IT-BPM Industry Overview
– Janitorial Service
Offshoring and Outsourcing (O&O) is perhaps one
of the most unique developments in business and
industry. Firms now adopt s 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
 Contact Center
 Back - Office and KPO: Best Kept Secret
 Software Development
 Animation and Game Development
 Engineering Design
Outsourcing, Definition of
 Every time we buy something from somebody
rather than producing it ourselves, we have
essentially 'outsourced' the production of that good
or service.
 Contracting of a service provider for the delivery
of a process or service
Why Companies Outsource?
 Capacity Management
 Lower Cost
 Better Performance
 Faster and Continuous Service Delivery
 Part-based Activities
Capacity Management:
– Need to acquire/buy/hire (temporary) capacity
– Demand chasing (one day 50 employees needed,
next day only 10 are needed)
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
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
Faster and Continuous Service:
– 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
Part-based Activities:
– Automobile components
– Cruise-ship rooms
– Airplane avionics
– Desktop build and configuration
What is Being Outsourced?
 Support or Auxiliary Services
– Cafeteria
– Copy Center
– Building Maintenance
– Trucking/Shipping
– Security
– Payroll
– Legal
 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
 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
– Cloud services: shared data storage f
acilities, database management
Advantages of Outsourcing – Employer
Perspective
 The service provider (BPO company)
determines most efficient number of resources,
process, and supervision to achieve output
 Service Provider may have more
expertise/capability than the buyer
Example:
 Technical Support - Dell, Convergys
 Accounting - JPMorgan Chase & Co. , Citi
 Animation - Top Draw Animation
 Buyer can leverage economies of scale of the
Service Provider
Example:
 Technical Infrastructure
 Human Resources
 Technical Expertise
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)
 Buyer does not have full control of resources
doing work
– Example: Can your agency 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.
Advantages - Employee Perspective
 “Work Abroad, Live here”
– Be near your friends and family
 – Work in the country and support Philippine  Company puts out a call for a project; best
growth solution/submission is accepted and
 Professional Growth contracted.
 Financial Independence  Crowdsourcing: "...outsourcing to an
 Employee Assistance undefined, generally large group of potential
 Enjoy your favorite food offerers in the form of an open call." (Jeff
Howe)
“Disadvantages” - Employee Perspective
 Shifting schedule (possibility to work at night)  Onshoring: Vendor in the same home country
– Gives you the opportunity to pursue your as client
passion and interest during the day
 Dealing with irate customer Advantages:
- There is training support on how to deal with − Allows immediate response: product designers in
irate customer same country respond to market feedback quickly
- There is also floor support − Local contractors have same market knowledge,
- Companies provide facilities and activities to culture, language, communication style; minimizes
help you unwind culture issues
Disadvantages:
Fundamentals of Outsourcing − Risk of inadequately selected, trained, supervised
staff—i.e., less skilled because contractor staff are
The Two (2) Types/Classification of Outsourcing lower paid
Third-Party: − Risk of higher attrition (lower business
 Owned by a service provider, a local entity or acumen/process knowledge) than internal staff;
part of a global group less motivation to deliver quality
 Providing services to clients of the service Example: New York bank contracting start-up
provider security service firm in New York
– Accenture
– AEGIS  Nearshoring: Vendor in a country “close”
– Convergys (geographic and/or cultural proximity) to client's
– EGS (NCO/APAC) home country
– IBM
– Sitel Advantages:
– SPi Global − Fee-for-service variability rather than fixed
– Stream Global compensation costs
– Sutherland − Significant labor cost arbitrage
– Sykes Disadvantages:
– Tele Tech − Additional coordination costs, sourcing
– Teleperformance management, communications
– Telus − Transfer pricing/tax margin requirements
Example:
Shared Service Center (SSC): Hong Kong retail firm offshoring garments
 Wholly-owned by the mother company manufacturing in Manila
 Providing services entirely to affiliates and
subsidiaries, or more rarely to clients of the mother  Offshoring - Vendor and client in different
company countries
– ANZ Bank
– Chartis Technology and Advantages:
– Operations Management • Allows company to focus on core business
– Chevron • Fast ramp-up/down at reasonable cost
– Citigroup • Opportunity to expand into new areas cost
– Dell effectively
– DKS Disadvantages:
– HP • Data privacy/confidentiality issues
– HSBC • Lack of right business acumen/right market
– J.P Morgan Chase knowledge in offshore location
– Maersk • Cultural differences leading to delays and miscues
– Manulife • Risk of high attrition in service provider, weak staff
– Shell Shared Services Asia selection/training
– Thomson Reuters
What to Outsource – 2 Types
Strategies for Outsourcing
Core Activities-Tasks-Processes:
 Multisourcing: Multiple vendors for client's  Primary process or product of the business
outsourced project.  Tasks that deliver the primary product, the
Example: unique value proposition of the company
− GM's Brazilian e-commerce site. Vendors:  “Essential, defining activities of an organization,”
Oracle, AT &T, Microsoft, Cisco, EDS (now HP what it needs to keep enhancing to improve
Enterprise Services), IBM competitive advantage
− GM's 2007/$7.5B IT outsourcing contract
with EDS (now HP Enterprise Services), IBM, Non-Core Activities-Tasks-Processes:
Capgemini, and Wipro Ltd.  Support activities, processes, functions

 Crowdsourcing
What NOT to Outsource • MS Sharepoint
• Google Applications
Core Activities-Tasks-Processes:
 Design
 Product Development
 Process
 “Recipe”

What to Outsource

Well-defined/documented tasks, standard

outputs
Examples:
− IT Development: programming, documentation,
unit and integration testing, implementation of
new systems, conversion to new platforms
− IT Maintenance: application maintenance,
helpdesk, network support
Typically Outsourced Activities-Tasks-Processes
 Business Process Outsourcing (BPO):
outsourcing of entire business process
components; e.g., HR, payroll, accounting,
Financial, etc.
