Growth Phase
This is the phase where the benefits of the technology have been proven and there is a heavy adoption all around. There are many service providers and product companies, many backed up by private equity firms, who have invested heavily to build capabilities and use-cases. This phase witnesses an unrestricted growth of this industry. The larger companies take this new offering to their existing clientele while niche companies create niche solutions for industry verticals e.g. Banking, Insurance or Business processes e.g. Supply Chain, Procurement (P2P), Order-to-Cash (O2C), etc. For consumers, especially from a CIOs point of view, there is also a strong motivation to adopt this new technology. The twin benefits of cost optimization in ‘run-the-business’ coupled with better “user experience cum empowerment” is hard to ignore. This is also the phase where there is a rapid and extreme proliferation of technology in the BPO and ITO landscape. Rapid maturity will evolve; first coming in BPO and ITO use-cases followed by business use-cases. The number of automation services providers will also increase since the pie is big enough for everyone to survive. It is interesting to observe that traditional competitors may even join hands to grow. For example, Wipro has partnered with IBM to train its people on Watson despite having invested in a competitive product (HOLMES). Even here, there will be two types of investments, those who invest in platform solutions (horizontals) and those who will invest in solving niche industry specific challenges. The focus in this phase is so great that some of the larger players have even curved-out (and not necessarily divest) this business from the core business e.g. Digitate (TCS), Edgeverve (Infosys) etc.
Development of automation technologies is not enough unless it has seen adoption by the users at large. For automation services to succeed, it is also extremely important that all stakeholders sit together and agree to a set of KPIs to measure and report the benefits that have been accrued due to automation. Hence, there will be a tremendous focus to cut the hype and measure the benefits of the new services and validate the business-case.
In this phase, we will also see some partnership / alliances and investments made by cash rich players in acquiring capabilities from a smaller player. Cases in point would be Wipro’s investment in Avaamo, a Chat Bot platform provider, and Atos’ partnership with Cognicor, another Chat Bot platform provider for Service Desk transformation.
The industry is in this phase today (mid 2017) and is expected to be in high growth momentum till 2020.
Commoditization Phase
This is the plateau phase for automation services where some amount of saturation will set in. In this phase, there will be tremendous competition among automation service providers. To begin with, RPA solutions will be commoditized and differentiation will be very limited. Different capabilities will get commoditized at different pace. For example, RPA solutions in BPS services will get commoditized faster compared to automation services in infrastructure and applications.
As far as cognitive capabilities go, for the traditional infrastructure services such as end user services, Service Desk, IT Chat Bots etc., saturation will most likely kick in with diminishing returns. However, non-traditional areas such as IOT and IIOT will continue to see growth. This eventually, will hit the profitability and the industry will see a decrease in investment. For the product companies backed by private equity players, there will be growth concerns and redemption pressure will accrue. This phase will see many companies opt for public offerings and possible divestitures of their automation services business. Additionally, this is also a phase where M&As will see traction among providers to achieve scale and / or capabilities as well as reduce cost of operations.
Of the six categories of players in this industry, the BPM providers or the providers with significant exposure to BPM businesses are most vulnerable. The reason is that firstly, no one wants to fix a business process that is not broken and start afresh and secondly, pure play RPA providers offer quick benefits as compared to a business process overhaul. High cost and risk-aversion will be the main drivers for the same. It is likely that some of the BPM players may merge with or takeover the product vendors to achieve scale. Large companies will also start to take over smaller niche players to add capabilities.
Focus on the more difficult business use-cases will gather momentum. One of the key growth area would be the cusp between Internet of Things (IOT) and automation services. Some possible use cases would be intelligent “context aware” search capabilities, cognitive chat bots (voice and data) coupled with IOT devices, Expert Systems that can sieve through real time data and provide insights etc.
Consolidation Phase
This phase is expected to see heavy consolidation. There will be only a handful of large players left in this broader marketplace. It will be akin to what we have seen in the Enterprise Resource Planning (ERP) industry where SAP and Oracle are the only two large players with end to end solutions or the ITSM industry where there are only a handful of large players (Service Now, Remedy, CA and HP). The industry that will be under highest threat is the BPM industry since a lot of work would have been shifted to RPA providers by now. However, there will still be some very niche players but they are expected to operate on the Business side of operations.
Conclusion
As stated before, this is a very interesting time for the industry. Consumers expect significant cost optimization but not at the cost of user experience. On the contrary, user empowerment is a very important trend that is picking up momentum. The industry trends are never linear and there will be disruptions in the market. As we go down the years, the three phases will also see overlaps.
All the four categories of automation service providers need to take strategic decisions on how to play the market forces. Some questions that need to be answered by them are:
- Am I going to sell products (platform or industry specific IPs) or services or both?
- Should I invest in creating my own product or should I acquire capabilities from outside my organization?
- Which services should I focus on - BPO, ITO or both?
- In the services space, where do I position myself - Consulting or System Integration or Support or all of them?
