Industry observes that many different forms of cost reduction strategy in history. You can travel back in history as much as industrialization happened where big capital consolidated the manual industry which used to be spreader in each mom-and-pop business.
The more recent examples in the last 20 years include outsourcing, offshoring and automation.
In this article, I would like to quickly walkthrough the recent history of such cost reduction and discuss the never-changing issue we are all facing.
Business use to be more vertically integrated. There is a good reason behind it – the transaction cost between business was high enough to justify integrating all those services within one business. From upstream to downstream, business has full control over its service and quality.
There is a good argument against such vertical integration. Just like how a book The Goal by Eliyahu Goldratt argued, management started seeing the limitation how far they can optimize without considering the complication of business supply chain.
Here comes outsourcing. While transaction cost between business drops, many business started disintegrating business process and outsource them to such service providers.
For the further cost reduction outsourcing service providers and businesses started looking abroad – Eastern European countries like Poland for Europe, China and Philippines for Asia, Mexico for America, and India for all of them.
Those countries offer very cost competitive workforce, and they tapped on many cost-conscious business as their clients.
This offshoring serves its purpose for the last 10 to 15 years while their cost remains competitive. Now it is no more. Their living standards improve thanks to such foreign cash flow in from the offshoring/outsourcing work, their wage level also has risen. To those clients who offshored, the problems of cultural difference, training cost from high turnover rate, and loss of ownership are more distressing when the cost appeal vanishes.
In the last 5 years or so, consulting firms also started selling reshoring / backshoring. The end goal of such reshoring / backshoring is regaining the full control on once offshored business process, cost, and service quality. Although such moves were happening, I do not believe reshoring or backshoring never caught the marketing buzz as much as outsourcing and offshoring – until automation or RPA (Robotic Process Automation). Some business calls it as “digital”.
Such automation uses the very old technic which IT team used to call it as “screen automation”. IT team uses it to automate screen testing to save their testing effort. Now consulting firms and solution providers rebranded it as “RPA”, and voila! Everyone is talking about RPA as much as just like we did for outsourcing and offshoring.
The issues with automation again
The upcoming issues with automation are obvious.
- Rising cost – Consulting firm pitches that once implemented by consultants, the process can be customized and maintained by a business process owner (client) himself. Really? He could not even manage the offshored tasks – human to human customization, how can he maintain it the computerized task – human to computer.
- Lost of ownership – This happens when outsourcing and offshoring happened. Manager used to manage his team to own the process. Outsourcing/offshoring move the team to another business, and the manager is still obliged to own the process without full visibility and control. Such manager progressed his career as a subject matter expert, and he is now expected to serve more like vendor manager.
- Lost of expertise – Hence, the next issue is the losing expertise in team. Those SME or subject matter expert do not perform as good as the professionally trained vendor manager (many consulting firm graduates also progressed their career to vendor manager). Naturally those SMEs shy away from those team and the company would find out that their company is full of those manager who is good at only managing and no expertise.
These are nothing new and not particular to the automation. This is the history we are repeating every time.
What should we do instead?
The only one thing to do – address the root cause.
If there is something inefficient in the process, before you even think about outsourcing, offshoring, and automation, think about what would happen if we omit it.
Here is a very useful consultant’s toolset of process improvement:
- Eliminate – Eliminate the unnecessary tasks if it is not causing huge issue.
- Delegate – Delegate the tasks if it can be done or had better be done by someone else, i.e. outsourcing and offshoring.
- Consolidate – Consolidate the tasks to minimize effort overhead.
- Automate – Automate the tasks by leveraging tools and technology.
The numbers in the list above is not just for presentation, but everyone should consider each options in the order. The latter in the list, the more difficult it is to undo and change. So do you see where the automation and RPA is in the list? Everyone should think carefully before quick patching their process by automation. There is no magic pill.