IT 41 –Business Process Outsourcing

I. Chapter 1: Introduction to Business Process Outsourcing

II. Introduction

This module will provide an overview of an outsourcing operation – from planning,

transitioning, maintenance, and continuous improvement initiatives – all of which to be
discussed in practical terms. Topics included in this module are the following: IT-BPM
Industry Overview; Introduction to IT-BPM Industry; Why Companies Outsource; What
is Being Outsourced; and Advantages and Disadvantages of Outsourcing.

Lectures, class discussions, individual as well as group presentation will also be used to
bring the concepts to life. In the course of practical discussions, the rationale for
outsourcing, how companies determine which process are ready for outsourcing, and the
associated costs-benefits along with risks will similarly be drawn out.

Below are different vocabularies for your reference.

Application Management

Application management (AM) is the process of managing the operation, maintenance,

versioning and upgrading of an application throughout its lifecycle.

Capacity Management

A process used to manage information technology (IT). Its primary goal is to ensure that
IT capacity meets current and future business requirements in a cost-effective manner.

Contact Center

A contact center (also referred to as a customer interaction center or e-contact center) is

a central point in an enterprise from which all customer contacts are managed. The
contact center typically includes one or more online call centers but may include other
types of customer contact as well, including e-mail newsletters, postal mail catalogs, Web
site inquiries and chats, and the collection of information from customers during in-store
purchasing. A contact center is generally part of an enterprise's overall customer
relationship management (CRM).

Data Center

Computer facility designed for continuous use by several users, and well equipped with
hardware, software, peripherals, power conditioning and backup, communication
equipment, security systems, etc.

Helpdesk

A resource intended to provide the customer or end user with information and support
related to a company or institution's products and services. The purpose of a help desk is
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 usually to troubleshoot problems or provide guidance about products such as computers,
electronic equipment, food, apparel, or software.

Knowledge Process Outsourcing (KPO)

Knowledge process outsourcing (KPO) is the allocation of relatively high-level tasks to

an outside organization or a different group in a different geographic location. Examples
of KPO include long-term jobs for intellectual, analytical and knowledgeable people
within industries such as research and development, financial consultancy and services,
business and technical analysis and many others.

Outsourcing

Any task, operation, job or process that could be performed by employees within an
organization, but is instead contracted to a third party for a significant period of time.

III. Learning Outcome

By the end of this module, students will be able to:

1. Define and explain what is outsourcing.
2. Identify the reasons why companies outsource.
3. Identify the functions/ services that is being outsourced.
4. List the advantages and disadvantages of outsourcing.

IV. Learning Content

IT – BPM Industry Overview

In 2010, the Philippine Information Technology and Business Process Management (IT-
BPM) industry garnered recognition from around the world. The UK’s National
Outsourcing Association determined the country number 1 in business process
outsourcing service in its Global Business Trends report.
The word is definitely out – the Philippine is a major player in global IT-BPM.
The opportunity remains for the Philippine IT-BPM industry to capture a bigger share,
given the global offshoring services market is seen to more than double by 2016. The
industry has the potential to bring in US $25 billion in revenue and employ 1.3 million
individuals by 2016.
Offshoring and Outsourcing (O&O) is perhaps one of the most unique developments in
business and industry. Firms now adopts truly global scope with the opportunity to situate
their operations across the world.
Outsourcing is said to have first flourished in the run-up to the beginning of the second
millennium. IT processes and operations were migrated to India as some American and
European companies focused on dealing with the Y2K problem.
IT-BPM Industry Snapshot in the Philippines
The Philippines is a recognized global strategic partner in providing continuously excellent
service in the following: 1) Contact Center; 2) Back-Office and KPO; 3)Software Development; 4)
Animation and Game Development; and 5) Engineering Design.
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 The industry not only provides us jobs for making and receiving calls. Those with expertise in
other subsets of the IT-BPM industry such as Knowledge Process Outsourcing, Software
Development, Animation and Game Development and Engineering Design also have
opportunities.
So, contrary to popular understanding, beyond making outbound and taking inbound phone
calls, the Philippines is a proven preferred solutions provider to global clientele.

