Release, Knowledge Management Server Monitoring & Management Storage Monitoring & Management Physical Database & Middleware Operations Network Monitoring & Management Digital Labour Platform Aggregates, Correlates, Automates Process Automation Tools (e.g., ITSM, CMDB, Monitoring)

Productivity Improvement (%) We are seeing significant productivity improvements in ITO over the past 12 months. Volumetric Productivity Improvement (%) Number of Applications Managed +30% Number of Virtual Instances Managed +29% Storage GBs Managed +34% Number of End Users Supported +20% Number of End User Devices Managed +85% Number of Network Devices Managed +100% Traditional productivity improvements were 3 to 5%. Over past 12 months, seeing dramatic improvements being committed to in ITO contracts. Source: ISG Automation Index

And significant reductions in cost as a result. Cost savings for the IT services contracts we assessed ranged from 26 to 66 percent; 50 percent decrease in the number of resources required to support certain IT services. Based on signed contracts that are in transition/transformation now, so actual results are still to be determined. Impact: Cost Reduction Greater than 65% Source: ISG Automation Index

Digital Labour in business support functions. Robotic Process Automation (RPA) primarily being deployed against business support processes (e.g., O2C, P2P, H2R). Bots work like an employee. Excels where application integration is too costly or difficult; fills ERP gaps for “swivel chair” type operations. Email ERP Web HRMS Excel CRM Data

Outsourcing + Digital Labour + When all three delivery models converge, things will get interesting. Business Benefit Outsourcing + Digital Labour + Cloud Cost reduction Cost avoidance Scalability Speed Consistency What will it look like when the cost of adding a virtual engineer or agent is 1/100th the cost of an onshore employee? What will it look like when supply (Q) is virtually unlimited and price (P) is transparent & commoditized?

Guidance: Buyers Exponential increases in price/performance means digital labour will expand much faster than expected; start now. This is an operating model change (people, process, governance) more than a technology change. DIY buyers: Focus digital labour on scalability and quality / consistency challenges; cost savings is a derivative. Sourcing buyers: Cost will remain primary focus, however, ensure supplier can deliver on productivity promises. Create an digital labour COE; use agile approaches.

Guidance: Providers Securing better commercials is number one reason clients renegotiate. In competitive renegotiations, the incumbent looses the entire scope nearly 50 percent of time. Risk is not a deterrent for most clients to move work to a new provider. Without a digital labour strategy and delivery model, there is very little way to compete in today’s hyper-competitive market. Source: 2016 ISG Incumbency Study of 182 ISG-advised contracts

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