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MODULE 1
INTRODUCTION

Introduction
When you wake up in the morning, what would you prefer to have for breakfast? A fully-
loaded cheeseburger, corned beef, or tocino?
Do you know how to prepare what you want to eat for breakfast? Do you have the
capacity to produce everything you need beef, pork, onions, cheese, condiments, etc.
to enjoy your cheeseburger, corned beef, or tocino?
Gone are the days when we grow all the food that we take. We have to depend now on
farmers, traders, manufacturers, wholesalers and retailers to provide all the food we
need to prepare and eat at our tables.













The world we live in is a highly inter-connected and outsourced world. Just imagine the
number of companies involved in providing us with electricity or water. The number of
players involved when we watch a movie with our friends in the theater at a nearby mall.
Or, imagine the number of companies involved in sending and receiving a text message
possible.
Every time we buy something from somebody rather than producing it ourselves, we
Figure 1. Where do the ingredients for your breakfast come from?
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have essentially outsourced the production of that good or service.


Learning objectives

At the end of this module, you are expected to:

1. Define outsourcing
2. Trace the history of outsourcing globally and nationally
3. Discuss the socioeconomic contributions of the IT-BPM industry
4. Explain the reasons for outsourcing
5. Describe the functions for outsourcing
6. Discuss the advantages and disadvantages of outsourcing

What is outsourcing?

Outsourcing is any task, operation, job or process that could be performed by
employees within an organization, but is instead contracted to a third party for a
significant period of time. In addition, the functions that are performed by the third party
can be performed on-site or off-site.

In business, a service provider is contracted for the delivery of an outsourced function,
process or service. This service provider can either be a company or an individual.

This was clearly demonstrated by our breakfast examples. So, given that everyone
outsources to some degree or another, the question now is Why?
Overview of the Industry
Outsourcing has been in existence for quite some time. Outsourcing in the Philippines
has had an interesting start.
To learn more about the evolution of IT-BPM industry in the country and its
impacts on our society, please watch the video:
Overview of the IT-BPM Industry in the course site.


Self-reflection

After watching this video on the overview of the industry, ask yourself these
questions:
How has the IT-BPM industry affected your life and the people around you?
Do you think that the Philippine IT-BPM industry can sustain its growth in the future?
What role will education play in the industrys continued development?


Reasons for outsourcing
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1. Capacity management has to do with managing more efficiently the associated
manpower and related expertise of that workforce. Try to imagine how many
employees Globe, Smart, or Sun Cellular would need if they did not source out
their mobile phones for their subscription plans and decided instead to
manufacture their own phones. If our network operators decided to do this there
would be an immediate impact on the next item cost.

2. Cost has a lot to do with a companys sustainable capacity to effectively produce
or deliver its products and services. For example, US Companies would prefer to
pay a Filipino contact center associate $16,000 per annum rather than $70,000
for an associate in the US.

3. Better performance has to do with tapping manpower and the associated
expertise of that workforce. A known appliance manufacturer, Panasonic,
entrusts the selling of their products to distributors like SM Appliances or
Abenson so they could focus more on their core activity, which is manufacturing.

4. Faster and continuous service

Lets consider this example. A patient in the US underwent x-ray and ultrasound
on Day 1. The data is sent to the Philippines. While the US doctors are sleeping,
doctors here in the Philippines are analyzing the data, then send it back to the
US. On Day 2, the US doctors give the results to the patient. Talk about faster
service!

5. Part-based activities, is closely related to operational efficiency. Perhaps one of
the best ways to illustrate this point is through passenger car assembly lines. The
entire assembly or production line is clearly subdivided into specific tasks or
stations. Each station then having its own specialized personnel, equipment or
machinery, raw materials, and cycle-time.

This work segmentation allows for numerous benefits, such as: greater degree of
control, inventory management, troubleshooting, and, forecasting to mention a
few.
Now that we have covered the reasons for outsourcing, lets discuss the tasks or
processes that are being outsourced by companies to other companies.
Functions/Services that are outsourced

1. Support or auxiliary services

As an example, a school would rather hire the expertise of a professional security
agency rather than hiring their own security guards. Having security guards for
shifting schedules or having a replacement when a guard is absent is the security
agencys concern. In outsourcing this service, the school owner can focus on
managing the school.

Other examples of outsourced support or auxiliary services are cafeteria, copy
center trucking, shipping, payroll, and legal.
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2. Routine activities or those that can be automated at large centers

Lets consider the following examples of companies using the services of other
companies:

A small bank outsourcing its check processing to a larger bank

A small bank riding on ATM base of multi-bank network

A small vendor using Amazon.com as data center, marketing, and payment
processing platform,

A bank using common/multi-bank core banking services of a large technology
provider

Each example presented essentially boils down to one company (let us call this
company, Company A) leveraging technical advantages of another company (let us
call this company, Company B). Company A, potentially being a smaller company,
can opt to engage Company B in a business agreement to allow Company Bs
superior technology and/ or superior expertise to fulfill on outputs that might
otherwise overwhelm Company A.
3. IT Services

IT services are normally outsourced to decrease cost, access technical expertise or
service outside the company, to keep up with constantly changing technologies, or
allow the company to focus on its core business. Here are examples of IT services
that are usually outsourced.

