POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Taguig Branch

Gen. Santos Ave. Lower Bicutan, Taguig City

Group 7 Topic Outline: Business Risk and Mitigation Strategy

Business Process Outsourcing

In Partial Fulfilment of the Requirements for the Degree of Business Administration Major in Marketing
Management

Presented to the Faculty of

College of Business

Presented by:

Cruz, John Joshua

Beltran, Kristyle Anne F.
Layson, Rochelle B.
Nofuente, Michael
Tubio, Michaella Danica B.
BSBA-MM 2-1

Presented to:

Prof. Margarita T. Sevilla

Subject Professor
The Risks associated with Business Process Outsourcing (BPO)
Outsourcing is a common business strategy. Different organisations, outsource their company
operations, tasks and processes to decrease organizational costs and concentrate on key company
operations. There are many other outsourcing advantages, such as enhanced operating efficiency,
enhanced quality and a greater score of company satisfaction. There are also some disadvantages
associated with outsourcing, however, with multiple benefits that cannot be ignored. For most tiny
businesses, the disadvantages of outsourcing are restricted but they do exist. Some examples are:
1. Inflexible Services. Outsourcing businesses are often known to be inflexible and rigid in providing
services and production, leading to the company's bad reputation.
2. Risk of Exposing confidential data. The danger of revealing the company's delicate data and
private information is one of the greatest disadvantages of outsourcing.
3. Language Barriers. Companies or organisations that outsource their job in nations with staff who
are unable to talk English fluently or English are not their mother tongue, no matter how
competent they are, this can cause barriers to communication.
4. Lack of Control. While company can provide the outsource staff with direction and guidance
regarding what you need to achieve and what the deadline is, they still lose some control when
outsourcing a specific job.
5. Lack of transparency & credibility. Consumers are more interested in knowing what their products
are based on and who created them. Outsourcing, however, hinders this kind of transparency.
6. Different Time Zones. Another major disadvantage of outsourcing is that you have different time
schedules with the outsourcing agency and employees.
7. Hidden Costs. Although outsourcing work is generally considered cheaper and cost-effective,
companies can also be get ripped off.

The 7 Fields in a Comprehensive Risk Management Approach:

1. Human capital risks
Change management is an HR problem that involves a well-understood pattern of overcoming
opposition, making adjustments, and restoring standard operating procedures (SOPs).
2. Project risks
Project risks are described as those that have the ability to avoid the expected cost savings,
strategic benefits, or productivity improvements from being provided by the BPO initiative.
3. IP risks
Most companies have a considerable quantity of sensitive data, including trade secrets, company
plans, and proprietary knowledge.
4. Legal risks
Legal risks related to outsourcing are legion, and the comparative absence of judicial precedent
makes their risk worse.
5. Vendor organizational risks
The dangers connected with the organisation of the BPO seller are perhaps the most hard to
recognize because they are not simple to control. This risk is also increased when the seller is offshore.
The dangers associated with the organisation of the seller can range from company procedures to
certified authenticity and reference claims.
6. Value risks
Whether the rationale is cost savings or business transformation, an outsourcing project is
conducted to generate value for the buyer of the BPO. Extracting expected value can be a challenge
with the myriad uncertainties intrinsic in any complicated BPO agreement.
7. Force majeure risks
Force majeure risks are the hardest to quantify and specify.

How to Reduce Risks with Business Process Outsourcing

 Operational Risks in Business Process Outsourcing

Operational hazards relate primarily to future quality and effectiveness slippages. While some degree
of variation in quality is anticipated, a very narrow margin for mistake continues in the customer-
centered globe of today. Let's remember that customer satisfaction and ensuring a favorable customer
experience are the number one priority for contemporary organisations.

 Security Risks with BPO Partners

Security hazards include the assortment of protection of intellectual property, privacy regulations, and
information safety prevalent to contemporary businesses. As organisations start working with BPO
businesses, there is a degree of overlap in shared data that is proprietary and privileged in many
instances. This information may include anything from a company's own intellectual property, such as
apps and protocols, to client base information such as billing information, private health or economic
information, etc.

 Mitigating Security Risks

In an age where efficient outsourcing involves data sharing, organisations need to take measures to
enforce a rigid confidentiality agreement that provides them with legal protection, but this is just the
start. In order to ensure that they follow industry-class safety and privacy procedures, organisations
should perform a thorough evaluation of their protocols before any deal with a BPO.
The Risks Of BPO Outsourcing In The Philippines
1. Misunderstood BPO Contracts in the Philippines
Contractual misunderstandings may lead to dissatisfaction. This may imply that some expectations are
presumed but may not be met, resulting in frustration. There are just a few examples of issues
surrounding billing techniques, proprietary safety and authorized overtime.
2. Quality Control
We have seen that the performance of various BPO service suppliers can differ significantly over the
past century. If you work with a Philippines-based unreliable BPO business, your supplier may be
motivated to work more for their own advantage than yours. As a consequence, you may end up
compromising your company activities with bad manpower facilities.
3. Confidentiality Breach
If your Philippine BPO supplier does not extend HR facilities, it will be difficult to keep track of your
individuals and their operations. Without adequate leadership off-site, your proprietary data may even
fall into the incorrect hands or be made public if it should not be.

