Will Robots spell trouble for the BPO industry

Introduction

Robotic Process Automation (RPA) is the new technology driven business process automation set to take over the Business Process Outsourcing (BPO). The saying on the streets is, if a BPO provider is embracing the benefits of RPA or other transformative technology in the next year, they’re going to have plenty of business.  Providers who refuse to innovate may find themselves in the dust. RPA can help BPO providers get up to speed and offer great new services to their existing clients.  Traditional outsourcing won’t disappear overnight, but RPA can take those relationships to a new level today.

RPA

The current sophistication of the technology is still at beginner level for integration in the process pipeline. The impact on process automation is estimated at 20-40% only of the overall customer requirements, however with the increased Artificial Intelligence research and IoT technology improvements there is a huge scope in future for this number to increase. Today's emerging RPA tools, such as Automation Anywhere, Blue Prism and UiPath, would cost around one ninth of a Full Time Equivalent (FTE) person working in, say, the UK or US, or a third of the cost of an FTE working offshore (say India) and could replace up to 20 FTE after process re-engineering. What RPA does is completely skew the business case dynamics of outsourcing: large, global organisations, such as Infosys, Wipro, TCS, Capgemini, Capita, etc, who have built their business model around employing more and more people, will now have to completely change their whole mindset to cope with the opportunities and threats that RPA brings. [Andrew Burgess, 2016] A recent CIO Journal article noted that the market for RPA is expected to jump from $183 million in 2013 to $4.98 billion by 2020. Further, The Age of Smart Process Automation (SPA) that uses AI with machine-learning capabilities just is around the corner. The outsourcing global organizations are investing heavily in this technology, For example, Cognizant acquired Trizetto; Wipro has created an AI platform called Holmes; TCS is working on an AI platform called Ignio; and Infosys has announced a major investment in automated capabilities. While RPA is likely to cannibalise existing revenue streams of the BPO players to an extent, BPO players can offset this by adopting an annuity-based business model where the players generate revenues by selling robotic software and also by managing every robot that they operate for their clients.

In Finance and Accounting, many deals are mature and rooted in legacy models, the work is highly transactional, and buyers have been stuck with the same FTE loads for years (or decades). But the real reason why F&A is starting to deliver real potential for R-BPO is the simple lack of widely accepted enterprise F&A SaaS which can fix the dysfunction of a process, with a broad-brush implementation and hefty license fee. We are seeing it in pockets with SaaS solutions such as Workday FM, Netsuite and even FinancialForce, but it's the ultimate failure of F&A to over-rely on legacy technology, maintain strict controls that defy collaboration, and keep bloated numbers of people to deliver legacy processes that is creating a huge potential new market for robotic-led processing and human augmentation. [Phil Fersht, 2016] Forrester estimates that RPA and machine learning will cause the number of U.S. “cubicle workers” to decrease by 16%, or 12 million workers, by 2025. KPMG suggests the worldwide total could be as much as 100 million jobs. “In the next 15 years, it’s likely that 45 percent, and maybe up to 75 percent, of existing offshore jobs in the financial services sector will be performed by robots, or more precisely, robotic process automation (RPA),” stated Cliff Justice, KPMG LLP (KPMG) Advisory principal.
“That should translate into enormous costs savings of up to 75 percent for firms that get on board.” [KPMG]

To imagine the scale of potential impact on the current industry, the BPO sector globally is currently worth over $300bn. In India alone, more than 3 million people are employed doing BPO work; in the Philippines there are another million. Across Europe and the US millions more workers earn their living through BPO. RPA will have the potential to impact every single one of those jobs. The Indian BPO industry had revenues of Rs 1.86 lakh crore in financial year 2016, according to Nasscom. It employs 1.1 million people exclusively for outsourcing business. India’s share of the global BPO sourcing market is around 38 per cent. However, apart from Governance issues , pursuing arbitrage in established outsourcing destinations such as India, Philippines & China is becoming less desirable due to rising commodity and living costs. Moreover, outsourcing of labor intensive and rules-based processes leads to human-errors and makes the business vulnerable to security breaches and fraud. Replacing with RPA from the perspective of enterprises or end clients, can lead to significant benefits such as improved efficiency, reduction in the number of FTEs required to handle a process, cost savings, and improved ability to reach meet the SLA targets and KPIs. In some of the traditional markets there will be no significant change likely in the approach of large US companies until the new administration settles in and drafts new laws to deal with these newer technologies and the offshore industry.

