Fundamentals of

Business Processing Outsourcing

 Topic 2: Fundamentals of Outsourcing and IT-BPM Engagements

Overview:

In this topic, we will explore the fundamentals of outsourcing and the different engagements in
the IT-BPM industry of outsourcing and the different engagements in the IT-BPM industry.

Learning Objectives:

After successful completion of this lesson, the student should be able to:

1. Explain the definition, process, and terminology associated with outsourcing

2. Explain and differentiate the level of outsourcing
3. Explain the types, strategies, and phases of the outsourcing process
4. Identify and explore the areas of Outsourcing options or what to outsource and the
reason underlying outsourcing
5. Critically discuss the outsourced activities-tasks-processes.
6. Demonstrate the key technologies that support outsourcing.
7. Identify the Emerging Outsourcing Opportunities and challenges
8. Explore the Importance of Client-Service Provider Relationship
9. Identify and navigate the core elements of the IT-BPM Contract
10. Identify and use the three components of Process Costs
11. Understand and apply the importance of the purpose of Regulatory Requirements

Course Materials:

Outsourcing is a business practice in which services or job functions are farmed out to a third
party. In information technology, an outsourcing initiative with a technology provider can involve
a range of operations, from the entirety of the IT function to discrete, easily defined components,
such as disaster recovery, network services, software development, or QA testing.

Companies may choose to outsource IT services onshore (within their own country),
nearshore (to a neighboring country or one in the same time zone), or offshore (to a more
distant country). Nearshore and offshore outsourcing have traditionally been pursued to save
costs.

Business process outsourcing (BPO) - Outsourcing is referred to in the corporate

environment. BPO occurs when an organization turns over the management of a particular
business process (such as accounting or payroll) to a third party that specializes in that process.
The underlying theory is that the BPO firm can complete the process more efficiently, leaving
the original firm free to concentrate on its core competency.
Outsourcing is essentially a basic redefinition of the corporation around core competencies and
long-term outside relationships. These core competencies and outside relationships are
identified with two objectives in mind:
1. to bring in the greatest value to the end customer and,
2. to ensure the highest level of productivity for the corporation itself.

The benefits of corporate outsourcing are numerous. The following list is not intended to be
comprehensive, but to stimulate your enthusiasm for this process: (1) Increase sales
opportunities. (2) Improve corporate image and public relations. (3) Prevent missed
opportunities. (4) Reduce annual costs almost immediately. (5) Enable business to focus on
core competencies. (6) Reduce or eliminate customer complaints. (7) Increase customer loyalty.
(8) Lower costs on projects and events. (9) Be at competition. (10) Make time and resources
available.

THERE ARE THREE LEVELS OF OUTSOURCING – TACTICAL, STRATEGIC, AND

TRANSFORMATIONAL

TACTICAL OUTSOURCING
It is used by companies to determine and solve specific problems. Regularly the firm is already
in ‘’problems’’ and outsourcing is seen as an immediate approach to address them. Regular
problems are the following (Brown & Wilson, 2005, p. 20): the lack of financial resources,
deficient internal managerial competence, an absence of talent, or a desire to downsize, etc.
Tactical outsourcing is a type of traditional outsourcing and is taking into account cost control
and the make-or-buy decision. Tactical outsourcing results in obvious advantages such as cash
savings, a cash infusion from the sale of assets, etc. (Ghodeswar& Vaidyanathan, 2008, p. 26).
The focus of tactical outsourcing is the contract, specifically, constructing the right contract and,
subsequently, holding the vendor to the contract. Traditionally, the expertise for making these
arrangements came from the purchasing department. However, there is an emerging
expectation that every manager involved in the supply chain process understand and be
accountable for the aspects of outsourcing that affect their area of charge. Establishing and
maintaining tactical outsourcing relationships, specifically functional or comprehensive, is the
responsibility of the entire organizational team. Frequently, the contract was simply a fee for
services, with much of the value stemming from the discipline of spending dollars externally.
When managers formed successful tactical relationships, the value of using outside providers
was clear: better service for less investment of capital and management time.

