Manalo, Lorelien A.

Groups (A) and (B) are the “operational”

MKTMGT 2203 elements, used day to day. Group (C) generally
BPO 201 – Business Process Outsourcing “just-in-case” terms.
IT-BPM ENGAGEMENTS Module 3
The IT-BPM Contract: Scope of Work
Client-Service Provider Relationship
Attributes ~ SOW ~ MSA ~ Core Elements Definition: Describes specific work to be
delivered, by when, at what cost
Client-Service Provider Relationship:
Attributes Considerations:
➢ Can be similar to a “job order”
Client company is concerned with: ➢ Is generally an attachment/addendum to a
• Quality transition of processes Master Agreement, points to covering
• Efficient operation of business functions terms
that were once handled in-house ➢ May state that in case of terms
inconsistency, the SOW or Master
Service provider company is concerned with: Agreement supersedes
• Scope of service
• Performance measures The IT-BPM Contract: Core Elements
• Benchmarks to ensure objective standards • Service to be rendered or provided as
in assessing work quality documented in the Scope of Work (SOW)
• Performance standards expected from the
Therefore, as a result of these relationship service provider; Service Level
attributes, the IT-BPM contract is a unique, Agreements (SLA), and, Key Performance
“tailor-fit” agreement captured in a document Indicators (KPI) – (ano expected sayo ni
that resembles a performance contract. company) Example: Ilan yung nasagot
mong call)
The IT-BPM Contract • Timeline of the contract; start date (“go
• A business process management (IT-BPM) live”), and, duration
contract is a formal agreement between a • Costs to the client
client and a service provider to take over a • Other Specific Operational Requirements
“pre-agreed portion” of the client's
business operations. Service to be rendered or provided as
• This “pre-agreed portion” is documented documented in the Scope of Work (SOW)
in the contract as the scope of work (SOW). ➢ Out-bound sales calls (tayo tatawag)
• The IT-BPM contract, with all its o one initiated by a call center agent
attachments, assumptions, and to a customer on behalf of a call
documented agreements, is referred to as center or client
the master services agreement (MSA). ➢ In-bound inquiries or subscriptions
o inbound call center receives
The IT-BPM Contract: Master Services incoming calls from customers
Agreement ➢ Delivering food or flowers or mail
Definition: Covering agreement that
summarizes terms applicable to every job-order Performance standards expected from the
with the service provider service provider; Service Level Agreements
Main elements: (SLA), and, Key Performance Indicators (KPI)
A. Service to be provided ➢ “Handle Time” and “Average Handle Time”
B. Performance management, issues, change ➢ Sales attainment
management ➢ Customer satisfaction rating
C. Country laws
Timeline of the contract; start dates (“go ➢ In some cases, a maximum price for the
live”), and, duration. service is negotiated by the client/
➢ It is a detailed schedule of when the customer to build in some control or safety
transition period starts and when the level.
service provider assumes control of the In practice, it is often a mix of the above
contracted processes mentioned pricing models that is used.
➢ In terms of type per duration; most
contracts are typically multi-year IT-BPM Contract Financials
contracts, however and when deemed most CAPEX-OPEX ~ Process Costs ~ Loaded Costs
effective, on-demand contracts may also be
put into effect CAPEX and OPEX

Costs to the client • CAPEX (or Capital Expenditure) is a

➢ Refers to the payment made by the client to business expense incurred to create future
the service provider for honoring benefit. Expenditure on assets like a building
contractual agreements or the physical space, machinery, equipment
or upgrading existing facilities so their value
Other Specific Operation Requirements: as an asset increases.
➢ Who will provide the service
➢ Qualifications of personnel • OPEX (or Operational Expenditure) is the
➢ Location of operations money the business spends in order to turn
➢ Outline of reporting procedures, decision- inventory into output (throughput). These are
making, and escalation of problems operating expenses which also include
➢ Legal provisions (e.g., non-competition, depreciation of plants and machinery which
confidentiality are used in the production process. Those
expenditures required for the day-to-day
IT-BPM Contract Pricing Models functioning of the business, like wages,
Fixed Price ~ Time & Material utilities, maintenance and repairs fall under
the category of OPEX
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.
 Components of Loaded Annual Cost

