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Automation, not cheap labor, is reshaping outsourcing

automationThe offshore outsourcing of IT grew because of the cost of offshore labor. A software engineer in India is paid but a fraction of what a U.S. worker earns. Payscale puts the median salary for a senior software engineer in India at $10,000.

When IT services firms bring in H-1B visa workers, these workers earn substantially more than their overseas counterparts, but often significantly less than American IT employees.

This labor cost advantage has been a powerful lure for U.S. customers, but analysts see labor costs diminishing in importance. Customers want more automation, whether it’s infrastructure management or business process outsourcing. IT services firms can no longer complete exclusively on lower cost labor.

“The search for just cheaper people is a thing of the past,” said Frances Karamouzis, an analyst at Gartner. What customers now want is to buy more “thinking” and automation for the “doing,” she said.

One process that has taken off is called “Robotic Process Automation (RPA),” a term given to a virtual machine that takes over some of the applications and workflows managed by workers. These systems don’t directly replace humans, but take structured tasks and automate them, with users saving as much as much as 15%, said Karamouzis.

But Karamouzis sees RPA as a gateway to more sophisticated tools. Once IT services customers realize savings using this tool, their next question often is: What else can we automate?

Automation tools are coming, and quickly. IBM, which is a major employer in India and has shifted much of its work overseas, is focusing a large part of its future on its cognitive engine, Watson.

Gartner believes that by 2020 Microsoft will center its strategy around Cortana, its intelligent personal assistant, instead of Windows.

The overseas firms — Infosys, Tata Consultancy Services and Wipro, in particular — are also focusing on artificial intelligence tools to take over tasks. Infosys, in a recent annual report, said it was able to move nearly 4,000 full-time employees from projects to other tasks as a result of the automation of underlying services.

“Is offshore dead? No, but it’s no longer going to be used for competitive advantage,” said Karamouzis.

Offshore outsourcing may be one of the more controversial issues in the political landscape, but the industry has grown despite it.

Among the large offshore providers, Everest Group said that HCL, for instance, had 450 clients in 2014 providing $1 million plus in revenue; last year, it had 495. Infosys had 950 active clients in March 2015. This past March, that number had grown to 1,092, with repeat business accounting for 97%, said Salil Dani a vice president at Everest. Other firms showed gains as well.

IT services firms are shifting to automation, cloud, the Internet of Things and to “next generation services contracts that have pushed the traditional outsourcing services to the backseat,” said Dani.

More broadly, the arrival of intelligent automation is spreading through all industries, not just IT services.

“Intelligent Automation is one of the most disruptive trends the industry has seen,” said Tom Reuner, an analyst at HFS Research. The approaches are “about decoupling routine service delivery from labor arbitrage. However, the direction of travel is toward human augmentation, and not substitution.”

In some ways, it is hard to imagine the labor advantage disappearing anytime soon.

The cost advantage of using offshore workers in the U.S. remain substantial. Outsourcers must pay visa workers the prevailing wage, but about half of these workers are paid Level 1, or entry level, salaries in a four-tier system, according to a report by the U.S. Government Accountability Office. (The prevailing wage Level 3 represents the median.)

Presumptive Republican presidential nominee Donald Trump has offered up an immigration reform plan to raise H-1B wages that strongly implies using Level 3 as the new wage floor.

Ron Hira, a public policy professor at Howard University, looked at the wages paid at one firm, Southern California Edison, which cut some 500 jobs last year after signing outsourcing deals, and compared it to data paid to H-1B workers. What he found was that the offshore contractors were saving as much as 41% on labor cost by using visa workers. His research, which was published by the Economic Policy Institute.

The idea of raising the wages of H-1B workers is championed by reformers in Congress. But what analysts are saying is that wage advantages won’t be as important as automation capabilities in the years ahead.

Article source: http://www.computerworld.com/article/3083264/it-careers/automation-not-cheap-labor-is-reshaping-outsourcing.html

Washington (AFP) – Are robots coming for your job?

