FUNDAMENTALS OF BUSINESS PROCESS OUTSOURCING 101 | first semester |

MIDTERM
MODULE 1 Better Performance
IT-BPM Industry Overview  Use of specialized external providers
Offshoring and Outsourcing (O&O) is which can deliver service with better
perhaps one of the most unique quality, innovation, in new platform:
developments in business and industry.  Sales force providing web-based sales
Firms now adopts truly global scope with management
the opportunity to situate their Operations  PeopleSoft providing employee-facing
across the world. tools
Outsourcing is said to have first flourished Faster and Continuous Service
in the run-up to the beginning of the  Greater output from work being done
second millennium. IT processes and around the clock
Operations were migrated to India as  Offshoring market research support to
some American and European companies locations in reverse time zones
focused on dealing with the Y2k problem.  Offshoring processing of bills of lading
to centers in other time-zones to
IT-BPM Industry Snapshot in the complete task faster
Philippines Part-based Activities
 Contact Center  Automobile components
 Back Office and KPO : Best-kept secret  Cruise-ship rooms
 Software Development  Airplane avionics
 Animation & Game Development  Desktop build and configuration
 Engineering Design
 Introduction to the WHAT IS BEING OUTSOURCED?
IT-BPM Industry  Support or Auxiliary Services
 Routine activities or activities that can
OUTSOURCING be
 Every time we buy something from  automated at larger centers
somebody rather than producing it  IT services
ourselves, we have essentially
'outsourced' the production of that Support or Auxiliary Services
good or service.  Cafeteria
 Contracting of a service provider for  Janitorial Service
the delivery of a process or service  Copy Center
 Building Maintenance
WHY COMPANIES OUTSOURCE?  Trucking/Shipping
 Capacity Management  Security
 Lower Cost  Payroll
 Better Performance  Legal
 Faster and Continuous Service Delivery Routine activities or activities that
 Part-based Activities can be automated at larger centers
 Small banks outsourcing check
Capacity Management processing to larger banks, riding on
 Need to acquire/buy/hire (temporary) ATM base of multi-bank network
capacity  Small vendors using Amazon.com as
 Demand chasing (one day 50 data center, marketing, and payment
employees needed, next day only 10 processing platform
are needed)  Banks using common/multi-bank core
Lower Cost banking services of large technology
 Replace expensive local or in-house providers
resources with less expensive IT Services
resources from external service  Application development
providers  Application maintenance and
 Tax differential or government management
incentive programs in other locations  Production/ Data-Center Operations
leading to lower cost
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 Production technical/systems support  Example Solution: Redefine tasks
Helpdesk 2 full-time nurses and 1 full-time
 Software as a Service (SaaS): shared doctor, from 8:00AM to 5:00PM,
application software providing emergency medicine (to
 Cloud services: shared data storage what extent), and, emergency care
facilities, database management equipment (or not)
Buyer does not have full control of
ADVANTAGES AND DISADVANTAGES resources doing work
OF OUTSOURCING  Example: Can your agency provided
Advantages: office assistant also do this extra
Employer as well as Employee errand – bring pet to the vet clinic,
bring clothes to the dry-cleaner, pick-
Disadvantages up kids from school?
Employer as well as Employaee  Solution: Do not use outsourced office
assistant like your personal assistant.
Advantages of Outsourcing –
Employer Perspective Advantages - Employee Perspective
 The service provider (BPO  “Work Abroad, Live here”
company) determines most  Be near your friends and family
efficient number of resources,  Work in the country and support
process, and supervision to Philippine growth
achieve output  Professional Growth
 Service Provider may have more  Financial Independence
expertise/capability than the  Employee Assistance
buyer  Enjoy your favorite food
 Buyer can leverage economies of
scale of the Service Provider “Disadvantages” - Employee
 Service Provider may have more Perspective
expertise/ capability than the Shifting schedule (possible night
buyer shift)
 Gives you the opportunity to pursue
your passion and interest during the
day
Dealing with irate customer
 There is training support on how to
deal with irate customer
There is also floor support
 Buyer can leverage economies of Companies provide facilities and
scale of the Service Provider. activities to help you unwind
 Example:
 Technical Infrastructure MODULE 2
 Human Resources
 Technical Expertise THE TWO (2) TYPES OF OUTSOURCING

