Fundamentals of Outsourcing Module 2

2 Types of Outsourcing

Third Party Shared Service Center (SSC)

Owned by a service provider, a local entity or part
of a global group.
Providing services to the clients of the service
provider.
Wholly owned by the mother group.
Providing services entirely to affiliates and
subsidiaries, or more rarely to clients of the
mother company.

Example – Third Party

Microsoft and their service SharePoint. Client companies rely on Microsoft to leverage its technical
expertise to ensure for an optimum user experience by providing the following:

a. Intranet portals
b. Document file management
c. Collaboration
d. Social Networks
e. Extranets
f. Websites
g. Enterprise Search
h. Business Intelligence

Example – Shared Service Center

San Miguel Packaging Products (SMPP), SMPP the total packaging solution to San Miguel Beer’s Division.
SMPP provides San Miguel Beer with the bottles and cans, the crowns for the bottles, the labels for the
bottles, even the plastic palettes or cartoons for easy transport of products.

In similar fashion, SMPP also works with other beverage products of San Miguel doing the same service
it provides for SMB.

Third Party Shared Service Center

Accenture ANZ Bank
AEGIS Chartis Technology and Operations
Convergys Management
EGS Chevron
Sitel Citigroup
IBM Dell
SPi Global DKS
Stream Global HP
Sutherland HSBC
Sykes JP Morgan and Chase
Teletech Maersk
Teleperformance Manulife
Telus Shell Shared Services Asia
Thomson Reuters

Strategies for Outsourcing

a. Multisourcing
b. Crowdsourcing
c. Onshoring
d. Nearshoring
e. Offshoring
Multisourcing

Multiple vendors for client’s outsourced project.

It simply means contracting or using multiple vendors for fulfillment of a client’s outsourced project.

Example:

- GM’s Brazilian E – Commerce site. Vendors: Oracle, AT & T, Microsoft Cisco, HP Enterprise Services,
IBM.
- GM’s 2007/$7.5B IT outsourcing contract with HP Enterprise Services, IBM, Capgemini and Wipro
Ltd.

Advantage

Buyer or the client can leverage the best possible: technical expertise, support infrastructure, system or
product support from the host of service providers that they engage through separate contracts.

Disadvantage

Possibility of incompatibilities of technologies intended to work together. Then again this is easily
overcome with project planning, testing, training and quality assurance.

Crowdsourcing

Outsourcing to an unidentified, generally large group of potential offerers in the form of open call. (Jeff
Howe)

Company puts out a call for a project; best solution/submission is accepted and contracted.

It is also the practice of obtaining needed services, ideas or content by soliciting contributions from a
large group of people especially from an online community, rather than from traditional employees and
suppliers.

Example:

A game developer who releases a beta version of a game for public testing. To test and evaluate a
product, they invited people to see and test it as they finalize the product.

It would have been an added cost to company to hire professionals so as an alternative, they invited
people to see and test the software.

Onshoring

Vendor is in the same home country as the client.

It simply means that the vendor or service provider is based in the same country as the client company.

Example

San Miguel Beer (SMB) and San Miguel Packaging Products (SMPP)

Advantages

-Allows immediate response; product designers in the same country to market feedback quickly.

-Local contractors have same market knowledge, culture, language, communication style; minimize
culture issues.
Disadvantage

-Risk of inadequately, selected, trained, supervised staff i.e., less skilled because contractor staff are
lower paid.

-Risk of higher attrition (lower business acumen/process knowledge) than internal staff, less motivation
to deliver quality.

Given these potential disadvantages it is critical for a client to conduct a thorough market research for a
service provider that not only fits budgetary requirements but also can provide sufficient proof based on
a track-record related experience.

Nearshoring

The transfer of business to nearby a country, often sharing the same boarder.

Both parties expect to benefit from one or more of the following dimensions of proximity: geographic,
temporal (time zone), cultural, linguistic, economic, political or historical linkages.

Advantages

-Fee-for-service-variability rather than fixed compensation

-Significant labor cost arbitrage

Variability implies a certain degree of uncertainty that is something uncontrollable. Yet in this instance,
fee variability over fixed costs actually works in favor of the client or buyer. As you can forecast, the
number of transactions and not be locked to a fix plan and potentially to pay for unused capacity.

