RPA/AI/ML Service Provider - To Be Or Not To Be

As with the global organisations, IT services companies too are exploring various offerings in Robotics Process Automation, Artificial Intelligence/Machine Learning and if these services make sense for company's positioning, growth and profitability. Various financial, operating, human resource, governance models are being experimented by and within companies.

Most popular service offerings in these areas are:

 1. Professional Services - Consulting (Automation Potential Assessment, Building Road-map, Tool Selection, Cost Benefit Analysis, Center of Excellency Setup Services, Audit services)

2. Professional Services - Training 

3. Professional Services - Implementation (Design, Build, Run and Maintenance)

4. License Resell Services

It has been observed that consulting based assignments tend to more profitable than implementation and resell services.

IT companies don't qualify their offerings on "profitability" alone but also on "comparative profitability". Then there are other factors like sustainability, human capital availability, geographical diversification, investment appetite etc.

Compared to traditional business of IT services companies like application development and maintenance, infrastructure, business process outsourcing, RPA and AI/ML services lack longevity and scale as most of the enterprises are in exploratory mode. Let’s take an example of RPA services. An analyst firm surveyed more than 150 process improvement executives/ professionals in July 2017 to understand their key challenges, priorities and strategies for the coming year. Annual spend on RPA (inclusive of capital and operating cost) was less than £ 50K for 44% of respondents, between £ 50K - £ 500K for 41% of respondents and above £ 500K for 15% of respondents. Only 9% respondent spent above 6% £ 1m. These numbers are minuscule compared to traditional IT services. Building an overarching layer of robotics over existing platforms or building new age digital platforms is always a debate before approving lump-sum investment for RPA services. Things are not very different for other services like machine learning, digitization and chatbots. There is always a possibility of process re-engineering and improving data interfaces with an objective to transform input data from unstructured to structured and further processing can be done by digital or robotic platforms.

Should IT companies venture in these services?

It makes a lot of sense for entities with diversified services to stand out basis these next generation technologies. It's not uncommon for companies to use Robotics or Machine learning as a lever to transform their existing businesses, often cannibalizing their revenue. Bid Management teams are increasingly integrating RPA/AI/ML with core services and demonstrate lower total cost of ownership year on year using these technologies. Usually top line effect of these technologies are divided in two buckets - "Direct revenue" and "Influenced Revenue".  Let’s take example of RPA services, Direct revenue is composite output of consulting and build services and Influenced revenue is associated dollar value of opportunities created by these services. Usually ratio of direct to influenced revenue is 1:4 or lower.  IT companies working in focused areas like Application build services using latest tool-stack e.g. upgrade of legacy systems have no incentive to operate in RPA/AI/ML space. 

Though new age business transformation technologies are exiting space to work but "fitment" to existing service lines and customer base needs to be done. There are examples of mid-tier Indian IT companies who started with a bang but have failed to set up right competency and operate sustainably in this area. Common denominator of success stories in this area are - Influential Sales partner ecosystem, diversified operations in business and IT, investment appetite with patient stakeholders, access to inquisitive human capital and a modified accounting system :).