Finance Colombia executive editor Loren Moss recently spoke with DAPI cofounder Sam Gross (above) to understand this startup, that further establishes Ruta-N and Medellín as South America’s technology hotspot.

Finance Colombia: So, I am here with Sam Gross. What is your title Sam?

Sam Gross:  I am the Chief Technology officer and co-founder of Digital America´s Pipeline Initiative, often referred to as DAPI.

Finance Colombia: What is DAPI?

Sam Gross:  Digital Americas Pipeline, is an organization that focuses on creating talent in order to begin to fill the void that enterprises have with respect to skilled RPA talent, skilled Machine Learning talent etc. So, there is a tremendous shortage of those skills and that has a macro economic effect on businesses because they are unable to automate as many projects as quickly as they like, because they can buy all the software in the world but they can’t find people to implement it. So, we look to solve that problem.

Finance Colombia: I imagine that it goes beyond cost arbitrage.  Less expensive labor has been around for a long time, people outsourced it to the Asian Pacific region and things like this, how does this go beyond the simple notion of Labor Arbitrage?

Sam Gross:  That is exactly the point, so, in a couple ways, that is quite fascinating. Number one, robotic process automation is ultimately intelligent automation, actually the future is going to be Digital Arbitrage, evolving of what previously was Labor Arbitrage, so that´s the first thing that´s really interesting. These automation technologies will profoundly change the services industry in any way that you can think of. What is different is that because these technologies are new, there is nobody out there that can say “I have five years of experience building RPA, or I have five years of experience building computer vision,” these technologies have not been available commercially for that long. So, how it is different is in the way that we are actually building the talent pool. What we are really focused on is actually manufacturing that talent, training that talent, creating the methodologies to train and doing that at scale.

This is not about finding somebody who works for less, this is about finding people who have been trained on the latest technologies and are continually being trained on those technologies and doing that in a way that becomes not only elastic but affordable. So, the reason why we are in Latin America, is because that does answer the affordability question, but that´s only one aspect. Perhaps for enterprises it is an important aspect, what that translates into is where are you able to get that kind of work force in an elastic fashion, on demand, at low cost. It lowers the threshold of the ROI for the automation project that you want to take on. So, instead of going elephant hunting in your automation, you can go around and collect fingers and toes. When you put five fingers and five toes together, you have half an FTE, find 10 fingers and 10 toes you have a full FTE, so it lowers that threshold. One of our objectives is to make it possible for automation technologies to be much more ubiquitous in the enterprise, so, that is just not going to happen with traditional models. (FTE: Full Time Equivalent)

Finance Colombia: It´s interesting how things are changing, and I think there are going to be a lot of winners and losers. For example, in the US, we see that in a lot of areas,  traditional formal education is not as relevant, and then I see other countries in the Caribbean and in Latin America; it’s not that you don’t need a formal education, but for example, I know a CTO of a large company whose actual Bachelor´s degree was in music, but he has learned technology because people said, “hey, take this project, take this project…” 30 years later, he is the CTO of a company. The way that people learn now is different, people are trained by their employers, they are trained outside of the traditional education system. How do those people that set educational policies, how do they respond to that? How do they stay relevant and keep their people prepared?

Sam Gross:  A couple things. I think the first talks about curriculum content. In the universities, a lot of them have launched data science curriculums, maybe some with some machine learning. At the fringes I see computer vision and things like that. The challenge is that although those are relevant and will become important and are part of the future, what they have missed is what businesses are asking for now, and the reality is as unglamorous as it really is, businesses are starting with robotic process automation, RPA, and they are not jumping in to doing computer vision projects. The universities are giving them an important skill but that doesn’t change their employability. I am certainly not an educator, I don’t know how to make that gap go away, but it’s a real gap. Just today, I had the opportunity to speak to about 50 college students here in local universities in Medellin, and actually only one had ever heard the word RPA; one out of 50, and that is what the jobs are.

Finance Colombia: That´s fascinating and it´s terrifying also, because people are studying things that maybe their professors learned 20 or 30 years ago, but are not necessarily relevant today, and that leads to digital haves and have nots within the IT community; and that is interesting. DAPI is an interesting initiative, it operates now in two continents. Obviously there were certain things that the local government and local entities did to make this area attractive. If you were in the investment promotion area, if you were working for either a local or national government entity, what would you do, and what policies would you implement to try to make your location attractive to entities like DAPI, to say, hey we want to go here and set up, we want to expand here next? What should students who are interested in this — young people who want to participate in it and be part of this future — study today? How can they be preparing themselves so that they are qualified to help shape this future?