Disadvantages

-Additional coordination costs, sourcing management, communications

-Transfer/Pricing Tax Margin Requirements

Example:

A retail firm in Hong Kong may outsource the manufacturing of their garments to Manila for some
reasons. However, they may need to train some Filipinos about their culture and language for better
communication. Transporting the garments and coordinating from Manila to Hong Kong would also
incur additional cost.

Offshoring

Vendor and country in different countries.

It is the most popular form of outsourcing.

Advantages

-Allows company to focus on core business.

-Opportunity to expand to new areas cost effectively

Disadvantages

-Data privacy/confidentiality issues

-Lack of right business acumen/right market knowledge in offshore location
-Cultural differences leading to delays and miscues
-Risk of high attrition in service staff, weak staff selection/training
 Module 2 Continued…

What to outsourced – 2 Types

Core Activities – Task – Processes

- Primary process or product of the business

- Tasks that deliver the primary product, the unique value proposition of the company.
- “Essential, defining activities of an organization,” what it needs to keep enhancing to improve
competitive advantage.

Non-Core Activities – Task – Processes

- Support activities, processes, functions

Example:

Reebok is an athletic company that creates and designs sports apparels. Keeping that in focus, Reebok
management chose to outsource its administrative Human Resource functions. In doing so, Reebok’s
total back office support manning the head-count is significantly lean.

Core activities –tasks processes are essentially what the company is known for, is what you bringing
home, is what you are paying for, or how the company makes its money. In our example, the core
activity of Reebok is to create and design sports apparels.

For Non-Core activities tasks-processes. Reebok needs a Human Resource Department to support their
internal operations but this indirectly affects the fulfillment of the value proposition to their customers.

What NOT to outsource?

- Design
- Product Development
- Process
- Recipe

Example

Both KFC an American brand and Jollibee proudly Pinoy, closely protect their chicken recipes. Core
activities are the bread and butter of the business – the money makers of the company.

What to Outsourced?

Well defined/documented tasks, standard outputs.

Example:

- IT development: programming, documentation, unit and integration testing, implementation of

new systems, conversion to new platforms.

- IT maintenance: application maintenance, helpdesk and network support.

Typically Outsourced Activities – Tasks – Processes

- Business Process Outsourcing

- IT Outsourcing

- Support Functions

- Routine activities or activities that can automated at larger centers

- Seasonal Activities

- Part-based Activities
Example:

Business Process Outsource (BPO) – Outsourcing of entire business process components: e.g. HR,
payroll, accounting, financial, etc.

Business Process Companies that outsource the Companies that caters to the
function function

Human Resource (HR) Reebok Shell SSC, Deutche Knowledge

Financial Sallie Mae, Washington Mutual
and Expedia
Payroll and Accounting Del Monte Philippines
Services, Coca-Cola Bottlers
Business Services
Aegis, DSM “Manila” LLC, Du
Baladad and Associates
Manulife Financial, DKS, BPO
International, Inc.

IT Outsourcing

- IT technical Support

- IT application development

- IT Application Management

- Data Center Operations

- Software as a Service

- Cloud

Companies that caters to IT Outsourcing

- Accenture

- Chartis

- Chevron

- HP

Support function/Services

- Cafeterias

- Copy Centers

- Security

- Janitorial Services

- Trucking/Shipping

- Building Maintenance

Routine Activities

- Small Banks outsourcing check processing to larger banks, riding on ATM base of multibank
network

- Small vendors using Amazon.com as data center, marketing and payment processing platform.

- Banks using common/multibank core banking services of large technology providers

Seasonal Requirements

- One day 50 employees needed, next day only 10 are needed

- Christmas hires to handle additional volume of transactions

- Temporary extension of operating hours to accommodate foot traffic.

All Part Based Activities

- These are activities that are routine, scheduled, with little uncertainty

- Automobile Assembly

- Electronics Assembly

- Packaging Solutions

- Handicrafts or garments for mass production.

History and Development of Sudoku Puzzles

• Sudoku is a Japanese word. The first syllable “Su” means number, while the root word “Doku” refers to
the unfilled boxes where the missing numbers must be placed.

• Its first appearance in print was related to the concept of the magic squares. “ The idea of magic
squares was transmitted to the Arabs from the Chines, probably through India in the 8th century” (Pat
Ballew) This was followed up during the 9th century Thabi ibn Qurra who was then known for his
formula on “amicable numbers”. In the early part of the 9th century, an encyclopedia displayed “a list of
squares of all orders from 3-9”.

