Bain & Company, one of the world’s three largest strategy consulting firms, has been at the forefront of digital transformation for many years now. Leading global organizations retain Bain’s services both to keep pace with technology advances, as well as gain competitive advantage in their markets. It’s not a bad place to be employed either, as evidenced by Glassdoor ranking Bain #1 on their list of Best Places to Work (four times!). No wonder then that Bain attracts the best, both customers and employees, which in turn leads to some of the best insights available on the state of automation.
We take a peek inside this prestigious firm by interviewing Michael Heric, Senior Partner at Bain & Company, and the executive in charge of their Automation Center of Excellence. In his 20 years at Bain, Michael’s seen a lot, and he shares with us why automation is increasingly sitting outside of IT’s jurisdiction; how Bain took a disappointing automation program that yielded only a few million dollars in savings to one generating savings of over a hundred million dollars a year; and why it’s unlikely there will ever be a single platform delivering all of an organization’s automation needs.
Guy Nadivi: Welcome everyone. My name is Guy Nadivi and I’m the host of Intelligent Automation Radio. Our guest on today’s episode is Michael Heric, Senior Partner at Bain & Company, and the man who runs Bain’s automation center of excellence. We’ve been wanting to have the leader of a high-profile center of excellence on the show for some time now, and it’s a real treat for us to have Michael Heric from Bain, which as many of our listeners know, is one of the prestigious big three management strategy consulting firms. So the automation best practices they’ve developed are based on engagement with a diverse collection of some of the world’s biggest firms and have broad applicability for our audience. Michael, welcome to Intelligent Automation Radio. Michael Heric: Great to be here, Guy. Thanks for having me.
Guy Nadivi: Michael, can you please share with us a bit about what path you took that led you to Bain and the field of automation?
Michael Heric: Sure. Thanks again, Guy. I’ve been in Bain’s Technology and Cloud Services practice for about 20 years, working with providers across the ecosystem. In the last five years, I’ve become more involved on the customer side, helping companies use technology to transform their support functions, such as finance, HR, and other functions. And now I lead this capability for Bain, and automation has been an important part of this work. And that’s what really led me to start and now lead Bain’s automation capabilities, including our automation center of excellence that helps clients in their automation journeys across the full life cycle.
Guy, I’ve also had just an interest and a passion for disruptive technologies for a long time. And automation, as you know, is one of those. For example, in the late 2000’s, I was just very interested in cloud computing and helped the firm develop our point of view and capabilities in this area. Back then, the market capitalization of the top five public cloud companies was only about $14 billion, for example. And today the top five public companies have a market cap over $600 billion, which is more than a 40 times increase in the value over the past decade, with infrastructure as a service and software as a service individually now topping $100 billion in revenue each. It’s not clear to me if all these new automation technologies will be as disruptive, as fast, and as profoundly as cloud, but many people think so, and it certainly has the potential. And so that’s why this is just an area that I’m very excited about.
Guy Nadivi: Just about every automation vendor advocates for organizations to create an automation center of excellence as part of their digital transformation initiative. However, EMA Research reported that only 7% have done so, despite there being some good evidence that COE’s play a major role in an organization’s automation success. Michael, you run Bain’s automation COE. Why do you think COE’s haven’t proliferated as widely as they should?
Michael Heric: That’s a great question, Guy. Automation has been around a long time, as you and many of your listeners know. The IT department has historically been the center of excellence for automation for companies. IT has been automating business processes for decades. So in a sense, this is nothing new. We’re really now in the next chapter, in which new technologies, whether that’s RPA, intelligent automation using machine learning or natural language, low code-no code, or many others are opening up new possibilities for automation and offering the promise to create more business value with faster payback periods than ever before. And in our experience, the most successful companies deploying automation often have a center of excellence. And I think you’re going to see those statistics improve pretty dramatically here over time. And we at Bain are actually seeing this as well. But one thing that I would say is that success requires so much more than a high performing center of excellence. We at Bain, we have a framework and a methodology that includes seven elements of a successful automation program, and certainly having a center of excellence or having some governance around your automation program is absolutely vital. But we believe a successful automation program really starts with strong senior sponsorship from business and IT leaders and bold automation goals, and it requires including not just the COE, but how you’re thinking about governing automation, whether that’s a centralized, federated, or a decentralized model, and it includes other elements, from a healthy intake and pipeline development process to the right delivery and partners, to change management, to the right incentives, and of course, value realization. So we see COE’s as only a small part of the journey here, Guy.
