BPO 201 FUNDAMENTALS OF BUSINESS

PROCESS OUTSOURCING

MODULE 1 1.3. Why Companies Outsource?

1.1. The IT-BPM Industry Overview 1. Capacity Management
- Need to acquire / buy / hire (temporary_
 2010 - The Philippine Information capacity
Technology and Business Process - Demand chasing (one day 50
Outsourcing (IT-BPM) industry garnered employees needed, next day only 10 are
recognition from around the world. needed)
 The UK’s National Outsourcing
Association determined the country 2. Lower Cost
#1 in business process outsourcing - Replace expensive local or in-house
service in its Global Business Trends resources with less expensive resources
report. from external service providers
 Philippine is a major player in - Tax differential or government
global IT-BPM. The industry has the incentive programs in other locations
potential to bring USD25 billion in leading to lower cost.
revenue, and employ 1.3 million
individuals by 2016. 3. Better Performance
 Offshoring and Outsourcing (O & Use of specialized external providers
O) is perhaps one of the most unique which can deliver service with better
developments in business and quality, innovation, in new platform.
industry. - Sales force providing web-based sales
 Outsourcing is said to have first management
flourished in the run-up to the - PeopleSoft providing employee-facing
beginning of the second tools
millennium.
 IT processes and Operations were 4. Faster and Continuous Service
migrated to India as some American Delivery
and European companies focused on - Greater output from work being done
dealing with the Y2K problem. around the clock
- Offshoring market research support to
locations in reverse time zones
IT-BPM INDUSTRY SNAPSHOT IN THE PHILIPPINES - Offshoring processing of bills of lading
1. Contact Center to centers in other time-zones to
2. Back-office and KPO ; Best-kept secret complete task faster
3. Software Development
4. Animation and Game Development 5. Part-based Activities
5. Engineering Design - Automobile components
- Cruise-ship rooms
- Airplane avionics
 75 % of IT-BPM jobs are in NCR, with only - Desktop build and configuration
25% of PH graduates
 IT-BPM is biggest private-sector job creator
and employer in many tier 2-3 cities. 1.4. What is Being Outsourced?

1.2. Introduction to the IT-BPM Industry 1. Support or Auxiliary Services

 Every time we buy something from * Cafeteria
somebody rather than producing it * Janitorial Service
ourselves, we have essentially ‘outsourced’ * Copy Center
the production of that good or service. * Building Maintenance
 Contracting of a service provider for * Trucking / Shipping
the delivery of a process or service. * Security
* Payroll
 * Legal than the buyer  Buyer
2. Routine activities or activities  Buyer can leverage does not
that can be automated at larger economies of scale have full
centers of the Service control of
* Small banks outsourcing check Provider resources
processing to larger banks, riding doing
on ATM base multi-bank network work.
* 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
3. IT services
* Application development Employee Perspective
* Application maintenance and
management Advantages Disadvantages
* Production / Data-Center  “Work Abroad, Live  Shifting
Operations here” schedule
* Production technical / systems  * Be near your (possibility
support friends and to work at
* Helpdesk family night)
* Software as Service (SaaS) :  * Work in the * Gives
shared application software country and you the
* Cloud services : shared data support opportunit
storage facilities, database Philippine y to
management growth pursue
4. Seasonal Requirement/s  Professional your
5. All Part-based Activities Growth passion
 Financial and
Independence interest
 Employee during the
Assistance day
 Enjoy your  Dealing
favorite food with irate
customer
* There is
training
1.5. Importance of Systems Thinking support on
how to
Employer Perspective deal with
irate
Advantages Disadvantag customer
es * There is
 The service provider  Cost can also floor
(BPO be higher support
company)determine because *
s most efficient provider Companies
number of may add provide
resources, process, premium facilities
and supervision to for risk in and
achieve output . case activities
 Service provider processes to help you
may have more are not well unwind
expertise / capability defined.
 style; staff; less
minimizes motivation to
MODULE 2 culture issues deliver
FUNDAMENTALS OF OUTSOURCING quality

2.1 The Two Types of Outsourcing

4.Nearshoring - Vendor is a country “close”
 Third-Party: (geographic and/or cultural proximity) to
 Owned by a service provider, a client’s home country.
local entity or part of a global Advantages Disadvantages
group  Fee-for-service  Additional
 Providing services to clients of the variability coordination
service provider rather than costs, sourcing
 Shared Service Center: fixed management,
 Wholly-owned by the mother company compensation communications
 Providing services entirely to affiliates and costs  Transfer
subsidiaries, or more rarely to clients of the  Significant pricing/tax
mother company labor cost margin
arbitrage requirements