• In 1225, Ahmed al-Bunni showed how to construct Magic squares using simple bordering technique.
There was doubt, however, that he developed the method by himself lone. A paper written by
Cammnan suggested that the method explained by Moschopoulos may have been of Persian origin and
possibly linked to that of al-Bunni. Cammnan claimed that the two methods of constructing odd magic
squares given by Moschopoulos were already known by the Persians

• According to the Islamic Medical Manuscripts at the National Library of Medicine, the first appearance
of Magic Square (wafq in Arabic) in Islamic literature occurred in the Jabirean Corpus (JC) a group of
writings attributed to Jabir Ibn Hayan (known in Europe as Geber) and generally believed to have been
compiled by the end of the 9th or early part of 10th century A.D. The JC had suggested that Magic
Squares served as charms for easing childbirth. “These squares consisted of nine cells with numbers 1 to
9 arranged with 5 in the center so that the contents of each column, row and the two diagonals added
up to 15. The numbers were written in abjad letter-numerals, and because the four corners of this
square contained the letters ba, dal, waw (u) and ha, this particular square become known as the buduh
square”

• Because of the popularity of magic Squares, the term buduh assumed some talismanic properties.
Subsequently, Islamic writers developed varied methods of forming larger Magic Squares, wherein no
numeral was repeated and the sum of each column, row, and the two diagonals are the same. Thus,
Magic Squares with cells 4x4, 6x6 or 7x7 were then quite popular. The 10x10 were produced during the
13th century.

• Part of the citations made by Balle that the concept of Magic Squares may have been introduced to
Europe via Spain by Abraham Ben Meir Ezra (1090-1167), a Hispano-Jewish astrologer. His travels to
Italy and other European countries enabled him to help introduce the concept of Magic Squares
throughout the continent.

• The concept of Latin Squares was known during the medieval times. Since the 13th century, Arabic
manuscripts featured the Latin Squares, which were then accorded mystical Kabblahlic significance. A
Latin Square often known as wafaq majazi, is a square containing cells in which each column and row
had the same set of symbols in distinction from the magic square which had no symbol repetition. • In a
paper entitled, “De quadratis Magicis” (on Magic Squares) presented to the St. Petersburg Academy on
October 17, 1776, Swiss mathematician and physicist Leonard Euler (1707-1783) showed how to
construct magic Squares. Euler’s twilight years in life were devoted to dealing with different possibilities
of the Magic squares. Today Euler is credited to have developed the concept of “Latin Squares” where
numbers in a grid appear only once, across, up and down.

• Howard Garns, a 74 year old retired American architect and a freelance puzzle constructor from
Indiana USA is credited as the designer of modern Sudoku. Garns applied Euler’s Latin Squares to a 9x9
grid with the addition of nine 3x3 sub grids, or boxes each containing all numbers from 1 to 9. The first
set of puzzles by Garns was published in the May 1979 edition of Dell Pencil Puzzles and World Games
under the pen name Number Place.

• In 1984, Nicoli, a leading puzzle creating company in Japan, decided to publish Dell’s Number Place,
thereby introducing it to the Japanese puzzle fans. The puzzles, which were originally presented to the
fans as SuujiWaDokushin Ni Kagiru(translated roughly: numbers must be single, or the number must
occur only once) eventually became quite popular. Two years later, some vital improvements were
made, by introducing symmetrical patterns and reducing (limiting it to 30) the initially filled-in numbers
of the puzzle. The problem of the long given name of the puzzle was remedied by Kaji Maki, the
president of Nicoli, by abbreviating it to Sudoku (Su-number, digit; Doku-single, unmarried) thus today
the puzzle name” Sudoku” not the game itself is regarded as a Japanese invention. The game is indeed
an American invention, based on Euler’s Latin Squares.

Lesson 2

The word sudoku is the contraction of a Japanese phrase which may be translated as ‘limiting to single
digits’.

Wayne Gould, a New Zealand citizen, and a retired Hong Kong judge, computer programmer and puzzle
fan, had written a computer program that can generate Sudoku puzzles in different difficulty levels (DL).
In his visit to London by the end of 2004, Gould convinced the editors of the London Times to publish his
Sudoku puzzles without any money consideration. It was given a try and officially launched by the
aforesaid newspaper outfit on November 13, 2004. The consequence of the maiden Sudoku issue was
the swift spread of the Sudoku phenomenon all over Great Britain and the Commonwealth Nations,
particularly Australia and New Zealand.