STRATEGIC OUTSOURCING
Over time, as businesses sought greater value from outsourcing relationships, the goals of
these relationships changed. Executives realized that, rather than losing control over the
outsourced function, they gained broader control over all of the functions in their responsibility,
hence, were freer to direct their attention to the more strategic aspects of their jobs. Facilities
managers, for example, could focus more on infrastructure issues, instead of worrying about
staffing janitorial positions. Technology executives could hand over the running of the data
center to a service provider and turn their attention to serving the needs of internal customers.
Strategic outsourcing relationships are about building long-term value. Instead of working with a
large number of vendors to get the job done, in a strategic model, corporations work with a
smaller number of best-in-class integrated service providers. These relationships thus evolve
from vendor-supplier arrangements (which are often adversarial) to long-term partnerships
between equals, with an emphasis on mutual benefits.

TRANSFORMATIONAL OUTSOURCING
It is defined as a long-term relationship through which a service provider assists the client in
stimulating continuous business change while also achieving operational effectiveness. This
level of outsourcing is an emerging practice, where organizations are looking outside for help for
more fundamental reasons – to encourage quick organizational change, implement new
strategies, and reshape company boundaries.

Transformational outsourcing places the ability to convey new capacities to the organization
squarely in the hands of executives who have and value these capabilities. In other words, the
outsourcing partner provides a management team that is experienced in the capability that the
organization seeking change needs. Also, those executives are empowered by the outsourcing
process to implement the practice they bring with them (Chew & Gottschalk, 2013, p. 338).
A large number of studies have analyzed the drivers of outsourcing. While many drivers are
unique to specific companies and industries, some common key factors motivate companies of
all industries to make outsourcing decisions. These factors can broadly be categorized as
economic, strategic, and environmental.

Outsourcing has three clear types since it was initially created:

a) manufacturing outsourcing,
b) information technology(IT) outsourcing and
c) Business process outsourcing (BPO) (Mahmoodzadeh et al., 2009, p. 846).

Manufacturing outsourcing, which has become strategically important, refers to the process of
determining which of the various manufacturing activities ought to be offered to an outside
service provider. The essence of manufacturing outsourcing is the use of production facilities of
different firms instead of using production facilities in-house or making new manufacturing
investments (Ehie, 2001, p. 31).

Loh& Venkatraman (1992) defined IT outsourcing as the ‘’significant contribution by external

providers in the physical and/or human resources associated with the entire or specific
components of the IT infrastructure in the user organization’’ (p. 9).
The latest kind of outsourcing is business process outsourcing - BPO, in which the service
provider takes responsibility for a whole business process. This type of outsourcing helped
popularize the concept of outsourcing beyond the industrial boundaries.

OUTSOURCING AS A STRATEGIC PERSPECTIVE

Today firms consider outsourcing from a long-term, and thus strategic, perspective, whose aim
is the outsourcing of functions and processes through a network of stable agreements with
specialized outsourcers who take on the role of providers, with or without exclusivity. Quinn and
Hilmer have summed up the four main advantages of outsourcing from a strategic perspective
(Quinn and Hilmer 1994: 43-55):
1. Maximizing the yield from internal resources by concentrating investments and effort on
what the firm “does best”.
 2. Creating or protecting the competitive advantages by developing and strengthening the
“core competencies” and building barriers against present or future competitors who
might try to enter the firm’s areas of interest.
3. Providing incentives to investments in the outsourcers’ technology and know-how, their
innovations and skills, and their specialized activities, which the outsource can maintain
in-house only through continual investments and innovation.
4. Reducing the risks in rapidly changing markets and in the presence of fast-evolving
technologies; an outsourcing strategy transfers outside the firm the risks from
technological change and R&D costs, thereby shortening the production cycles and
making the response to customer needs faster and more flexible.

Today the tendency is to achieve global sourcing and offshoring; that is, outsourcing that
involves outsourcers located in countries other than that of the outsourcer.
Global outsourcing and offshoring are processes that best illustrate this tendency. Outsourcing
is transforming production from a relationship involving the supply of materials, components,
and services into a network of competencies involving research and development, and planning.

