Virtual Labor Will Fuel Digital Initiatives

The rise of the smart machine could lead to the obsolescence of offshoring for competitive advantage.

It’s now a strategic imperative that business leaders conceptualize how business and IT services can be bundled with “smart” technologies, like cognitive computing or machine learning, to create innovative service models and intellectual property (IP) for new revenue streams.

Speaking ahead of the Gartner Sourcing & Strategic Vendor Relationships Summit 2016 in London, Frances Karamouzis, vice president and distinguished analyst at Gartner, said, “Smart machines are not future fantasy. They are commercially available — it has been estimated that more than $10 billion of smart machine technologies have already been purchased through more than 2,500 companies. Services related to smart machines may be five to 10 times the size of the aggregate technology market.

The New Normal

The new normal is that “recruited” smart algorithms, smart machines, robots and cognitive bots (with artificial intelligence) will occupy the domains of expertise historically fulfilled by people. Smart machines and algorithmic business models will challenge the idea that “talent” and human beings are synonymous.

By 2018, 40 percent of outsourced services will take advantage of smart machine technologies, rendering the offshore model obsolete in terms of competitive advantage.

“The concept of hyperautomation arbitrage will be used to describe the displacement of human labor by smart-machine-enabled services and algorithmic business models,” she added. “This will lead to the obsolescence of the offshore business model for competitive advantage as, historically, it was used to recalibrate the cost of labor and provide scale.”

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Gartner predicts that, by 2018, 40 percent of outsourced services will take advantage of smart machine technologies, rendering the offshore model obsolete in terms of competitive advantage.

Offshore Services Are Here to Stay

Does that mean the disappearance of offshore services and long-standing contracts? The answer is no. “It means that it is not going to be the primary means of cost optimization or speed to competitive advantage,” said Ms. Karamouzis.

Smart machines are not always complete replacements for subject-matter experts or other labor. There could still be a role for offshore centers, albeit changed and refocused. Human labor is still part of the mix, and cheaper human labor will always appeal to business leaders.

IP and Smart Machine Revenue Opportunities

Nevertheless, smart machines and the services they enable are a reality. Hundreds of organizations are adopting smart-machine-enabled services to achieve short- to midterm savings, new revenue sources or profitability structures. Few, however, have fully understood the depth and magnitude of the potential value of the intellectual property (IP) being created.

The IP developed alongside smart-machine-enabled services has the potential to add significant revenue, as it may be patentable. Due to the need for speed, business leaders tend to partner with providers to engage them in proofs of concept without involving sourcing executives or their teams, which exposes the organization to long-standing sourcing risks (including selection of the wrong partners, negotiation mistakes and vendor management issues).

There is, however, a much larger and more dangerous risk unique to smart-machine-enabled services. This risk is the loss of potential future revenue from patentable IP — including business processes, process ontologies, algorithms and knowledge capital — that is not properly protected.

Sourcing leaders should investigate new options for virtual labor, or fall behind the competition.

As a result, sourcing decisions for smart-machine-enabled services will be the most strategic decisions that any organization will make in the next 10 years.

With 2,500 organizations in the “machine intelligence” segment, and more than 35 major service providers investing in the development of “virtual labor,” sourcing leaders should investigate new options for virtual labor, or fall behind the competition.

Sourcing managers should also take the lead in enabling their organizations to seize the opportunities offered by smart-machine-enabled services. These services raise the prospect not just of immediate savings, efficiency and competitive advantage. They also enable potential future revenue from patentable IP.

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