Specifically, the following events took place in England in July 2005:

A. The British Broadcasting Corporation (BBC) Channel 4 includeda daily Sudoku game in its
teletext service.
B. Sky One launched the world’s largest Sudoku puzzle- a 275 foot (84 meter) square puzzle,
carved on the side of a hill in Cipping, Sodbury near Bristol.
C. BBC Radio 4’s Todayintroduced reading aloud in the first Sudoku Radio Version; famous British
celebrities, like Jade Goody and others, helped promote the puzzle game.
D. Carol Vorderman, in her book, How to do Sudoku,”(dubbed as the bestselling book in the
country), testified to the benefits of Sudoku as mental workout. Even teachers magazine, which
is backed by the government, recommended Sudoku as a brain exercise in classrooms and
suggestions have been made that Sudoku solving is capable of slowing down brain disorder
conditions such as Alzheimer’s.

In 2005, the Sudoku craze returned to Manhattan, New York, USA as a regular feature of the
New York Post. Other newspaper followed suit thereby spreading the puzzle craze throughout
USA, eventually the whole world become addicted to the game. Soon many Sudoku variants
sprouted like mushrooms In March, 2006, the World Puzzle Federation (WPF)conducted the first
World Sudoku Championship (WSC) in Luca, Italy. The two-day activity involved the solutions of
several Sudoku puzzle variations, such as Classic Sudoku, mini Sudoku, Diagonal Sudoku,
Irregular Sudoku, Sum Sudoku, Odd-even etc. Today Sudoku and Sudoku variants by Conceptis
 are published regularly in over 35 countries which include USA, Japan, UK, Germany,
Netherlands, Canada, France, Russia, Poland, Finland, Denmark, Israel, Hungary, Austria, Spain,
Belgium, Norway, Sweden, Greece, Switzerland, Italy, Australia, New Zealand, Czhech Republic,
Estonia, Turkey, South Korea, Romania, Latvia, Peru, Thailand, Philippines, etc. In the Philippine,
Conceptis by Dave Green is now published daily by the Philippine Daily Inquirer (PDI). The PDI
publishes Sudoku puzzles according to levels of difficulty (DL). Not to be outdone, the Manila
Bulletin also publishes daily the Sudoku Loco by Arnold B. Banares. Some tabloids also publish
other Sudoku versions. These publications thus enable people from all walks of life and of all
ages to enjoy the intellectual challenges encountered in playing Sudoku. In the 21 April 2009
issue of the PDI, the Sudoku feat of two young Filipino students hugged the front page: “ 2 RP
Teeners Rule Int’l Sudoku Tilt”. Indeed, this rare feat by young Filipino students will help spur
interests in schools throughout the country to help promote this world-wide craze among
students.

In Bulacan State University Sudoku was introduced by its former university president Dr. Rosario
Pimentel. After his retirement he devoted his time in the promotion of the Sudoku puzzles. He
authored a book entitled “Learning Sudoku Puzzles” A Textbook for Beginners and suggested the
inclusion of Sudoku Puzzles in the list of PE activities.

Lesson 3

Lesson Muscles that are constantly used tend to get bigger and stronger. Conversely, muscles
that are inactive shrinks and get weak. The same can be said about our brains. If we do not use
it, it becomes dull, but if it is always active, the sharper it becomes. Playing puzzles such as
Sudoku can help sharpen our mind as well as memory. Playing Sudoku gives you the following
benefits:

• Improves your memory. Memory and logic work side-by-side when you are playing Sudoku. ...
Playing brain games, like Sudoku, may help stave off the memory decline that comes with age.
Playing brain games, like Sudoku, may help stave off the memory decline that comes with age
"My guess is that playing them activates synapses in the whole brain, including the memory
areas," says Marcel Danesi, PhD, author of Extreme Brain Workout. Stimulates your mind.
...Apparently any game that requires enormous brain functioning makes one’s mind stimulated,
Sudoku puzzles continuously engage the brain until it is entirely solved.
• Reduces the chances of developing Alzheimer`s by keeping your brain active.
• Learns to do things quickly. ...Having exposed to solving puzzles with varied difficulties one
learns to decide quickly therefore things can be done in the fastest time possible.
• Increases your concentration power. ...Solving Sudoku puzzles requires long minutes or even
hours of concentration to solve, doing it repeatedly helps an individual to upsurge the ability to
concentrate
• Feel Happy. Upon correctly solving a puzzles, the player is elated with the result of the
accomplished task. Knowing one has completed a puzzle, a certain feeling of happiness is felt.