FIVE PHASES OF OUTSOURCING

1. Preparation Phase - According to the categorization of Perunovic (2006;2007), the

Preparation phase poses certain questions which must be answered by a firm before
starting the outsourcing process. These questions relate to the reasons for being
involved in this process, the expected benefits, as well as the general philosophy behind
the firm’s decision to be involved in this process (Heywood, 2001; Shepherd, 1999).

The most important aspect of this phase of outsourcing is that the firm should explore all
alternative strategies using specialized analysis and decision-making models in respect of
outsourcing. The questions to be answered by the organization about outsourcing at this stage
are: “If?”, “What?” and “How?”.

2. Vendor Selection Phase - The second phase relates to Vendor Selection. This is a
critical step as the selected Vendor will be a close associate of the firm for a
considerable period, during which the two parties will be forced to cooperate and support
each other in good and bad times (Perunovic&Christoffersen, 2005).
After making the preparation, the organization must announce its intention to find a Vendor and
collect the offers of renderers, which may be evaluated using a series of criteria as laid down in
numerous studies (Greaver, 1999; Heywood, 2001; Cullen & Willcocks, 2003). The question to
be answered at this phase by the firm is: "To whom?"

3. Transition phase After completing the selection procedure and signing the contracts,
the organization enters the next phase of the outsourcing process, namely Transition.
During the Transition phase, all the operations scheduled in the previous two phases are
starting to be implemented. It aims to guarantee a smooth productive and functional
transition from the previous situation to the scheduled operations (Cullen and Willcocks,
2003; McIvor, 2010).

A series of questions must be addressed and resolved during the transition phase, such as
maintaining contact among internal and external operations, the redeployment and adjustment
of human resources, as well as the reorganization of the overall productive activity (Greaver,
1999).
Another sensitive issue relates to the management of workers who will either have to be moved
to the vendor’s premises or lose their job (Ordanini& Silvestri, 2008; Miozzo& Grimshaw, 2011;
Picard&Wildasin, 2011).

4. Relationship Management Phase The next phase is relationship management. Some

researchers (Barthelemy, 2003) call it the “soft” approach to outsourcing, as opposed to
contract management. On the other hand, other researchers (Perunovic, 2006) think that
Relationship Management is far more difficult and complex than contract management.

The success of the relationship between the organization and the vendor is largely determined
by how this relationship is managed at the business level (Marinagi et al., 2014). According to
Melvor (2005), the strength of the relationship is determined by four main factor categories.

5. Reconsideration phase-Reconsideration is the last phase of the outsourcing process.

Reconsideration takes place when the outsourcing process is nearing its end. Apart from
its scheduled time of expiry, a contract may also be terminated earlier for reasons such
as changes in the ownership structure of the organization or of the vendor, mutual
interest, insolvency of a party, breach or violation of certain contract terms by at least
one of the two parties (Cullen and Willcocks, 2003).
Whatever the time or cause for terminating a contract, the organization must consider whether it
has drawn benefits from this particular relationship, whether it will benefit from its continuation in
the future, as well as whether the elements should be maintained or changed in the same or a
similar outsourcing contract.

REASONS TO OUTSOURCE: To acquire new skills, to acquire better management, to focus on

strategy, to focus on core functions, to avoid major investments, to assist a fast-growth situation,
to handle overflow situations, to improve flexibility, to improve financial ratios, to launch a new
strategic initiative, to improve overall performance, to reduce costs, to enhance credibility, to
improve financial ratios, to launch a new strategic initiative, to improve overall performance, to
reduce costs, to enhance credibility, and to jump on the outsourcing bandwagon

Typically Outsourced Activities and Task

Bragg offers several general suggestions regarding specific functions and activities, such as
those which are listed below (Bragg 2006: 160-180).