Application Development. Regardless if it is the Apple Apps Store, or the Android
Market for Android-powered devices, or, Marketplace or Ovi Store for Nokia all of
these on-line mobile applications shops have, for example Rovios Angry Birds. Or
take for example an organization with a large marketing and sales force. In many
instances this company will contract an application developer to write or customize
an application so as to help the company better track; sales or job orders, inventory
levels and movement, stock levels, price fluctuations of competitor brands, etc.

Application Maintenance and Management. Take for example our very own
National Bureau of Investigation (NBI). The NBI contracted a vendor to handle its
database. Internal employees may not have the skills to do such task but with the
help of another company, NBI no longer has to worry about their database.

Production/ Data Center Operations. Perhaps two industries that popularly use
this service would be the banking industry and medical industry. More specifically
with banking credit or fraud operations, and, with medical it would be with
transcriptions.

Production Technical/ Systems Support. For this service we would look to both
providers and users; of engineering services and computer servers.
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Helpdesk. This is perhaps the most common service known to many of us. This
basically takes the form of having a group of agents fielding incoming calls of a
potentially wide variety. Some of these are inquiries on flight bookings, status of a
parcel on a trans-continental shipment, status of cable or mobile phone subscription.














Advantages and disadvantages of outsourcing
Every coin has two faces. And in this instance, advantages and disadvantages go both
ways to the company or the employer, as well as to the employee.
Advantages (employer perspective)
From the employer perspective, here are the advantages of outsourcing:
1. The service provider (BPO company) determines most efficient number
of resources, process, and supervision to achieve output

This is fundamentally about resource optimization. No organization has infinite
resources. It is critical in at least two ways: firstly towards the successful
completion of client requirements, and secondly with regard to ensuring
profitability, growth, and sustainability.


Figure 2. An animation film producer has partnered with service providers for
his accounting, cloud servers, IT maintenance, and animation production
requirements. What kinds of functions has he outsourced?
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2. Service provider may have more expertise/capability than the buyer.

Lets consider the following examples:






Service providers already have established track records in successful resolution
of concerns faced by buyers given the service providers in-depth expertise in the
related or required technologies. For example, Dell and Convergys are examples
of the more well-known technical support providers.
Global companies like Citi and JP Morgan Chase & Co are prime samples of
service providers that execute to the highest standards with regard to a highly
confidential subject matter the financials of a client.
Visionary producers and directors are not technically animators themselves, they
are essentially great story-tellers who finance and guide a film to its completion.
They work with animation studios or service providers who do pre as well as post
production. An example of such company is Top Draw.
3. Buyer can leverage economies of scale of service provider

Because of the large scale of their operation or the size of their outputs, service
providers have already achieved a certain level of operational efficiency (i.e.,
economies of scale). They can offer this advantage to their buyers.

Service providers can offer to buyers their economies of scale advantages in terms
of the following:

Technical infrastructure. The service provider has a sizable and proven capacity
for online storage, data processing and data connectivity.

Human Resources. This item does not exclusively refer to the sheer volume or
number of warm-bodies but, more importantly, it refers to the associated
knowledge, skills, competencies and professionalism of those human resources.

Technical Expertise. It is the convergence of the first and second bullets or items.
This includes the skill to correctly and efficiently diagnose and troubleshoot a
clients concern potentially without the need to seek additional support and
assistance from an escalation or a transfer.
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Advantages (employee perspective)
On the other hand, outsourcing offers the following advantages to employees:

Work abroad, live here. Given the Filipinos value and appreciation of the
close-knit family system, Filipinos working in the IT-BPM industry can earn and
support their families without leaving the country.

Professional growth. Employees working in the IT-BPM industry can potentially
expand their business expertise as they interact in different group settings, work
with professionals of different ethnicity, cultural background, and, management
style. This exposure and experience is a wonderful learning opportunity.

Financial independence. More often than, entry-level salaries in the IT- BPM
industry are significantly more attractive than entry-level positions in other
industries. This holds true even in instances wherein the job function is primarily
similar.

Employee Assistance. Many IT-BPM companies provide world-class facilities,
amenities, and benefits that are more than what is required by the government.
When safety and well-being of the employees are at risk, many IT-BPM companies
make sure that their employees are looked after.

Disadvantages (employer perspective)
In todays global marketplace, drastic reversals due to a multitude of intervening
variables from private and federal financial institutions, have jeopardized not only
companies but as well as entire countries and unions, as what happened in 2008 in the
United States and the European Union. As costs spiral upward, the capacity to pay for
services rendered or consumed can become progressively challenging. This resulting
circumstance drives the unfortunate statistic of business closure due to bankruptcy and
unemployment increases. Unemployment then contributes to claims for welfare
assistance from the government. And where does the government get its money from
taxes paid by the very same companies and employees who are already under threat.
Fortunately, for us the outlook for the IT-BPM industry in the country is a positive and
assuring one.

