Keys Drivers of RPA Adoption in P&C Insurance | Market Insights™
February 21, 2017
Keys drivers of RPA adoption in P&C Insurance: Operational optimization and cost reduction
Keys drivers of RPA adoption in P&C Insurance: Operational optimization and cost reduction
A typical business case for RPA is based on a minimum 15% cost savings; three key drivers impact the business case
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As buyers increasingly request automation solutions to control costs and improve KPIs, service providers are building capability
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RPA can yield incremental cost reduction from a low of 15% for offshore operations to a high of 47% for onshore operations
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Characteristics that make a GIC well-suited for RPA
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GICs are an ideal launching pad for RPA
Likely impact of RPA on locations strategy on offshore and nearshore locations, virtualization, and portfolio consolidation
A widely quoted phrase these days is “software eats everything.” It refers to the great value that software delivers. I believe it also applies to the profound impact it’s making in the services world. Software is disintermediating the industrialized labor arbitrage model and also infrastructure services. Let’s look at the huge implications for the services industry.
How is software eating services? It’s happening in a number of important ways and areas.
First, software enables automation and RPA to replace much of what the current industrialized arbitrage model does. Much of this work is repetitive and screams for a more automated approach. BPO work, for instance, bridges the gap between the labor that interfaces between records and the system of records. As I’ve blogged before, software is about to eat BPO labor.
The DevOps revolution’s impact on infrastructure services is another example of software eating everything. A fully integrated DevOps platform allows defining code for infrastructure hardware at the same time as defining code for functionality. Increasingly in a software-defined infrastructure, companies can build an integrated DevOps platform that enables simultaneously configuring the entire supply chain from functionality all the way down to the number of cores it requires to run and test it.
Prior to the DevOps movement, all these steps were labor based, and much of this work migrated into the industrialized arbitrage model. They now become largely automated and software controlled.
Another example within infrastructure is the infrastructure itself. Five years ago, companies operated in a world where they were trying to move from 20 servers per FTE to 50. Most of the infrastructure service providers succeeded based upon their ability to make that shift.
Today, the services industry tries to get up to somewhere in the range of 200 to 500 FTEs per server. But the highly automated world in Silicon Valley has over 100,000 virtual servers per person. They’ve completely severed the link between people and servers. Again, a dramatic example of software eating everything.
Another dramatic example of software eating everything is the Software-as-a-Service (SaaS) and Business Process as a Service (BPaaS) offerings. These software-based services offerings completely automate and configure the software, hardware, and business process experience for customers. SaaS and BPaaS completely upend the classic functional model previously used to deliver these functions.
Software eating everything is a relentless focus on different ways to sever the traditional link of labor (FTEs) to service. The dislocation to labor-based businesses will be immense over the next few years as this journey to a software-defined world continues and existing business models struggle to adapt.
A software-defined marketplace will dramatically change the current services market. It will create opportunities for new industries to emerge and force tremendous tension on the incumbent service providers to survive by embracing the change and cannibalizing their existing work.
Photo credit: Flickr
I recently spent a very productive day with Wipro as they showed examples of their commitment to service delivery automation – a commitment I observed as more than in any other service provider. HOLMES, their recently unveiled artificial intelligence platform is just the beginning of this serious commitment. Here are three very important aspects of this commitment.
Some time ago Wipro recognized that the service industry is changing very profoundly, and a significant secular driver of the change is new automation technologies that allow customers to automate a dramatically higher number of services than has been automated in the past. They took concrete steps to address this change.
They recognized not only the customer impact of implement automation in their workflow but also the impact to the service provider. Over time, the value will be captured by the automation owner, not by the service provider. Therefore, Wipro decided to invest in owning its automation IP – and that involves not just funding the initial build but also ongoing investments.
That’s not to say that when Wipro deploys automation in their accounts they will employ exclusively their own IP, but they recognize the need for a significant portion being their own IP.
Wipro allocated a large, dedicated team into building its automation platform, which they named HOLMES. But unlike some other providers, they extensively used open source software to get a head start and then layered in their own development on top of the open source component. This allowed them to move quickly in bringing compelling functionality to the marketplace.
The third aspect of Wipro’s automation strategy is their commitment from CEO TK Kurien on down through the leadership ranks to bring this to the marketplace. TK and senior leadership are committed to take this service delivery capability into their existing client base as well as use the automation platform as a challenger to gain new share in the market.
I believe bringing automation into their existing client base will be the most challenging endeavor, and they acknowledge that it will be disruptive and may be cannibalistic to their revenue flows.
We await to see how they handle such disruption. The details revealed to me were somewhat vague as to how they will realign their incentives to allow their account teams to do this. But certainly the executive commitment is such that it’s possible they will take the necessary steps to make incentive changes.
They are preparing for the inevitable disruption that will accompany the drive to become a leader in automated service delivery.
Robotic Process Automation (RPA) is becoming a big deal in the services industry. For the last 10 years, the Indian IT industry attempted to affect pricing by breaking the link between FTEs and the services they provide. They tried outcome-based or transaction-based pricing. As I have blogged in the past, although this is interesting and has some utility; but it has both positive and negative consequences. And it’s an incomplete answer to severing the link; it prices the services differently, but it still maintains the link between the services and the people who do the work. But software accomplishes the goal with RPA. Here’s why it’s a big deal.
At Everest Group we’ve studied the impact of RPA’s disruption on BPO services. Automation and RPA break the link by replacing people with a piece of software sitting on a virtual server, which can be spun up at any time and then shut down when the work is done.
Great efficiencies come from RPA breaking the link between FTEs and services. Another significant benefit is that it enables delivering services in a consumption-based pricing model. Providers can match their costs against consumption. In the traditional FTE model, the people continue to be an inflexible cost over time, even after the provider switches them to work on another task or another client’s work. And reassigning them to other work draws out inherent friction and the problems of a learning curve.
In Silicon Valley, software firms used RPA to move from having 30 to 50 virtual servers per person five year ago to now having over 100,000 (and climbing) virtual servers per person. I believe the same potential lies in the services industry through leveraging RPA.
Photo credit: Flickr
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