COLLEGE OF ARTS AND SCIENCES

MODULE FOR BPO 1 – FUNDAMENTALS OF BPO 1

This course will introduce the basics of the Business Process Outsourcing (BPO)
industry and how it contributes to the growth of the economy of the Philippines. Class sessions
will be done through: Lectures, Out-class Individual, Assignments, Article Reviews, Video
Presentations

Business process outsourcing is introduced as a natural evolution of business

process management. The student is exposed to a set of qualitative and quantitative topics
aimed to enhance process – oriented thinking, in order to develop the knowledge and skills
necessary to appreciate and implement programs of process reengineering, management
and excellence in organizations.

CONTENTS OF THE MODULE

Lesson 3
1. Fundamentals of Outsourcing
Topics Overview
➢ Types of outsourcing
➢ Outsourcing as a Business Strategy
➢ Outsourced Activities / Processes
➢ Readiness Assessment
➢ Technologies and Trends

Lesson 4
1. IT – BPM engagements
Topics Overview
➢ Client – service provider relationship
➢ IT – BPM contract
➢ IT – BPM contract financials
➢ Regulatory requirements
DIRECTIONS ON HOW TO USE THE MODULE PROPERLY
1. This module contains two (2) lessons. Each lesson is explained substantively. Read the
explanations thoroughly so that you could understand the lesson fully.
2. On the first page of each lesson, you will find the specific learning outcomes (SLOs) of
each lesson. SLOs are knowledge and skills you are expected to acquire at the end of the
lesson. Read them heartily.
3. You must answer the Learning Activities/Exercises (LAEs). The LAEs are designed to
help you acquire the SLOs.
4. Feel free to chat, call, text or send an email message to me if you have questions,
reactions, or reflections about the contents or activities in the module.
5. The Practice Task/Assessment and the Assignment shall be checked by me.
 Lesson 3
Fundamentals of Outsourcing
Topics Overview
➢ Types of outsourcing
➢ Outsourcing as a Business Strategy
➢ Outsourced Activities / Processes
➢ Readiness Assessment
➢ Technologies and Trends

What is Outsourcing?
Outsourcing is an agreement in which one company hires another company to be responsible
for a planned or existing activity that is or could be done internally, and sometimes involves
transferring employees and assets from one firm to another.
Outsourcing benefits and costs

The business case for outsourcing varies by situation, but the benefits of outsourcing often
include one or more of the following:

▪ lower costs (due to economies of scale or lower labor rates)

▪ increased efficiency
▪ variable capacity
▪ increased focus on strategy/core competencies
▪ access to skills or resources
▪ increased flexibility to meet changing business and commercial conditions
▪ accelerated time to market
▪ lower ongoing investment in internal infrastructure
▪ access to innovation, intellectual property, and thought leadership
▪ possible cash influx resulting from transfer of assets to the new provider

Some of the risks of outsourcing include:

▪ slower turnaround time

▪ lack of business or domain knowledge
▪ language and cultural barriers
▪ time zone differences
▪ lack of control

FOUR (4) TYPES OF OUTSOURCING

1. Professional Outsourcing
2. Manufacturing Outsourcing
3. Process – Specific Outsourcing
4. Operational Outsourcing

Professional Outsourcing
Though IT can be considered inside this section, too, what we’re talking about when we say
‘professional’ are the departments such as HR, legal counselling, accounting, payroll,
purchasing, information technology support and etc.

With a suite of different options to choose from nowadays, many companies have started to
have professional assistance from outside companies.

For example, payroll. Payroll in today's world can be done using outside systems that track
money in and money out, allowing you to pay workers on time, keep track of IRS documents,
and things of that nature so that you don’t have to.\
The same can be said for accounting and other paper-heavy tasks. Some organizations even
outsource their HR practices, though this is usually when a company is starting up and needs
to have their bases covered.

In fact, a lot of these systems are made for startups, allowing the business to remain as lean
as possible while they make and launch their product. When businesses get larger and larger,
it can make more sense to have these departments be in-house so that you can have more
control of how they work. Also, accounting, HR, and other departments can typically help you
work out your business goals in a strategic sense, making them more and more important as
time goes on.

Manufacturing Outsourcing
Finally, we have manufacturing, which is probably the most known and most talked about
form of outsourcing right now.

Huge companies often outsource their production because of the simple fact that it is cheaper
to make things overseas. Just about every electronics company outsources their
manufacturing. The same can be said for clothing companies.

