Automation vs. Outsourcing

Scott Francis
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(Thanks to Sandy Kemsley for this link.) Ann All writes that companies are increasingly opting for automation over outsourcing:
Is process automation the new offshoring? I made that case several months back, noting that companies may increasingly opt for automation over outsourcing as a cost-saving measure. I cited a New York Times interview with Infosys CEO S. Gopalakrishnan, who shared his belief that advanced automation eventually will eliminate many of the labor-intensive, back-office functions now being performed in India and other lower-cost countries, and my interview with The Hackett Group’s Erik Dorr who told me “the biggest competitor to globalization is automation.”
In my opinion, outsourcing (off-shoring) delayed the adoption of many automation technologies and projects.  Quite simply: for a while, it looked cheaper to get less expensive labor, than to increase the productivity of the existing workforce through automation (or, more generally, cap-ex). But, inevitably, as the cost of human capital around the world gradually averages upward – especially for skilled functions – and the cost of automation is, in many ways, declining – thanks to SaaS, BPM, SOA, etc. – attention is turning to automation. Growing businesses focus on automation as a way to free their scarce, knowledgeable workers to focus on value-added activities.  Mature businesses focus on automation as a way to reduce headcount or reduce the skills required to perform a specific function. In the short-to-medium term, this is going to hurt employment.  But in the long run, these advances will make each unit of labor more efficient, and at least offer the possibility of more hiring in the future.  Past experience in the US has shown that while employment may decline in one area, new job markets open up as human capital (people) is freed up for mundane work to do more specialized work.
The bulk of the jobs HP is eliminating will likely come from operations it acquired from EDS in 2008, a purchase that made HP the world’s second-largest provider of commercial technology services, behind rival IBM. HP has already cut nearly 25,000 former EDS jobs. HP’s services division is now one of its biggest sources of revenue and profit, accounting for $8.7 billion in sales and $1.4 billion in operating profit in 2010’s first quarter.
Sadly for those involved, those 25,000 jobs are unlikely to come back.  But the economy in similar situations, historically,  provides other opportunities that mean the overall output of the economy grows faster than the number of people employed. Unfortunately many people assume that BPM is all about workforce reductions.  But BPM is just as much about planning for growth or peak loads, better customer service, regulatory compliance, visibility to operational data, elimination of errors and defects.