SMPBPO101 - 002 v2013 QCCI

FUNDAMENTALS OF
OUTSOURCING
Module 2
Fundamentals of
Business Process Outsourcing 101
Topical Overview
• The Two (2) Types of Outsourcing
• Outsourcing as a Business Strategy
• Outsourced Activities/ Processes

o Core versus Non-Core Processes
• Readiness Assessment
• Technologies and Trends

Module Learning Objectives
By the end of this module, you should be able to:

• Name and define the two (2) types of Outsourcing
• Enumerate the different outsourcing strategies
• State the common types of activities, tasks, and/ or

processes that get outsourced
• Define the components of Readiness Assessment
• Identify what are the key technologies and trends in

outsourcing.
Putting Things into Context
• No man is an island
• Everything is connected
• The nature of business is …

The Two (2) Types of Outsourcing
Third-Party: Shared Service Center (SSC):
•Owned by a service •Wholly-owned by the mother

provider, a local entity or company
part of a global group
•Providing services entirely to
•Providing services to clients affiliates and subsidiaries, or more
of the service provider rarely to clients of the mother
company
The Two (2) Types of Outsourcing
Third Party: Shared Service Center

(SSC):
Accenture ANZ Bank
AEGIS Chartis Technology and Operations
Convergys Management
EGS (NCO/APAC) Chevron
IBM Citigroup
Sitel Dell
SPi Global DKS
Stream Global HP
Sutherland HSBC
Sykes J.P Morgan Chase
Tele Tech Maersk
Teleperformance Manulife
Telus Shell Shared Services Asia
Thomson Reuters
Strategies for Outsourcing
• Multisourcing
• Crowdsourcing
• Onshoring
• Nearshoring
• Offshoring
Strategies for Outsourcing –
Multisourcing
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
•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
Onshoring
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
•Nearshoring: the transfer of business to a nearby

country, often sharing the same border.
Advantages:
−Fee-for-service variability rather than fixed compensation
costs
−Significant labor cost arbitrage
Nearshoring
Disadvantages:
−Additional coordination costs, sourcing management,

communications
−Transfer pricing/tax margin requirements
Example:
Hong Kong retail firm offshoring garments manufacturing
in Manila
Offshoring
• 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
Strategies for Outsourcing
• M____________
• C____________
• O________
• N__________
• O_________
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
Non-Core Activities-Tasks-Processes:
• Support activities, processes, functions

What NOT to Outsource
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
• 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.
• 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
• B_______ P______ O__________

• __ O_________
• S______ F_______/s
• R______ activities or activities that can be
a________ at larger centers
• S_______ R__________/s
• P___-_____ A________
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
Learning Check/ Quiz:
1. What are the two (2) types of outsourcing?
2. Enumerate and briefly explain the five (5)

outsourcing strategies.
3. What are the typically outsourced activities/

processes/ tasks? Enumerate.
Group Activity:
Putting it all Together

Group Activity:
Putting It All Together
Choose from one of the following businesses:
1.Restaurant
2.Salon
3.Clothing (Tailor)
4.Printing Shop
5.Boutique Hotel
6.Flower Shop
Group Activity:
In your respective teams, create your business

concept and supply the following information:
• Name of your business

• Products and services
• Price of products and/ or services
• Image/ Brand identity that you want to create
• Location
• Marketing Strategy
• Operating Processes
Group Activity:
Assumption:
Water – 5,000 per month

Electricity – 5,000 – 10,000
Internet Connection - 1,000
Minimum wage – Php446.00, 15 workers or less
Base Rent - 5,000 – 10,000
Provide for total expenses for two (2) years

Group Activity:
Identify what services/products

will you be outsourcing
and why?
Group Activity:
Putting it all Together

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FUNDAMENTALS OF

• The Two (2) Types of Outsourcing

• Outsourcing as a Business Strategy

• Outsourced Activities/ Processes

• Technologies and Trends

By the end of this module, you should be able to:

• Enumerate the different outsourcing strategies

• State the common types of activities, tasks, and/ or

• Define the components of Readiness Assessment

• Identify what are the key technologies and trends in

• The nature of business is …

Third-Party: Shared Service Center (SSC):

•Owned by a service •Wholly-owned by the mother

Third Party: Shared Service Center

Multisourcing: Multiple vendors for client's

• Company puts out a call for a project; best

• Crowdsourcing: "...outsourcing to an undefined,

•Onshoring: Vendor in the same home country as

−Local contractors have same market knowledge, culture,

Example: New York bank contracting start-up security

•Nearshoring: the transfer of business to a nearby

−Additional coordination costs, sourcing management,

• Offshoring - Vendor and client in different

• Allows company to focus on core business

• Primary process or product of the business

• Support activities, processes, functions

Well-defined/documented tasks, standard

• Business Process Outsourcing (BPO)

• Business Process Outsourcing (BPO): outsourcing of entire

• Support function/ services:

• Routine activities or activities that can be

− Small banks outsourcing check processing to larger banks,

− Small vendors using Amazon.com as data center, marketing,

− Banks using common/multi-bank core banking services of

• B_______ P______ O__________

• HP - Halo (8.5 min. video)

Web-based conferencing and workflow tools:

1. What are the two (2) types of outsourcing?

2. Enumerate and briefly explain the five (5)

3. What are the typically outsourced activities/

Putting it all Together

Choose from one of the following businesses:

In your respective teams, create your business

• Name of your business

Water – 5,000 per month

Provide for total expenses for two (2) years

Identify what services/products

Putting it all Together

You might also like

• B_ P O______