For this type of outsourcing, companies need to pay close attention to quality. After all, just
because you get it for cheap doesn’t mean it’s the right choice if your quality takes such a hit
that it drives away business.
Process Specific Outsourcing
Projects can come in all shapes and sizes. For example, say that you want to launch an ad
campaign but do not have the creative staff onboard right now to pull it off in-house. Instead
of starting an entire department for one project, it makes sense to work with a third-party to
contract out that work.

This is a good idea because you can find an ad agency that are experts in their craft, making
sure that you have everything you need to succeed. Agencies like these are all over the place,
allowing you to have the pick of the litter.

The one major concern here is budget. Just like any market, the outsourcing market -
especially the creative side of things - can range from cheap to extremely expensive. You’ll
generally get what you pay for so do your homework and make sure that whatever you go
with will meet your business needs.

This same example works for any project, not just a creative one. Say, for example, that you
need an email system set up, or a POS system, or something like that. You can outsource
this project in the same way you outsource remodeling your bathroom.
Operational Outsourcing
Operations teams are typically highly specialized and differ according to the needs of the
organization. They streamline processes, identify issues and opportunities for improvement
and respond to very particular business needs. They’re something like a cross between a
butler, a personal trainer and a quality inspector – or even better, a team comprising all three.
With an outsourced operations team, huge efficiencies can be made in the critical wheel-
turning parts of your business, like data processing, back-office support, administration,
quality assurance and workflow planning – anything that’s not part of your core strategy.

Which operations teams can be outsourced?

Your outsourced operations team is most useful when it’s molded to your company’s needs.
Here are some examples of the specialists you might include on your team:

Operations specialists

These specialists manage workflow and optimize daily activities. They match up customer
needs with business processes and streamline processes. The two watch words for
operations professionals are efficiency and effectiveness – and that’s what you can expect
this team to deliver. These specialists can be known as:
• Senior Operations Manager
• Operations Manager
• Assistant Operations Manager

Administration Specialists

Job No 1 for these professionals is often to support the management team. They may handle
communication, clerical support, event coordination, document management and many other
duties. They go by titles like:
• Administration Manager
• Administration Officer
• Administrative Assistants

Quality Assurance Specialists

Keeping the standards of your business high, this team implements quality control, including
identifying and resolving quality issues, conducting product testing and product audits,
implementing standards, documenting procedures, evaluation and monitoring. They can be
known as:
• Quality Assurance Manager/Supervisor
• Quality Assurance Analyst
Workflow Planning Specialists

Often the bridge between onshore and offshore employees, the workflow planning specialist
makes sure everyone is on the same page and that work has been received, assigned,
tracked, completed and evaluated.
• Workflow Planning Specialist
• Workflow Planning Assistants

In addition, organizations commonly structure their operations team to include teams or

representatives from any of the following
• Contact Center Team
• Data Processing Team
• Information Technology Team
• Finance & Accounting Team

Outsourcing as a Business Strategy – it improves efficiency, cuts cost, speeds up product

development , and allows companies to focus on their “core competencies”
Outsourced Activities/ processes - The purpose of outsourcing is to ensure best practice
in key business components by divesting itself of non-core activities.
Non-core activities are items that are considered outside of normal activities or operations,
while Core activities are items considered central to operations.

Readiness Assessment
➢ evaluates the institution’s overall readiness to begin a project
➢ identifies areas needing more attention
➢ makes recommendations that increase project success such as:
1. the institution’s goals and objectives for the project
2. expectations and concerns of the affected functional areas
3. leadership alignment to support this project
4. the institution’s adaptability to change
5. strategies for minimizing potential project risks
6. project governance and decision-making structures

Value of a Readiness Assessment

➢ sets up the project for success by identifying key areas of potential failure.
• Identifies gaps in readiness and recommended actions to close them.
• Solidifies project goals and expectations.
• Prepares the institution for the selection process.
• Identifies and engages campus stakeholders early.
• Prepares leaders for managing the complexity and challenges of this
project.
Technologies and Trends
➢ IT has become central to the provision of outsourced business processes
• IT’s growing role in the BPO
• Adding greater value
• Transforming processes
• CIOs are changes agents
➢ IT trends are shaking up the business sector, putting CIOs at the forefront of
planning.

IT’s Growing Role in the BPO

Technologies such as cloud computing, business analytics software, social media
platforms and process automation software are being used within BPO to enable businesses
to lower costs and be more effective.

Adding Greater Value

Through additional technology-based services, customers will get more for their money,
while supplier business models will change, with less reliance on providing human resources.