Loaded Annual Cost:

1. Compensation: Salary and Bonuses Benefits:
Training, Health and Life Insurance, Profit
2. Sharing, Pension Matching, Worker’s
Compensation, Employer share of payroll
and Social Security taxes
3. Infrastructure: Facilities, Venue Rent, IT
Support

Regulatory Requirements
BOI Qualification & Requirements ~ PEZA

Regulatory Requirements

Adherence to Government Regulations

(External):
➢ Board of Investments (BOI)
➢ Bureau of Internal Revenue (BIR)
➢ Bureau of Immigration
Components of Process Cost ➢ Department of Labor and Employment
Process costs associated with roles (activities- (DOLE)
processes-tasks) that may be outsourced via the ➢ Pag-Ibig Fund
offshoring outsourcing strategy ➢ Philippine Economic Zone Authority
1. Labor cost (PEZA)
2. Direct costs ➢ Securities and Exchange Commission
3. Indirect costs (SEC)
➢ Social Security Services (SSS)
1. Labor Cost: ➢ Data privacy Law
➢ Compensation
➢ Benefits Industry/ Company Regulations (Internal):
➢ Bonuses ➢ Institutional and operational standards/
➢ Incentives policies/ guidelines
➢ Service provider implements own
2. Direct Costs: regulations
➢ Employee Development (Training),
Employee Relations Programs External Regulatory Requirements – BOI
➢ Employee Tools/ Equipment; desktop
computers, Board of Investments
➢ communications ➢ A Republic of the Philippines agency
➢ Coordination and Management: travel, created under the Department of Trade
representation, meetings, and, workshops and Industry.
➢ It strives to attract direct investments into
3. Indirect Costs the country to contribute to economic
➢ Infrastructure: indirect costs for network, growth and jobs creation in the Philippine
mail, and other shared employee services,
rental, depreciation/ amortization BOI Qualification
➢ Other charges: head office or regional A Philippine enterprise can register their
shared cost allocation, interest cost, project with the BOI if the proposed activity is
foreign exchange gains/ losses listed as a preferred project in the current IPP.
The said enterprise may engage in domestic- very competitive incentives available to
oriented activities in the IPP whether classified as investments inside PEZA Special Economic
pioneer or non-pioneer Zones are embodied in the Special
Economic Zone Act of 1995 (Republic Act
External Regulatory Requirements – BOI No. 7916), a law passed by the Philippine
Congress.
BOI Qualification (Continued) ➢ Promote Philippine investments, extend
However, an activity which is not listed assistance, register, grant incentives to
may still be entitled to incentives if the following and facilitate the business operations of
conditions are met: investors in export-oriented
➢ At least 50% of the production is marked manufacturing and service facilities inside
for export (for 60% Filipino-40% Foreign- selected areas throughout the country
owned enterprises); or proclaimed by the President of the
➢ At least 70% of production is marked for Philippines as PEZA Special Economic
export (for more than 40% Foreign-owned Zones
enterprises)
Qualification
Any outsourcing company is ➢ Export-oriented enterprises that are found
Qualified under 100% export in any of PEZA special economic zone

