Forward Philippines
by Tully Moss

The Philippines is at an inflexion point.  It has achieved stunning success in offshore outsourcing and there are emerging opportunities for further growth – but there is the danger that a critical ingredient for success might be ignored.

Quietly, unbeknownst to most, Metro Manila has become the largest city in the world for offshore business process outsourcing (BPO).  It beats out Bangalore, Delhi, Mumbai, and other major BPO hubs.  And BPO continues to grow: it grew by 50 percent 2006 and the pace has not slackened in 2007.

This leadership position has been established largely on the basis of the Philippines’ strength in customer care (primarily call center work), but has also included transaction processing, offshore accounting, film animation, and other processes.

For its customer care work, the Philippines, among offshore outsourcing destinations, has a blend of attributes that no other nation can match.  The Filipino personality is tailor made for this work: Filipinos are friendly, courteous, empathetic, and patient.  They have considerable affinity with Western culture (the Philippines has had close business, political, and cultural ties with the U.S. for over a hundred years) and Filipinos have a mild accent that is easy for Americans and other Westerners to understand.  On top of all this, Filipinos get high marks from Western managers for having a good work ethic and for being highly receptive to training.  Who wouldn’t want to hire these people?

Emerging Opportunities

The opportunities for the Philippines are not limited to customer care work.  The  credibility this work has given the Philippines provides it with a base for entering the next phase of offshoring, which is knowledge process outsourcing (KPO). 

KPO is a step up the value chain.  It requires more highly skilled, analytically adept workers, and because of those higher skill levels, KPO generates billing rates that tend to be two-and-a-half to four times those of other BPO work.  With these higher rates, KPO affords significant revenue opportunities.  The Philippines, if it pursues KPO business in a coordinated fashion with resolve and intelligence, could achieve a five to 10 percent share of global KPO revenues.  The KPO revenues, combined with those of ongoing offshore customer care and other BPO work, are projected to generate US$ 10 billion to US$ 15 billion for the Philippines, equivalent to more than 10 percent of the country’s GDP. 

KPO conceptually could occur in any analytical, creative, knowledge-based service, but thus far has been concentrated in nine functional areas: finance and accounting (F&A), human resources (HR), engineering, business research and analytics, logistics, legal services, scientific research, medical services, and creative development (such as animation and e-learning).

The Philippines has a presence in nearly all of these KPO areas.  For example, among multinationals with offshore F&A operations, there is increasing recognition that the Philippines has considerable strengths: there are nearly as many certified public accountants in the Philippines as there are chartered accountants in India, and Filipino accounting standards are modeled after the United States’ Generally Accepted Accounting Principles (GAAP).  Recognizing these Filipino strengths, AIG, Chevron, Citibank, Deutsche Bank, ManuLife, and Shell have established offshore F&A operations in the Philippines.  In other KPO areas, there also is an emerging recognition of Filipino strengths: in HR outsourcing, Accenture, IBM, and Shell are in the Philippines.  In engineering, Bechtel, Fluor Daniel, and Ford and in legal services, Baker & McKenzie, Office Tiger, and SPI all have a presence in the Philippines. 

The People Challenge

For these emerging KPO opportunities as well as for the core customer care work, the challenge confronting the Philippines is having enough qualified talent to meet the exploding demand.  Preliminary estimates are that this shortfall could exceed 400,000 workers by 2010.  In customer care work, the challenge is finding enough candidates with proficiency in spoken English.   In KPO work, there are additional challenges: KPO work is more knowledge intensive and analytical in nature than other BPO work.  It is unscripted and requires interpretation, judgment, and creativity.  It also frequently requires domain expertise.  With KPO’s higher order of requirements, there is a greater demand for experienced individuals with advanced degrees (particularly those with MBAs, PhDs, JDs, and MDs). 

A Vision

To address these people challenges and to capitalize on its customer care and KPO growth opportunities, the Philippines will need to address its future with a combination of vision and deep implementation capacity. 

Recognizing that the Philippines needs a common vision of the way forward, the Business Processing Association of the Philippines (BPA/P) is currently engaged in developing a road map that business, government, and academia can rally around.  A consulting firm has been engaged to develop this vision and the usual steps are being taken to ensure that a full spectrum of stakeholder voices is being heard. 

