Have we finally become an industry? Have we become the Digital Operations Industry?

The worlds of software, business operations and services have always been chasms apart – different mindsets, vernaculars, conversations, ideas of what constitutes value – and vastly different cultures.  Software people never understood the operations folks and vice versa – each thought they were top of the corporate food chain.

However, the past couple of years have seen the coming together of these diverse groups of people to rethink completely how we run global operations in this robotically digital era (or whatever we want to call this curious period of time in which we exist).

One thing is abundantly clear: the outsourcing phenomenon which has gripped the Global 2000 over the past decade is making way for a genuine industry in which we all play a part – an industry where we have no choice but to develop learning programs, sustainable business strategies and make real, actual investments in order to survive.  And what’s most fascinating are the new conversations that have rapidly emerged to bridge this divide between the technologists and the business operators.

Suddenly, we’re talking about business logic, about datasets, about redesigning processes with genuine business outcomes in mind.  We’re talking about deep learning AI systems that store what has been learned in the past, take notes of how variables and results have changed under different scenarios and then make decisions based on that.

The narrative has radically changed and the focus in on bringing together all the components that can escort us to this promised land of Digital Operations.  So let’s take a look at what has transpired to get us to this point, where we can actually claim to be part of this emerging industry….

“Outsourcing” never materialized as an “industry”

Having spent the best part of the last two decades trying to make some sort of sense out of “outsourcing” I have come to the simple conclusion:  “outsourcing” was never an industry – it was simply the practice of moving work around the world to save money.  It consisted of people selling outsourcing deals and the poor suckers who’d been lumbered with trying to manage them – and the deal brokers and lawyers who took money from both sides making it all happen.  It was never an industry, it was  greedy corporates slashing their wage bills, and those lovely folks who were just so keen to comply with their wishes to turn a profit.

How traditional outsourcing has left us in a right pickle

Outsourcing was like a one-time thing C-suite execs arranged on the golf-course to take 30-40% off the operations budget for a set of low-level processes – and enjoy the bulk of those savings upfront for a nice impact.  Many folks became heroes overnight for making these deals happen, and they were lauded and courted at conferences as those radical executives who possessed some secret talent ingredient to make this all possible. Yes, a mystique around outsourcing was created, advisors did an amazing job making a science out of the “art of the deal”, and the façade of a new profession and (possibly) a whole new industry was borne.

Sadly, there was never (really) a long-term plan to sustain those productivity impacts, beyond moving as much work offshore, without overly impacting business performance and finding even lower cost cities to take on the low-hanging fruit to eek out a little bit more cost off the bottom line. Eventually, that well runs dry if you don’t make fundamental improvements to the quality of your processes and the convergence of the data sets they support.

Yes, we had a lot of fun creating useless qualifications and meaningless SLAs, but the end results were always the same: clients figured out how they only got what they had paid for, and the fancy innovations they were fed on those lovely pitch decks were always subject to change orders (or never really existed).  The only real leverage came at rebid time, when the incumbent would usually make some new promises to get their house in order, if they felt there was actually a chance they could lose the business.  Otherwise, it was business as usual.

The Global 2000 is littered with stale outsourcing deals that need radical transformation

However which way you paper over the cracks of short-termism, costs are like hedges – if you don’t look after them properly, eventually they grow back. As a result of all these fun and games, we are left with thousands of ropy outsourcing engagements littering the corporate world, where the clients are still paying for the same number of FTEs to deliver the same tired old obsolete processes, while their providers has no incentive to cannibalise their revenue streams, and the actual concept of moving these deals to other service providers is pretty desperate – all the smart ones have no interest buying up a legacy mess, while some desperate lower tiers ones may take on the work if they can shunt it to even cheaper, lower quality delivery resources.

