optimising benefits from outsourcing and robotic … benefits from outsourcing and robotic process...

Optimising benefits from outsourcing and robotic process automationHow outsourcing contracts can drive optimal robotic process automation adoption

Outsourcing and RPA complement each other3

Integrating outsourcing and RPA has its challenges4

Outsourcing contracts should drive optimal RPA adoption5

Embedding RPA in the outsourcing lifecycle9

Finally, the cake can be had, and eaten too!10

Contents

2Optimising benefits from outsourcing and robotic process automation |

Outsourcing contracts should drive optimal RPA adoption

Achieving costs and service quality optimisation through outsourcing or robotic process automation is not an either/or proposition. The combination of outsourcing and RPA can deliver major benefits to organisations in all industries, often over and above what can be achieved separately through either of these improvement levers. However, a structured approach to evaluating and implementing the opportunity, enabled by the right contractual construct, is required to realise the full potential.

3 | Optimising benefits from outsourcing and robotic process automation

An Australian media organisation is in the middle of a successful outsourcing deal, under which it has outsourced a number of Finance and Accounting processes including Accounts Payable, Accounts Receivable, General Accounting, Collections, Fixed Asset Accounting, Management Accounting and Management Reporting. In addition to realising significant quality and service uplift in the outsourced processes, the organisation also realised $50,000-per-outsourced-FTE annual savings due to labour arbitrage, and is likely to net $25–$30 million savings over five years.

The organisation is now considering implementing RPA in the retained organisation (in-house) processes including Tax Management, Planning, Budgeting and Forecasting, Statutory Reporting and Compliance. Any FTE reductions in these processes as a result of automation are likely to release savings at the rate of $80,000 to $100,000 per FTE per annum, in addition to improving service quality and efficiency.

The organisation is hence leveraging the combination of outsourcing and RPA to unlock major benefits, over and above what could be achieved separately through either outsourcing or RPA.

1. Outsourcing and RPA complement each otherOutsourcing and robotic process automation (RPA) are both improvement levers for achieving higher accuracy, productivity, efficiency and cost reduction, and they are not mutually exclusive.

Outsourcing providers have traditionally used technology rationalisation and Business Process Management techniques to transform IT and business processes to provide year on year productivity gains to their clients. By leveraging RPA in the outsourced scope, outsourcing providers are often able to pass on higher productivity benefits, as high as 50% over the life of a contract.

RPA, however, has wide application across the organisation going beyond the scope typically delivered by outsourcing providers. Organisations are increasingly adopting and implementing RPA on the scope of work managed in-house, thereby reaping benefits across the cost base including the relatively lower cost outsourced work and the higher cost work managed in-house.

Case-in-point: An Australian media organisation is combining outsourcing and RPA to get the best of both worlds


1 2 3Scenario An organisation wishes to

implement an RPA solution in a multi-vendor outsourcing environment

An organisation engages an outsourcing provider to implement a RPA solution across the scope of work already outsourced to another outsourcing provider

An organisation with no outsourcing arrangement or RPA in place wishes to optimise benefits by combining outsourcing and RPA adoption

Scenario Description

A global general insurer has entered into multi-vendor outsourcing relationships for the provision of services across its value chain - Finance and HR, contact-centre and claims management among others. One year into the outsourcing relationship, the insurer wishes to implement an RPA solution from one of its outsourcing providers across multiple areas including those currently outsourced to other providers, and those areas that are not currently outsourced.

A global Financial Services Organisation is in the middle of a successful outsourcing relationship with a global tier 1 outsourcing provider (vendor A). When the financial services organisation decided to implement an RPA solution from another global tier 1 outsourcing provider (vendor B) to drive automation benefits across a wide range of processes, including the ones outsourced to Vendor A, it did not work. However, when it decided to restrict the scope of its automation effort to the in-house processes not in scope of vendor A, its automation effort started to work.

A property development organisation with no current outsourcing or RPA footprint wishes to pursue an aggressive cost optimisation program. It is considering both outsourcing and RPA as potential optimisation levers.

Challenge The current provisions in the contracts with the outsourcing providers do not adequately address RPA implementations across the scope of work outsourced to the different providers.

The contract does not clearly define the obligations of vendor A to support RPA solutions on the scope of work outsourced to it. Vendor A, not wanting a competitor to intervene in the work outsourced to it, did not support the initiative.

The organisation is finding it hard to develop an integrated outsourcing/RPA optimisation program along with an associated implementation roadmap.