Offshore Regulations

But there is no specific law in India that regulates outsourcing transactions except in relation to telecommunication services. Most Indian BPO companies follow the global standards of certification. However, data privacy and integrity concerns related to outsourcing have emerged as the biggest concerns for the clients of Indian BPOs. Nasscom is in talks with the government to set up a nodal agency to monitor, collate and disseminate information on international IT frauds involving Indian entities.

Frauds

There were many instances of fraud in the offshore industry particularly the IRS telephone impersonation scam.  There were instances where victims in the US were threatened with tax investigation by call centre executives of these firms pretending to be officials from the IRS. Software industry experts and officials from enforcement agencies in the country feel that absence of regulations to monitor BPOs, high unemployment rate and slow conviction in criminal cases have together made India a hub for such activity.

The Treasury Inspector General for Tax Administration (TIGTA) has only seen a rise in the IRS impersonation scam in the US with an average loss of more than $5,700 per taxpayer. “The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of more than one million contacts since October 2013. TIGTA is also aware of more than 6,700 victims who have collectively reported over $38 million (Rs 253 crore) in financial losses as a result of tax scams,” a July 2016 release of TIGTA stated. As a part of its consumer awareness and protection program, TIGTA released several alerts and YouTube videos explaining the modus operandi of IRS impersonators. “TIGTA is concerned that the recent arrests in India will not bring a total halt to the IRS telephone impersonation scams,” said J Russell George, Treasury Inspector General for Tax Administration, in an email response to The Sunday Express. “Members of the public cannot and must not let their guard down,” he added.

Regarding incident where BPO employees allegedly duped over 6,000 US citizens of at least Rs 500 crore, “This particular incident is not much of a BPO issue. We should not call them (Thane call centres) BPOs. These are companies run by criminals to commit fraud. Having said that, we have recognised the issue and are closely working with law enforcement agencies,” R Chandrasekhar, president of Nasscom, said. “We are ready to provide whatever help possible to the police to get to the bottom of such cases. We are committed to make India safer,” he said.

Conclusion

Notwithstanding some frauds, Since the reality is that India brings a great advantage to the IT and BPM (Business Process Management) industry through low-cost and simplicity, there is a great chance that the indian players will have a slice of the RPA in the long run.

References

1. How robotics is changing the face of Business Process Outsourcing, Robohub, Andrew Burgess, 2016.
2. Why it's time for Robotic-BPO to break the mold of legacy F&A engagements, HorsesforSources, Phil Fersht, 2016.
3. Rise of the robots, KPMG Report.

