Chapter 1: Introduction
- Buyer can leverage economies of scale of the SP
IT-BPM
- Information Technology and Business Process
Management or IT-BPM is when foreign brands,
multinationals, and even startups engage the
services of a third-party vendor to manage
certain aspects of their work operations.
- In 2010, UK National Outsourcing Association
determined PH as number 1 in outsourcing
service
- It could potentially bring $25 B in revenue and
employ 1.3 M by 2016
IT-BPM types:
Contact center
Back-office & KPO
Software Development
Animation & Game Development
Engineering Design
Outsourcing. Practice of hiring a third party to perform
service or create goods.
Why Companies Outsource?
 Capacity management. Demand chasing –
different project requires different amount of
manpower
 Lower cost. Less expensive resources and tax
differential leads to lower cost for the process.
 Better performance. The service provider is
more experienced in an area because of their
extensive trainings.
 Faster and continuous service delivery. Greater
output.
 Part-based activities. Automobile components,
cruise-ship rooms, airplane avionic, and desktop
build and configuration
What is Being Outsourced?
 Support or auxiliary service. Cafeteria, janitorial
services, copy center, legal, payroll, etc.
 Routine activities that can be automated at larger
centers. Vendors using Amazon, small banks
riding on ATM base of a multi-bank network
 IT center. Application development,
maintenance, and management, data-center
operations, cloud services, etc.
Advantanges
Employer
- Service provider determines the most efficient
number of resources to achieve output
Business Process Outsourcing
- SP may have more expertise
like technical infrastructure, HR, and technical
expertise
Employee
- Work abroad, live here
- Professional growth
- Financial independence
- Employee assistance
Disadvantages
Employer
- cost can be higher
- buyer does not have full control
Employee
- shifting schedule
- dealing w/ irate customer
Chapter 2: Fundamentals of Outsourcing
Types of Outsourcing:
 third party
owned by a SP, provides service to clients of SP
Accenture, convergys, SPi global
 Shared Service Center
Wholly-owned by mother company, provides
services entirely to affiliates and subsidiaries
ANZ bank, chevron, dell, HP
Strategies for outsourcing
 Multi-sourcing
Multiple vendors for client’s outsourced project.
e.g: CarAid will outsource automotives from
Toyota Motors and Honda Motors
 Crowdsourcing
Puts out a call for project
 Onshoring
Vendor in the same country as client
Advantage: allows immediate response and they
have same knowledge hence minimizes culture
issues
Disadvantage: risk of inadequately selected and
trained staff, risk of higher attrition
 Nearshoring
Transfer of business to a nearby country
Advantage: fee-for-service variability and
significant labor cost of arbitrage
Disadvantage: additional coordination costs and
transfer pricing
 Offshoring
Vendor and client from different countries
Advantage: allows company to focus on core
business, fast ramp up/down, opportunity to
expand
Dennise Dominique Reyes 1|Page
 Disadvantages: data privacy, lack of right
business acumen, cultural differences, and risk
of high attrition
Activities-Tasks-Processes
Core activities-tasks-processes
- Primary process or product of the business
- Tasks that deliver unique value preposition of
the company
- Essential defining activities of an organization
- What NOT to outsource: design, product,
development, process, and recipe
Non-core activities-tasks-processes
- Support activities, processes, functions
- What to outsource: well-defined tasks like IT
development, and IT Maintenance
Typically Outsourced Activities-Tasks-Processes
- BPO
- IT Outsourcing
- Support function/s
- Routine activities that can be automated at larger
centers, seasonal requirement, and part-based
activities
Key technologies that support outsourcing
 Video conferencing
 Web-based conferencing and workflow tools
Fundamentals of Outsourcing
BPO engagements
Managing outsourcing transitions
BPO operations Management
Issue management and critical situation control
Chapter 3: IT-BPM Engagements
I. Client-Service Provider RS
Attributes
Client company is concerned w/:
- Efficient operation of business functions
- quality transition of processes
SP is concerned w/:
- SOW
- Performance measure
- Benchmarks to ensure objective standards in
assessing work quality
Therefore, an IT-BPM contract is a tailored-fit
agreement that resembles a performance contract
IT-BPM Contract
Business Process Outsourcing Dennise Dominique Reyes
- Formal agreement between client and SP to take
a ‘pre-agreed portion’ of client’s business
operations
- ‘pre-agreed portion’ is documented in the
contract as SOW
- IT-BPM contract along with its other
attachments is called Master Service
Agreement
MSA
