The Next Five Years for BPOs

I work for a company that has been serving the BPO community for almost three decades. During this time, the outsource industry has successfully adapted to several new technologies. Today, we’re all trying to understand the impact that large language models (LLMs) will have on outsourcing.

This has led me to have many conversations with BPO leaders, AI vendors, and the purchasers of their products and services. As a result, I have formed a strong opinion on where the industry is heading over the next five years and how BPOs should be preparing.

This article summarizes my opinion on the future of the BPO industry. It begins by explaining an economic theory that’s relevant during a time like this – when a new technology is driving efficiency in resource utilization. It then provides an example of how this theory previously played out in the lighting industry when highly efficient LED lights counterintuitively caused a net increase in global electricity consumption. The article concludes by applying this economic theory to what’s happening in the BPO industry and identifying growth opportunities for outsource vendors.

"Jevon's Paradox" shows that new efficiencies in resource utilization expands the market for that resource.

If history repeats itself, then BPO leaders should pay close attention to the economic theory called “Jevon’s Paradox.” It’s named after the 19th century economist, William Jevon.

In short, Jevon’s Paradox is the idea that when new technology increases the efficiency with which a resource is used, the rate of consumption of that resource can actually increase instead of decrease.

The invention of LED lights provides a historical example.

Here's an example to help Jevon’s Paradox make sense:?

Many people believed that electricity demand would plummet following the invention of LED lights. After all, this new light source consumed 75% less electricity than incandescent lights and 50% less than fluorescent lights.?

But, as the cost of light decreased for each individual purchaser, the total consumption of electricity actually increased as cities, architects, and companies began using more light than ever before.?

As a result, three changes occurred in the lighting industry:

1. New companies specialized in LED gained significant market share;
2. Well-establish companies were able to ride the wave by investing in LED technology and selling it through their existing distribution channels; and?
3. Companies that focused solely on incandescent and fluorescent lights suffered financially.?

Applying Jevon’s Paradox to the BPO industry today.

To help us understand what’s happening today with LLMs in the BPO industry, let’s draw a direct parallel to the arrival of LED in the lighting industry. To do that, we must accurately match up the characters:

Electricity = Human Labor: In the lighting industry, economists were tracking the rate of electricity consumption. In the BPO industry, we are tracking human labor utilization.

LED = Large Language Models (LLMs): In the lighting industry, LED was the new technology that allowed more light to be generated with less electricity. In the customer support industry, LLMs are the new technology that allow more customer queries to be resolved with less human labor. ?

Light = High Quality Customer Support: In the lighting industry, light was the ultimate goal sought by the purchasers of LED, fluorescent, and incandescent light bulbs. In the customer support industry, the purchasers of BPO services and AI assistants are seeking High Quality Customer Support.

Fluorescent and Incandescent Light Bulbs = Non-differentiated Human Interactions: In the lighting industry, fluorescent and incandescent light bulbs provided the same utility as LED lights, but in a less efficient manner. In the customer support industry, there are some basic interactions where humans provide the same utility as an AI assistant, but in a less efficient manner.

Please pause here and take a moment to honestly consider whether you think the character parings I’ve made between the lighting industry and the customer support industry are accurate. If the pairings are off, then the foundation for this article is flawed. But if the pairings are accurate, then the following analysis may provide insight on how the BPO industry will be shaped by LLMs over the next few years. Therefore, I would appreciate your feedback on the pairings in the comments below.

What I believe will happen in the BPO industry over the next five years.

I believe that most non-differentiated human interactions will be fully automated over the next five years. These are interactions where human elements such as empathy do not provide a meaningful improvement to the customer experience. If humans and artificial intelligence achieve the same customer satisfaction on an individual ticket type, then the economics for that specific ticket type is very similar to the battle between LED and fluorescent/incandescent lights. Buyers will not continue to buy a less efficient resource to achieve the same outcome.

But, as AI consumes non-differentiated communications and tasks, the efficiency gains will allow more purchasers to afford human agent support for interactions where human involvement truly matters. These “high touch” interactions are ones where human traits like empathy improve customer experience.

Today, it’s cost prohibitive for many (if not most) companies to provide high quality customer support using human agents alone.?Therefore, as customer support becomes more efficient and affordable, the market for related products and services should expand. This expanding market should include affordable human agent support for interactions that warrant it.

Therefore, I believe that global demand for non-differentiated human support will shrink over the next few years. Meanwhile, global demand for differentiated human support should grow.

The biggest losers will be BPOs that are inefficiently handling a large volume of non-differentiated support. To continue the analogy, they will come to realize that they are not in the business of selling light. Rather, they are selling incandescent light bulbs in the age of LED.

The winners will be the BPOs that develop strategies to perform differentiated work most efficiently. To learn the specific strategy we advocate for BPOs to win differentiated work, click here: https://www.zmaxinc.com/flexdesk-for-bpos