BOI Qualification (Continued) Requirements

➢ For foreign-owned firms or those whose ➢ Duly accomplished and notarized PEZA
foreign investment exceeds 40% of the application form and anti-graft certificate.
outstanding capital stock who can engage ➢ Corporate Profile (including that of parent
in domestic-oriented activities, can only be company, if applicable)
registered with the BOI if they propose to ➢ Board Resolution authorizing the filing
engage in an activity listed or classified in and designation of a representative
the IPP as pioneer. ➢ Securities and Exchange Commission SEC
➢ However, if it fails to meet the pioneer Certificate of Registration, Articles of
classification, it can likewise opt to be an Incorporation and By Laws (if not
export-oriented firm to qualify for BOI available, submit draft of Articles of
registration. However, this time, the Incorporation)
export requirement is at least 70% of ➢ Project brief (i.e., Information on Market,
actual production 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 personal
Office, Regional Headquarters information in information and communications
➢ Audited financial statement and Income systems in the government and the private sector,
Tax Return for the past three years (if creating for this purpose a national privacy
applicable) commission, and for other purposes.
➢ Board Resolution to authorized company
representative Internal Regulatory Requirements – Industry
➢ Accomplished Application Form 501 and Industry Specific Regulations - Control of
Project Report communication
channels and information systems: ARTICLE
External Regulatory Requirements – PEZA 16- (1)
PEZA, The creation of The communication channels and
➢ The development of Special Economic information systems of the bank shall be
zones throughout the country, and the 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:
ARTICLE 34- (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.
Manalo, Lorelien A. BPO is movement of business process from Inside
MKTMGT 2203 the organizations to external service providers
BPO – 201 Business Process Outsourcing
Call center – is a place where high volume of calls
Introduction to business Process Outsourcing or emails are being made and received.
Most important & innovative one is the
creation of a Global, communication & Many Large Companies have been outsourcing
Information infrastructure that has now dug deep non- core activities like, for years
everywhere. The worldwide telecommunications 1. Housekeeping
infrastructure has produced a business 2. Security
innovation called Business process outsourcing 3. Maintenance of IT

IT-BPM Industry (The Information Why companies outsourced?

Technology and Business Process Association ➢ Cost-saving
of the Philippines) (IBPAP) ➢ Cutting back of resources
➢ The one-stop information and advocacy ➢ Improve company’s focus (Core
gateway for the industry competences)
➢ Ensures that the Philippines IT-BPM ➢ Lessen Operational risk when scaling
industry realizes its full potential and
grows purposefully into its role as a global What is being outsourced?
leader
➢ Assist investors in setting up operations 1. Back office operations: (non-voice)
easily and quickly in the Philippines They include payment processing,
information technology services, quality
Early 1990s assurance, etc.
➢ Multinational companies set up non-voice Ex: payment processing
operations
2. Front office operations: (voice)
1995 Functions:
➢ Creation of Philippine Economic They include marketing, sales,
Development Zone (PEZA) by President customer relations, and grievance
Fidel V. Ramos redressal.
➢ PEZA – to boost our economy, a bureau of Ex: answering inquiries
the Department of Trade and Industry
tasked to promote investments in Back Office Services
designated Special Economic Zones, or Full fledged back office support for all core
Ecozones. and non-core business functions. The entire
business operation or certain divisions of
Early 2000s operations is outsourced. Typically, departments
➢ The emergence of the voice-related like Administration, HR Services, Marketing,
functions and transcription services Accounts & Finance, Data processing, Back Office
Operations, Web Related Services and Customer
Recent Years Services can be outsourced.
➢ The Philippines is among the most stable
IT-BPM and GIC providers in the world Types of Services