Guy Nadivi: I’m curious, Michael, when the center of excellence you run at Bain evaluates a process to be automated, is there a minimum ROI you need to justify automating that process?
Michael Heric: We typically want to see 20 to 40% savings, but it varies by process, as you might expect. Ideally, we also want to see other sources of value beyond cost savings, whether that may be improved customer experience, reduced cycle time, lower error rates, greater resiliency. We want to see other benefits. There is absolutely, in our experience an experience curve when it comes to automation, and I’m sure many of your listeners feel the same way as well. Just recently, and this is outside of the studies that you have here, we recently completed a new automation survey that found on average, companies only save about 12% of costs on their automation projects. And I realize that’s quite low, but when you look at the more experienced automation users, they’re four times more likely to actually achieve greater than 20% cost savings. So while there’s a great deal of frustration, even disillusionment at times in the market with some of these automation tools and whether these savings are real, what we do find is those that have more experience, that stick with it and learn from past experiences can often break through and achieve pretty meaningful savings.
Guy Nadivi: You alluded to a survey, which of course earlier this year, Bain conducted a survey of nearly 800 executives worldwide, which yielded a wealth of insights about where many major enterprises stand vis-a-vis automation and other digitally transforming technologies. Some of the findings concerned execution barriers, which persist in hindering organizations from realizing the full value automation can deliver. For example, you reported that 44% of respondents said their automation projects have not delivered the expected savings. Your prescription for addressing this was to advise enterprises to “ground automation in the customer’s experience”. Michael, do you think that makes improved customer experience a more important metric than return on investment when evaluating automation?
Michael Heric: I’m not sure they are mutually exclusive. I think they’re quite related. From our experience, the trap that many companies unfortunately fall into is the following, and let me paint this picture. Some companies buy a handful of RPA licenses, as an example. They assign a junior project manager to run around the organization, pushing people in the business to find tasks to automate. Once those tasks are automated, business leaders can’t find the savings in their P&L, programs stall out. So we see this movie playing sort of over and over again. Our view is that automation is ultimately about business process transformation. And business process transformation should start, and the outcomes should be measured by, improvements in the customer experience. A customer could be the end customer or the customer could be an internal business stakeholder, like HR, serving managers and employees. When automation, in our belief, is grounded in and is one of several ways to achieve a broader business process transformation, we believe automation is likely to be more embraced and gain more traction and organization. And that’s why we focus so much on the customer experience, because we think that’s how you get the return on investment.
Guy Nadivi: Michael, an article you published earlier this year, entitled “Intelligent Automation: Getting Employees to Embrace the Bots”, highlighted an interesting finding from your survey of those 800 executives. When asked to rank the three most important benefits achieved by implementing new automation technologies, the number one result was freeing up staff to do higher value work. Now this is very interesting, because the thought of encroaching automation has created a bit of anxiety for people and even triggered some resistance from employees fearing job loss or radical changes to their job. That’s a condition we refer to on this podcast as robophobia. Michael, do you think the prospect of doing higher value work and therefore becoming even more valuable to an organization will be enough to mitigate people’s robophobia?
