Digital Transformation: The value of intelligent operations versus business process outsourcing

Friday 19 Apr 2024

This article first appeared in Digital Edge, The Edge Malaysia Weekly on May 17, 2021 - May 23, 2021

Planning a digital transformation journey is a complex matter and each journey is unique to the organisation. Despite the global push towards digitalisation, many business owners still encounter difficulties planning and executing their digital transformation projects.

A 2021 report published by Accenture has broken the journey down into a few key stages. Titled “Fast-track to future-ready performance”, it states that although each transformation journey is unique, there are distinct milestones that companies can reference when planning their own.

Companies start out with a “stable” operational maturity level. At this stage, they mainly concentrate on their core business processes and strengthening product quality and compliance controls.

In the early days, business process outsourcing (BPO) mainly consisted of companies outsourcing parts of their business to third-party companies. However, these functions are being rapidly replaced by automation, cloud services or other advanced technologies — classified under the broad term of “intelligent operations”.

Companies that have adopted intelligent operations within their processes are viewed as moving up their operational maturity level from “stable” to “efficient”. Once operational efficiency is achieved, the next step is to include data-driven insights into the decision-making process, putting the companies at the “predictive” maturity level.

Companies that go beyond this stage are called “future-ready”. In these companies, artificial intelligence, blockchain, cloud and various forms of intelligent operations are used to drive and grow the company.

According to the report, only 7% of organisations globally fall into the “future-ready” category, and these are mostly in the insurance and high-tech sectors. On average, “future-ready” organisations showed a 2.8 times boost in corporate profitability and 1.7 times increase in operational efficiency compared with companies in the lower maturity levels.

Accenture Operations associate director Pankaj Jain says when new technologies are introduced, the way a company runs its operations changes dramatically. “For example, when cloud technology became prominent, companies had to do away with many types of physical infrastructure like servers and networks. They moved to the cloud to host their applications and software, which changed the way employees worked.”

There are several challenges in setting up intelligent operations systems from scratch, Pankaj tells Digital Edge. Companies need to hire digital talent with the right skill sets to implement these solutions or provide existing employees with additional training, he explains.

Some solutions also require a physical space to set up the necessary hardware, software and network connectivity. Managing these facilities and keeping them up and running represent additional costs. Finally, companies need to fully understand each of these solutions and design them to work together in a coherent manner to become a cohesive intelligent operations system.

Pankaj recognises that there are plenty of existing cloud solutions in the market. Most companies have to decide between the attractions of creating a solution from scratch and opting for something off the shelf.

Accenture, he says, can help. It has set up more than 30 delivery centres (known as intelligent operations centres) across the world to facilitate the transition of companies that want to create something from scratch.

In addition to providing outsourcing services, the centres gradually ease these companies into a higher operational maturity level depending on the company’s readiness.

“Companies prefer a partner who can help them to not only set up an intelligent operations system but also run it for them, as long as they can derive value from it,” he says.

“Because Accenture is in the business of intelligent operations, we have invested and developed a lot of these assets, methodologies and capabilities that can be quickly deployed to help new clients.”

Despite Accenture having multiple centres across the world, Pankaj says Malaysia has the innate potential to become a hub for intelligence operations centres within the region.

“There are a few reasons for this. One, [the country] has close proximity to various Asean markets and Asian countries. Geographically speaking, Malaysia is located in the heart of Asia,” he says.

“Second, human resources is one of the most critical parts of intelligent operations. And the type of talent we see in Malaysia is diverse, well educated, and with global exposure as well. In Kuala Lumpur, you are able to find talent who can speak more than two languages, which is very helpful in serving clients within the broad Asian market.

“Finally, the government has made conscious efforts to establish the country as an information technology hub. Intelligent operations are powered by digital technology, and we believe that there is the necessary usage, knowledge and adoption of the space to serve as an attractive regional hub.”

LIXIL locates intelligent operations hub in Malaysia

LIXIL Group is one of the companies that have set up a regional intelligent operations hub in Malaysia. The Tokyo-based housing equipment and building materials manufacturer had acquired several global companies such as American Standard and GROHE, which had entities in Asia. According to director Kiyotaka Numata, it was difficult to manage these separate entities that had different corporate cultures and management styles, which prompted the need for a regional intelligent operations centre.

“In my opinion, adopting intelligent operations adds value to companies. I believe that simple outsourcing is just transferring operations to third parties. In most cases, its purpose is mainly cost reduction through labour arbitrage.

“On the other hand, intelligent operations provide companies with cost reductions as well as value-adding processes. These processes can help companies bring out further transformation opportunities, such as providing insights to improve or change the company’s business model.”

After adopting intelligence operations, LIXIL’s accounts receivable management improved drastically. Kiyotaka explains that the system allows LIXIL to better understand its clients’ default risks and identify high-risk customers. Before this, capturing information across all local entities was an arduous and lengthy process.

He adds that if companies opt for traditional outsourcing for the sake of cost reduction, sooner or later, there will be competitors that are more cost-competitive. At best, moving to a new partner will only incur additional transitional costs. At worst, the company’s internal operations will become disrupted or unstable, which will incur even higher costs than expected.

There are three reasons LIXIL chose to locate its regional hub in Malaysia. First, the Malaysian economy has been transitioning from an agricultural and manufacturing structure to more informational and knowledge-intensive industries through various government initiatives and campaigns, says Kiyotaka.

One example would be the Malaysian government transforming educational institutions to cultivate IT-related skill sets, such as allowing Telekom Malaysia Bhd to establish a private university specialising in IT.

Second, through these educational institutions, the company noticed a rising number of IT talents — which is needed for intelligent operations — in Malaysia.

“Finally, Malaysia is a multilingual [country]. LIXIL runs business operations around the world and we believe that the opportunities in Asia-Pacific are growing. In this situation, the intelligent operations centre needs to cater for its entities within their respective country using their native language,” says Kiyotaka.

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