1. Credit collection - The risk is that the supplier may be too aggressive in his approach to
the debtor and the creditor firm can lose the customer.
2. Salaries and contributions - This is the function that, more than any other, is
outsourced. If the firm has several operational units spread out over several geographic
areas in which the outsourcer is present, then the latter can assure the necessary
services with greater uniformity and timeliness.
3. Computer services - The main advantage of outsourcing this service is the reduction in
capital investments in computers, investments which will have to be made by the
supplier, who may even buy the computers from the outsourcee, thereby freeing up
liquidity. Outsourcing this function can also lead to disadvantages that cannot be
ignored. Bragg presents some of these in detail (Bragg 2006: 164-166). In particular,
Espino-Rodriguez et al. have examined the outsourcing strategy in computer systems in
the hotel sector by constructing a theoretical model which, when applied to that sector,
shows how outsourcing does not lead to an effective strengthening of the capacity to
manage the resources used in computer systems and in information technology (Espino-
Rodríguez and Gil-Padilla 2007: 757-777).
 4. Customer service - The main advantage derives from the outsourcer’s experience in
responding to customer requests and in managing complaints; if the outsourcee is a
prestigious firm it can contribute to the outsourcer’s reputation.
5. Planning and R&D - Transferring the personnel to an outsourcer with high qualifications
(higher than those of the outsourcee) would streamline the function and, if this is carried
out by a highly specialized team with great potential, could provide better results in terms
of innovation and patents. The advantage of turning to a supplier is decisive when the
firm has a request from a customer that it cannot meet in the short term due to a lack of
resources (human and financial).

Facing the Challenges of Outsourcing

No powerful tool is without its challenges, and outsourcing is no different. The three most
common outsourcing challenges you’ll face are:
1. Choosing the right partner(s).
2. Establishing effective governance for the relationship.
3. Managing employee transitions with sensitivity.

These may seem obvious, but there is one other challenge that can catch managers by
surprise: accidental transformation. What does that mean? Simply, companies may outsource
without realizing that the profile or style of the outsourced function makes a difference in its
success. An incompatibility of styles can cause unanticipated changes, sometimes positive and
sometimes negative, so it’s important to be alert to such activity.

Managers can also fall prey to another cause of failure for the new outsourcer relationship:
ignoring the “real work,” which begins after the deal is signed. To avoid this pitfall, outsourcing
must be approached as a project, one with an established life cycle that needs to be managed
every step of the way.

Changes wrought by outsourcing require both organizations and individuals to develop new
success skills. For instance, an executive who operates on business-process management
principles will likely be rewarded for having fewer staff and running a lean operation. Also
favored will be those who leverage third-party relationships that don’t tie up capital and
consume resources. Business professionals will be working with a skeletal operating model with
few fixed but many variable costs. At any given time, a competitive company will likely have
several business functions that it is considering for cost savings and value improvement.

TWO (2) TYPES OF OUTSOURCING

1. Third-Party
• Owned by a service provider, a local entity, or part of a global group
• Providing services to clients of the service provider
2. Shared Service Center (SSC):
• Wholly-owned by the mother company
• Providing services entirely to affiliates and subsidiaries, or more rarely to clients of the
mother company

STRATEGIES FOR OUTSOURCING

MULTISOURCING
Multisourcing is an outsourcing approach wherein a business sends out services (usually IT-
related) to different vendors instead of letting only one firm handle all aspects of the outsourced
process. So, if you contracted a Philippine outsourcing provider to supply your voice-based tech
support needs while another firm takes care of managing your customer database, then you’re
in a multisourcing deal.

Multisourcing (multi-sourcing) is an approach to outsourcing in which IT operations and

technology infrastructure are contracted to several vendors, usually in combination with some
internally provided elements of information technology. The multisourcing approach contrasts
with fully in-house IT provisioning and sole-source outsourcing models.

The purpose is to maximize the effectiveness of an enterprise's IT by ensuring that various

elements are sourced to the best possible providers while allowing the enterprise to maintain its
focus on core competencies. Multisourcing can aid enterprise risk management programs by
diversifying risk in vendor operations. The practice can also promote competition among various
providers; cut costs related to repetitive service contracts and improve quality, collaboration,
and innovation among a group of IT providers.
Multi-sourcing can provide several other benefits to companies that choose this
strategy:
 • Sparking competition between vendors.
• Lowering the costs and improving the quality of service contracts.
• Allowing IT providers to innovate and collaborate.