But there is a way forward, and outsourcing has served a purpose

Believe it or not, there is a method to all this madness – companies managed to externalize work they didn’t want to run themselves, they got a lot of cost off their books, and they opened up the opportunity to pull more levers in the future to find new thresholds of productivity.  Rarely will you ever find an enterprise which regretted outsourcing – they’ll never want that work back. The big issue, now, is ensuring that work is in a state to be optimized further by improving the quality and logic of process flows, digitizing them and applying smart automation techniques, where it makes sense.  However, that can prove quite a challenge when the work has been distributed across third and fourth tier cities, and it actually requires some investment to transform those processes to consider meaningful automation and other delights that digitized processes can enjoy, such as Machine Learning and AI.

In fact, in too many cases, outsourcing resulted in enterprises sweeping their real process issues under the carpet and choosing to ignore the real need for genuine transformation until that day of reckoning occurred.  And that day is now upon us, as CFOs are smoking the automation crackpipe and demanding that next 50% of cost to be ripped from the bottom-line in a 3 year timescale.  Outsourcing provided them with a band-aid to enjoy cost savings through labor arbitrage, but robots can only provide further band-aids if the outsourced work has high-intensity, high-throughput processes that can easily be programmed into the software.  If that work is distributed across too many locations, with service providers unwilling to make renewed investments to co-invest with those clients, we have an emerging issue facing many enterprises: their day of reckoning has been reached and they actually need to make some investments in their processes and underlying systems.

Welcome to an actual industry in which we can co-exist: Digital Operations. This is why we are now emerging as an industry – we are facing the reality that most enterprises need to make long-term investments in their digital underbelly, their process flows and their people to run them, in order to find sustainable value over the next decade.

For the first time, we are witnessing deep conversations happening across the operations spectrum: RPA, Machine Learning and AI software vendors and now talking with service providers about how to embed their offering into long-term service contracts to support sustainable productivity and incremental data value over time (our data already shows close to a third of the Global 2000 are already integrating automation into their service delivery):

Ambitious enterprise customers of outsourcing, shared services heads and other operations leaders are all feverishly learning how to understand the value of software tools and how to prepare their process flows for the benefits of digitization and automation.  Consultants worth their salt are rapidly training their people to develop automation roadmaps for their clients and prepare them for a longer term strategy of creating a truly effective digital underbelly.   Yes, we are still are suffering from a few cowboy consultants claiming their clients can slash 50% overnight through RPA, the our observations are quickly showing that people are learning fast and know they need to address many of their underlying processes and talent issues, if they are truly going to take the next step forward.

Bottom-line: The Industry is Digital Operations, and there are six levers to pull to find sustainable value

The conversation among operations executives has changed dramatically just over the past year.  As the excruciating hype around robots taking our jobs and these outlandish predictions from drama-loving analysts and academics, a sense of reality is finally setting in – roles are not changing overnight, we just need to get out of our comfort zones and learn new stuff.  We need to understand the pivotal role data plays in our professional lives and become smarter about how we manage it.  We need to understand where RPA adds value, where to start with Machine Learning and AI, how we can truly leverage globally distributed talent to support out operations affordably and smartly, we need to be observant about the creeping impact of blockchain and how we can truly take advantage of digital technologies to nurture new revenue streams and enhance customer, partner and employee engagement up and down our supply chains. It’s taken a full decade just to take advantage of the cloud, and we need another one before that really fulfils its potential.  It’s going to be even more complex to ingest the benefits of automation, AI and blockchain into our business operations – but now we have six genuine value levers to pull to tend the hedgerows of digital operations.

 

(Cross-posted @ Horses for Sources)


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Founder and Chief Executive Officer of HfS Research, the leading global research analyst organization covering global sourcing strategies. Acclaimed Industry Analyst and Consultant who scribes the leading blog for the services industry "Horses for Sources".  Previously worked  at AMR Research (Gartner Inc),  Deloitte Consulting’s BPO Advisory Services, the  Everest Group and  IDC .  In 2010, Phil was named “IIAR Analyst of the Year” by the Institute of Industry Analyst Relations (IIAR). This is the most coveted global award for industry analysts in technology and services.

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