Disadvantages of Outsourcing – Third-Party

Employer Perspective  Owned by a service provider, a local
Cost can be higher entity or part of a global group
 Buyer does not have full control of  Providing services to clients of the
resources doing work service provider
 Cost can be higher because provider  Third Party:
may add premium for risk in case Accenture
AEGIS
processes are not well defined Convergys
 Example Problem: Vaguely defined EGS (NCO/APAC)
task as “provide clinic service.” IBM
Sitel
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SPi Global  Vendor in the same home country as
Stream Global
client
Sutherland
Sykes Advantages:
Tele Tech  Allows immediate response:
Teleperformance product designers in same country
Telus
respond to market feedback quickly
 Local contractors have same
Shared Service Center (SSC) market knowledge, culture,
 Wholly-owned by the mother company language, communication style;
 Providing services entirely to affiliates minimizes culture issues
and subsidiaries, or more rarely to Disadvantages:
clients of the mother company  Risk of inadequately selected,
 Shared Service Center (SSC): trained, supervised staff—i.e., less
ANZ Bank
skilled because contractor staff are
Chartis Technology and Operations
Management
lower paid
Chevron  Risk of higher attrition (lower
Citigroup business acumen/process
Dell knowledge) than internal staff; less
DKS motivation to deliver quality
HP Example: New York bank
HSBC contracting start-up security
J.P Morgan Chase service firm in New York
Maersk Nearshoring
Manulife
Shell Shared Services Asia
 The transfer of business to a nearby
Thomson Reuters country, often sharing the same
border.
STRATEGIES FOR OUTSOURCING Advantages:
 Multisourcing  Fee-for-service variability rather
 Crowdsourcing than fixed compensation costs
 Onshoring  Significant labor cost arbitrage
 Nearshoring Disadvantages:
 Offshoring  Additional coordination costs,
sourcing management,
Multisourcing communications
 Multiple vendors for client's outsourced  Transfer pricing/tax margin
project. requirements
 Example:  Example:
GM's Brazilian e-commerce site. Hong Kong retail firm offshoring
Vendors: Oracle, AT &T, Microsoft, garments manufacturing in Manila
Cisco, EDS (now HP Enterprise Offshoring
Services), IBM  Vendor and client in different countries
GM's 2007/$7.5B IT outsourcing Advantages:
contract with EDS (now HP Enterprise  Allows company to focus on core
Services), IBM, Capgemini, and Wipro business
Ltd.  Fast ramp-up/down at reasonable
Crowdsourcing cost
 Company puts out a call for a project;  Opportunity to expand into new
best solution/submission is accepted areas cost effectively
and contracted. Disadvantages:
 Crowdsourcing: "...outsourcing to an  Data privacy/confidentiality issues
undefined, generally large group of  Lack of right business acumen/right
potential offerers in the form of an market knowledge in offshore
open call." (Jeff Howe) location
Onshoring  Cultural differences leading to
delays and miscues
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 Risk of high attrition in service
provider, weak staff
selection/training