The graph shows a clear upward trend and growth projection for the country.

The “Percentage of GDP (Gross Domestic Product) is the industry’s direct contribution
to financial growth of the country.

“Direct Jobs” is employment directly attributed to activities – operations, growth and

expansion – of the industry.

“Indirect Jobs” is employment indirectly generated in relation to activities of the industry.

For example contact center employees working on graveyard shifts buy their food from
fast-food restaurants who decided to do business 24 hours because of demand. Same goes
for jeepney and taxi drivers who decided to stay up late for employees going to the office
in the evening. They are not employed by companies yet are benefiting from these
opportunities.

“What’s at Stake” is a very clear opportunity for the country to positively uplift the
quality of life. This is accomplished through salaries and wages paid to employees of the
IT-BPM Industry as well as to salaries and wages earned through indirect employment.
Regardless if the job is direct or indirect in its origin, taxes are paid to the government.

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 These taxes are then put to work in the development of infrastructure, utilities, security
and welfare of the country.

The current nationwide challenge and opportunity is to consistently and reliably provide
highly skilled and professional “homegrown” personnel.

This is a golden opportunity for each of you to join this very progressive, dynamic, and
financially robust industry as a means to grow personally, professionally and
economically, at the same time, actively contributing to the overall growth and
development of the country.

Definition of Outsourcing
Every time we buy something from somebody rather than producing it ourselves, we have
essentially “outsourced” the production of that good or service.

Any task, operation, job or process that could be performed by employees within an
organization, but is instead contracted to a third party for a significant period of time is
what we call outsourcing. Another definition of outsourcing is contracting of a service
provider for the delivery of a process or service.

Why Companies Outsource?

Below is the list of reasons why companies outsource.
1. Capacity Management
- Need to acquire/ buy/ hire (temporary) capacity
- Demand chasing (one day 50 employees needed, next day only 10 are needed)

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 Capacity management has to do with the associated manpower and related expertise
of that workforce. Try to imagine how many employees Globe, Smart, or Sun Cellular
would need if they did not source out their mobile phones for their subscription plans
and decided instead to manufacture their own phones. If our network operators
decided to do this there would be an immediate impact on the next item – cost.

2. Lower Cost
- Replace expensive local or in-house resources with less expensive resources from
external service providers
- Tax differential or government incentive programs in other locations leading to
lower cost.

Cost has a lot to do with a company’s sustainable capacity to effectively produce or

deliver its products and services. For example, US Companies would prefer to pay a
Filipino contact center associate $16,000 per annum rather than $70,000 for an
associate in the US.

3. Better Performance
Use of specialized external providers which can deliver service with better quality,
innovation, in new platform:
- Sales force providing web-based sales management
- PeopleSoft providing employee-facing tools

Better performance has to do with manpower and the associated expertise of that
workforce. A known appliance manufacturer, Panasonic, entrusts the selling of their
products to distributors like SM Appliances or Abenson so they could focus more on
their core activity which is manufacturing.

4. Faster and Continuous Service Delivery

- Greater output from work being done around the clock
- Offshoring market research support to locations in reverse time zones
- Offshoring processing of bills of lading to centers in other time zones to complete
task faster

As an example, a patient in the US underwent x-ray and ultrasound on Day 1. The

data is sent to the Philippines. While the US doctors are sleeping, doctors here in the
Philippines are analyzing the data, then send it back to the US. On Day 2, the US
doctors give the results to the patient.

5. Part-Based Activities
- Automobile components
- Cruise-ship rooms
- Airplane avionics
- Desktop build and configuration

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 Part-based activities, is closely related to operational efficiency. Perhaps one of the
best ways to illustrate this point is through passenger car assembly lines. The entire
assembly or production line is clearly sub- divided into specific tasks or stations. Each
station then having its own; specialized personnel, equipment or machinery, raw
materials, and, cycle- time.