 IT Outsourcing:
− IT Technical Support
− IT Application Development
− IT Application Management
− Data Center operations
− Software as a Service (SaaS)
− Cloud (On-line Storage) Services
 Support function/ services:
− Cafeterias
− Copy centers
− Security
− Janitorial Services
− Trucking/ Shipping
− Building Maintenance
 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
 Seasonal Requirement/s:
− 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
Key Technologies that Support Outsourcing
Video conferencing:
• HP - Halo (8.5 min. video)
• Cisco - Telepresence
• Sun - MPK20: Project Wonderland
Web-based conferencing and workflow tools:
• WebEx
• MS Windows Meeting Space
BPO Engagements
Client-Service Provider Relationship: Attributes
 Client company is concerned with:
− Quality transition of processes
− Efficient operation of business functions that were
once handled in-house
 Service provider company is concerned with:
− Scope of service
− Performance measures
− Benchmarks to ensure objective standards in
assessing work quality
The BPO Contract
 A business process outsourcing (BPO) contract
is a formal agreement between a client and a
service provider to take over a “ pre-agreed
portion” of the client's business operations.
 This “ pre-agreed portion” is documented in the
contract as the scope of work (SOW).
 The BPO contract, with all its attachments,
assumptions, and documented agreements, is
referred to as the master services agreement
(MSA).
Master Services Agreement
Definition: Covering agreement that summarizes
terms applicable to every job-order with the service
provider
Main elements:
A．Service to be provided
B．Performance management, issues, change
management
C．Country laws
Scope of Work
Definition: Describes specific work to be delivered,
by when, at what cost
Considerations:
− Can be similar to a “ job order”
− Is generally an attachment/addendum to a Master
Agreement, points
to covering terms
− May state that in case of terms inconsistency, the
SOW or Master Agreement supersedes
Core Elements
 Service to be rendered or provided as
documented in the Scope of Work (SOW)
− Out-bound sales calls
− In-bound inquiries or subscriptions
− Delivering food or flowers or mail
 Performance standards expected from the
service provider; Service Level Agreements
(SLA), and, Key Performance Indicators (KPI)
− “ Handle Time” and “ Average Handle
Time”
− Sales attainment
− Customer satisfaction rating
 Timeline of the contract; start date (“ go live”
), and, duration
− It is a detailed schedule of when the
transition period starts and when the service
provider assumes control of the contracted
processes
− In terms of type per duration; most
contracts are typically multi-year contracts,
however and when deemed most effective,
on-demand contracts may also be put into
effect
 Costs to the client
− Refers to the payment made by the client to
the service provider for honoring contractual
agreements
 Other Specific Operational Requirements
− Who will provide the service
− Qualifications of personnel
− Location of operations
− Outline of reporting procedures, decision-
making, and escalation of problems
− Legal provisions (e.g., non-competition,
confidentiality)
Pricing Models
There are two pricing models that are commonly
used in outsourcing contracts; (1) fixed price, and,
(2) time and material.
1. Fixed Price:
 This pricing model is easy to plan and more
predictable than other
pricing models.
 A fixed, pre-agreed price per unit is negotiated
(e.g., a fixed price per call or a fixed price per
transaction)
 Advantages for service providers: it is known in
advance what will be paid and what will be
delivered
 Advantages for clients: provides greater cost
certainty
 Disadvantages: several risks with capital
requirements and lower flexibility
2. Time and Material.
 The price for service is based on the time and
material that was used.
 Used when a service is very flexible and it is not
predictable in terms of how much time and
material is needed.
 In some cases, a maximum price for the service
is negotiated by the client/ customer to build in
some control or safety level.
BPO Contract Financials
CAPEX (or Capital Expenditure)- is a business
expense incurred to create future benefit.