Corporate Fraud and Greed

The unfolding Satyam sage, India’s Enron, has been a watershed event in Indian corporate history. According to the founder’s own public confession, Satyam had inflated its reported revenues by 25%, its operating margins by over 10 times, and its cash and bank balance by over 1 billion dollars. The magnitude of this fraud makes it by far the biggest accounting scandal in India’s history (Ingram, 2015). The Satyam scandal highlights the importance of securities laws and CG in emerging markets (Bhasin, 2015). There is a broad consensus that emerging market countries must strive to create a regulatory environment in their securities markets that fosters effective CG. India has managed its transition into a global economy well, and although it suffers from CG issues, it is not alone as both developed countries and emerging countries experience accounting and CG scandals. The Satyam scandal brought to light, once again, the importance of ethics and its relevance to corporate culture (Bhasin, 2013, a). The fraud committed by the founders of Satyam is a testament to the fact that “the science of conduct is swayed in large by human greed, ambition, and hunger for power, money, fame and glory” (Chen, 2010) All kind of scandals/frauds have proven that there is a need for good conduct based on strong ethics. The Indian government, in Satyam case, took very quick actions to protect the interest of the investors, safeguard the credibility of India, and the nation’s image across the world. Moreover, Satyam fraud has forced the government to re-write CG rules and tightened the norms for auditors and accountants (Bhasin, 2013b). The Indian affiliate of PwC “routinely failed to follow the most basic audit procedures. The SEC and the PCAOB fined the affiliate, PwC India, $7.5 million in what was described as the largest American penalty ever against a foreign accounting firm” (Norris, 2011). According to Mr. Chopra, President, ICAI (January 25, 2011), “The Satyam scam was not an accounting or auditing failure, but one of CG. This apex body had found the two PWC auditors prima-facie guilty of professional misconduct.” The CBI, which investigated the Satyam fraud case, also charged the two auditors with “complicity in the commission of the fraud by consciously overlooking the accounting irregularities”. The Satyam fraud has shattered the dreams of different categories of investors, shocked the government and regulators alike and led to questioning the accounting practices of statutory auditors and CG norms in India (Bhasin, 2015a, 2016a). The auditor is paid to ask questions; in this case it seems to have been paid not to ask any. The company could not have hoodwinked the investors without the auditor being on its side. This was no complicated accounting fraud like Enron was. The culture at Satyam, especially dominated by the board, symbolized an unethical culture.

https://www.scirp.org/journal/PaperInformation.aspx?PaperID=30220

Medical education system (in MP) hit by scandals

Recent cases of corruption in India's medical school entrance exams in the state of MP are part of wider problems in the country's system for educating its future doctors, say experts. Dinesh C Sharma reports.

More than 600 000 students in India retook the All India Pre-Medical and Pre-Dental Entrance Test (AIPMT) at the end of July after the test they originally sat on May 3 was scrapped by the Supreme Court following evidence that large-scale cheating had taken place.

A police investigation found that a criminal network had gotten hold of a leaked copy of the question paper and sent the answers to candidates via messaging app WhatsApp during the exam. The network had provided several candidates (who had each paid up to 2 million rupees) with tiny Bluetooth devices, vests tagged with microSIM cards, and wristwatches fitted with cameras, so that answers could be relayed in real-time to them via wireless devices. Medical students and doctors were hired to solve the multiple-choice questions. Acting on a tip-off, police caught seven of the people involved while the entrance test was being sat.

Police investigations revealed that the head of the network operated from Behror, Rajasthan state, while his clients were spread across several states. The gang responsible had previously leaked admission test papers for postgraduate medical courses of the All India Institute of Medical Sciences and some state medical colleges.

The Central Board of Secondary Education, which undertakes the AIPMT, has permanently debarred 46 students from taking the retest. “The disclosures, to state the least, are startling and alarming”, the Supreme Court stated in its order that cancelled the rigged test. It justified the retest saying that the examination involved “future generations of doctors who would be in charge of public health, [therefore] their inherent merit to qualify for taking the course can by no means be compromised”.

Fake candidates

Although the full ramifications of the AIPMT scandal are still unfolding, on July 15, the Central Bureau of Investigation began probing a much deeper medical school entrance exam scandal in Madhya Pradesh state after a public outcry over slow investigations by local police. Whistle-blowers alleged that some students gained admission into government medical colleges without actually sitting the entrance test. The candidates had paid huge amounts of money to middlemen who arranged for medical students or doctors to sit the test. The middlemen also arranged fake identity documents with the help of insiders from the government agency—Madhya Pradesh Professional Examination Board (MPPEB)—which oversees the test.