Clients of outsourcing companies do not have full control of the employees doing the
work. This will be discussed further in a later. In general, BPOs can face the following
potential risks and challenges:

Fraud
Data security or piracy
Identity theft
Corporate espionage
Quality and safety assurance
Efficiency and reliability durability and robustness of equipment used

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Having said this, it must be said that there are government and industry regulations,
requirements and standards, and well-designed business agreement between the client
and service provider for the protection of the client and the employer.

Costs can be higher because service provider may add premium risk in cases where
processes are not well defined. For example, the process has been vaguely defined as
provide clinic service. To be implementable though, this process has to be redefined in
terms of tasks, for example:

2 fulltime nurses and 1 full-time doctor from 8:00 AM to 5:00 PM, providing
emergency medicine (to what extent) and emergency care equipment (or not).

Clarifying such uncertainties in some processes may incur cost on the organizations
end.

In addition, the buyer also does not have full control of the resources doing the work. A
buyer should not, for instance, expect an outsourced office assistant to perform personal
duties like bringing his pet to the vet clinic, bringing the clothes to the dry cleaner, or
picking up his kids from school. The people doing the work are limited to the
requirements of the job being outsourced to them.

Disadvantages (employee perspective)

A shifting schedule with the possibility of working at night can easily be viewed as a
disadvantage. However, what this scheduling opens up for many is the opportunity to
pursue other activities during the day. For many members of the IT-BPM industry this
means; participating in community development initiatives, supporting charities, helping
out and supporting a family venture, or simply enjoy their favorite fitness facility without
the throng of other patrons who still happen to be in school or at work. These are just a
few benefits.

Dealing with irate customer is not unique to the IT-BPM industry. This situation can arise
fifty percent of the time in any transactional relationship. What is certain is that you will
receive expert training on how to effectively handle such situations. In instances that you
may require support or upon a customers request, your peers supervisors and
managers are committed to deliver customer satisfaction. They will develop your skills
to perform your job with greater independence. Lastly, many companies provide for
facilities and activities to help employees handle work-related stress. There are game
rooms, break-out rooms to power nap, a basketball court, video gaming consoles, a
meditation room, a clinic or infirmary, having an anti-burn out party, having sporting
competitions, and many more. These are all prime examples of facilities and activities
geared towards better employee well being.




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Self-reflection

Given what you have learned, what opportunities does the IT-BPM industry
offer to you and other Filipinos? How can you prepare yourself for these opportunities?




Watch the video lecture Introduction after reading this learning material.




After reading all the materials and viewing all the videos, prepare to do the
online quiz in the course site.



Summary

In this module, we have defined IT-BPM outsourcing and discussed the rationale for
outsourcing, the functions and/or services being outsourced, and the advantages and
disadvantages of outsourcing.

Glossary

Application Management
Application management (AM) is the process of managing the operation,
maintenance, versioning and upgrading of an application throughout its lifecycle.

Capacity Management
A process used to manage information technology (IT). Its primary goal is to
ensure that IT capacity meets current and future business requirements in a cost-
effective manner.

Contact Center
A contact center (also referred to as a customer interaction center or e-contact
center) is a central point in an enterprise from which all customer contacts are
managed. The contact center typically includes one or more online call centers but
may include other types of customer contact as well, including e-mail newsletters,
postal mail catalogs, Web site inquiries and chats, and the collection of information
from customers during in-store purchasing. A contact center is generally part of an
enterprise's overall customer relationship management (CRM).



Data Center
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Computer facility designed for continuous use by several users, and well equipped
with hardware, software, peripherals, power conditioning and backup,
communication equipment, security systems, etc.

Helpdesk
A resource intended to provide the customer or end user with information and
support related to a company or institution's products and services. The purpose of
a help desk is usually to troubleshoot problems or provide guidance about
products such as computers, electronic equipment, food, apparel, or software.

Knowledge Process Outsourcing (KPO)
Knowledge process outsourcing (KPO) is the allocation of relatively high-level
tasks to an outside organization or a different group in a different geographic
location. Examples of KPO include long-term jobs for intellectual, analytical and
knowledgeable people within industries such as research and development,
financial consultancy and services, business and technical analysis and many
others.

Outsourcing

Any task, operation, job or process that could be performed by employees within
an organization, but is instead contracted to a third party for a significant period of
time.


References

http://www.entrepreneur.com/encyclopedia/outsourcing
http://searchcrm.techtarget.com/definition/contact-center
http://www.investopedia.com/terms/k/knowledge-process-outsourcing.asp
http://www.investopedia.com/terms/c/capacity-management.asp
http://www.techopedia.com/definition/28008/application-management-am
http://www.businessdictionary.com/definition/data-center.html
http://operationstech.about.com/od/glossary/g/Outsourcing.htm
http://www.businessdictionary.com/definition/help-desk.html




This learning material is drawn and adapted from the Fundamentals of Business
Process Outsourcing 101 Teachers Guide (2014) produced by the IT-Business Process
Association of the Philippines (IBPAP).

Illustrations are by Grace J. Alfonso.