ACTIVITIES-TASKS-PROCESSES

Core Activities-Tasks-Processes:
 Primary process or product of the
business IT Outsourcing:
 Tasks that deliver the primary product,  IT Technical Support
the unique value proposition of the  IT Application Development
company  IT Application Management
 “Essential, defining activities of an  Data Center operations
organization,” what it needs to keep  Software as a Service (SaaS)
enhancing to improve competitive  Cloud (On-line Storage) Services
advantage Support function/ services:
 Cafeterias
 Copy centers
Non-Core Activities-Tasks-Processes:  Security
 Support activities, processes, functions  Janitorial Services
 Trucking/ Shipping
WHAT NOT TO OUTSOURCE  Building Maintenance
Core Activities-Tasks-Processes: Routine activities or activities that
 Design can be automated at larger centers:
 Product Development  Small banks outsourcing check
 Process processing to larger banks, riding on
 “Recipe” ATM base of multi-bank network
 Small vendors using Amazon.com as
WHAT TO OUTSOURCE data center, marketing, and payment
 Well-defined/documented tasks, processing platform
standard outputs  Banks using common/multi-bank core
Examples: banking services of large technology
 IT Development: programming, providers
documentation, unit and Seasonal Requirement/s:
integration testing, implementation  One day 50 employees needed; next
of new systems, conversion to new day only 10 are needed
platforms  Christmas hires to handle additional
 IT Maintenance: application volume of transactions
maintenance, helpdesk, network  Temporary extension of operating
support hours to accommodate foot traffic
All Part-based Activities:
TYPICALLY OUTSOURCED ACTIVITIES-  These are activities that are: routine,
TASKS-PROCESSES scheduled, with little uncertainty
 Business Process Outsourcing (BPO)  Automobile assembly
 IT Outsourcing  Electronics assembly
 Support Function/s  Packaging solutions
 Routine activities or activities that can  Handicrafts or garments for mass
be automated at larger centers production
 Seasonal Requirement/s
 Part-based Activities Summary
BPO: Contracting third parties for specific
Business Process Outsourcing (BPO): business functions.
outsourcing of entire business process IT Outsourcing: Delegating IT services to
components; e.g., HR, payroll, accounting, external providers.
Financial, etc. Support Functions: Activities that assist
 FUNDAMENTALS OF BUSINESS PROCESS OUTSOURCING 101 | first semester |
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core operations, often outsourced.  Benchmarks to ensure objective
Routine Activities: Repetitive tasks standards in assessing work quality
suitable for automation.
Seasonal Requirements: Fluctuating Therefore, as a result of these relationship
needs based on time-sensitive demands. attributes, the IT-BPM contract is a unique,
Part-based Activities: Tasks related to “tailor-fit” agreement captured in a
specific components, often outsourced for document that resembles a performance
specialization. contract.

Key Technologies that Support THE IT-BPM CONTRACT

Outsourcing  A business process management(IT-
BPM) contract is a formal agreement
Video conferencing: between a client and a service provider
 HP - Halo (8.5 min. video) to take over a “pre-agreed portion” of
 Cisco – Telepresence the client's business operations.
 Sun - MPK20: Project Wonderland  This “pre-agreed portion” is
Web-based conferencing and documented in the contract as the
workflow tools: scope of work (SOW).
 WebEx  The IT-BPM contract, with all its
 MS Windows Meeting Space attachments, assumptions, and
 MS SharePoint documented agreements, is referred to
 Google Applications as the master services agreement
(MSA).
Fundamentals of Outsourcing
THE IT-BPM CONTRACT: MASTER
Business
Process
SERVICES AGREEMENT
Outsourcing
Engagements
 Definition: Covering agreement that
summarizes terms applicable to every
job-order with the service provider
Issue
Management Managing  Main elements:
and Critical Outsourcing
Situation Transitions  Service to be provided
Control
 Performance management,
issues, change management
BPO
Operations
 Country laws
Management