Picture from Hindustan Times

Anand Rai, a Madhya Pradesh government medical officer and whistle-blower, told The Lancet: “I got a whiff of wrongdoing when I appeared for MD entrance test in 2005. I noticed that top rankers in my class did not have good academic background, had influential or rich parents, and came from one hostel block of a particular medical college. From then onwards I started tracking medical entrance tests and giving tip-offs to police, and finally in 2009 I filed a public interest petition in the Madhya Pradesh High Court seeking an enquiry.”

Under pressure from judiciary and the opposition parties, the Madhya Pradesh Government began probing the scandal in 2013. So far, it has led to the arrest of more than 1000 medical students and doctors named in dozens of criminal cases filed by the state police. Investigators have confirmed that 295 students who did not sit the entrance test were admitted to government medical colleges and 721 to private medical colleges between 2011 and 2013. The state government scrapped the MPPEB test in 2013. AIPMT scores are now being used by government colleges to fill all their seats and by private colleges to fill 42% of their seats; the rest are filled through a separate admissions test overseen by the Association of Private Dental and Medical Colleges. However, this test has also come under suspicion of corruption in a petition filed in the Supreme Court on July 17.

Rama Baru, professor at the Centre of Social Medicine and Community Health at Jawaharlal Nehru University in New Delhi, and a former member of Medical Council of India's (MCI) ethics committee, said: “What we are witnessing are the results of the criminalisation of medical education, which begins with licensing of colleges by the MCI. Besides the MCI, this criminal nexus includes promoters of private colleges, real estate lobbies, local politicians, and serving or retired doctors from government colleges. Large amounts of money changes hands at every stage of the medical education chain.”

The admission scandals not only affect the quality of medical education but also the practice of medicine, noted experts. “Candidates willing to adopt fraudulent means to get into medical colleges are not just denying meritorious students a chance to study but are subverting the system with money. They can try similar means to clear exams during the medical course as well”, Anant Bhan, a bioethicist and adjunct visiting professor at Yenepoya University in Mangalore, told The Lancet. “Equally appalling are medical students who agree to sit in entrance tests as imposters to help candidates join medical courses. Willingness to be part of a medical education scam does not augur well for their future in the medical profession.
”

 Dinesh C Sharma reports in LANCET 

 http://dx.doi.org/10.1016/S0140-6736(15)61462-3

Regulatory reaction 

Satyam’s downfall has also drawn attention to Sebi. Although the regulator’s probe is in its nascent stages, it is working with the Registrar of Companies office to comb through records to ascertain the scandal’s scale. “They took some time to carve out responsibilities between themselves and the Registrar… which was required to speed things up and avoid the duplication of efforts,” says one Mumbai-based lawyer. Criminal proceedings have been launched by the government which has been proactive in the matter and Satyam’s pre-scandal board has been replaced with six new directors. While it took the federal government 48 hours to act, India’s constitutional structure requires state authorities to act first before the central government can intervene. “It is disappointing to note that the Sebi and SFIO, which are the most competent to investigate the fraud haven’t even been given the access to interrogate Raju, while the state police, which lacks the expertise to investigate such sophisticated white collar crimes is leading the investigations,” says Ruchir Sinha, at Nishith Desai Associates. He adds that such bureaucratic shackles which obstruct investigations should be removed, and a more efficacious regulatory regime needs to be developed. All of the lawyers contacted by Asialaw believe Sebi’s conduct has been exemplary. One partner believes that it was good that the fiasco has prompted Sebi to be stricter with promoters. According to Sinha, Sebi has amended the Takeover Code to make disclosure of shares by promoters mandatory, but it remains to be seen how it addresses the issue as no amendments have yet been notified. The main concern now is the false reporting of financial statements which impacts share prices and hurts investors – whom the regulator is supposed to protect. “The Satyam scandal is likely to cause the regulators to be more proactive and vigilant. Compliance costs are likely to shoot up as auditors will be far more diligent than they have been, rely less on management explanations and may insist on independent verifications,” says Nishchal Joshipura, also of Nishith Desai Associates.

http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Ma%20Lab/AsiaLaw-Satyam.pdf