Transforming Processes
BPO today is about mining the huge volume of transactional data that is being
processed. BPO providers and their clients today are using the provider’s industry expertise
and insight, analytics and innovation to help a client tap into that information to operate its
business better and drive business outcomes.

CIOs as Change Agents

The CIO plays a key role in helping to elevate the role of IT to a business
enabler and source of competitive advantage. The CIO’s role will increasingly deal with
information rather than technology.

References

http://www.wisegeek.com/what-are-the-different-types-of-outsourcing-services.htm
http://www.fespa.com/news/features/why-is-outsourcing-a-good-business-strategy.html
http://www.themoscowtimes.com/business_for_business/article/business-processes-for-
outsourcing-core-vs-non-core/431012.html
http://www.projectcoachingcenter.com/project-consulting-services/project-readiness-
assessment
http://www.projectcoachingcenter.com/project-consulting-services/project-readiness-
assessment
http://www.computerweekly.com/feature/How-technology-is-changing-BPO

Lesson 4
. IT – BPM engagements
Topics Overview
➢ Client – service provider relationship
➢ IT – BPM contract
➢ IT – BPM contract financials
➢ Regulatory requirements

Concerns of the client Company

Choosing the right vendor entails a lot of concern on the part of the client company.
The client can choose the right vendor or service provider by asking the following
questions:

1. Will the vendor be reliable? To answer this, client must:

➢ check on the vendor’s history
➢ check on the number of years the vendor has been in the
outsourcing business
➢ check the recent financial of the company
➢ check the number employees on the vendor’s payroll
➢ check for client testimonials as well.

2. Will the quality of products and services provided by the vendor meet
our expectations?
➢ Clients can look into the customer references provided by
the vendor
➢ Get a free trial that the vendor offers
➢ Check whether the vendor is ISO certified

3. Will I be made aware of the total life – cycle cost of the service?
➢ be informed ahead of time about the different types of hidden
costs such as maintenance, infrastructure, training, and
transition
➢ the client should be made aware of the total product cost that
can accrue over the course of the product life cycle.

4. Will the vendor keep my confidential data safe?

The vendor should take data privacy seriously by providing data
security on two levels:
1. Infrastructure security including firewalls, access controls, data
encryption, etc and
2. Human resource security that involves pre – recruitment checks and
signing of non – disclosure agreements (NDA).
 5. Will the vendor deliver as per the specified deadlines?
To ensure that your work gets completed by the pre – agreed
deadlines,
➢ Choose a vendor with strong client’s referrals
➢ Take care that realistic deadlines are set to start with
6. Will the vendor’s problems with employee attrition affect me?
Yes, they may. To be on the safe side,
➢ Choose a vendor with a sufficient number of cross – trained
employees.
➢ Choose a vendor with enough employee buffer capacity
7. Will I be liable to face unknown risks by outsourcing?
Unknow risks can affect a business at any given time.
➢ Take the time to analyze and study the various risks involved
in outsourcing
➢ Have a suitable back – up plan in place, in case anything
goes wrong.
➢ Choose a vendor willing to invest in a reliable business
continuity/ disaster recovery and risk mitigation plan.
8. Will the vendor be transparent and deal fairly in your financial dealings?
➢ insist that the vendor agree to fully transparent and fair financial
dealings before signing the contract.
➢ check-up past client references to see if they have faced any
problems with the vendor in question.
9. Will the offshore vendor comply with our statutory laws and regulations?
➢ offshore vendor may not be fully aware of the statutory laws and
regulations of the country to which the client belongs.
➢ violation of such laws may entail the client to moral, if not legal
damage.
➢ the client should choose a vendor who is aware of, and willing to
abide by the laws and regulations of the client’s home jurisdiction
especially regarding employee working conditions, environmental
concerns, privacy infringement rules, etc.
10. Will the vendor’s culture match that of my organization?
While the vendor’s culture may not match that of your organizations on all scores,
a certain degree of similarity must exist with regard to businessethics and
workplace culture.
➢ Base your selection on how you feel during your initial communication
with various potential vendors.
Concerns of the Service Provider
Just like the client, the service provider (the outsourcer) also has
some concerns.

1. Scope of Work

• details when the services are required.

• defines the services or task sand the conditions for payment
and dispute settlements
• foundation of a services contract
• gives clear directions to the service provider before the work
begins.