Expenditure on assets like a building or the physical
space, machinery, equipment or upgrading existing
facilities so their value as an asset increases.
OPEX(or Operational Expenditure)- is the money
the business spends in order to
turn inventory into output (throughput). These are
operating expenses which also include depreciation
of plants and machinery which are used in the
production process.
Those expenditures required for the day-to-day
functioning of the business, like wages, utilities,
maintenance and repairs fall under the category of
OPEX
Components of Process Cost
Process costs associated with roles
(activities-processes-tasks) that may be outsourced
via the offshoring outsourcing strategy
1. Labor cost
− Compensation
− Benefits
− Bonuses
− Incentives
2. Direct costs
− Employee Development (Training),
Employee Relations Programs
− Employee Tools/ Equipment; desktop
computers, communications
− Coordination and Management: travel,
representation, meetings, and, workshops
3. Indirect costs
− Infrastructure: indirect costs for network,
mail, and other shared employee services,
rental, depreciation/ amortization
− Other charges: head office or regional
shared cost allocation, interest cost, foreign
exchange gains/ losses
Components of Loaded Onshore Cost
Loaded Annual Cost:
1. Compensation: Salary and Bonuses
2. Benefits: Training, Health and Life Insurance,
Profit Sharing, Pension Matching, Worker’ s
Compensation, Employer share of payroll and Social
Security taxes
3. Infrastructure: Facilities, Venue Rent, IT Support
Regulatory Requirements - BOI
Qualifications and Requirements ~ PEZA
Adherence to GovernmentRegulations (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
Industry/Company Regulations (Internal):
- Institutional and operational standards/
policies/ guidelines
- Service provider implements own
regulations
External Regulatory Requirements - BOI
Board of Investments
− A Republic of the Philippines agency created under
the Department of Trade and Industry.
− It strives to attract direct investments into the
country to contribute to economic growth and jobs
creation in the Philippines
BOI Qualification
− A Philippine enterprise can register their project with the
BOI if the proposed activity is listed as a preferred project
in the current IPP. Said enterprise may engage in
domestic-oriented activities in the IPP whether classified
as pioneer or non-pioneer
However, an activity which is not listed may still be entitled
to incentives if the following conditions are met:
− At least 50% of the production is marked for export (for
60% Filipino-40% Foreign-owned enterprises); or
− At least 70% of production is marked for export (for
more than 40% Foreign-owned enterprises)
− For foreign-owned firms or those whose foreign
investment exceeds 40% of the outstanding capital stock
who can engage in domestic-oriented activities, can only
be registered with the BOI if they propose to engage in an
activity listed or classified in the IPP as pioneer.
− However, if it fails to meet the pioneer classification, it
can likewise opt to be an export-oriented firm to qualify for
BOI registration. However, this time, the export
requirement is at least 70% of actual production
BOI Requirements:
− DTI Registration: Sole Proprietorship
− SEC Registration: Corporation, Branch Office,
Regional
Headquarters
− Audited financial statement and Income Tax
Return for
the past three years (if applicable)
− Board Resolution to authorized company
representative
− Accomplished Application Form 501 and Project
Report
PEZA, The creation of
 The development of Special Economic Zones
throughout the country, and the very competitive
incentives available to investments inside PEZA
Special Economic Zones are embodied in the
Special Economic Zone Act of 1995 (Republic
Act No. 7916), a law passed by the Philippine
Congress.
 Promote Philippine investments, extend
assistance, register, grant incentives to and
facilitate the business operations of investors in
export-oriented manufacturing and service
facilities inside selected areas throughout the
country proclaimed by the President of the
Philippines as PEZA Special Economic Zones.
Qualification
 Export-oriented enterprises that locate in any of
PEZA special economic zone Requirements
 Duly accomplished and notarized PEZA
application form and anti-graft certificate.
 Corporate Profile (including that of parent
company, if applicable)
 Board Resolution authorizing the filing and
designation of a representative
 Securities and Exchange Commission SEC
Certificate of Registration, Articles of
Incorporation and By Laws (if not available,
submit draft of Articles of Incorporation)
 Project brief(i.e., Information on Market,
Technical, Financial and Management aspects
of the project to be registered)
Data Privacy Law– Republic Act No. 10173
An act protecting individual personal
information in information and communications
systems in the government and the private sector,
creating for this purpose a national privacy
commission, and for other purposes
Industry Specifi cRegulations- Control of
communication channels and information
systems:ARTICLE16-(1)
The communication channels and
information systems of the bank shall be controlled to
ensure that information obtained within the bank is
reliable, complete, traceable, consistent, in a suitable
format and character to meet the requirement, and
accessible by relevant units and personnel in a
timely manner
Industry Specific Regulations-Auditing of
partnerships subject to consolidation:
ARTICLE34-(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