2. Integrating outsourcing and RPA has its challengesA number of factors influence RPA adoption within organisations including their current outsourcing or offshoring situation, the number of incumbent outsourcing providers (if any) and the stage of the contractual/outsourcing lifecycle they are in. A common challenge for existing outsourcers is that the contract with the outsourcing provider may not have adequate provisions to enable RPA adoption. In developing the optimal integrated outsourcing and RPA strategy therefore, the organisation should first navigate through its complexities and articulate the challenges it needs to overcome.

Examples of challenges faced by organisations in integrating outsourcing and RPA programs

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3. Outsourcing contracts should drive efficient RPA adoptionIn a world where outsourcing and RPA are increasingly likely to co-exist, catering to this co-existence contractually will enable the organisations to optimise benefits from both these transformation levers. As the RPA phenomenon has only recently gained traction, most legacy outsourcing contracts do not have specific provisions in place that provide the flexibility to pursue the preferred integrated outsourcing/RPA implementation strategy. So what are the top 10 contractual implications of RPA for outsourcing that must be addressed to enable optimal outsourcing and RPA integration?

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Clause Gainsharing Productivity improvement Continuous improvement

Description Gainsharing is an agreed mechanism of sharing benefit between the outsourcing provider and the customer (together “the parties”) resulting from any initiatives aimed at improving the services in terms of performance, cost, or quality initiated by either one, if not both parties.

Under the productivity improvement clause, the outsourcing provider agrees to pass on the productivity gains to the customer as it becomes more experienced in providing the services. The outsourcing provider and customer agree upon annual reductions in the fees for services to reflect the annual productivity improvement.

In most outsourcing arrangements, the outsourcing provider is required to incrementally improve its performance of the outsourced services on an on-going basis using an agreed plan. An initial set of continuous improvement targets is agreed by the parties which is subsequently updated during the term of the contract.

Implications of RPA for outsourcing contracts

A gainsharing clause incentivises both the outsourcing provider and the customer to jointly implement improvement initiatives and bank the benefits proportionate to their investment.

Some existing outsourcing contracts do not have gainsharing clauses, but those that do, do not always cater to cost, productivity and service level improvement from the adoption of RPA.

For organisations that are exploring new outsourcing arrangements, the gainsharing clause can be tailored to include specific provisions for RPA as per their desired automation strategy.

Outsourcing providers have been offering 20% to 40% fee reductions over the term of the contract (usually 5 years) on most outsourced business processes as productivity benefits. Due to the growing relevance and applicability of RPA, the outsourcing providers are increasingly implementing RPA to achieve these productivity targets.

Organisations that are exploring new outsourcing arrangements can factor-in additional RPA benefits and negotiate higher productivity benefits (up to 50%, if not more). If the organisation’s strategy is to have an RPA program independent of the outsourcing provider, it should incorporate corresponding provisions in the outsourcing contract to enable its strategy.

RPA has already emerged as an important tool in improving quality and reducing errors in routine business processes such as onboarding new recruits, fulfilling purchase orders or for collecting, cleansing and analysing unstructured data. However, with the increasing maturity of cognitive technologies such as machine learning, speech recognition and natural language processing, the use cases for the combination of automation and cognitive technologies are likely to take off over the next few years. Any continuous improvement targets for outsourcing providers in future contracts should therefore accommodate and reflect the (often hard to foresee and assess) future opportunities from the automation-cognitive combination.

Top 10 contractual implications of RPA for outsourcingBenefit identification and realisation

1 2 3


1 2 3

Clause Gainsharing Productivity improvement Continuous improvement

Description Gainsharing is an agreed mechanism of sharing benefit between the outsourcing provider and the customer (together “the parties”) resulting from any initiatives aimed at improving the services in terms of performance, cost, or quality initiated by either one, if not both parties.

Under the productivity improvement clause, the outsourcing provider agrees to pass on the productivity gains to the customer as it becomes more experienced in providing the services. The outsourcing provider and customer agree upon annual reductions in the fees for services to reflect the annual productivity improvement.

In most outsourcing arrangements, the outsourcing provider is required to incrementally improve its performance of the outsourced services on an on-going basis using an agreed plan. An initial set of continuous improvement targets is agreed by the parties which is subsequently updated during the term of the contract.


A gainsharing clause incentivises both the outsourcing provider and the customer to jointly implement improvement initiatives and bank the benefits proportionate to their investment.

Some existing outsourcing contracts do not have gainsharing clauses, but those that do, do not always cater to cost, productivity and service level improvement from the adoption of RPA.

