robotic revolution: separating hype from reality

ROBOTIC REVOLUTION: SEPARATING HYPE FROM REALITY

2Q15 Global Sourcing Advisory Pulse Survey

Monday, October 05, 2015

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

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Robotics Process Automation – Don’t Fear the Robots, Unless….

“Robotic Process Automation” (RPA) is a comprehensive term used to define the continuum of technologies that organizations may use to automate both business processes and operations. It includes, at one end, the basic automation of parts of a business process (such as auto claim adjudication) and at the other end, the application of sophisticated technologies involving “cognitive machine processing” and elements of artificial intelligence. Simply, it is the use of technology and "bots" to automate work traditionally done by humans.


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RPA Benefits Compared to Labor Arbitrage

LABOR ARBITRAGECHARACTERISTICS

LABOR AUTOMATIONCHARACTERISTICS

cost take out for relevant functions40% -75%15% -30%

Model is scalable and islargely independent of labor growth

Transformative – New way ofdoing business

Access to“Rocket Scientists”who can codify manual processes

Revenue/Profit NOT correlatedto People

cost take out

Model is scalable to the extentthat you can scale labor

Custom/complex,legacy:“Your mess for less”

Access toLow Cost Labor necessaryto provide continuous value

Revenue/Profit correlatedto People


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Summary – Key Findings

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RPA Adoption Challenges

RPA Impact on Jobs

1 RPA: Hype vs. Reality & Timeline to Maturity

RPA Adoption by Function

The use of robotics process automation (RPA) services is gaining momentum in the market, though not fast enough to keep pace with market hype. While some dimensions of RPA are far from new, advancements in cognitive capabilities and related technology capabilities expands the scope of RPA applicability. The immaturity of existing automation technologies is a gating factor to adoption, but a bigger challenge is the inconsistent means in which organizations conduct IT and business process activities which complicates or makes not viable automation. Change management challenges (e.g., how to reskill workers, what to do with redundant workers, what type of new worker skills are required) will also complicate and delay automation efforts.


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RPA – Hype vs. Reality


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Client RPA Awareness & Plans

• Most full-service IT and business process service providers are developing RPA offerings and services to complement and extend traditional offerings, both to improve service quality and reduce service delivery costs

• This being said, most or all providers, especially those that have focused primarily on leveraging labor arbitrage and differentiating via lower cost service offerings, face significant to extreme challenges long term to respond to automation trends, especially when clients can access automation capabilities independently from traditional service providers


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Timeline for RPA Maturity

• While some examples of automation have been in the market for years (e.g., employee and customer self-service), newer, more comprehensive and intelligent offerings are starting to make inroads into client accounts, though the supporting technologies and vendors and service provider offerings are still often immature


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Biggest Challenges to RPA/Process Automation Adoption


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RPA Demand by Function


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RPA Impact on Jobs by Delivery Model

• There is much debate over the potential impact of next generation RPA on “white collar” work, either performed by clients themselves or delivered via third party service providers

• While many more routine tasks and activities will become automated, there is great potential for workers to leverage RPA to perform more strategic work and services, though this assumes the workers have the capacity and intellect to move up the skills’ chain

• RPA will also serve as a solution to consistent skilled labor shortages globally, so while it will drive job losses it will also enable organizations to address skilled labor shortages resulting from demographic trends, weak education systems, under-motivated staff and irrelevant career choices among workers


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Potential Job Losses by Delivery Model

Next 3 Years

Next 5 Years

Retained organization

Shared services operations

ITO operations

BPO operations

80%

41%

38%

36%

16%

47%

39%

36%

3%

11%

18%

19%

1%

1%

4%

8%

1%

1%

0-10% 20-30% 50%+30-50%11-20%

Retained organization

Shared services operations

ITO operations

BPO operations

39%

14%

14%

16%

44%

34%

25%

22%

12%

38%

36%

34%

6%

11%

23%

20%

2%

2%

7%

0-10% 20-30% 50%+30-50%11-20%

Source: KPMG Quarterly Global GBS Pulse Survey 2Q15


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Likelihood RPA Maturation will Drive Use of Less Outsourcing