This work segmentation allows for numerous benefits such as; greater degree of
control, inventory management, troubleshooting, and, forecasting to mention a few.

What is Being Outsourced?

The following are the list of what is being outsourced.
1. Support or Auxiliary Services
- Cafeteria
- Janitorial Service
- Copy Center
- Building Maintenance
- Trucking/ Shipping
- Security
- Payroll
- Legal

As an example to this section, a school would rather hire the expertise of a

professional security agency rather than hiring their own security guards. This way,
the school owner can focus on managing the school. Having security guards for
shifting schedules or having a replacement when a guard is absent is the security
agency’s concern.

2. Routine Activities or Activities That Can Be Automated at Larger Centers

- Small banks outsourcing check processing to larger banks, riding on ATM base
of multi-bank network
- Small vendors using Amazon.com as data center, marketing, and payment
processing platform
- Banks using common/ multi-bank core banking services of large technology
providers

Each example presented essentially boils down to one company (let us call this
company, Company A) leveraging technical advantages of another company (let us
call this company, Company B). Company A, potentially being a “smaller” company,
can opt to engage Company B in a business agreement to allow Company B’s superior
technology and/ or superior expertise to fulfill on outputs that might otherwise
overwhelm Company A.

3. IT Services
- Application development
- Application maintenance and management
- Production/ Data-Center Operations
- Production technical/ systems support
- Helpdesk
- Software as a Service (SaaS): shared application software
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 - Cloud services: shared data storage facilities, database management

Application Development. Regardless if it is the Apple Apps Store, or the Android

Market for Android-powered devices, or, Marketplace or Ovi Store for Nokia all of
these on-line mobile applications shops have, for example Rovio’s Angry Birds. Or
take for example an organization with a large marketing and sales force. In many
instances this company will contract an application developer to write or customize
an application so as to help the company better track; sales or job orders, inventory
levels and movement, stock levels, price fluctuations of competitor brands, etc.

Application Maintenance and Management. Take for example our very own National
Bureau of Investigation (NBI). The NBI contracted a vendor to handle its database.
Internal employees may not have the skills to do such task but with the help of another
company, NBI no longer has to worry about their database.

Production/ Data Center Operations. Perhaps two industries that popularly use this
service would be the banking industry and medical industry. More specifically with
banking credit or fraud operations, and, with medical it would be with transcriptions.

Production Technical/ Systems Support. For this service we would look to both
providers and users; of engineering services and computer servers.

Helpdesk. This is perhaps the most common service known to many of us. This
basically takes the form of having a group of agents fielding incoming calls of a
potentially wide variety. Some of these are inquiries on flight bookings, status of a
parcel on a trans-continental shipment, status of cable or mobile phone subscription.

Software as a Service. The digital age is truly maturing at a tremendous rate thanks
in large part to advancements in both hardware and software. Nowhere is this most
evident than in corporations. The technology is finding its way to average consumers
as well. Take for example corporate solution applications that allow for online video
conferencing or virtual classrooms involving multiple participants “calling in” from
different time- zones and countries without the need for specialized hardware to view
a presentation shared by a presenter who for all we know is at home but who is
remotely accessing his or her files from the company server.

Online or Cloud Services. If you have any of the following email accounts or a
combination therefore you are online or using Cloud Services. Gmail, Yahoo, and
Hotmail or Windows Live accounts all provide you with some form of what is now
called “cloud” storage. Similarly, Apple, Android, and Windows Phone users are
given access to an online storage facility. Your account profile, preferences, and
settings are handled in an automated fashion by a system that is routinely maintained
by programmers granted administrator status. Similarly your account activities are
not completely invisible. If you download free applications, an administrator of that
service provider knows your complete download history.