When choosing the multi-sourcing strategy, you should make sure that someone in your IT
office is monitoring arrangements with vendors. Commonly, there will be an entire office
dedicated to this task. When dealing with vendors, input from your company's IT professionals,
as well as your legal team, can be helpful. One of the best ways to choose IT vendors is to look
for companies with a corporate culture similar to your own.

CROWDSOURCING
Crowdsourcing is the practice of utilizing the wisdom of a group for a common goal. It is best
applied when attempting to solve complex problems innovatively or streamline intricate
processes.

The term was first coined by Jeff Howe in a 2006 article about the practice. Though
crowdsourcing has existed for centuries in some form, the practice rose to popularity around the
same time as the emergence of commerce, social media, and the smartphone culture.
Increased connectivity between people across the globe has been the biggest contributor to the
growing interest in the practice.

What Are the Benefits of Crowdsourcing?

• Increases Scalability- Scaling is a difficult problem for any business to solve,

particularly when it comes to working on massive projects with inadequate resources at
your disposal. However, crowdsourcing provides an easy solution for scaling out any
workforce by farming out small portions of a project that can be completed by remote
workers at any given time or place. This flexibility is one of the top reasons businesses
develop an interest in crowdsourcing.
• Fills Knowledge Gaps - Unless a company is operating on a massive scale, most of
them don't staff all of the resources they need at any given time. Crowdsourcing
provides the ability to access people who have skill sets that are unavailable within the
company. This can be invaluable for projects or problems that require specialized
knowledge or skill sets that are scarce.
 • Accelerates Processes - Crowdsourcing allows businesses to perform tasks more
quickly than a single employee. Breaking up a project into a collection of smaller pieces
and providing those pieces to a larger group of workers expedites the completion of
projects. Overall, crowdsourcing presents a more efficient way to do work.
• Reduces Operational Costs -Crowdsourcing offers a cheaper way to complete
projects. When a group of people unites digitally to complete a task, businesses can
bypass most of the costs typically associated with operations. This includes the
overhead costs of housing and paying employees a full salary, as well as the costs that
could be incurred from paying for employees to learn new skills and more. Depending on
the projects being completed, faster turnaround times can also equate to increased
profits.
• Increases Consumer Engagement -If a business chooses to seek out consumers in its
crowdsourcing efforts, this can result in an extraordinary level of consumer engagement.
Most traditional marketing media hold consumer attention for a short period. By asking
consumers to participate in solving a specific problem or providing much-coveted data
about their brand, the business is gaining valuable attention that many companies pay
big bucks to gain.

ONSHORE OUTSOURCING
Onshore outsourcing, also known as domestic outsourcing, is the practice of outsourcing
business functions to a company in the same country where the business operates.
Benefits of onshore outsourcing include smaller travel expenses, similar time zones, similar
cultural expectations, and, on occasion, easier legal compliance. The cost of staffing is not as
competitive as with offshore outsourcing, but some experts argue that when considering all
things, onshore outsourcing is just as competitive an option for business owners. Issues that
can arise due to a mismatch in expectations can be more easily resolved because of lower
travel costs and similar time zones, for example.

REASONS TO CHOOSE ONSHORE OUTSOURCING

 1. Ease of Communication -While language differences are among the most obvious
obstacles to good communication when you deal with contractors from other countries,
time zone differences should also be taken into account. When you outsource locally,
you’re benefiting from (a) language fluency, (b) local connections, and (c) time zones.
2. A Greater Level of Control, Responsiveness, and Reliability - When you outsource
locally, issues like quality control are easier to handle. And if you need to train or
onboard your supplier or service provider to work in a certain way, you can extend an
invitation that allows for personal meetings, physical demonstrations, and an improved
understanding of what’s required.

Geographical distance poses other problems. For example, if semi-processed or processed

materials are delivered from another country, you will have a long wait between dispatch and
arrival times unless you use air freight options – and air freight of bulk materials is a costly
business.

