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 affiliates and subsidiaries, or
clients of the service more rarely to clients of the
provider 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.
Strategies for Outsourcing –
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)
Strategies for Outsourcing –
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
Strategies for Outsourcing –
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
Strategies for Outsourcing –
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
Strategies for Outsourcing –
Nearshoring

Disadvantages:

− Additional coordination costs, sourcing management,

communications
− Transfer pricing/tax margin requirements

Example:
Hong Kong retail firm offshoring garments manufacturing
in Manila
Strategies for Outsourcing –
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
Activities-Tasks-Processes

• 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
Typically Outsourced
Activities-Tasks-Processes

• Business Process Outsourcing (BPO): outsourcing of entire

business process components; e.g., HR, payroll, accounting,
Financial, etc.
Typically Outsourced
Activities-Tasks-Processes
• IT Outsourcing:
−IT Technical Support
−IT Application Development
−IT Application Management
−Data Center operations
−Software as a Service (SaaS)
−Cloud (On-line Storage) Services
Typically Outsourced
Activities-Tasks-Processes

• Support function/ services:

­ Cafeterias
­ Copy centers
­ Security
­ Janitorial Services
­ Trucking/ Shipping
­ Building Maintenance
Typically Outsourced
Activities-Tasks-Processes

• 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
Typically Outsourced
Activities-Tasks-Processes

• 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
Typically Outsourced
Activities-Tasks-Processes

• 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:
Putting It All Together

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:
Putting It All Together

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:
Putting It All Together

Identify what services/products

will you be outsourcing
and why?
Group Activity:

Putting it all Together

Business Presentations & Q&A