By the Computerworld Philippines Staff
The Philippines is quickly becoming one of the global hotspots for business process outsourcing (BPO) by multinational firms abroad. With our strong command of the English language and natural inkling for customer service, these companies have handpicked Filipinos to handle business processes that were once part of their domestic operations. And all this is not without a sound trade-off, for outsourcing is fast becoming a measure to get the job done without having to shell out too much costs for operations.
Domestic firms are likewise keeping up with the pace. With increasing clamor for environmentally responsible business practices and the effects of the recent global economic downturn, CIOs and IT managers are hard-pressed to keep operational expenditures in check.
In a roundtable discussion with the Computerworld Philippines editorial team, five local IT executives from various industries shared their experiences with outsourcing different IT operations, considerations in choosing a provider, and the benefits they have gained from getting external assistance in handling their business processes.
In outsourcing IT processes, the executives’ primary objective is still cutting down costs. “If we try to tie it up with the current economic environment, outsourcing should be a cause for saving money, although in fact it’s more than that. Given the economic scenario, if I focus my resources somewhere else, it should be as savings and not as an additional cost,” said Earl Ferrer, vice president for global IT, Intenational Container Terminal Services, Inc.
However, even if outsourcing today seems to be the penultimate way of shaving operational costs, some industries—such as banking—still have other things to consider. “Our primary concern as bankers is that we belong in a highly regulated industry. There are only a few processes or functions that the Bangko Sentral ng Pilipinas is allowing banks to outsource,” explained Virgilio Camilo, senior vice president, head of operations & technology group, Planters Development Bank.
Meanwhile, Jonas San Luis, assistant vice president for management information system, Insular Life Health Care, pointed out that only certain business processes can be outsourced, given security risks in letting external personnel handle critical internal tasks. “I would say that it’s fine for us to outsource small things like the build of our structured cabling or our e-mail systems. But I would never trust our core business to outsourcing providers,” he said.
Wilfredo Rodriguez, overall IT head, Asia United Bank, agreed with San Luis’ point, especially when pertaining to the banking industry. “It’s not uncommon to see some bank functions outsourced but we maintain the system and the data within our premises, because that is the only assurance of the bank that the data is secured.”
Ronan Masangcay, MIS manager, RSH Marketing Philippines, on the other hand, detailed the benefits their company has gained through outsourcing. “We don’t have to maintain a lot of technical support personnel, because our provider does that for us. Also, our provider coordinates directly with mall management and the Bureau of Internal Revenue, making compliance a breeze on our part. So far, we’ve made about 90% savings.”
Ogie Dy Tabor, regional sales engineer, Sophos Plc, was also present during Computerworld Philippines’ sixth CIO Roundtable for the year to provide security insights and considerations when outsourcing IT operations.
Excerpts of the discussion follow:
Computerworld: Given the uncertain economic environment we have now, how is IT outsourcing being viewed by your company? What is your primary concern regarding IT outsourcing?
Earl Ferrer: If we try to tie it up with the current economic environment, outsourcing should be a cause for saving money although, in fact, it’s more than that. For example, we’re having a hard time outsourcing our email system because the current revenue model of outsourcing companies is they will buy the equipment and then lease it to us. For me that doesn’t make sense because my idea of outsourcing is a company out there buys a big box and shares it with different companies. If that’s the case then it’s better if I just run it myself. Given the economic scenario, if I focus my resources somewhere else, it should be as savings and not as an additional cost.
Virgilio Camilo: We are looking into outsourcing because banks are doing a lot of process re-engineering. However, we found that no amount of re-engineering can totally bring down the cost of doing business. The only way for you to really minimize the cost is to outsource, because it will now be transaction-based. So, as Earl mentioned, the consideration boils down to cost.
As a banker, we belong to a highly regulated industry. There are only a few processes or functions that the Bangko Sentral ng Pilipinas (BSP), our regulatory body, is allowing banks to outsource. The good thing about the BSP is that it has issued regulations or circulars allowing the outsourcing of certain bank functions.
So, for the banking industry, the primary thing is compliance with the BSP regulations—otherwise, you might be sanctioned for non-compliance.