Advantages and Disadvantages of Outsourcing

Every coin has two faces. And in this instance advantages and disadvantages goes both
ways – to the company or the employer, as well as to the employee.
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 1. Advantages of Outsourcing – Employer Perspective
• The service provider (BPO company) determines most efficient number of
resources, process and supervision to achieve output

The first bullet or item is fundamentally about resource optimization. No

organization has infinite resources. It is critical in at least two ways: firstly
towards the successful completion of client requirements, and secondly with
regard to ensuring profitability, growth, and, sustainability.

• Service provider may have more expertise/ capability that the buyer.

Example: Technical Support – Dell, Convergys

Accounting – JP Morgan Chase & Co, CITI
Animation – Top Draw Animation

Technical Support. Service providers will already have an established track-

record in successful resolution of such concerns given their in-depth expertise in
the related or required technologies.

Accounting. Global companies like Citi and JP Morgan Chase & Co are prime
samples of service providers that execute to the highest standards with regard to
a highly confidential subject matter – the financials of a client.

Animation. Visionary producers and directors are not technically animators

themselves, they are essentially great story-tellers who finance and guide a film
to its completion. They work with animation studios or service providers who do–
pre as well as post production.

• Buyer can leverage economies of scale of the service provider

Example: Technical Infrastructure

Human Resources
Technical Expertise

Technical infrastructure. The service provider has a sizable and proven capacity
for online storage, data processing and data connectivity.

Human Resources. This item does not exclusively refer to the sheer volume or
number of warm-bodies. But more importantly it refers to the associated
knowledge, skills, competencies and professionalism of those human resources.

Technical Expertise. It is the convergence of the first and second bullets or items.
This includes the skill to correctly and efficiently diagnose and troubleshoot a
client’s concern potentially without the need to seek additional support and
assistance from an escalation or a transfer.

2. Advantages of Outsourcing – Employee Perspective

• “Work Abroad, Live Here”
- Be near your friends and family
- Work in the country and support Philippine growth
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 It shows the benefits given the Filipino’s value and appreciation of the close-knit
family system.

• Professional Growth

You are potentially able to expand your business expertise as you interact in
different group settings, work with professionals of different ethnicity, cultural
background, and, management style. This exposure and experience is a wonderful
learning opportunity.

• Financial Independence

More often than not entry-level salaries in the IT- BPM industry are significantly
more attractive than entry level positions in other industries. This holds true even
in instances wherein the job function is primarily similar. Many industries
aggressively incentivize their staff in sales. Often being in sales requires
personnel to a lot. They transport sample products and marketing materials. With
the advancement of telecommunication, sales specialists can accomplish their
task by communicating with customers via online platforms and the phone.

• Employee Assistance

Many IT-BPM companies provide world-class facilities, amenities, and benefits

that is more that what is required by the government. When safety and well-being
of the employees are at risk, many IT-BPM companies make sure that their
employees are looked after.

• Enjoy your Favorite Food

The last item though seemingly funny and simplistic is a key social activity in our
culture. Eating for us Filipinos is an opportunity to strengthen relationships – at
work, with friends and at home. Incentives may include opportunity to savor your
favorite dish.

3. Disadvantages of Outsourcing – Employer Perspective

• Cost can be higher because provider may add premium for risk in case processes
are not well defined

Example Problem: Vaguely defined task as “provide clinic service”

Example Solution: Redefine tasks, 2 full-time nurses and 1 full-time doctor, from
8:00AM to 5:00PM, providing emergency medicine (to what extent) and
emergency care equipment (or not)

Clarifying uncertainties in some processes may incur cost on the organization’s

end

• Buyer does not have full control of resources doing work

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 Example: Can your agency provided office provided office assistant also do this
extra errand – bring pet to the vet clinic, bring clothes to the dry-cleaner, pick-up
kids from school?

Solution: Do not use outsourced office assistant like your personal assistant

The people doing the work are limited to the requirements of the job being
outsourced to them.