Michael Heric: Guy, I think it helps, but automation success requires much more. As I mentioned before, automation is about business transformation. It’s a change program, and most people fear change, regardless of the form it takes. We often tell our clients at Bain that organizations don’t change behavior, people do. Organizations have to find ways to inspire people to want to change, to want to adopt automation. I mean, just take the impact of the pandemic. There’s been a lot written and more importantly observed in the marketplace on the impact of the pandemic on accelerating automation. And we at Bain, we believe this as well. The pandemic has challenged longstanding beliefs, how people and business processes work, and the role that remote work or automation can have. This is inspiring companies to change and to adopt automation more. And let’s hope this energy around automation sticks as we recover from the pandemic. So in our work, we encourage our clients to really understand the long-term impact on their people from automation and to communicate honestly with employees about the impact of automation, that there will be job loss or permanent change to jobs. So robophobia is in fact real. But most importantly, we try to encourage our clients to develop talent strategies and plans on how to address this head-on. You might’ve seen, for example in the press, how Amazon is doing this by investing about $700 million in retraining people whose jobs have been lost due to the impact of automation. And I realize all of this sounds simple. However, in this recent survey that you quoted and that we just wrapped up, we found only 10% of companies felt the organization’s leadership and HR department were highly prepared to respond to the automation workforce challenges. So tons of focus around technology, how do we find the right use cases and so forth, just less time and focus on dealing with these issues around robophobia and really thinking about this as a change program.
Guy Nadivi: In another recent article you published entitled “A New Dawn for Automation”, you talk about how companies that invested in automation before the pandemic have weathered the crisis much better than those that have not. As a result, business resilience has emerged as a priority for many executives. Given the growing strategic importance of automation to an enterprise’s resilience and competitiveness, is it time for the automation function to be unbundled from IT, so that automation can become its own department reporting directly to the CEO via a Chief Automation Officer?
Michael Heric: Great question, Guy. Our view is that successful automation programs are business-led, IT-supported. Many of your listeners, I realize, are IT executives, and IT plays a critical role, regardless of where automation reports, whether that’s a consistent control framework, a manageable number of software and implementation partners, helping with delivery, knowledge management, sharing of best practices. These are just a few of the ways that IT can add value. But our view is that automation ultimately is not worth doing unless there’s real business value attached. So let’s take, for example, cost savings in RPA. IT can build a bot, but only the business can capture the savings from the automation and ensure that value flows through to the P&L. So it’s hard to predict how many CEOs will be open to yet another direct report, like a Chief Automation Officer, but who knows? As we know, the CIO role has only been around since the mid-1980s, and for most companies, it’s now unthinkable that a company would not have the CIO role. We do see automation increasingly sitting outside of the IT department for the reasons that I mentioned, as well as the Chief Automation role. Don’t know if it’s going to report to the CEO, but I think it’s going to be a critical role. And our view is maybe even the term Chief Automation Officer might not be the right one, because we believe ultimately, it’s about business transformation, rather than finding things to automate or tasks to automate. And that’s why we are increasingly seeing business transformation officers or chief transformation officers, where automation might sit under them.
Guy Nadivi: Michael, can you please share with us some of the outcomes from processes Bain has automated that you’ve been involved with?
Michael Heric: Sure. A good example would be a healthcare company that I recently worked with. So let me just set some of the context here for your listeners here. This company had an automation program for several years that was struggling to get results. After several years of having a dedicated automation COE, they had only achieved a few million dollars in cost savings and other financial benefits. I’m sure many have seen this movie before. They brought in a new Chief Automation Officer that we worked with. Now, while automation was clearly a top corporate priority and the potential was clear, the first step to really jumpstart the program was to build a healthier pipeline of opportunities working more effectively with the business. And so what we did was we started with a series of workshops in various business areas, and the goal of these workshops was not only to fill the automation pipeline with viable opportunities, but more importantly to start creating more pull rather than push for automation in the organization. Historically, this had been a major root cause of struggling to scale the program, namely enough collaboration with the business. We didn’t merely measure the results of these workshops by the number, the value of the automation opportunities identified, but also by things like what we call NPS, net promoter score, which I’m sure many of you have heard in say a consumer context, and how many people would actually volunteer to become automation ambassadors coming out of these workshops. So from that, of course, building a healthy pipeline is great, but as your listeners know, we want to take these opportunities into production to achieve the value. So we first prioritize the opportunities that could create a broad range of business value, not just head count savings. So a good example of this was an automation to reduce errors in claims processing to reduce overpayments and recovery fees. Reducing simply a fraction of these overpayments through automation created millions of dollars in savings, not just FTE savings. And then finally, a critical part of this work was supporting the new Chief Automation Officer in rebuilding his automation processes, methodologies, and tools, from intake to value realization. And this was absolutely essential, Guy, to building an automation program that could scale. And the net results of all this work went from saving a few million dollars a year, as I mentioned earlier, to one poised to achieve savings and other financial benefits north of a hundred million dollars this year. So I’m particularly proud of this healthcare example, of really driving value sort of end to end. Not just finding great things to automate, but really transforming the program from end to end, Guy Nadivi: Michael, the pace of innovation in our field can leave your head spinning, given some of the advances in automation, AI, and other digitally transforming technologies, but I’ll ask you this question anyway. Based on the unique perspective available to you at Bain, what do you envision will be some of the biggest disruptions we’ll see in the next one to three years with respect to automation?