• RPA represents both a enabler and alternative to traditional IT and business process outsourcing

• Pure play RPA represent a new class of outsourcing service providers though the model is more “as a service” vs. traditional labor based services

• While most firms will still utilize outsourcing, as well as captive shared services efforts in the context of global business services, the amount of physical labor supporting these efforts will decline radically over time

• Organizations that can repurpose – or replace – existing labor resources to perform more strategic work that leverages and extends automation will benefit the most from automation


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Service Providers: RPA Investment Priority

• Service providers’ investments into RPA have increased significantly over the past year

• These investments are both reactive and proactive to clients’ needs and demands

• Investments are both into enabling technologies as well as overhauling existing and legacy service delivery models

• While many service providers have struggled for years to disconnect revenue growth from headcount growth, which RPA can enable, the potential dramatic impact on headcount and more importantly on profit margins, will prove minimally disruptive and potentially deadly for providers

• The most cannibalistic service providers will emerge and leading next generation providers

RPA investment priority - 3Q14

RPA investment priority - 2Q15

7%

8%

29%

8%

29%

15%

14%

15%

21%

54%

Low/none Moderate High/significant

Source: KPMG Quarterly Global GBS Pulse Survey 2Q15


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What we think

People get excited about RPA and how robots will change the world. The possibilities are certainly unprecedented. But we’re seeing an evolution in RPA automation that will be longer term than the market hype suggests. The key right now for smart businesses is to understand the various classes of RPA solutions – what’s here now, what’s on the horizon. Then you can have a realistic, intelligent conversation about the reality of what RPA can truly deliver and how to get there.

David Brown, PartnerGlobal Lead, Shared Services and Outsourcing Advisory

“”


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Summary

1. Break through the hype now to establish realistic timelines for success– The promises of emerging technologies are impressive, but the reality is that most of

these technologies are not viable or scalable for organizations. Avoid false expectations amid the hype.

2. Smart businesses will evaluate now but automate slowly as RPA matures– RPA is not an overnight transformation. Organizations need to thoroughly evaluate

their organization and understand the impact that transforming their processes will have financially, culturally and also on the end user.

3. Demand for next-generation RPA could skyrocket in three years– With an expected shift in demand for RPA over the next three years, organizations

need to understand where, when and how they should adopt RPA.

4. Job losses, yes, but more strategic, creative roles as well– RPA will forge dramatic changes to the demand for labor. But as new technology

frees workers from routine tasks, there will be potential to reinvest the labor to fill more strategic and creative roles.


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KPMG’s shared services and outsourcing advisory practice

The Shared Services and Outsourcing Advisory practice brings a specialized global team of more than 800 professionals within KPMG’s global network of independent member firms operating in 155 countries. Our professionals help clients design, build, and manage information technology (IT) and business processes across the enterprise.

We help clients align their business strategy, organization and execution to enable them to manage the entire IT and business process life cycle, improving business performance, and laying the groundwork for genuine business transformation.

We apply focused research, automating tools, proprietary data, clear business acumen, and a forward-thinking mind-set to provide timely, objective, actionable advice and practical approaches for clients.

Who we are

What we do

How we do it

KPMG has the ability to help member firms’ clients transform enterprise services to help improve value, increase agility and create sustainable business performance.

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firmsof the KPMG network of independent firms are affiliated with KPMG International. KPMGInternational provides no client services.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Contact Us:

David BrownPartnerGlobal Lead, Shared Services and Outsourcing Advisory

T: +1 314 803 5369E: [email protected]

Visit www.kpmg.com/RPAPulse for more information on the RPA Pulse Survey.

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robotic revolution: separating hype from reality

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