Sam Gross: I’ll give you one of my favorite little sayings. It used to be said that the meek shall inherit the earth. That is not true any longer. Mathematicians will inherit the earth.

If algebra is key, algorithms are algebra. You need to know how to write an algorithm to work in the field of automation, intelligent automation, and artificial intelligence. But it helps a lot if you really understand the science underneath it as well.

I think it’s also helpful to be working in what I refer to as contemporary technology development languages. These are not the traditional languages but contemporary things, like Python, JavaScript, and JS. Look at the things that are more modern. Get updated because that will prepare you to be able to work with this whereas traditional programming will not.

Sam Gross is also the founder of ChoiceWORX.AI, a company dedicated to intelligent automation of end user support and device management, IT infrastructure management, and RPA.

BPO Outlook 2017

From software development to call centers, 2016 was a year marked by significant change and uncertainty across the spectrum of business process outsourcing (BPO). Political, technological, and human factors have all conspired to ensure that no matter what sector one works in, there will be no more “business as usual.”

Rise of the Machines

In 2016, Amazon released APIs for its Alexa artificial intelligence product, meaning that the research the cloud and retail behemoth put into voice recognition and artificial intelligence is now available for third-party developers. The kinds of capabilities seen in Apple’s Siri or Microsoft’s Cortana are now available for anyone to develop applications around.

In call centers, the hated IVR (interactive voice response) may be replaced with intelligent solutions that can go beyond customer service to advanced functionality. Freed from having to develop the underlying technology, developers can create solutions that can easily replace the lower-end inbound and outbound call center functions. It will be even easier to create chatbots and interactive email bots sans the voice recognition technology. Some AI chatbot platforms are already commercialized and in the marketplace.

Photo: President Donald Trump has pledged protectionism and become a wild card in an already rapidly evolving outsourcing world. (Photo Credit: Gage Skidmore with modifications)

In the coming months, the smartest providers will look for ways to leverage and commercialize these platforms, making the traditional contact center more and more obsolete.

The same holds true for non-customer-facing processes. Robotics process automation (RPA) is not coming — it’s now here. Just as in traditional robotization, an initially higher capital investment can result in much lower operating expense over the midterm. Job boards are filling up with advertisements for developers and engineers versed in RPA.

The human role on the BPO front line is morphing into one of supervision of processes or “exception handling.” The starting BPO job is no longer about “butts in seats.” It is one that demands cognitive abilities and advanced critical thinking. Everything else is automated—or about to be.

This holds significant implications for location sourcing. The gap will continue to widen between locations that have educated, capable talent pools with certifiable credentials and those that have little more to offer than language skills. Talent will trump wage rate even more than before. This means there is no greater role for the public sector than in providing competitive education and marketable skills to its young populace. Along with security and good government, there is nothing more critical in the long term.

A large part of BPO is beginning to be gobbled up by BPA: business process automation. While ITO (information technology outsourcing) will continue to be critical for most companies of any size, those IT outsourcers that are able to morph or evolve into RPA and BPA enablers will be best positioned for success — and survival. After all, these are uncertain times for traditional software outsourcers.

In December, U.S. Senate democrats and other stakeholders gathered to tell President Trump that he must “keep your promise to American workers and prevent outsourcing.” (Credit: Senate Democrats)

A Stacked Deck

Trying at all costs to avoid “trump”-card puns, the outsourcing industry and the globalized environment is facing a new U.S. president avowedly hostile to outsourcing. President Donald Trump has promised to make enemies of all of us in international outsourcing — or any international business that benefits from free trade and movement of capital, data, services, and talent across borders.

Of some comfort, the U.S. president is in certain ways, far weaker inside the United States than he is externally. The president does not have the legal ability to cancel free-trade agreements on his own and cannot rule by decree. Generally speaking, he cannot order any individual or entity to do anything in particular beyond federal employees or federal government agencies. On the other hand, those same agencies can cause trouble or headaches for companies when instructed to do so.

The largest threat seems to be faced by traditional FTE-based outsourcers (full-time equivalent) reliant upon labor-arbitrage benefits. When a clear case can be made that “the company fired 200 of us and hired 200 people over there!” such organizations can find themselves in the crosshairs of an activist administration that may not be above outright bullying.

Much safer are the firms that partner for cross-border services in a globalized world. The purchasers of processes or services high on the value chain are much more difficult to politically target. Legal support outsourcing is an example. The media is devoid of protesters demanding more employment for lawyers!