Groups (A) and (B) are the “operational”

elements, used day to day. Group (C)
MODULE 3
generally “just-in-case” terms.
CLIENT-SERVICE PROVIDER
RELATIONSHIP THE IT-BPM CONTRACT: SCOPE OF
WORK
Client-Service Provider Relationship:  Definition: Describes specific work
Attributes to be delivered, by when, at what
cost
 Considerations:
Client company is concerned with:
 Can be similar to a “job order”
 Quality transition of processes
 Is generally an
 Efficient operation of business
attachment/addendum to a
functions
 Master Agreement, points to
 that were once handled in-house
covering terms
 May state that in case of terms
Service provider company is
inconsistency, the SOW or
concerned with:
Master Agreement supersedes
 Scope of service
 Performance measures
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THE IT-BPM CONTRACT: CORE  Outline of reporting procedures,
ELEMENTS decision-making, and escalation of
 Service to be rendered or provided as problems
documented in the Scope of Work  Legal provisions (e.g., non-
(SOW) competition, confidentiality)
 Performance standards expected from
the service provider; Service Level IT-BPM CONTRACT PRICING MODELS
Agreements (SLA), and, Key
Performance Indicators (KPI) 1. Fixed Price:
 Timeline of the contract; start date  This pricing model is easy to plan
(“go live”), and, duration and more predictable than other
 Costs to the client pricing models.
 Other Specific Operational  A fixed, pre-agreed price per unit is
Requirements negotiated (e.g., a fixed price per
call or a fixed price per transaction)
Service to be rendered or provided as  Advantages for service
documented in the Scope of Work providers: it is known in advance
(SOW) what will be paid and what will be
 Out-bound sales calls delivered
 In-bound inquiries or subscriptions  Advantages for clients: provides
 Delivering food or flowers or mail greater cost certainty
 Disadvantages: several risks with
Performance standards expected capital requirements and lower
from the service provider; Service flexibility
Level Agreements (SLA), and, Key
Performance Indicators (KPI) 2. Time and Material:
 “Handle Time” and “Average Handle  The price for service is based on the
Time” time and material that was used.
Sales attainment  Used when a service is very flexible
 Customer satisfaction rating and it is not predictable in terms of
how much time and material is
Timeline of the contract; start dates needed.
(“go live”), and, duration.  In some cases, a maximum price for
 It is a detailed schedule of when the the service is negotiated by the client/
transition period starts and when the customer to build in some control or
service provider assumes control of the safety level.
contracted processes  In practice, it is often a mix of the
 In terms of type per duration; most above mentioned pricing models that
contracts are typically multi-year is used.
contracts, however and when deemed
most effective, on-demand contracts IT-BPM CONTRACT FINANCIALS
may also be put into effect
CAPEX (or Capital Expenditure) is
Costs to the client a business expense incurred to create
 Refers to the payment made by the future benefit. Expenditure on assets like a
client to the service provider for building or the physical space, machinery,
honoring contractual agreements equipment or upgrading existing facilities
so their value as an asset increases.
Other Specific Operation
Requirements: OPEX (or Operational Expenditure) is
 Who will provide the service the money the business spends in order to
 Qualifications of personnel turn inventory into output (throughput).
 Location of operations These are operating expenses which also
include depreciation of plants and
machinery which are used in the
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production process.  Benefits: Training, Health and Life
Insurance, Profit Sharing, Pension
Those expenditures required for the day- Matching, Worker’s Compensation,
to-day functioning of the business, like Employer share of payroll and Social
wages, utilities, maintenance and repairs Security taxes
fall under the category of OPEX  Infrastructure: Facilities, Venue Rent, IT
Support