4. Disadvantages of Outsourcing – Employee Perspective

• Shifting schedule
- Gives you the opportunity to pursue your passion and interest during the day

A shifting schedule with the possibility of working at night can easily be viewed
as a disadvantage. However, what this scheduling opens up for many is the
opportunity to pursue other activities during the day. For many members of the
IT-BPM industry this means; participating in community development initiatives,
supporting charities, helping out and supporting a family venture, or simply enjoy
their favorite fitness facility without the throng of other patrons who still happen
to be in school or at work. These are just a few benefits.

• Dealing with irate customer

- There is training support on how to deal with irate customer
- There is also floor support
- Companies provide facilities and activities to help you unwind

Dealing with irate customer is not unique to the IT-BPM industry. This situation
can arise fifty percent of the time in any transactional relationship. What is certain
is that you will receive expert training on how to effectively handle such
situations. In instances that you may require support or upon a customer’s request,
your peers – supervisors and managers are committed to deliver – customer
satisfaction. They will develop your skills to perform your job with greater
independence. Lastly, many companies provide for facilities and activities to help
employees handle work-related stress. There are game rooms, break-out rooms to
power nap, a basketball court, video gaming consoles, a meditation room, a clinic
or infirmary, having an anti-burn out party, having sporting competitions, and
many more. These are all prime examples of facilities and activities geared
towards better employee well-being.

V. Teaching and Learning Activities

Select any two (2) of the three (3):

1. Interview any one (1) of the following: a Site Director, an Operations Manager, a
Team Leader or Supervisor. You may submit as a video or audio file.
2. Visit an IT-BPM or BPO company and secure the following information and/ or
documents: company brochure, company vision and mission, total manning/ head-
count and on-going corporate social responsibility programs.
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 3. Interview three (3) people – friends, neighbors, brother, sister, who currently works
at an IT-BPM or BPO company. You may submit this as a video or audio file.

Guidelines and Considerations for Option 1:

• If you opt to fulfill number one (1) the interview does not need to happen on company
premises
• If you opt to fulfill number one (1) ask your interviewee to provide information to the
following:

o Name
o Position
o Name of employer – company name
o Tenure at the company
o Why did you choose to join this industry?
o What do you like the most in being connected with your current employer?
o How do you see your company contributing to this community or municipality
or city?
o What would it take for a student like me to become as successful as you?

• If you opt to fulfill number one (1) and submit this as a video, do the following:

o Make sure that you are visible in the beginning and ending segments of the
video
o At the beginning of the video with you in focus state your name and ID number
o At the end of the video, make sure to state the date, time venue of the interview,
thank your interviewee and mention their full name, position, and name of
employer

• If you opt to fulfill number one (1) and submit this as an audio file , do the following:

o Make sure that you clearly state your name and ID number at the beginning of
the interview
o And at the end of the interview, make sure to state the date, time, and venue of
your interview, thank your interviewee and mention their full name, position
and name of employer

Guidelines and Considerations for Option 2:

• If you opt to fulfill number two (2), do the following:

o Neatly type out and print all information gathered

o Secure physical copies of company material by stapling them to your printed
documents
o Make sure to include the following information: your full name, your ID
number, the date you completed your assignment, the name of your professor,
and the title of your assignment

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 Guidelines and Considerations for Option 3:

• If you opt to fulfill number three (3) the interview does not need to happen on
company premises
• If you opt to fulfill number three (3) ask your interviewee to provide information to
the following:

o Name
o Position
o Name of employer – company name
o Tenure at the company
o Why did you choose to join this industry?
o What do you like the most in being connected with your current employer?
o How do you see your company contributing to this community or municipality
or city?
o What would it take for a student like me to become as successful as you?