Why is BPO? BUSINESS PROCESS 1. Accounts & Finance

OUTSOURCING (BPO) Invoicing, Billing, payables Mgmt.,
is a type of outsourcing wherein a third- collections etc.
party service provider is employed to carry out
one or more business functions in a company.
 2. HR Services Facts about Outsourcing
Recruitment, PMS, Welfare, Payroll, • The concept of business process orientation
employer services, Surveys etc. (BPO) is based upon the work of
➢ Deming (Walton, 1996)
3. Data processing ➢ Porter (1985)
Claims processing, Third party ➢ Davenport and Short (1990)
verification, Content Management ➢ Hammer (1993, 1996 and 1999)
➢ Grover et al (1995)
4. Marketing ➢ Coombs and Hull (1996)
Marketing support, sales co-ordination, • They suggest that firms could enhance their
lead generation etc. overall performance by adopting a “process
view” of the organization.
5. Customer Services
Voice and Non-voice based customer McCormack (2000)
support. ➢ He conducted an empirical study to
explore the relationship between BPO and
6. Web Related Services enhanced business performance.
Content Writing, Web Page Designing, SEO ➢ BPO is critical in reducing conflict and
and Link Exchange. encouraging greater connectedness within
an organization, while improving business
Pros of Outsourcing performance.
1. Lower Cost ➢ High BPO levels within organizations led to
2. Higher Efficiency a more positive corporate climate
3. Focus on core business function ➢ Companies with strong measures of BPO
4. Global Expansion showed better overall business
performance
Cons of Outsourcing
1. Security Issues BPO Hot Spot around the World
2. Overdependence on service providers • China - Manufacturing & technical
3. Communication Problems • India - Engineering & Technical
4. Unforeseen or Hidden Cost • Mexico - Manufacturing
• United States - Analysis & creative
Types of Outsourcing • Philippines – Administrative
1. Offshore Outsourcing– when an BPO requirements for Companies
organization hires a service provider in a 1. Skillful Management
different country. Also called offshoring. 2. Security Technology
This is most challenging type of out
sourcing & most demanding. Driving Factors of BPO Revolution
BPO has emerged from a set of driving factors
2. Onshore Outsourcing – when an that have intentionally converged in this
organization hires a service provider that particular time to enable the shifting work to its
is located in the same country. It is also lowest cost /highest quality provider regardless
called domestic outsourcing. of where the provider is physically located.
• Educational Attainment
3. Nearshore Outsourcing – when an • Internet Connection
organization hires a service provider in a
• Inexpensive Data Storage
neighboring country or within the
• Analytical Software
continent. For example, Mortgage
• Internet Security
Electronic Registration Systems, an
organization
Driving Factors of BPO Revolution • Online Analytical Processing (OLAP)
has created a wide range of new
1. Educational Attainment: United State still possibilities including Effects on
dominates the world with the quality of higher organizational design
education that is offered but rest of world is
not behind. There are more number of Asians 5. Internet Security
pursuing technical degree than Americans. Internet security talks about the ability to
This is a reason why US firms are looking for send information & data over internet without
looking abroad for outsourcing Asia having to fear
1. espionage
2. Broadband Connection: The age of 2. leakage
broadband internet connection is in full swing 3. loss
now. Storage of data is most critical issue for There are many security Protocols
business One danger of moving the work to available today & many executives
the third party is the loss of understand them. The Indian IT Act of 2000
a) Job & or assignment addresses
b) Organizational Learning 1. privacy related issues
2. Define hacking
3. Data storage: has always been a critical 3. Computer evidence
resource for business.
• In the days of paper-based record Internet Security
keeping, data storage was primarily Internet security refers to the ability to
accomplished via file cabinets, closets, send information and data (including voice) over
and dingy overstuffed basements. the Internet without fear of leakage, espionage, or
• The computerization of the workplace outright loss. It is critical for companies to be
gradually replaced paper-based filing certain that their data integrity will be maintained
systems at first with punch cards and despite its movement around the globe in the
later with magnetic tapes and then disk- servers, routers, and computers that make up the
based storage. World Wide Web.
➢ BS 7799 is comprehensive set of controls
Advances in data storage, including of best practices in information security.
sophisticated data retrieval, have driven This was published in February 1995
down storage costs dramatically. The
elimination of the barriers to data storage has ➢ ISP 17799 is internationally recognized
enabled new ways of thinking about what is information security management
possible in the structure and procedures of standard It first published in year 2000
the work-place.
➢ Health Insurance Portability and
4. Analytical Software: Software is major Accountability Act (HIPAA) establishes
source of business in BPO industry; It is tool to standards for the secure electronic
work. transfer of health data
1) Expert Systems
2) Decision support systems Michael Hammer also presented the business
3) Artificial intelligence process orientation concept as an essential
are software tools that perform analytical ingredient of a successful “reengineering” effort.
tasks. Hammer coined this term to describe the
development of a customer focused, strategic
• Online Analytical Processing (OLAP) business process based organization enabled by
has created a wide range of new rethinking the assumptions in a process oriented
possibilities including Hiring process way and utilizing information technology as a key
enabler (Hammer, 1993).
• Culture is a major theme in the examples cited.
A “business process culture” is a culture that How BPO works
is cross-functional, customer oriented along • BPO involves the complete transfer of a
with process and system thinking. business process to an external service
provider
• This can be expanded by Davenport’s • Quality is prime deciding factor in
definition of process orientation as consisting outsourcing to BPO
of elements of structure, focus, measurement, • Payment of BPO vendor depends upon
ownership and customers (Davenport 1993). Quality delivered
• The implementation of a BPO project also
• Finally, Hammer (Hammer 1993, 1995, 1996, requires attention to technology issues
1999) described “process thinking” as cross- like the
functional and outcome oriented. He also used ➢ Software & database compatibility
four categories to describe the components ➢ Data & knowledge Management
of an organization. These are: ➢ Back up & recovery procedures
1. Business Processes ➢ Data Interface challenges
2. Jobs and Structures
3. Management and Measurement BPO To Outsource or not? BPO To Outsource
Systems or not?
4. Values and Beliefs
BPO has managers around the world
• Many managers prefer to stay away from this asking what it can do for them and what it might
concept of BPO as they believe it quite do to them. They are excited about the potential
wrongly to be technological innovation and for BPO to help them manage costs and improve
better left to the Chief Information Officer. their balance sheets. Under constant pressure
from analysts to control headcount, outsourcing
The human skill set includes: back-office activities to contract laborers in
1. Developing various teams remote corners of the world can provide welcome
2. Reassuring staff of their role in and quick relief. Whether the labor source is in
organization India, Pakistan, China, or some other
3. Training people international port, the prevalence of high-speed
4. Dealing with loss of job & or assignment Internet provides opportunities for real-time
5. keeping moral high throughout change back-office support regardless of location.
process
6. Encourage people in decision making At the same time as these new possibilities
are opening up as a result of the BPO revolution,
The implementation of a BPO project also new questions are being asked and new
requires attention to technology issues like the challenges in organizational design.
followings
1. Compatibility of system between BPO Many organizational leaders remain
buyer & vendor skeptical about BPO because of the lingering
2. Data & system security aftereffects of the tech bubble burst. Their
memories are still fresh with images of the
The implementation of a BPO project also “change the world” mentality of the tech bubble
requires and its dismayingly rapid crash. The very thought
➢ Data & system security of investing in new business models right now—
➢ Attention to technology issues like the especially those with a technology or Internet
followings component—is very difficult for many managers
1) Software & database compatibility and executives.
2) Data & knowledge Management
Manalo, Lorelien A. Advantages:
MKTMGT 2203 ➢ Allows immediate response: product
BPO 201 – Business Process Outsourcing designers in same country respond to
CHAPTER 2 market feedback quickly
➢ Local contractors have same market
The Two (2) Types of Outsourcing knowledge, culture, language,
communication style; minimizes
1. Third-Party: culture issues
➢ Owned by a service provider, a local entity
or part of a global group Disadvantages:
➢ Providing services to clients of the service ➢ Risk of inadequately selected, trained,
provider supervised staff—i.e., less skilled
➢ Examples: because contractor staff are lower paid
Accenture, AEGIS, Convergys ➢ Risk of higher attrition (lower business
EGS (NCO/APAC), IBM, Sitel, SPi Global, acumen/process knowledge) than
Stream Global, Sutherland, Sykes, internal staff; less motivation to deliver
Tele Tech, Teleperformance, Telus quality