REGULATORY REQUIREMENTS

Adherence to Government
Regulations (External):
Board of Investments (BOI)
Bureau of Internal Revenue (BIR)
Bureau of Immigration
Department of Labor and
Employment (DOLE)
Pag-Ibig Fund
Philippine Economic Zone Authority
(PEZA)
COMPONENTS OF PROCESS COST
Securities and Exchange
Process costs associated with roles
Commission (SEC)
(activities-processes-tasks) that may be
Social Security Services (SSS)
outsourced via the offshoring outsourcing
Data privacy Law
strategy
 Labor cost
Compensation Industry/ Company Regulations
Benefits (Internal):
Bonuses  Institutional and operational
Incentives standards/ policies/ guidelines
 Direct costs  Service provider implements own
 Employee Development regulations
(Training), Employee Relations
Programs External Regulatory Requirements –
 Employee Tools/ Equipment; BOI Board of Investments
desktop computers,
communications  A Republic of the Philippines agency
 Coordination and Management: created under the Department of Trade
travel, representation, and Industry.
meetings, and, workshops  It strives to attract direct investments
 Indirect costs into the country to contribute to
 Infrastructure: indirect costs for economic growth and jobs creation in
network, mail, and other shared the Philippines
employee services, rental,
depreciation/ amortization BOI Qualification
 Other charges: head office or  A Philippine enterprise can register
regional shared cost allocation, their project with the BOI if the
interest cost, foreign exchange proposed activity is listed as a
gains/ losses preferred project in the current IPP. The
said enterprise may engage in
COMPONENTS OF LOADED ANNUAL domestic-oriented activities in the IPP
COST whether classified as pioneer or non-
pioneer
Loaded Annual Cost
 Compensation: Salary and Bonuses BOI Qualification (Continued)
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 However, an activity which is not listed business operations of investors in
may still be entitled to incentives if the export-oriented manufacturing and
following conditions are met: service facilities inside selected areas
 At least 50% of the production is throughout the country proclaimed by
marked for export the President of the Philippines as
(for 60% Filipino-40% Foreign-owned PEZA Special Economic Zones.
enterprises); or
 At least 70% of production is marked Qualification
for export  Export-oriented enterprises that are
(for more than 40% Foreign-owned found in any of PEZA special economic
enterprises) zone
 Any outsourcing company is Qualified
under 100% export Requirements
 For foreign-owned firms or those  Duly accomplished and notarized PEZA
whose foreign investment exceeds application form and anti-graft
40% of the outstanding capital stock certificate.
who can engage in domestic-oriented  Corporate Profile (including that of
activities, can only be registered with parent company, if applicable)
the BOI if they propose to engage in an  Board Resolution authorizing the filing
activity listed or classified in the IPP as and designation of a representative
pioneer.  Securities and Exchange
 However, if it fails to meet the pioneer Commission SEC Certificate of
classification, it can likewise opt to be Registration, Articles of Incorporation
an export-oriented firm to qualify for and By Laws (if not available, submit
BOI registration. However, this time, draft of Articles of Incorporation)
the export requirement is at least 70%  Project brief(i.e., Information on
of actual production Market, Technical, Financial and
Management aspects of the project to
BOI Requirements: be registered)
 DTI Registration: Sole Proprietorship
 SEC Registration: Corporation, Branch Data Privacy Law – Republic Act No.
Office, Regional Headquarters 10173
 Audited financial statement and  An act protecting individual personal
Income Tax Return for the past three information in information and
years (if applicable) communications systems in the
 Board Resolution to authorized government and the private sector,
company representative creating for this purpose a national
 Accomplished Application Form 501 privacy commission, and for other
and Project Report purposes

External Regulatory Requirements - Internal Regulatory Requirements –

PEZA Industry
PEZA, The creation of
Industry Specific Regulations -
 The development of Special Economic Control of communication channels
zones throughout the country, and the and information systems: ARTICLE 16-
very competitive incentives available (1)
to investments inside PEZA Special  The communication channels and
Economic Zones are embodied in the information systems of the bank shall
Special Economic Zone Act of 1995 be controlled to ensure that
(Republic Act No. 7916), a law passed information obtained within the bank is
by the Philippine Congress. reliable, complete, traceable,
 Promote Philippine investments, consistent, in a suitable format and
extend assistance, register, grant character to meet the requirement,
incentives to and facilitate the
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and accessible by relevant units and
personnel in a timely manner

Industry Specific Regulations -

Auditing of partnerships subject to
consolidation: ARTICLE 34- (1)
 Banks shall take all necessary
measures to ensure that their internal
audit units can inspect all activities
and units of their consolidated
partnership without limitation