2. Performance metrics
Performance measurement and management are continuous processes
that identify and eliminate process inefficiencies at an early stage. What to
measure?
➢ Vendor Capability
• the quality of the service delivered
• cost of services
• vendor responsiveness
• Service Level Agreement (SLA) compliance
• infrastructure capability
• technological advancement
• staff expertise
• exception handling ability
• intangible aspects of vendor
performance such as innovation and
flexibility
• process/output enhancement

3. benchmarks to ensure work quality

Financial
➢ Baseline comparisons such as historical trends and what-if-scenarios,
including insourcing or using a different service provider
➢ Total Cost of Ownership (TCO)
➢ Change in key financial parameters: revenue, operating costs,
infrastructure, accounts receivable, remuneration, etc.
➢ Deviation from
 Operational Efficiency / Service Quality
➢ Quality: accuracy, reliability, availability
➢ Time: delivery speed, response rate, continuous updates
➢ Customer/user satisfaction
➢ Operational expertise and adaptability
➢ Creative solutions
➢ Security of tasks and documentation

Relationship

➢ Communication: timely, sincere, impartial, open

➢ Collaboration: problem solving, adhering to requirements,conflict

resolution, positive interaction, flexibility

Strategy

➢ Alignment of goals and vision by both parties

➢ Meeting outsourcing objectives

➢ Benefits and competitive advantage

Growth

➢ Training and improvement programs

➢ Increase in employee efficiency

Service providers need to adopt a meticulous design of KPIs (Key

Performance Indicators). These KPIs must be regularly assessed, evaluated,
and discussed in order to accurately measure the outsourcing performance.
What is an IT-BPM Contract?
An IT-BPM contract is an agreement between a client company and a third- party
service provider to take over a non-core, “pre-agreed portion” of the client's business
operations.

An IT-BPM contract typically includes:

defining statements

a scope of work

performance measures, and

boilerplate that addresses breaches, nonperformance, and recourse.

CAPEX and OPEX

CAPEX or Capital Expenditure, is a business expense incurred to create future

benefit (i.e., acquisition of assets that will have a useful life beyond the tax year). For
example, a business might buy new assets, like buildings, machinery, or equipment, or
it might upgrade existing facilities so their value as an asset increase.

OPEX or Operational Expenditure on the other hand are those expenditures

required for the day-to-day functioning of the business, like wages, utilities, maintenance,
and repairs. Opex is the money the business spends in order to turn inventory into
throughput.

Process Costing

• Used when there is mass production of similar products, where the costs
associated with individual units of output cannot be differentiated from each other.
In other words, the cost of each product produced is assumed to be the same as
the cost of every other product.

• Under this concept, costs are accumulated over a fixed period of time,
summarized, and then allocated to all of the units produced during that period of
time on a consistent basis.
Labor Cost

The cost of wages paid to workers during an accounting period on daily, weekly, monthly, or job
basis, plus payroll and related taxes and benefits (if any).

Direct Cost
An expense that can be traced directly to (or identified with)a specific cost center or cost
objective such as for labor, material, fuel or power.

Loaded Cost

additional costs, such as taxes, benefits and supplies, which increase your actual
employment costs. The fully-burdened labor cost is the full hourly cost to employ a worker for
the hours she actually works, which includes wages and the “burden” of the additional costs.
 Activity
General Directions: Follow instructions carefully and answer the questions truthfully.
Activity 1. TRUE OR FALSE: Write True if the statement is correct, and write false if otherwise. Write
your answer on the blank provided.
_____________ 1Will the vendor be reliable? Client must check on the vendor’s history.

_____________2. Wil I be made aware of the total life – cycle cost of the service?

_____________3. Will the vendor keep my confidential data safe? In order to check the vendor is ISO certified.

_____________4. Will the quality of products and services provided by the vendor meet our expectations?

_____________5. Will the vendor deliver as per the specified deadlines?

_____________6. Will the vendor’s problems with employee attrition affect me? Choose a vendor with a
sufficient number of cross trained employees.

_____________7. Will I be liable to face unknown risks by outsourcing? Have a suitable back – up plan in place.

_____________8. Will the offshore vendor comply with our statutory laws and business?

_____________9. Will the vendors culture match that of my organization?

_____________10. Will the vendors be transparent and deal fairly in your financial dealings?

Activity 2 . Enumeration
A. four (4) types of outsourcing
B. Technologies and trends
C. What are the five (5) parts of IT – BPM contract financials
D. Specific Essential requirements , most contracts contain four major parts
Activity 3. Essay 5 points
1. What changes would you like to see in today’s BPO?
2. How will BPO improve in the future?
3. How BPO companies can bring about change in the society?
4. What change does the society need today?