2. Shared Service Center (SSC): Example: New York bank contracting start-up
➢ Wholly-owned by the mother company security service firm in New York
➢ Providing services entirely to affiliates
and subsidiaries, or more rarely to clients 4. Nearshoring: the transfer of business to a
of the mother company nearby country, often sharing the same
➢ Examples: border.
ANZ Bank, Chartis Technology and Advantages:
Operations Management, Chevron ➢ Fee-for-service variability rather than
Citigroup, Dell, DKS, HP, HSBC fixed compensation costs
J.P Morgan Chase, Maersk, Manulife ➢ Significant labor cost arbitrage
Shell Shared Services Asia,
Thomson Reuters Disadvantages:
➢ Additional coordination costs,
Strategies for Outsourcing sourcing management,
communications
1. Multisourcing: Multiple vendors for client's ➢ Transfer pricing/tax margin
outsourced project. requirements
Example:
➢ GM's Brazilian e-commerce site. Vendors: Example: Hong Kong retail firm offshoring
Oracle, AT &T, Microsoft, Cisco, EDS (now garments manufacturing in Manila
HP Enterprise Services), IBM
➢ GM's 2007/$7.5B IT outsourcing contract 5. Offshoring - Vendor and client in different
with EDS (now HP Enterprise Services), countries (Hiring third party provider in
IBM, Capgemini, and Wipro Ltd. different countries)
Advantages:
2. Crowdsourcing: "...outsourcing to an ➢ Allows company to focus on core
undefined, generally large group of potential business
offerers in the form of an open call." (Jeff ➢ Fast ramp-up/down at reasonable cost
Howe) “ONLY THE BEST” ➢ Opportunity to expand into new areas
cost effectively
3. Onshoring: Vendor in the same home country
as client Disadvantages:
➢ Data privacy/confidentiality issues
 ➢ Lack of right business acumen/right Typically Outsourced Activities-Tasks-
market knowledge in offshore location Processes
➢ Cultural differences leading to delays and
miscues 1. Business Process Outsourcing (BPO):
➢ Risk of high attrition in service provider, outsourcing of entire business process
weak staff selection/training components; e.g., HR, payroll, accounting,
Financial, etc.
Activities-Tasks-Processes

