HP Job Cuts: Automation Is The New Offshoring

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Is process automation the new offshoring? I made that case several months back, noting that companies may increasingly opt for automation over outsourcing as a cost-saving measure.


I cited a New York Times interview with Infosys CEO S. Gopalakrishnan, who shared his belief that advanced automation eventually will eliminate many of the labor-intensive, back-office functions now being performed in India and other lower-cost countries, and my interview with The Hackett Group's Erik Dorr who told me "the biggest competitor to globalization is automation."


For a prescient take on how this might work, one need look no further than HP's plan to cut 9,000 jobs from its enterprise service division over the next few years. The need for those positions will vanish when HP standardizes and consolidates 100 data centers around the world, reports MercuryNews.com. It will use some of the expected savings from cutting these geek jobs to hire more suits, adding some 6,000 positions in sales and other functions.


During a conference call earlier this week, HP Executive Vice President Ann Livermore said the emphasis is shifting from moving back-office jobs overseas to leveraging technology to do them more efficiently She said:

We think the next five to 10 years is all going to be about who can best use technology to automate the delivery of services.

HP will likely use its own experiences to try to convince customers of the savings potential of transferring their existing technology systems to HP's standardized platform. HP will spend $1 billion on the new effort over the next four years, but expects it will ultimately save $500 million to $700 million a year. It said an earlier effort to consolidate its data centers helped it attain more than $1 billion in annual savings.


Many companies have opted for offshoring to avoid those kinds of hefty up-front investments. Cloud-based services from providers like HP will help them reduce their costs. As IT Business Edge's Mike Vizard wrote, cloud computing will likely drive the next big wave of business process outsourcing. He said:

Business process outsourcing is only in its infancy stages. Cloud computing creates a framework that, when coupled with virtualization and higher levels of IT process automation, will make it a whole lot easier to not only dynamically move application workloads, but entire business processes to drive what some will surely dub BPO 2.0.

The bulk of the jobs HP is eliminating will likely come from operations it acquired from EDS in 2008, a purchase that made HP the world's second-largest provider of commercial technology services, behind rival IBM. HP has already cut nearly 25,000 former EDS jobs. HP's services division is now one of its biggest sources of revenue and profit, accounting for $8.7 billion in sales and $1.4 billion in operating profit in 2010's first quarter.