How Digital Labor Reduces Business and IT Costs

By Guest Author  |  Posted 10-06-2014 Print Email

Robotic process automation will provide a great advantage for the CIOs who embrace it—and be dangerously disruptive for the businesses that disregard its transformational potential.


By Frank Casale

In a previous article, "How Digital Labor Is Transforming IT," I discussed robotic process automation (RPA) and how it will ultimately change outsourcing, hence the idiom "Shift Beyond Labor Arbitration" (SHiBLA). This impactful technology, which involves the application of software to perform high-volume business processes and IT functions, promises to change the old labor model by increasing efficiency and significantly reducing costs.

Here, I'll discuss the math of the cost savings and benefits that SHiBLA (pronounced Shee-Blah) supports and can’t be ignored.

RPA is the next wave in technology and its promise is increased productivity, reduced errors and cycle time, and much-improved scalability. RPA means we have morphed from an analog style of "knowledge swap" from people to people to a digital world where knowledge is transferred by robots. We are no longer looking at RPA as a future technology, as it's already taking over physical labor today and, in order to succeed in the business world, CIOs need to understand its impact on the enterprise.  

RPA has proven in recent experiences to increase business process savings by 25-40 percent in most markets. Industry advisors state that 25 percent is very conservative and 40 percent is trending to be the norm. However, in the IT labor markets, providers are seeing as much as 40-55 percent cost savings, as the productivity and accuracy of three software robots equal one full-time employee. The capability of RPA is far more than 3 to 1, but the scale is not here yet. The adoption of RPA is a function of the market. Like most new technologies, until you can actually see the savings, there is a lot of skepticism.

One major RPA provider has, on average, seen compressed cycle times with the implementation of automation. In one example, the provider implemented RPA technology over a one-year time frame to change the business dynamic to 80 percent automation, which ultimately provided their client with a 45 percent net savings in costs. Another use case has shown the rapid deployment of automation for a major commercial bank by leveraging autonomics and learning algorithms. In this case study, the bank supported 5,000 databases; within the first six months the bank was able to automate to the point that the client needed only 50 percent of its original headcount to do the job. Not only did this implementation increase efficiency and production, but it ultimately produced a 60 percent cost savings. These two examples show progression over time, and how autonomics scale at a much faster rate than the physical world. As technology and demand improve, deployment and implementation time will shrink at astonishing rates, according to major players in the space.

A Shift in Mindset

Many foresee that enterprises are shifting from an "I grow by full-time employees" to an "I grow by transactions and customer experiences" mindset. Software has certainly trended to show that it is progressively controlling the ecosystem, and it is plausible that a machine can do what no human can do. CIOs are wondering what’s next, and the timing couldn't be better as this is a sea change in the relationship of people, technology and business.

In an interview with a large telecom conducted by The Institute for Robotic Process Automation, findings showed how labor arbitrage is driving decisions to utilize robotic automation. This company had 30 major systems that it automated in its business process management (BPM) solutions suite, but it also had 400 processes in its back office, which is a prime target for robotic automation. Of those 400 processes, the telecom believes about 75 percent could be completely automated. But the company is not going to replace its BPM solutions. It's actually going to leverage those, and extend automation deeper to alleviate error and increase productivity which, in turn, reduces the cost of manual labor.

As we move forward, let's keep in mind that the traditional outsourcing model, which has relied on low-cost offshore labor for the past 20 years, seems suddenly anemic in contrast to the innovative potential of automation. In fact, the impact of RPA on outsourcing will go far beyond the cost savings of labor arbitrage, and will make you rethink how automation can change your company's IT and business processes.

It's no wonder RPA will play an important role in the future. We have always seen businesses as people-based but supported by software, and it is easy to predict that outsourcing will shift to software-based but supported on the perimeter by people. Virtual machines are the next wave of the future.

The shift to RPA will dramatically and permanently change the business and pricing models in the ITO and BPO arena. It will provide a great advantage for CIOs—and be dangerously disruptive for the many businesses that do not make the pivot. ShiBLA is here to stay, which means it is time for many CIOs to update their playbooks.

About the Author

Frank Casale is founder and CEO of The Institute of Robotic Process Automation, a professional association and knowledge forum for the buyers, sellers, influencers and analysts of robotic process automation, and the Outsourcing Institute.

To read his previous CIO Insight article, "How Digital Labor Is Transforming IT," click here.


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