The IT-BPM Industry Overview

In 2010, Philippine Information Technology and Business Process Outsourcing (IT-BPM) industry
garnered recognition from around the world. The UK’s National Outsourcing Association determined the
country #1 in business process outsourcing service in its Global Business Trends report.

The word is definitely out – the Philippine is a major player in global IT-BPM.

The opportunity remains for the Philippine IT-BPM industry to capture a bigger share, given the global
offshoring services market is seen to more than double by 2016. The industry has the potential to bring
in USD$25 billion in revenue, and employ 1.3 million individuals by 2016.

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.

Introduction to the IT-BPM Industry

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

- 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 Delivery

- 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

- Janitorial Service

- 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 facilities, database management

Advantages and Disadvantages of Outsourcing

Advantages:

- Employer as well as Employee

Disadvantages

- Employer as well as Employee

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

- Buyer can leverage economies of scale of the Service Provider

- Service Provider may have more expertise/ capability than the buyer
 - Buyer can leverage economies of scale of the Service Provider.

Advantages - Employee Perspective

- “Work Abroad, Live here”

o Be near your friends and family
o Work in the country and support Philippine growth

- Professional Growth

- Financial Independence

- Employee Assistance

- Enjoy your favorite food

Disadvantages of Outsourcing – Employer Perspective

- Cost can be higher

o because provider may add premium for risk in case processes are not well defined
o Example Problem: Vaguely defined task as “provide clinic service.”
o 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

o 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?
o Solution: Do not use outsourced office assistant like your personal assistant.

“Disadvantages” - Employee Perspective

- Shifting schedule (possibility to work at night)

o Gives you the opportunity to pursue your passion and interest during the day

- Dealing with irate customer

o There is training support on how to deal with irate customer
o There is also floor support
o Companies provide facilities and activities to help you unwind
Fundamentals of Outsourcing

The Two (2) Types of Outsourcing

1. Third-Party:

- Owned by a service provider, a local entity or part of a global group

- Providing services to clients of the service provider

- Ex:

- Accenture

- AEGIS

- Convergys

- EGS (NCO/APAC)

- IBM

- Sitel

- SPi Global

- Stream Global

- Sutherland

- Sykes

- Tele Tech

- Teleperformance

- Telus
 2. Shared Service Center (SSC):

- Wholly-owned by the mother company

- Providing services entirely to affiliates and subsidiaries, or more rarely to clients of the mother
company

- Examples:

- ANZ Bank

- Chartis Technology and Operations Management

- Chevron

- Citigroup

- Dell

- DKS

- HP

- HSBC

- J.P Morgan Chase

- Maersk

- Manulife

- Shell Shared Services Asia

- Thomson Reuters

Strategies for Outsourcing

- Multisourcing

- Crowdsourcing

- Onshoring
 - Nearshoring

- Offshoring

Multisourcing: Multiple vendors for client's outsourced project.

- Example:

- GM's Brazilian e-commerce site. Vendors: Oracle, AT &T, Microsoft, Cisco, EDS (now HP
Enterprise Services), IBM

- GM's 2007/$7.5B IT outsourcing contract with EDS (now HP Enterprise Services), IBM,
Capgemini, and Wipro Ltd.

Crowdsourcing

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

- Crowdsourcing: "...outsourcing to an undefined, generally large group of potential offerers in

the form of an open call." (Jeff Howe)

Onshoring: Vendor in the same home country as client

- Advantages:

- Allows immediate response: product designers in same country respond to market feedback
quickly

- Local contractors have same market knowledge, culture, language, communication style;
minimizes culture issues

- Disadvantages:

- 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

- Example: New York bank contracting start-up security service firm in New York

Nearshoring: Vendor in a country “close” (geographic and/or cultural proximity) to client's home
country.
 - Advantages:

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

- Significant labor cost arbitrage

- Disadvantages:

- Additional coordination costs, sourcing management, communications

- Transfer pricing/tax margin requirements

- Example:

- Hong Kong retail firm offshoring garments manufacturing in Manila

Offshoring - Vendor and client in different countries.

- Advantages:

- Allows company to focus on core business

- Fast ramp-up/down at reasonable cost

- Opportunity to expand into 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 provider, weak staff selection/training

What to Outsource – 2 Types

- Core Activities-Tasks-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-Tasks-Processes:

- Support activities, processes, functions

What NOT to Outsource

Core Activities-Tasks-
Processes:
- Design
- Product Development
- Process
- “Recipe”
Core Activities-Tasks-
Processes:
- Design
- Product Development
- Process
- “Recipe”
Core Activities-Tasks-
Processes:
 - Design
- Product Development
- Process
- “Recipe”
Core Activities-Tasks-
Processes:
- Design
- Product Development
- Process
- “Recipe”
Core Activities-Tasks-
Processes:
- Design
- Product Development
- Process
- “Recipe”
- 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)

- IT Outsourcing

- Support Function/s

- Routine activities or activities that can be automated at larger centers

- Seasonal Requirement/s

- Part-based Activities

Business Process Outsourcing (BPO): outsourcing of entire business process components; e.g., HR,
payroll, accounting, Financial, etc.

  Companies that outsource Companies that caters to the function

Business Process the function

Human Reebok Shell SSC, Deutsche Knowledge Services, Coca-

Resoources (HR) cola Bottlers Business Services
 Financial Washington Mutual, Sallie Aegis, DSM “Manila” LLC, Du-Baladad &
Mae and Expedia  Associates

Payroll and Del Monte Philippines Manulife Financial, DKS, BPO international Inc.
Accounting

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
- 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

- MS Sharepoint

- Google Applications

Fundamentals of Outsourcing

- Business process outsourcing engagements.

- Managing outsourcing transitions

- BPO operations management

- Issue Management and control situation control