For organisations that are exploring new outsourcing arrangements, the gainsharing clause can be tailored to include specific provisions for RPA as per their desired automation strategy.

Outsourcing providers have been offering 20% to 40% fee reductions over the term of the contract (usually 5 years) on most outsourced business processes as productivity benefits. Due to the growing relevance and applicability of RPA, the outsourcing providers are increasingly implementing RPA to achieve these productivity targets.

Organisations that are exploring new outsourcing arrangements can factor-in additional RPA benefits and negotiate higher productivity benefits (up to 50%, if not more). If the organisation’s strategy is to have an RPA program independent of the outsourcing provider, it should incorporate corresponding provisions in the outsourcing contract to enable its strategy.

RPA has already emerged as an important tool in improving quality and reducing errors in routine business processes such as onboarding new recruits, fulfilling purchase orders or for collecting, cleansing and analysing unstructured data. However, with the increasing maturity of cognitive technologies such as machine learning, speech recognition and natural language processing, the use cases for the combination of automation and cognitive technologies are likely to take off over the next few years. Any continuous improvement targets for outsourcing providers in future contracts should therefore accommodate and reflect the (often hard to foresee and assess) future opportunities from the automation-cognitive combination.

1

Clause Benchmarking

Description Given the relatively long term nature of most outsourcing contracts, this clause enables organisations to do a market comparison of some or all of the outsourcing provider's services with respect to the fees and/or the corresponding service levels.


The benchmarking clause provides organisations with existing outsourcing arrangements the option to re-assess the fees and service level proposition of the outsourcing provider in light of the current market rates and service levels, and use the opportunity to introduce the adoption of RPA to further optimise benefits where practicable.

For organisations that are exploring new outsourcing arrangements, the scope of the benchmarking should be widened to include the adoption of RPA as a metric.

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Clause Governance Termination Outsourcing provider warranties

Description The intent of the governance clause is to specify the agreed governance and oversight construct between the outsourcing provider and the customer for the management of the outsourcing contract, including but not limited to, defining governance processes, key governance roles and responsibilities, allocating decision making rights, and specifying governance meetings to maintain a healthy and productive working relationship between the parties.

During the contract term, an organisation can usually terminate all or part of the outsourced services for convenience or if the outsourcing provider fails to fulfil its material obligations as set out in the contract. The termination clause requires the outsourcing provider to complete the work necessary to transfer the outsourced services and any associated intellectual property back to the customer or to the customer’s designated service provider and outlines the associated fee considerations.

It is common practice for outsourcing providers to warrant and represent in outsourcing contracts, among other things, that their personnel have the required skill and experience required to deliver the services to the customer and that they will exercise due care and skill in the delivery of such services.


If establishing and operationalising the governance regime in a single or multivendor outsourcing arrangement was not a challenging proposition to begin with, the introduction of robots (from the customer and the outsourcing provider) is likely to further complicate matters.

The employees and robots from one or more outsourcing providers, or any other third party providers, are increasingly likely to work in tandem, and it is therefore imperative to cater to this collaboration contractually, both from the governance and the wider legal contractual perspective.

Most contemporary outsourcing contracts allow the outsourcing provider to charge a termination fee (usually for termination for convenience) that is a function of any unamortised investments made by the outsourcing provider and the number of full-time-equivalents (FTEs) of the outsourcing provider working for the customer at the time of termination. As outsourcing providers are increasingly being required to replace more of their FTEs with robots, the implications of termination for the reverse-transfer of outsourced services with respect to both fees and intellectual property must be considered.

It remains to be seen if the outsourcing providers will be able to provide any warranties for the performance of their robots, particularly when the robots will increasingly be expected to self-learn and liaise with the relevant external data that is being generated faster than ever before.

Contract and relationship management

5 6 7


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Clause Use of third party licensed software and services Intellectual property rights Customer data and

data security

Description The outsourcing provider is normally required to comply with the terms of any licence or supply agreement between a third party and the customer. However, the outsourcing provider does not often ascertain for itself as to whether or not it is (including its robots) authorised to use the customer software licences.

This clause aims to ensure that the customer’s intellectual property (IP) including patents, copyright, registered designs, trademarks, know-how, inventions and the right to have confidential information kept confidential, remain the property of customer or its respective licensors. In most cases, the customer grants to the outsourcing provider a non-exclusive, royalty-free, non-transferable licence for the contract term to use its IP solely to provide the contracted services.