5. Offshoring – Vendor and client in

different countries.
2.2 Strategies for Outsourcing
Advantages Disadvantages
1. Multisourcing – Multiple vendors for client’s  Allows company  Data privacy /
outsourced project. to focus on core confidentiality
2. Crowdsourcing – Company puts out a business issues
call for a project; best solution /  Fast ramp-up /  Lack of right
submission is accepted and down at business
contracted. reasonable cost acumen / right
Crowdsourcing: “…outsourcing to an  Opportunity to market
undefined, generally large group of expand into knowledge
potential offerers in the form of an open new areas cost  Cultural
call.” (Jeff Howe) effectively differences
3. Onshoring : Vendor in the same leading to
home country client delays and
Advantages Disadvantages miscues
 Risk of high
 Allows  Risk of
immediate inadequately attrition in
response : selected, service
product trained, provider, weak
designers in supervised staff selection /
same country staff – i.e. less training
respond to skilled because
market feedback contractor staff
quickly are lower paid
 Local contractors  Risk of higher
have same attrition (lower
market business
2.3 What to Outsource – 2 Types
knowledge, acumen /
culture, process
1. Core Activities-Tasks-Processes:
language, knowledge)  Primary process or product of the business
communication than internal
  Tasks that deliver the primary product, the
unique value proposition of the company 2.8 Fundamentals of Outsourcing
 “Essential, defining activities of an
organization”, what it needs to keep
enhancing to improve competitive
advantage
2. Non-Core Activities-Tasks-Processes:
 Support activities, processes, functions

2.4 What NOT to Outsource

1. Business Process Outsourcing Engagements
Core Activities-Tasks-Processes 2. Managing Outsourcing Transitions
 Design 3. BPO Operations Management
 Product Development 4. Issue Management and Critical Situation
 Process Control
 “Recipe”
MODULE 3
2.5 What to Outsource BPO ENGAGEMENT