Michael Heric: Great question, Guy. It’s going to be really interesting to see the next few years. I think there’s some disruptions that I think many are expecting. So for example, RPA moving from on-prem to cloud. I would point to a couple major disruptions. I would say first, the continued democratization of automation, and then the second, the continued convergence of automation technologies. So let me take the first one first on democratizing automation. As you know, there’s always been citizen developers. I remember in the early 1990s, building macros in Excel to automate work, but it was hard work, let me tell you, as a college student. As automation tools become easier and you see the adoption of low-code and no-code development platforms, I believe that citizen developers will become much more empowered than ever before. And so you’re going to see automation absolutely permeating across the enterprise. I think the second one is this continued convergence of automation technologies. I’m skeptical we’re going to live in a world where there’s just one integrated automation platform that does it all. So companies can go there and it’s going to do everything you could possibly imagine, but I certainly believe that there’s too much fragmentation, and at times overlapping technologies out there. We also see that automation often works best when several of these technologies actually work together, such as we’re seeing now with more forms of intelligent automation. So I see a world with much less fragmentation, where these disparate technologies start to work more effectively together. So I don’t think we’re going to have one single platform, but I definitely see much more consolidation and convergence around the entire automation technology. And I think we’re poised to see a pretty dramatic sort of shake out or consolidation over the next two to three years.
Guy Nadivi: I think I agree with you. There has been such a proliferation of automation vendors, and especially chat bot vendors over the last few years that a shakeout is inevitable. Michael, for the CIOs, CTOs and other IT executives listening in, what is the one big must have piece of advice you’d like them to take away from our discussion with regards to implementing automation at their organization?
Michael Heric: I would say keep the faith and don’t give up. Succeeding at automation requires so much more than great technology or hands on keyboards, as I would say. For many companies out there, they’re very, very focused on let’s make sure we pick the right process, pick the right automation technology, and everything else will sort of work out. But as we know, automation is tough and it requires, as I mentioned before, an effective change program. It’s a business process transformation, and it takes a long time to get these things done. I think for many of your listeners out there, they’ve probably seen many cycles. If you think about software as a service, as we all know, they were application service providers a long time ago. There was a huge shakeout in that industry, and now we see what’s happened with software as a service. So these things take time. And so our view is keep the faith and don’t give up and keep pushing forward. And ultimately, at the end of the day, we believe the results will come through automation.
Guy Nadivi: All right. Looks like that’s all the time we have for on this episode of Intelligent Automation Radio. Michael, there’s a reason why so many Fortune 500 CEOs hire Bain for advice, and what you’ve shared with us today demonstrates the depths of insight available from senior Bain executives, like yourself. I’m sure our audience learned quite a bit from our discussion. Thank you for coming onto the podcast.
Michael Heric: Thanks, Guy. Appreciate your time.
Guy Nadivi: Michael Heric, Senior Partner at Bain & Company. Thank you for listening everyone, and remember, don’t hesitate, automate.