Finally, there might be reliability issues that are not your outsourced suppliers’ fault – for
example, a shipping company could let them down or infrastructure problems you don’t have
locally could affect efficiency.

3. Fewer Cultural Differences - Cultural differences can become greater obstacles than
you expected. For example, onshore businesses will share the same holidays as you do,
while offshore ones may be taking the day off just when you need their services most.

There are also differences in the approach to work and business when you work with offshore
contractors. As a case in point: Americans may be very direct in communicating any
shortcomings, while in China, such directness would be considered rude.
4. Locally Appropriate Skill Sets - When you outsource within your own country, you
know that the people who will be helping you with tasks have a specific set of skills that
are defined by local conditions. Let’s say you’re looking to outsource certain HR tasks:
only professionals who work within your country will be as intimately acquainted with
local labor laws as you would like them to be.
In other fields, you might experience a similar situation. You can be fairly confident about
understanding the standard of local qualifications, but what does it take to get a similar-
sounding qualification elsewhere in the world? The required knowledge- base in another country
may differ in content, standard, or both.
 5. They Know Your Market - When you outsource things like customer service or
marketing tasks, you need to work with firms that will understand your clients and their
needs. Without this knowledge, well-intentioned efforts may fall flat. Since your
outsourced market-faced communications will reflect your company’s image, any
resulting frustration reflects on your business.
6. Respect for Intellectual Property - Protecting your intellectual property and ensuring
that your company has a reputation for honest dealings with others’ intellectual property
will be a priority for you. Naturally, you don’t want your unique ideas being freely
disseminated elsewhere, and you certainly don’t want lawsuits for copyright or patent
infringements. Most local businesses you outsource to will be careful not to do this – but
companies or individuals from other countries may not be as scrupulous.
7. Onshore Outsourcing Might End up Costing Less- The lure of lower costs is one of
the big reasons why companies choose offshore outsourcing. But is it cheaper? Take
into account all the drawbacks we’ve already discussed, and it might not prove to be that
way in practice. What if you need to straighten out a problem in person? An onshore
supplier or service provider is easy to meet with, but traveling halfway around the world
will be expensive, both in travel costs and lost time.
8. Political and Financial Stability -No matter whether you choose to work locally or
offshore, there’ll be a supplier onboarding process and a learning curve in which your
service provider gets to know how you’d like them to work. When you change suppliers,
the whole process must be repeated.

It is therefore in your interests to work with stable businesses. But when the political and
economic environment in which it operates is unstable, you may find that you’re left high and dry
because your supplier can no longer operate as it did before or has to close its doors.

9. Patriotism Gives You Marketing Advantages -Being able to market yourself as 100%
local is a selling point you shouldn’t overlook. The garment industry provides an
example. While businesses in the Far East may be able to manufacture clothing more
cheaply, consumers are aware of labor injustices and unsafe working practices that are
common in countries like Bangladesh. If something like this comes to light, your
company’s reputation suffers untold damage and consumers may even boycott your
products.

NEARSHORE OUTSOURCING
Nearshore Outsourcing is a strategic practice where a business hires a third-party supplier to
perform contracted work in a nation that is geographically (and relatively) near to the hiring
company’s home country.

Nearshore outsourcing is a process of delegating some tasks, in particular software

development, business process, and tasks to companies in neighboring countries to get better
control over operational expenditures. Other benefits of nearshoring are cultural proximity,
convenient location, time zones, same or similar language.

Nearshore outsourcing is a smart way of hiring people from a third-party source of skilled
workers for a short or long-term project. The contracted workers are from nations near the hiring
company. Companies could save a lot from outsourcing than hiring an in-house team. Most
employers would typically hire workers from overseas where rates could be lower. However,
time is a huge concern. The need for hiring workers with similar cultures and languages has
birthed nearshore outsourcing.