• 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
2. IT Outsourcing:
➢ IT Technical Support
• Non-Core Activities-Tasks-Processes:
➢ IT Application Development
➢ Support activities, processes, functions ➢ IT Application Management
➢ Data Center operations
Core Activities-Tasks-Processes: ➢ Software as a Service (SaaS)
➢ Design ➢ Cloud (On-line Storage) Services
➢ Product Development Examples:
➢ Process Accenture
➢ “Recipe” Chartis
Chevron
What to Outsource?
3. Support function/ services: (non-core
Well-defined/documented tasks, standard activities
outputs ➢ Cafeterias Copy centers
Examples: ➢ Security
➢ IT Development: programming, ➢ Janitorial Services
documentation, unit and integration ➢ Trucking/ Shipping
testing, implementation of new systems, ➢ Building Maintenance
conversion to new platforms
➢ IT Maintenance: application maintenance, 4. Routine activities or activities that can be
helpdesk, network support automated at larger centers:
➢ Small banks outsourcing check
Typically Outsourced Activities-Tasks- processing to larger banks, riding on
Processes ATM base of multi-bank network
➢ Business Process Outsourcing (BPO) ➢ Small vendors using Amazon.com as
➢ IT Outsourcing data center (use this app as data center),
➢ Support Function/services marketing, and payment processing
➢ Routine activities or activities that can be platform
automated at larger centers ➢ Banks using common/multi-bank core
➢ Seasonal Requirement/s banking services of large technology
➢ Part-based Activities providers
5. 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

6. 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 Application

Fundamentals of Outsourcing