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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

As we described in our first post on the increasing use of software robots in outsourcing, software robots are becoming more widespread because of their growing capabilities to execute business processes, such as customer service and IT service management. Highlighted below are some of the business drivers and potential benefits of using software robots.

  • Labor Cost Mitigation. One of the primary drivers of offshore outsourcing has been labor arbitrage—leveraging the lower costs of offshore vendor personnel to achieve savings. However, the difference in expense has been gradually shrinking. Wages in India (long popular because of its English-speaking population and highly educated workforce) and other offshore locations are rising—both because of inflation, which has been consistently and significantly higher than in the United States in recent years, as well as other reasons, such as employee retention (salary increases to reduce the incentive to leave for a competitor). As a result, customers are seeking alternative strategies to keep costs down. Software robots offer a potential mitigation strategy against rising labor costs for the following reasons:
    • Near-term development costs are known (or at least predictable), and operating costs are less labor-dependent. With software robots, a larger workforce is replaced by a smaller number of vendor personnel who manage the software robot’s steady-state operations, which makes software robots less inflation- and salary-sensitive than traditional service delivery models.
    • Vendors can spread the costs of developing and operating a software robot among customers (our next post on this topic will address some contract considerations on this point).
    • Aside from salary competition, with fewer vendor personnel, the other risks and inefficiencies associated with turnover, such as loss of institutional knowledge and training time, are decreased accordingly.
    • Software robot performance is scalable at a predictable cost (e.g., acquiring additional servers, and perhaps more operations managers or software coders, as opposed to seeking a number of additional qualified personnel or asking current staff to work overtime).
  • Performance. The traditional advantages of software also apply to software robots’ performance. An automated business process is often completed much more rapidly than humans could execute, with consistent output and a lower error rate. These benefits may continue to apply even as workload increases, contributing to the scalability point noted above.
  • Business Continuity. Using software automation may enhance a customer’s disaster recovery/business continuity options. With services performed mainly through a software robot, rather than local vendor personnel, performance may be more easily transferred to the vendor’s disaster recovery location, lowering the risk of business interruption (see our recent discussion on Ukraine’s IT outsourcing industry for examples of these risks).
  • Security. Although IT systems may always be subject to a data security attack, the risk of vendor personnel misusing customer data, particularly sensitive personal information, may be lower as fewer vendor personnel access or process the data.

If your business is evaluating a software automation solution in light of these potential advantages, one key next step is documenting the new scope in your contract. In our next and final post in this series, we will discuss several contract points to consider, including relevant terms that may be part of your existing vendor relationship.