BENEFITS OF NEARSHORING:
1. Geographical proximity. If a project requires personal meetings during its lifecycle,
travel costs for you or your project manager can be way lower than with offshore
development. Usually, distances between the main development hubs and nearshore
development markets are covered by direct airlines, so in some cases, it also means
traveling directly to and from a meeting which won’t require a hotel stay.
2. Fewer (or no) time-zone differences- With nearshore outsourcing, partnering
companies are usually located in the same or the nearest timezone, which maximizes
the amount of time you can spend on efficient communication throughout the workday.
3. Cost savings -Almost instant communication saves a big part of the budget compared
to offshore, when developers may lose paid time on waiting for your response, task
management, research, or working the wrong way and then doing the work once more
after you notice a problem. Fast and easy travel to the neighboring countries will also
save money on tickets, as there are probably lots of competing transport companies that
dump the ticket costs.
 4. Cultural and language similarities - Similar language and culture are playing a
considerable role in the nearshore software development process, as it simplifies and
speeds up the process.
5. Compensation of staff shortages - Nearshore software development companies are
the best option to augment your team in case of staff shortage, as engineers from those
who are used to project-based work and flexible enough to dive into a new project with
all due quality standards. This process will be naturally faster and easier with nearshore
outsourcing due to the same language and cultural similarity described above.
6. Improving company efficiency through load distribution to outsourcing
companies- If your company has a giant software product in development, you can
outsource its different integral parts to a nearshore software development studio and
rearrange your core team for principal tasks. These hired teams will work as sub-teams
of your large project to some extent and will add flexibility to your development process.

OFFSHORE OUTSOURCING
Offshore outsourcing is a strategic practice in which a business hires a third-party supplier to
perform work in a nation other than the one in which the hiring business primarily conducts its
operations.

This form of outsourcing is differentiated from “nearshore outsourcing” in that the location of the
sourced third-party vendor’s operations occurs in a country that is not near the hiring company’s
home nation.

IT-BPM ENGAGEMENTS
Information Technology and Business Process Management (IT-BPM)
It is a definition in operations management in which people use various methods to discover,
model, analyze, measure improvement, and automate business processes. Any combination of
methods used to manage a company’s business process is BPM.

CLIENT-SERVICE PROVIDER RELATIONSHIP

Outsourcing involves a client company fully entrusting or turning over the successful delivery of
a service formerly handled in-house to either a third-party or shared service center service
provider or vendor- Company. There are several issues at stake here.

Client Company is concerned with (1) Quality transition of processes, and (2) Efficient operation
of business functions that were once handled in-house

Service Provider Company is concerned with (1) Scope of service, (2) Performance measures,
and (3) Benchmarks to ensure objective standards in assessing work quality.
Therefore, as a result of these relationship attributes, the IT-BPM contract is a unique, “tailor-fit”
agreement captured in a document that resembles a performance contract from both the client
and the service provider.

THE IT-BPM CONTRACT

An Information Technology and Business Process Management (IT-BPM) contract is a formal
agreement between a client and a service provider to take over a “pre-agreed portion” of the
client's business operations. It is created for the benefit of both the client and the service
provider.
• Master Service Agreement (MSA) It is a contract that contains generic terms regarding
requirements and obligations of the contracting parties which in this topic are the client
and the service provider.
• Scope of Work (SOW) It is what is to be delivered by when and by what cost. It is a
formal document that captures and defines the work activities, deliverables, and timeline
a vendor must execute in the performance of specified work for a client. The SOW
usually includes detailed requirements and pricing, with standard regulatory and
governance terms and conditions.

Core Elements:
• Service to be rendered or provided as documented in the scope of work covers exactly
what the clients are turning over to the service provider.
• Performance standards expected from the service provider are critical for it has to be
attained consistently.
• Timeline is when the transition starts and for how long the contract will be in effect.
 • Cost to the client refers to the payment made by the client to the service provider for
honoring contractual agreements.
• Other Specific Operational Requirements refers to the very specific contractual details
that protect both client and service provider from ambiguity

Activities / Assessments No. 2:

Compose a 500-word essay about why you think the Philippines is a top destination for
Information Technology and Business Process Management (IT-BPM). Support your
discussion with 3-5 external sources cited in APA format.

Rubrics:
30% CLARITY, 30% CREATIVITY, 40% CONTENT