This is an interesting article I noticed on the web – there is a lot of discussion in the IT world of the effects of automation particularly on clerical work processes. This is nothing new. This debate has been going on for years but before we were wondering why despite all the investment in automation was clerical work productivity fairly static. It may be that this is an idea whose time has come at last.

Although technology has long affected the labor force, recent advances in artificial intelligence and robotics are heightening concerns about automation replacing a growing number of occupations, including highly skilled or “knowledge-based” jobs. Just a few examples: self-driving technology may eliminate the need for taxi, Uber and truck drivers, algorithms are playing a growing role in journalism, robots are informing consumers as mall greeters, and medicine is adapting robotic surgery and artificial intelligence to detect cancer and heart conditions.

Of 700 occupations in the United States, 47 percent are at “high risk” from automation, an Oxford University study concluded in 2013 and a McKinsey study released this year offered a similar view, saying “about half” of activities in the world’s workforce “could potentially be automated by adapting currently demonstrated technologies.” Still, McKinsey researchers offered a caveat, saying that only around five percent of jobs can be “fully automated.”

Another report, by PwC this month, concluded that around a third of jobs in the United States, Germany and Britain could be eliminated by automation by the early 2030s, with the losses concentrated in transportation and storage, manufacturing, and wholesale and retail trade. But experts warn that such studies may fail to grasp the full extent of the risks to the working population. “The studies are underestimating the impact of technology — some 80 to 90 percent of jobs will be eliminated in the next 10 to 15 years,” said Vivek Wadhwa, a tech entrepreneur and faculty member at Carnegie Mellon University in Silicon Valley.

Dire consequences

“Artificial intelligence is moving a lot faster than anyone had expected,” said Wadhwa, who is co-author of a forthcoming book on the topic. “Alexa (Amazon’s home hub) and Google Home are getting amazingly intelligent very fast. Microsoft and Google have demonstrated that AI can understand human speech better than humans can.” Wadhwa calls the driverless car a “metaphor” for the future of labor and a sign of a major shift.

Warnings of dire social consequences from automation have also come from the likes of the physicist Stephen Hawking and tech entrepreneur Elon Musk, among others. Hebrew University of Jerusalem historian Yuval Harari writes in his 2017 book, “Homo Deus: A Brief History of Tomorrow” that technology will lead to “superfluous people” as “intelligent non-conscious algorithms” improve. “As algorithms push humans out of the job market,” he writes, “wealth and power might become concentrated in the hands of the tiny elite that owns the all-powerful algorithms, creating unprecedented social and political inequality.” Harari points to the Oxford study, estimating a high probability of job loss to automation — cashiers (97 percent), paralegals (94 percent), bakers (89 percent) and bartenders (77 percent), for example.

Others disagree.

Boston University economist and researcher James Bessen dismisses alarmist predictions, contending that advances in technology generally lead to more jobs, even if the nature of work changes. His research found that the proliferation of ATM machines did not decrease bank tellers’ employment in recent decades (looks like the author has not been to a bank recently! REM), and that automation of textile mills in the 19th century led to an increase in weaving jobs because it created more demand.

“Robots can replace humans in certain tasks but don’t entirely replace humans,” he said. But he acknowledged that automation “is destroying a lot of low-skill, low wage jobs, and the new jobs being created need higher skills.” Former president Barack Obama’s council of economic advisors also warned last year that most jobs paying less than $20 an hour “would come under pressure from automation.”

‘Tax the robot’

Although the net impact of robots remains unclear, tech leaders and others are already debating how to deal with the potential job displacement. Microsoft founder Bill Gates said last month that he supports a “robot tax,” an idea floated in Europe, including by a socialist presidential candidate in France. But Bessen, a former fellow at Harvard’s Berkman Center, said taxing robots could be counterproductive.

“You don’t want to be taxing the machines because they enable people to earn higher wages,” he said. “If you tax machines, you will slow the beneficial side of the process.”

Read original article at: Robots and effects on Jobs