The Costs of Automation

To tweak an old proverb: Cost is in the eye of the beholder. When we discussed the implications of automation on profit margins with EXL’s leadership team, CEO Rohit Kapoor was refreshingly frank. Rohit acknowledged the risk of margin dilution, but elaborated that all shades of automation namely BPaaS, analytics and RPA lead to higher client satisfaction thus the risk of dilution was outweighed by the benefits of increased client stickiness. In most cases of increased automation, EXL was able to cross and up-sell at the end of contract. He went even further, indicating that EXL sales leaders are incentivized to take clients on the automation journey to increase client satisfaction. Needless to say hope is a risky business model and many service providers have learned harsh lessons when selling highly industrialized offerings, but the discussion outlined a fundamental challenge of being on the journey to the As-a-Service Economy.

With variations, the argument can be extended to Cloud services. SAP’s profit warning after clients adopted its Cloud services offerings “too fast” is a potent reminder how careful a service provider has to be to manage the transition of business models. At the same time there are no simple answers or solutions as Oracle found after its recent earnings announcement as investors punished Oracle for moving too slow to the Cloud.

For EXL one transition into more automated offerings was acquiring Blue Slate to strengthen their transformational and technical capabilities. Its BluePrint methodology generates a strategically aligned transformational roadmap for clients, and could prescribe RPA, among other Business Process Management solutions. By emphasizing transformation EXL positions itself to some of the key issues of enterprise buyers: how to increase the predictability and the quality in the processes while reducing the time to complete the processes. Conversely, narrow notions of cost or of replacing FTEs have only a lower priority.

However, the market is lacking education as to the wider implications of automation—and cost is no exception.  HfS is strives to help our clients progress on their journey into the As-a-Service Economy where Intelligent Automation is one of the eight Ideals. But as we have stated many times, the larger service providers have generally been coy on the topic not least because the repercussions on revenue models are not yet fully understood. Equally, third party advisors very rarely discuss transformation and often reduce the topic to the cost of contracting.

Consequently, the journey into the As-a-Service Economy is a risky one with many bumps to be hit on the road ahead. Organizations not only run the risk of being disrupted but the implications on revenue models can be profound. Therefore, reference points for deploying highly automated solutions are critical to understand exactly these implications.

EXL deserves credit for tackling and discussing these issues head on. We at HfS have developed a maturity model that helps to assess how service providers are working through these issues at various levels. As with many things in life there are no simplistic answers but we think that not addressing the strategic implications of automation head on is a non-starter for service providers today.