While lots of noise is made about coders and the U.S. H-1B visa program (or other countries’ equivalents), politicians that move to restrict the program only drive more development and maintenance work offshore by restricting the amount that can be done onshore. The move to the cloud means that less work depends upon physical proximity to begin with. Both the buy-side and sell-side in the outsourcing equation will move to protect themselves by evolving into an “as a service” model as opposed to an FTE model.

This does much more than protect against political risk, but when done properly it more closely aligns provider and customer: It drives efficiency and innovation on both sides of the equation. Providers are self-incentivized to come up with advanced solutions and think of new ways to service clients, as opposed to traditional adherence to the terms in a multiyear RFP-based contract that is probably obsolete by the time it is signed.

Back to the point: In practice it is much more difficult for a bombastic politician to say “you can’t buy that global service” than “you can’t move those jobs!” Customers and providers that adopt the “as a service” model will find themselves relatively insulated from political winds — and perhaps better positioned for the wider evolution already underway.

Trump’s combative stance toward China could mean an ongoing clash with President Xi Jinling. (Credit: Kremlin)

Hardware

Tangential to pure BPO, but indirectly very important, is the rapidly heating climate between Trump and China. Trump seems to be intent on making an enemy out of its second biggest trading partner, and Chinese President Xi Jinping seems uninterested in backing down.

While this has most-dire consequences for security and stability, a trade war with China would almost certainly be a lose/lose proposition. As the saying goes, “when the elephants wrestle, the ants get trampled.” What that means is toxic instability for world markets, but especially vulnerable are smaller countries. Most exposed are those smaller markets without a strong broad-based manufacturing capacity.

If the Trump administration takes an aggressive approach to Chinese monetary policy, and things don’t get too far out of hand from a security standpoint, a higher Chinese Renminbi can boost manufacturing — especially nascent high-tech manufacturing Latin America and the Caribbean.

But those countries need to have pre-invested in the capacity, meaning talent and infrastructure. It is not something that can be dialed up overnight.

Brexit

The decision by the voters of the United Kingdom to break away from the European Union will have many winners and losers, and in some cases it is too early to tell which is which. But one clear winner is the nearshore outsourcing industry, especially finance and accounting outsourcing.

Tight economic integration with the European Union meant that domestic British entities were encouraged to outsource within the EU, perhaps to lower-cost EU locations such as Eastern European countries. This decoupling makes those advantages less evident and provides an opportunity for Caribbean Anglophone countries like Trinidad and Tobago, and even Latin American countries with strong bilingual abilities and highly educated talent pools.

Vendors and venues that may have lost out to EU providers in the past few years would be well advised to reach back out to those contacts for a catch-up call. Likewise, buy-side entities may want to review venue selection in favor of providers on the western side of the Atlantic where things are more predictable. As of January 2017, how Britain will disentangle itself from the European Union remains a big unknown, with the political climate in Europe even more uncertain than it is in the United States.

Outsourcing for capital markets now exceeds a projected $2 billion USD.

Capital Markets: New to the Party

Finance and accounting outsourcing has traditionally focused on banking and insurance back-office processes. However, there are new players. According to the Everest Group, capital markets have come a long way from their 2008 meltdown, with capital markets outsourcing now accounting for 18%-20% compounded annual year-over-year growth during the past three years.

Outsourcing for capital markets (asset management, fund administration, brokerage, custody, or investment banking) now exceeds a projected $2 billion USD. These firms (especially retail-facing companies like brokerage) face a changing customer base. The under-40 demographic is less impressed — and less interested — in peddlers of obsolete insurance products and high-load securities of the past and more interested in financial apps and robo-advisors.

Providers need to do more than be versed in new technologies like blockchain and other cryptocurrencies, they need to have a native level of comfort in order to do the heavy lifting on behalf of corporate customers facing pressure from consumers. Even strictly B2B financial entities, such as investment banks and institutional money managers, realize as a matter of survival that the value they add is — or needs to be — intellectual, not in processing or operations. Especially smaller, independent entities cannot out-process the global giants; they must out-think them, beat them on intellect.

This is where outsourcing providers can help, by efficiently and effectively handling the processing, the back office, the customer service, and even the compliance. This will allow those innovative financial firms, whether B2B or retail, to effectively leverage their intellectual property. This will allow them to ensure that their solution offering is their value proposition instead of getting bogged down in building the infrastructure or recruiting the staff for vast operations.