- Covering agreement that summarizes terms
applicable to every job-order w/ the SP
- Elements: service to be covered, performance
management, issues, change management, and
country laws
SOW
- Describes specific work to be delivered, by
when, at what cost
Core Elements of IT-BPM Contract
 SOW. Service to be rendered or provided as
documented
 Performance Standards. Expected service form
the SP, service level agreement (SLA) and key
performance indicator (KPI)
 Timeline. Start dates and duration
 Costs. Payment made by the client to the SP
 Specific Operational Requirements:
who will provide the service
qualifications of personnel
location of operations
outline of reporting procedures, decision-
making, and escalation of problems
legal provisions
II. IT-BPM Contract Pricing Models
1. Fixed Price
- easy to plan and predictable, price per unit is negotiated
- advantage for SP: it is known in advance what will be
paid and what will be delivered
- advantage for client: greater cost certainty
- disadvantage: several risks with capital requirements
and lower flexibility
2. Time and Material
- based on time and material used, used when SP is very
flexible and not predictable
- maximum price is negotiated to build control or safety
level
III. IT-BPM Contract Financials
CAPEX
2|Page
 - Business expense incurred to create future
benefit
- Accounting treatment: cannot be fully deducted
on the period cost was incurred
- Output/throughput accounting: money spent on
inventory falls on CAPEX
- In operations: Expenditure on fixed assets
OPEX
- Money spent to turn inventory to output
- Necessary cost to continue business operations
- Accounting treatment: fully deducted on the
period the cost was incurred
- Output/throughput accounting: money spent
turning inventory to output falls under OPEX
- In operations: costs associated w/ operation
Process Cost
Components:
1. Labor Cost. Compensation, benefits, incentives, and
bonuses
2. direct costs. Employee development and employee
relations and programs, employee tools, and
coordination ang management
3. indirect costs. Infrastructure and other charges
Loaded costs
1. compensation
2. benefits
3. infrastructure
IV. Regulatory Requirements
BOI Qualification & Requirements
External: government regulations
- Board of investment.
- Bureau of Internal Revenue
- Bureau of Immigration
- Department of Labor and Employment
- Pag-Ibig fund
- Philippine Economic Zone Authority
- Securities and Exchange commission
- Social Security System
- Data Privacy Law
Internal: industry regulations
- Institutional and operational
standards/policies/guidelines
- Service provider implements their own
regulations
External Regulatory Requirements: BOI
Business Process Outsourcing Dennise Dominique Reyes
 created under DTI, strives to attract direct
investments into the country.
 A business may enlist their business w/ BOI if
the proposed activity as listed as a preferred
project in the current IPP
 Conditions:
At least 50% of production is for export for 60%
foreign-owned enterprises
At least 70% of production for export for 40%
foreign-owned enterprises
 Requirements;
DTI registration: Sole Proprietorship
SEC registration
Audited financial statement and ITR for the past
3 years
Board resolution to authorized company
representative
Accomplished application form 501 and project
report
External Regulatory Requirements: PEZA
 Development of special economic zones
throughout the country
 Promote PH investment, extend assistance,
register, grant incentives to and facilitate the
business operations of investors in export-
oriented manufacturing and service facilities
inside selected areas
 Qualification: export-oriented enterprises found
in any PEZA special economic zone
 Requirements:
Duly accomplished and notarized PEZA
application form
Corporate profile
Board resolution authorizing the filing and
designation of a representative
SEC certificate pf registration, articles of
incorporation and by-laws
Project brief
External Regulatory Requirements: Data Privacy Law
 Data Privacy Law – RA 10173
Act protecting individual personal information
in information and communication systems
Internal Regulatory Requirements: Industry
Industry Specific Regulations
Article 16 (1). Control of communication channels and
information systems
- Communication channel shall be controlled to
ensure that information obtained within the
banks is reliable, complete, traceable; consistent,
in a suitable format and character to meet the
3|Page
 requirement, and accessible by relevant units
and personnel in a timely manner
Article 34 (1). Auditing of partnerships subject to
consolidation
- Banks shall take all necessary measure to ensure
their internal audit units can inspect all activities
and units of their consolidated partnership w/out
limitation

Business Process Outsourcing Dennise Dominique Reyes 4|Page