RESEARCH by the Everest group in 2013 shows that over half of finance and accounting outsourcing (FAO) contracts were taken away from existing service providers when the time to renew them. Research attributed this to the entry of new service providers who have new automation processes unencumbered by legacy investments in labor arbitrage.
And what do we mean by legacy investments or legacy system? For those who are not yet familiar with the term, it refers to an old system or technology or an older version of an application or technology. The problem with some providers is that they are tied up with big investments in certain older versions of technology, making it more difficult for them to get out of the old systems, or they have a lock-in agreement with some vendors or the cost is too high for systems to be replaced. Legacy implies the system is out of date or in need of replacement (source: Wikipedia.org).
In the Philippines robotic process automation (RPA) may not yet be very popular among the local providers but certainly some of the big global providers are already into its implementation for their clients. As shown in the 2013 research by Everest, the new providers are gradually taking over the contracts for certain buyers. This is an opportunity for new entries in the provider sector of outsourcing but this poses a threat for the existing providers, particularly those who have heavily invested in technology infrastructure.
It is really difficult to chase technology changes because of the time and costs involved. But if the need to replace far outweigh the costs of maintaining the old system, there is no better way to go than grab the opportunity to install the new ones, especially if there are potential clients to be serviced with the new system. However, for the smaller providers, they may not be financially capable of doing this. Nonetheless, the big service providers need automation because of the sheer volume of transactions that their clients require.
The RPA is particularly useful for high-volume transactions processing function and repetitive transactions where there is a large labor requirement. This is, indeed, an effective labor arbitrage. Unlike other systems, particularly the legacy ones, the RPA provides significant leaps in terms of process improvement and time efficiency, resulting to higher productivity. People who are assigned in the usual transaction processing can be assigned to higher value jobs. It can also be used as troubleshooter remotely for IT support and management and as assistant in automated form to help the large call centers (source: irpanetwork.com).
In a research by Everest group on service delivery automation (SDA), data show that the rate of those buying from all sizes of businesses is almost at par: 35 percent large, 33 percent midmarket and 32 percent SMB. For industry types, 13 percent from the travel, hospitality and leisure are buying and 17 percent are from the banks and financial sectors. The remaining 70 percent are split among the other 13 industries. With this statistics, it seems that even the SMB can afford to be at par with the larger businesses in implementing the SDA.
Technology has taken up certain work in a business, particularly the repetitive processes. This has not displaced the human workers because these people can be assigned to higher-value jobs that will help enhance their skills and talents. Even with the progression of technology, there is still something inherent in man that robots or computers cannot take over. The benefit for man is—he is still in control of technology rather than technology controlling mankind.
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The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of Finex. Free Enterprise is a rotating column of members of the Financial Executives Institute of the Philippines appearing every Wednesday & Friday.