Jonas San Luis: If you will outsource your processes and you end up paying the provider more than what your company earns, then it’s useless. Another consideration would be the personnel turnover factor in these outsourcing companies. Even if you put a penalty for deliverables, if the project fails at the end of the day you still have to pay them because they exerted some efforts somehow. If you can find a company that’s mature enough and has a good track record, that would be fine.
I would say that it’s fine for us to outsource small things like the build of our structured cabling or our email systems. But I would never trust our core business to outsourcing providers. We have to go back to the root of the problems, you really have to take care of your people and their skill sets to make sure the continuity of the IT projects is intact.
Ronan Masangcay: We’re as pessimistic when it comes to outsourcing because we have a lot of things to consider. So the first factor is competence, followed by commitment. You save at one point but the business is affected because you are dependent on something you have no total control of. In a nutshell, the hiring and firing schemes are our main problem with outsourcing.
So far, our experience with our POS (point-of-sales) provider has been good, because they are very committed. But not all the processes that I’ve outsourced have delivered. For example, we outsourced all our networking systems to this service provider who, all of a sudden, wouldn’t provide support and wouldn’t send people to train and research about the product they sold us. At the end of the day, their senior members all but resigned and we ended up with an untrained staff. They weren’t able to maintain the level of quality which attracted us to them at first. But at the end of it you can’t really control their commitment to your company, which can become counterproductive.
Ferrer: In deciding, I ask these questions: is it the right company to outsource to? How about their track record? How big the company is and what have they accomplished already? But prior to that, I think it’s important to define your goal in outsourcing. Because depending on the company and the actual project, your goals differ. For example, I answered cost savings as the goal of the email outsourcing. Right now, we are in the process of short listing a systems development maintenance outsourcing, and the goal there is more of insurance policy for the company, to make sure that whatever happens to our programmers there’s a company out there who maintains people.
CWP: What IT processes have you outsourced to a service provider?
Camilo: Even some years back, BSP issued circulars allowing banks to outsource some functions such as internal audit, document processing for letters, and, if I’m not mistaken, some risk management functions. But there are functions that you can outsource by simply informing BSP and there are also other functions that require BSP and Monetary Board approval. The regulatory bodies have been very helpful in the sense that they see our need for outsourcing; that the intention of outsourcing certain functions is to bring down cost and allow banks to focus on their core business.
Wilfredo Rodriguez: In our bank, we haven’t outsourced PC support because we have a lot of branches nationwide, making it very difficult for us to manage it centrally. Likewise, instead of putting up offices in remote areas, especially in the provinces, we decided to partner with local IT companies to do the services for us. The strategy is to manage your cost and, in that light, you also manage the growth of your personnel. As much as possible, we’d like to hire people who will focus on banking services rather than auxiliary tasks for internal purposes. So far it has worked quite well.
I also agree that there are certain functions you can’t outsource. For example, the technical services that we outsource are limited because there’s no one company that can provide all of our needs on a nationwide basis, because it is challenging for them to set up offices all around the Philippines given our status as an archipelago. Still, there are a lot of services that can be outsourced like, in our case for example, Bancnet is convincing its member banks to outsource the servicing of the ATM switch to them. I believe there are still a lot of opportunities despite the many limitations.
CWP: What do you look for when choosing a service provider to outsource to?
San Luis: The number one consideration is track record. Without that, even if they are backed by big names in the industry and in the country, if it’s their first time to offer services it becomes tricky because you don’t know their capabilities yet.
CWP: That’s my question particularly in this case: isn’t security important?
Rodriguez: Yes, it is. That’s why we visit their sites to make sure that the needed security, the way files are handled, and our essential data are protected the way we want them protected inside our banks. The vendor’s reputation and experience are also very important to us.
Camilo: Information security is vital to us, because of issues with confidentiality. That’s why our core system is non-negotiable; you can’t really outsource that. So we just look at some items that we would like to outsource and then look for a provider.
Masangcay: In our company, when we evaluate an outsourcing provider, we look at the size of their clientele over the number of engineers that are capable of supporting us. I have to know our position in this provider’s clientele, because if our company is, for example, part of the top 25,000 and all of their other clients are part of the top 1,000, then I can already tell that our company won’t be their priority.
Ogie Dy Tabor: On the security side, how do you ensure that data is protected and your core business is protected as well? In what areas in finding a solution provider is that particular requirement being targeted?
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