Well-defined/documented tasks, standard 3.1 Client-Service Provider Relationship

outputs Attributes
Examples:
 IT Development: programming, CLIENT COMPANY SERVICE
documentation, unit and integration PROVIDER
testing, implementation of new systems, COMPANY
conversion to new platforms  Quality  Scope of service
 IT Maintenance: application maintenance, transition of  Performance
helpdesk, network support processes measures
 Efficient  Benchmarks to
2.6 Typically Outsourced Activities-Tasks- operation in ensure
Processes business objective
functions that standards in
1. Business Process Outsourcing (BPO) - were once assessing work
outsourcing of entire business process handled in- quality
components e.g. HR, payroll, accounting, house
financial etc.
2. IT Outsourcing
3. Support Function/s 3.2 The BPO Contract
4. Routine activities or activities that can be - a unique, “tailor-fit” agreement captured
automated at larger centers in a document that resembles a
5. Seasonal Requirement/s performance contract.
6. Part-based Activities - a formal agreement between a client and
a service provider to take over a “pre-agreed
portion” of the client’s business operations.
- The “pre-agreed portion” is documented in the
2.7 Key Technologies that Support Outsourcing contract as the scope of work (SOW).
1. Video conferencing: - The BPO contract, with all its
- HP – Halo (8.5 min. video) attachments, is referred to as the
- Cisco – Telepresence master services agreement (MSA)
- Sun – MPK20 : Project Wonderland
2. Web-based conferencing and workflow tools:
3.3 Master Services Agreement
- WebEx
Definition : Covering agreement that
- MS Windows Meeting Space
summarizes terms applicable to every
- MS Sharepoint
job-order with the service provider
- Google Applications
Main Elements :
 A. Service to be provided - Refers to the payment made by
B. Performance management, the client to the service provider
issues, change management for honoring contractual
C. Country laws agreements
 Groups (A) and (B) are the “operational” 5. Other Specific Operation
elements, used day to day. Group (C) generally Requirements
“just-in-case” terms. - Who will provide the service
- Qualifications of personnel
3.4 Scope of Work - Location of operations
Definition : Describes specific work to - Outline of reporting procedures,
be delivered, by when, at what cost decision-making, and escalation of
Considerations : problems
- can be similar to a “job order” - Legal provisions (e.g., non-
- is generally an attachment / competition, confidentiality)
addendum to a Master Agreement,
points to covering terms 3.6 Pricing Models
- May state that in case of terms
inconsistency, the SOW or Master 1. Fixed Price :
Agreement supersedes - This pricing model is easy to plan
and more predictable than other
pricing
models.
3.5 Core Elements - A fixed, pre-agreed price per unit
1. Services to be rendered or is negotiated, (e.g., a fixed price
provided as documented in the per call of a fixed price per
Scope of Work (SOW) transaction)
- Out-bound sales calls Advantages for clients : provides
- In-bound inquiries or greater cost certainty
subscriptions Disadvantages : several risks with
- Delivering food or flowers or mail capital requirements and lower flexibility
2. Performance standards
expected from the service 2. Time and Material :
provider; Service Level - The price for service is based on
Agreements (SLA), and, Key the time and material that was
Performance Indicators (KPI) used.
- “Handle Time” and “Average Handle - Used when a service is very
Time” flexible and it is not predictable in
- Sales attainment terms of how much time and
- Customer satisfaction rating material is needed.
3. Timeline of the contract; start dates (“go - In some cases, a maximum price
live”), and, duration for the service is negotiated by the
- detailed schedule of when the client / customer to build in some
transition period starts and when control or safety level.
the service provider assumes In practice, it is often a mix of the above-
control of the contracted processes mentioned pricing models that is used.
- In terms of type per duration;
most contracts are typically multi- 3.7 Financials
year contracts, however and when CAPEX (or Capital Expenditure)
deemed most effective, on- – is a business expense incurred to
demand contracts may also be put create future benefit. Expenditure on
into effect assets like a building or the physical
space, machinery, equipment or
upgrading existing facilities so their
value as an asset increase.
4. Cost to the client
 OPEX (ox Operational 4. Loaded Annual Cost
Expenditure) – is the money the 1. Compensation : Salary and
business spends in order to turn Bonuses
inventory into output (throughout). 2. Benefits : Training, Health and
These are operating expenses which also life Insurance, Profit Sharing,
include Pension Matching,
depreciation of plants and machinery Worker’s Compensation, Employer share of
which are used in the production payroll and Social Security Taxes
process. 3. Infrastructure : Facilities,
Those expenditures required for Venue Rent, IT Support
the day-to-day functioning of the
business, like wages, utilities, 3.9 Regulatory Requirement
maintenance and repairs fall under the  Adherence to Government Regulations
category of OPEX (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)
- Securities and Exchange Commission
(SEC)
- Social Security System (SSS)
- Data Privacy Law
3.8 Components of Process Cost
Industry / Company Regulations (Internal) :
1. Labor cost - Institutional and operational standards /
- Compensation policies / guidelines
- Benefits - Service provider implements own
- Bonuses regulations
- Incentives
2. Direct costs 3.10 External Regulatory
- Employee Development Requirements – BOI
(Training), Employee Relations
Programs Board of Investments
- Employee Tools/Equipment; - A Republic of the Philippines agency
desktop computers, created under the Department of Trade
communications and Industry
- Coordination and Management: - It strives to attract direct investments
travel, representation, meetings, into the country to contribute to
and workshop. economic growth and jobs creation in the
3. Indirect costs Philippines
- Infrastructure : indirect costs for - A Philippine enterprise can register
network, mail, and other shared their project with the BOI if the proposed
employee activity is listed as a preferred project in
services, rental, depreciation / the current IPP. Said enterprise may
amortization engage in domestic-oriented activities in
- Other charges : head office or the IPP whether classified as pioneer or
regional shared cost allocation, non-pioneer.
interest cost, foreign exchange However, an activity which is not listed
gains / losses may still be entitled to incentives if the
following conditions are met:
 - At least 50% of the production is country proclaimed by the President of
marked for export (for 60% Filipino the Philippines as PEZA Special Economic
– 40% Foreign-owned enterprises); Zones.
or
- At least 70% of production is Qualification
marked for export (for more than - Export-oriented enterprises that locate
40% Foreign owned enterprises) in any of PEZA special economic zone
- Any outsourcing company is Qualified Requirements
under 100% export. - Duly accomplished and notarized
- For foreign-owned firms or those PEZA application form and anti-graft
whose foreign investment exceeds 40% certificate
of the outstanding capital stock who can - Corporate Profile (including that of
engage in domestic-oriented activities, parent company, if applicable)
can only be registered with the BOI if - Board Resolution authorizing the
they propose to engage in an activity filing and designation of a representative
listed or classified in the IPP as pioneer. - Securities and Exchange Commission
- However, if it fails to meet the pioneer (SEC) Certificate of Registration
classification, it can likewise opt to be an - Articles of Incorporation and By
export-oriented firm to qualify for BOI Laws (if not available, submit draft of
registration. However, this time, the Articles of Incorporation)
expert requirement is at least 70% of - Project brief (i.e., Information on
actual production. Market, Technical, Financial and
Management aspects of the project to be
registered)
BOI Requirements
- DTI Registration : Sole Proprietorship Data Privacy Law – Republic Act No. 10173
- SEC Registration : Corporation, Branch An act protecting individual
Office, Regional Headquarters personal information in information and
- Audited financial statement and Income communication systems in the
Tax Return for the past three years (if government and the private sector,
applicable) creating for this purpose a national
- Board Resolution to authorized privacy commission, and for other
company representative purposes.
- Accomplished Application Form 501 and
Project Report
3.12 Internal Regulatory Requirements –
Industry
3.11 External Regulatory
Requirements – PEZA Industry Specific Regulations – Control of
communication channels and information
PEZA, The creation of systems : Article 16-(1)
- The development of Special Economic The communication channels and
Zones throughout the country, and the information systems of the bank shall be
very competitive incentives available to controlled to ensure that information
investments inside PEZA Special obtained within the
Economic Zones are embodied in the bank is reliable, complete, traceable,
Special Economic Zone Act of 1995 consistent, is a suitable format and
(Republic Act No. 7916), a law passed by character to meet the requirement, and
the Philippine Congress. accessible by relevant units and
- Promote Philippine investments, extend personnel in a timely manner.
assistance, register, grant incentives to
and facilitate the business operations of Industry Specific Regulations – Auditing of
investors in export-oriented partnerships subject to consolidation :
manufacturing and service facilities Article 34-(1)
inside selected areas throughout the
Banks shall take all necessary measure
to ensure that their internal audit units
can inspect all activities and units of
their consolidated partnerships without
limitation.