On the retail side, the days of full-load mutual funds and other high-commission financial products are coming to an end. The traditional retail stockbroker was disintermediated almost two decades ago. Margins are now Walmart-thin and automation will continue to make them thinner. Global banks and insurers already have economies of scale and can move operations across borders within their own companies. Effective development of outsourcing partnerships can help smaller and newer firms compete by allowing them to focus on their niche, their go-to-market strategy, and their uniqueness.

Colombia has built the large, impressive Ruta N complex in Medellín to foster tech innovation and entrepreneurship. (Credit: Ruta N)

The Disruptors

Traditional big-time outsourcing has focused on Fortune 1000 global companies, with relationships between giant companies signing deals for thousands of FTEs (full-time-equivalent employees). This has mostly meant large companies servicing other large companies in major population centers: Bangalore, Guadalajara, or the Philippines.

However, many of these large, traditional companies are getting disrupted by aggressive, smaller fintech (financial technology) firms that also can take advantage of outsourcers and outsourcing destinations, but only when those providers and venues are nimble enough (and sometimes humble enough) to talk to smaller firms and earlier-stage entities.

As a venue example, the city of Medellín accommodates startups as small as a sole entrepreneur in its expansive Ruta N business incubator facility. Smaller cities and island countries that would struggle to come up with 4,000 qualified candidates to fill a major BPO facility would do much better to focus on qualified providers or in-house delivery centers providing high-value services at a smaller scale, perhaps 50 to 500 seats. Companies on both the buy and sell side with opportunities of this size are often overlooked or ignored.

Safer for those venues as well is the lower risk profile of multiple smaller operations compared to one dominant employer that could potentially destabilize an entire local economy with the shuttering or downsizing of a single operation.

Nontraditional financial institutions are a superb example. There are new nonbank lenders that make consumer loans and package the debt for sophisticated and institutional investors, like Lendstreet. There are technology platforms like robo-advisors and app-based money transfer services that have the older firms like Western Union and Moneygram in their crosshairs.

Not all of these services are ready to start off with 1,000 seats in an outsourcing contract. But there are many of these firms, and they are not only rapidly growing, they are rapidly multiplying. Early bets, while more work initially, may pay off for the fintech firms, the nearshore location, and the provider — not to mention the customer.

Key Factors

For the Buy-Side

• Leverage outsourcing to compete with larger, operationally focused, entrenched competitors

• Consider nearshore locations, including smaller, more emergent locations that offer advantages over Eastern Europe or the Asia-Pacific region.

• Evaluate if the “as a service” model works for you as opposed to the traditional FTE paradigm. This can provide political insulation, along with other advantages.

• Mine the talent of your outsourcing provider. Use them as an advisor, not just a destination to off load busy work.

• Building a cloud-native infrastructure will make it easier to collaborate with outsourcing partners and, to some degree, insulate operations from political risk.

For the Sell-Side

• Non-IT outsourcers must still invest in software talent. Competency is not enough, only excellence will do. Business process outsourcing is becoming business process automation and those that cannot automate will not survive.

• Pay attention to smaller, disruptive firms and even startups. Chasing Fortune 1,000 firms means you are competing with Infosys, TCS, and Teleperformance. There is more new business to do and new relationships to be made with smaller firms that still provide viable, profitable opportunities. Some of these disruptive, emergent firms will become Fortune 1,000 firms — and can take you with them.

• Offering “as a service” outsourcing may be politically more palatable than offering traditional FTE based services.

• When thinking of financial services clients, think beyond retail. Also take into account custody, investment banking, and institutional asset management.

• Be ready to automate everything you can when your customer asks for it. They eventually will.

• Be politically sensitive about how your services are marketed. Don’t unnecessarily provide detractors with ammunition to use against you.

• Either evolve into a BPA (business process automation) firm — or become obsolete.

For Nearshore Destinations

• In the long term, there is nothing more important than investing in the education of your population. Nothing else even comes close.

• Rather than trying to compete with giant venues, leverage your unique value proposition: your location, your talent pool, your quality of life.

• Pay attention to the smaller firms you may be overlooking, whether they are outsourcers are companies setting up global in-house centers. Many of them have very high quality opportunities.

• No matter what your niche is — voice services, finance and accounting, legal, or even manufacturing — if you don’t have a deep enough IT talent pool to support those other services, you will be overlooked.

Loren Moss
Outsourcing Executive, Editor, Industry Analyst
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