Digital Transformation Comes To The Back Office Via Robotic Software | Investor’s Business Daily

The accounting, billing and customer service work done in the back offices at virtually every company on the planet is starting to go robotic, and a new breed of software makers is clamoring to cash in on this digital transformation.

As more companies seek to turn paperwork into electronic records, automate more business workflows and adopt artificial intelligence or cloud computing, they’re aiming for some form of digital transformation. A wave of startups that specialize in robotic process automation, known as RPA, wants to crack into the digital transformation market at the low-end.

The RPA firms – most of which are still private – provide tools that program robotic software to automate human tasks. Their bots are best suited for manual, high volume, repetitive tasks in back-office operations. They partner with consultants, information technology services firms and system integrators, ranging from Accenture ( ACN) to Cognizant Technology Solutions ( CTSH). Companies are forging partnerships with these startups to provide a new digital workforce made up of software bots.

This, in turn, has driven growth for legacy tech players. RPA bot farms integrate with enterprise software firms from the likes of Oracle ( ORCL), SAP ( SAP), ( CRM), Workday ( WDAY) and ServiceNow ( NOW). One major RPA player, UiPath, has partnered with Accenture, DXC Technology ( DXC), Infosys and others.

“RPA is a cornerstone for digital transformation,” said Dhruv Asher, UiPath’s senior vice president of business development and product alliances. “If you talk to any (chief information officer) they’re looking to create a modern workforce for a digital economy, to go through a digital transformation.”

UiPath, Automation Anywhere and Blue Prism Group are the three biggest RPA vendors out there. Blue Prism trades on the London stock exchange, but the other two are private as of now. Other players include WorkFusion and AntWorks, both also private. Analysts say there are more than 25 RPA companies in what’s fast becoming a crowded market.

RPA Opens Door To Bigger Digital Transformation Deals

Robotic software companies aim to license their software so they build up annual recurring revenue. Their corporate clients buy subscription licenses to use RPA software.

Many U.S. companies have lowered costs in the past by outsourcing business operations to India’s info tech services companies and others. Buying RPA software provides another option for cutting costs by automating tasks such as accounts payable or online chat support.

RPA contracts are relatively small, usually in the $2 million to $5 million range, says a KeyBanc Capital Markets report. But Accenture, Capgemini ( CGEMY), Deloitte, Cognizant, and others use RPA projects as a strategy to nab larger digital transformation deals.

Phil Fersht, founder of HFS Research, says RPA is really a low-level form of automation using machine learning, a basic type of artificial intelligence.

“It is more digital preparation than digital transformation,” Fersht said in an email.

Still, HFS forecasts the RPA market will jump to $4.31 billion in 2022 from $1.7 billion in 2018. At its website, Accenture says its RPA clients include companies in the financial services and oil and gas industries.

Software Bots Faster Than Humans For Repetitive Tasks

Here’s how the process works: Robotic software firms provide building blocks in programming code so system integrators can help clients configure software bots. The digital workers scan documents, enter data into spreadsheets, open PDF files, and perform other tasks. The bot programs use computer vision, a form of artificial intelligence, to perform some tasks.

One reason large companies are interested in RPA is that software bots perform high-volume, repetitive tasks faster than humans, analysts say.

In 2017, Accenture acquired a small, Wales-based RPA firm called Genfour. Enterprise software providers also are making RPA acquisitions. SAP bought France-based Contextor in late 2018. Pegasystems ( PEGA) bought Openspan in 2016.

Partnerships also are growing between RPA firms and large players in the enterprise software market to fuel digital transformation. Workday, for example, in February made a strategic investment in Automation Anywhere.

Forrester Research analyst Craig LeClair says there will be more acquisitions of RPA startups. But the top three RPA firms – Blue Prism, UiPath and Automation Anywhere – have lofty valuations.

Digital Transformation: RPA Firms Feasting On Enterprise?

UiPath has raised nearly $450 million. The New York-based company in 2018 rose to “Unicorn” status, with a valuation over $3 billion. Its customers include BMW Group, NASA, Pandora ( P) and the U.S. Department of Defense.

Meanwhile, LeClair says the RPA firms are “feasting” on existing info tech platforms such as those from SAP and Oracle. The software bots process forms or enter data just as a human would do.

“They are making good revenue installing RPA bots that operate against these enterprise apps,” said LeClair. “They build bots around the edges – for example, bots can enter data in Salesforce or Workday records or create reports in the SAP and Oracle systems.”

Fersht said: “Oracle and the big (enterprise resource planning) firms have little to worry about with RPA. If anything, it can help streamline processes around their apps to make them function better.”

Alex Zukin, analyst at Piper Jaffray, says RPA’s emergence isn’t a threat for companies like ServiceNow.

“I don’t see them as a problem but rather as a complementary solution amid a potentially very large market opportunity,” Zukin said in an email.

Rise Of Robotic Software A Threat To Business Outsourcing?

Indeed, UiPath’s Asher says it’s in talks with ServiceNow. But the rise of this digital transformation via RPA is viewed as a threat to companies specializing in business process outsourcing, or BPO, in India and elsewhere.

“BPO is another story,” said LeClair. “Cheap offshore labor is being disrupted by companies building robots to replace this bottom of the pyramid work.”

William Blair analyst Bhavan Suri says BPO providers also can automate some of their operations to reduce labor costs.

“Bots and automation pose a large opportunity to introduce efficiencies into business processes,” Suri said in a note to clients.

Fersht agrees. “All the competent BPO firms are bundling RPA into their customer engagements to reduce the number of people needed to deliver services,” he said. “For the next couple of years, RPA is only targeting lower-end BPO work.”

In the long run, robotic software companies aim to build more cognitive capabilities, a higher level of artificial intelligence, into their software bots. That could expand the RPA market.

Follow Reinhardt Krause on Twitter @reinhardtk_tech.

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