• If you opt to fulfill number three (3) and submit this as a video do the following:

o Make sure that you are visible in the beginning and ending segments of the
video
o At the beginning of the video state your name and ID number
o At the end of the video, make sure to state the date, time and venue of the
interview

• If you opt to fulfill number three (3) and submit this as an audio file, do the following:

o Make sure that you clearly state your name and ID number at the beginning
of the interview
o And at the end of the interview, make sure to state the; date, time, , venue of
the interview, thank your interviewee and mention their full name, position
and name of employer

Guidelines and Considerations for Options 1 and 3:

• If you opt to fulfill options one (1) and/ or three 3) and are physically, logistically,
and, technically unable to provide audio only and/ or video only recordings, then the
following apply:

o Submit the full interview as it transpired in written form – hand-written or

printed
o Whichever the option may be; solicit the following from your interviewee for
verification purposes:

▪ Mobile numbers (at least two if possible)

▪ Office trunk-line, or, office direct line
▪ Company email (if possible)
▪ Personal email (if possible)

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VI. Recommended Learning Materials and Resources for Supplementary Reading
Browse http://www.google.com, search and read any news article regarding IT-BPM/
IT-BPO in the Philippine settings.

VII. Flexible Teaching Learning Modality (FTLM) Adopted

In this module, the online and remote FTLM is adapted using Edmodo and Zoom
application. For the online modality, the Zoom video conferencing application shall be
used for the purpose of delivering a lecture and allowing a synchronous discussion with
the students. For the remote modality, Edmodo shall be used to upload and download the
module, and to allow asynchronous discussion with the students. This will also be used
as a platform for the submission of the requirements.

VIII. Assessment Task

Quiz No. 1

Instruction: Match Column A with Column B to identify what specific reason for outsourcing
is described.
Column A Column B
______ 1. Replace expensive local or in-house a. Capacity management
resources with less expensive resources b. Lower cost
from external providers. c. Better performance
______ 2. Greater output from work being done d. Fast and continuous
around the clock service
______ 3. Need to acquire/ buy/ hire capacity e. Part-based activities
______ 4. Use of specialized external providers
which can deliver service with better
quality, innovation in new platform
______ 5. Segmentation of work where each
assembly line has its own specialized
personnel, equipment or machinery, raw
materials, and cycle time.

Quiz No. 2
Instruction: Match Column A with Column B to identify what specific reason for outsourcing
is described.
Column A Column B
______ 1. Small vendors using Amazon.com a. Support or auxiliary
______ 2. Production/ Data-Center Operations services
______ 3. Janitorial services b. Routine activities or
______ 4. Cafeteria activities that can be
______ 5. Application development automated at larger
centers
c. IT services

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Quiz No. 3

1. What is outsourcing?
2. What are the five (5) types of outsourced services as presented in the IT-BPM
industry snapshot of the Philippines
3. Name three (3) reasons why companies outsource?
4. Enumerate five (5) functions that can be outsourced?
5. Give two (2) advantages and two (2) disadvantages of outsourcing from an
employer’s perspective.
6. Give two (2) advantages and two (2) disadvantages of outsourcing from an
employee’s perspective.

IX. References

Books
• 2013. Fundamentals of Business Process Outsourcing 101 Teacher’s Guide. Talent
Development, IT and Business Process Association of the Philippines
• 2013. Introduction to BPO. Jaipur National University, Jaipur, India
Online

• http://searchcrm.techtarget.com/definition/contact-center
• http://www.investopedia.com/terms/k/knowledge-process-outsourcing.asp
• http://www.investopedia.com/terms/c/capacity-management.asp
• http://www.techopedia.com/definition/28008/application-management-am
• http://www.businessdictionary.com/definition/data-center.html
• http://operationstech.about.com/od/glossary/g/Outsourcing.htm
• http://www.businessdictionary.com/definition/help-desk.html

Prepared by: DR. JANET P. CUNANAN – ISU, ROXAS

PROF. DIONICIO D. GANTE – ISU, CAUAYAN
DR. SHERWIN RAVANA -ISU, SAN MARIANO

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