Common Challenges of BPO Industry

 Changing Political Scenarios

Political situations in regions of America and Europe can affect the BPO industry drastically. Citizen
protests, wars, falling economies, etc. can force the governments to pass certain bills which prevent
outsourcing to other countries. This can have a major effect on the BPO companies.

 Shoestring Budgets
One of the major challenges faced by the BPO industry is the budget. Most of the times outsourcing
companies are expected to produce the best results with minimal cost. They are forced to get the
maximum out from a limited number of resources

 Customer Attrition
At some point of the project, the client may just terminate the deal and hand over the project to your
competitor for different reasons. The cost of such sudden deal termination can be huge and can affect
most BPO companies to a large extent.

 Health Concerns
Most of the outsourcing companies are situated in regions which come under different time zones,
hence the resources may be working at all times of the day. This can result in major health concerns
among the employees and reduce their efficiency drastically.
  Brand Equity
Brand building is an important task performed by the HR professional. This is one of the common
challenges for HR managers.

Challenges in the Growth of the BPO Industry in the Philippines

DTI or Department of Trade and Industry values BPO trade as a significant labor and profit driver
offering the highest amount of employment in the private sector. The greatest risk to the stable BPO
industry in the country, however, is the increase of alternatives based on artificial intelligence or AI.
Rather, this technology takes the place of outsourcing of human processes.

Ways to Overcome Threats to the BPO Industry in the Philippines’ IT-BPO Empire
Top IT-BPO companies in the Philippines are working by stepping up their KPO game to maintain their
advantage over competitors. These companies are now focusing on fine-tuning knowledge-based
products to address the threats posed by AI alternatives. These services of the KPO include digital
marketing, research, web development, creative design, and consultancy. Despite difficulties from
technology and overseas competitors, the BPO industry in the Philippines remains dauntless.

Possible Future Risks to the Philippines’ BPO Industry

Overall, the sector view is very favourable, future issues stay, primarily owing to possible policy
changes implemented by the government of the Philippines. One significant problem is the possibility
of suggested modifications to the existing tax holiday advantages that enable for temporary cuts or
elimination of corporate taxes. This proposition addressed reducing tax holidays for the BPO sector,
with the compromise of reducing their revenue tax from 30% to 15%. According to Industry experts,
the threat here is that, though tax costs would decrease, this might serve as a deterrent for foreign
companies to enter the Philippine market due to a reduction of the country’s competitive advantage.
Other possible issues and challenges to the BPO industry, are the possible lack of suitably educated
employees, due to the Philippine universities being unable to cope with the high increase in an
educated labour force, as well as high turnover rates, and the rate at which employees are replaced,
which can be up to 50 percent of the workforce.

Outsourcing Challenges and Solutions in Present Times

 Challenge: Bleeding of In-house Human Resources - The outsourcing application generates a

feeling of uncertainty among the present workers and leads them to hunt for greener pastures.
This is the organization's true boost and can upset the applecart of human resources.
 Solution: Although axing of some employees is inevitable, organizations can address this issue by
internally developing center of excellence for individual domains.

 Challenge: Selecting the Right Service Provider - The correct supplier is selected as the bedrock on
which the whole method of outsourcing depends. If the selection stage remains a failure, clouds of
frustration and promise breach are bound to overcast the agreement in due course.
Solution: The correct supplier is selected as the bedrock on which the whole method of
outsourcing depends. If the selection stage remains a failure, clouds of frustration and promise
breach are bound to overcast the agreement in due course.

 Challenge: Legal Tangle and Lack of Understanding of the Contract - If both the organisation and
the service provider have vague legal consequences of the agreement, the original hoopla
surrounding the outsourcing choice will be fizzled out. Many outsourcing firms ignore legal
problems and face failures in outsourcing.
Solution: The contracting parties must adhere to the hook, line, and sinker of local laws in order to
prevent future legal problems. At the moment of contract negotiation, all managers from both
parties must be on-board and each of them accountable for taking the outsourcing decision should
be made clear the terms of the agreement.

 Challenge: Cultural Concerns - Cultural stereotypes and niceties are increasingly playing an
important role in determining the fate of the outsourcing deal. There are two types of cultural
peculiarities: Corporate and Country-specific. Outsourcers often find it difficult to rectify cultural
tangles.
Solution: The complexities of the process you are trying to outsource, and the impact of
outsourcing to people of a different cultural background should be studied beforehand. Cultural
coherence and synchronization can be attained by putting in place a sound multi-cultural
sensitization program for both outsourcer as well as the service provider.

 Challenge: "Outsource and Forget" Cannot Work - Gone are those days when an organization can
set itself totally free of non-core activities after delegating the same to external service providers.
Solution: Even if the organization has delegated the non-critical operations to a third-party, it
should be on its toes to face any exigency. Also refined monitoring processes should be set in
place, so that outsourcing organization is in total control all the time.
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