This clause helps protect an organisation’s interests with respect to the handling of its data by the outsourcing provider. The outsourcing provider is required to ensure that its personnel do not use the data for any purpose other than what is strictly necessary for the performance of their duties and that the outsourcing provider must establish and maintain safeguards against loss of, or compromise to the customer data in its possession.


When adopting RPA within or outside of outsourcing arrangements, software licensing terms between the customer and the third party licensor must be carefully reviewed. Organisations may be liable to pay additional fees for their software licenses if they use the software in a way that is not explicitly defined in the software license contract. Since most existing software license contracts may not have explicitly catered to RPA (or being used by robots), the onus is on the organisation to ensure that they are covered contractually with their software vendors before embarking on their RPA journey (with or without outsourcing).

IP considerations are a key constituent of any outsourcing contract. Normally, the outsourcing provider and the customer retain ownership of their respective IP created before the contract. The IP created during the contract by the outsourcing provider FTEs working for the customer is usually owned by the customer. However, the ownership of IP created by the outsourcing provider’s robots is not yet clearly established. For example, a software program or database produced by a robot deployed by the outsourcing provider may be copyrightable in certain situations and therefore this aspect warrants careful consideration during contracting.

With the assistance of cognitive technologies, robots are getting better at connecting to and leveraging a wide range of internal and external data sources, processing the data and using it intelligently. However, when machines self-learn and start making decisions, there is a risk of losing control over customer data sharing or protection mechanisms. Privacy and data protection is hence a growing concern, particularly where the automated tasks involve the processing of personal information. Hence, privacy compliance measures addressing the different automation scenarios need to be embellished in any outsourcing contracts.

Intellectual property, privacy and compliance

8 9 10


4. Embedding RPA in the outsourcing lifecycleBenefits from outsourcing and RPA adoption are maximised when a structured approach to implementing outsourcing and RPA is followed. Our integrated outsourcing and RPA implementation approach acknowledges the fact that these two transformation levers are not mutually exclusive and that significant benefits can be unlocked by integrating the two.

RPA activities

1 Opportunity scan: Identify and prioritise Robotic Process Automation (RPA, Automation) opportunities based on value-add, cost and complexity

2 Business case: Evaluate high level business case for the identified RPA opportunities. Integrate and consolidate RPA business case with the wider outsourcing business case

3 Operating model design: Include the scope of identified RPA opportunities in the current state baseline and define an integrated target operating model

4Service Provider selection: Include RPA considerations in service provider selection and due diligence. Customise outsourcing contracts to incorporate RPA optimisation provisions including explicit productivity benefits from RPA

5 Integrated RPA implementation and outsourcing transition plan: Integrate RPA implementation plan with the outsourcing transition plan, including any pilots during transition

6 RPA Governance: Design and incorporate RPA operations governance management into the wider organisational and outsourcing contract governance

7 Service Delivery and improvement: Monitor service delivery, performance and quality and identify areas for further improvement or Automation

8 Centre of Excellence (COE): Assess setting up in-house RPA CoE with or without service provider assistance

Key

RPA

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I. Strategic assessment

II. Operating model design

III. Service provider selection and negotiation

IV. Transition

V. Service provider governance

VI. Service delivery

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2 3 4 5 6 7 8

Standard outsourcing life-cycle

5. Finally, the cake can be had, and eaten too!One of the key attractions of RPA is its ability to provide significant cost and productivity benefits in a very short time period (most RPA use cases have a return on investment of less than a year). These obvious attractions notwithstanding, the growing perception in the market of RPA being a stand-alone transformation lever, is premature at best. The desire to quickly realise benefits has led many organisations to treat RPA as a series of point solutions, with scattered process ownership and less than adequate governance. Embedding RPA assessment and implementation within a wider outsourcing program is one way of optimising the benefits from both outsourcing and RPA.

• For one, it enables an organisation to systematically assess its entire value chain and design a target operating model that optimally integrates RPA across both the outsourced processes and the processes that are retained in-house.

• Secondly, it enables the organisation to tap into the outsourcing providers’ expertise in technology and process rationalisation in developing an optimal outsourcing and RPA implementation roadmap.

• It also brings the contractual and governance oversight discipline of outsourcing to RPA that helps obviate some common causes associated with RPA failure.

• Finally, it also acts as a driver for organisations to introduce sufficient rigour in their outsourcing contracts that helps them leverage their outsourcing providers as enablers of their integrated outsourcing and RPA optimisation strategy.

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optimising benefits from outsourcing and robotic … benefits from outsourcing and robotic process...

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