The developers of the road map have already identified an exhaustive range of issues to be addressed including talent, infrastructure, regulatory, marketing, and other issues.  There is recognition that addressing these issues will require coordination among key industry, government, and academic stakeholders.  Potential initiatives for doing so have included developing tailored programs with universities, developing curricula with the national department of education, developing career paths, piloting certifications, identifying and making ready tier one and tier two cities, aligning local governments and national real estate firms, developing a strategy to build the Philippines’ brand and overcome security concerns, aggressively marketing the Philippines, addressing critical intellectual property (IP) protection issues, designing and securing passage of tax and other incentives, designing regulations to enable fluid labor markets, designing incentives to promote dispersed growth, etc.

The Implementation Challenge

The road map being developed by BPA/P is going to yield a vision of great potential for the Philippines.  The outsourcing revenue opportunities for the country are substantial and there is the potential for building a bright, positive Brand Philippines that positions the country as a clear leader in outsourcing.

This vision will excite people – as it rightly should.  But then what?  Will the excitement translate into action?  Will the initiatives required to realize the vision actually get acted on?  Will government do its part?  Will academia?  Will individual companies? 

The danger is that BPA/P’s grand vision could go the way of so many grand visions - nowhere.  If this were to happen, it is unlikely that it would be because the vision was faulty.  The problem would lie in the nature of big-fix solutions: they typically do not take into consideration the hundreds of grassroots implementation changes necessary for success: building capability at the micro-implementation level is the only way to enable larger changes to occur.

Yes, the designers of the road map have recognized the importance of implementation and have developed a preliminary structure of a team that would address issues such as regulations, strategic marketing, government relations, talent development, and research and information.  There is also the recognition of the need to coordinate development of tier two cities, including industry players, real estate developers, universities, and national and local governments. 

But this may not be enough to ensure optimal results.  Programs that involve large projects, changes in laws, large-scale training, and coordination between industry, local government, national government, and academia require tremendous implementation capacity at the national and local level.  Where infrastructure implementation skills are weak – and that is in most countries and within most companies – the big go-for-broke projects, no matter how well conceived, inevitably fall far short of their potential.

There is an earnest desire on the part of the outsourcing industry in the Philippines not to repeat the mistakes of the past.  To ensure success with the road map that is currently being developed, Filipinos this time may want to consider a very different approach to making things happen.  If BPA/P’s vision is to have a more positive outcome, there will need to be a keen focus on implementation capacity and the use of rapid results techniques.  

The Rapid Results Approach

An approach to achieving results has been developed by a group of American consultants that has yielded significant successes not only in the U.S. and Europe but in several developing nations.  It is called rapid results (those wanting to know more about this approach than is being discussed here can read about it in the book Rapid Results!  by Robert H. Schaffer and Ronald N. Ashkenas or by going online to www.rhsa.com.)

Virtually all advisors to executives and government leaders say that you have to lay the foundations first and then the results will follow.  Their recommendations tend to be ones such as: Reorganize.  Create the right culture.  Install the right IT systems.  And be prepared to spend lots of time and lots of money preparing and gearing up.  Don’t expect short-term results.  Shaffer and Ashkenas have found that the track record of these kinds of big-bang strategies is dismal.  The big bets – even if logically correct – fail simply due to lack of implementation capability.  

What Schaffer, Ashkenas, and their colleagues have found is that, by starting with results, not preparations, organizations consistently experience successes far beyond what they previously have achieved.  Rather than beginning with preparations for a big fix solution, rather than following the begin-with-preparations-and-wait-patiently-for-results paradigm, the rapid results approach flips things around and starts with results, building success stories and confidence through a series of 100-day projects.   

The rapid results approach succeeds because it also recognizes that, while large-scale change efforts are usually run from the top of the organization, every major change necessitates hundreds or thousands of changes at the grassroots level and most organizations are relatively weak in their ability to execute a large number of related changes simultaneously. 

The irony is that when people at the organization’s grass roots are encouraged, trained, and empowered to act – and given the freedom to make adjustments along the way – they can advance a change process much faster and more effectively than senior leaders and consultants can drive it from the top.

Once the first results start being known, there is a multiplier effect: enthusiasm and confidence build, and those who have been a part of creating those results have a zest that becomes infectious.  Others within the organization can feel that zest and suddenly, they, too, want to be on teams that are creating these kinds of exciting results.  Achieving short-term results becomes an energizer for achieving greater and greater results and building greater and greater capacity for change.

In addition to addressing the critical need for grassroots implementation capacity, the rapid results approach recognizes that organizations need to be more skilled in modifying strategic plans while they are being carried out.  Changes in markets, customers, and technologies as well as within the organization are essentially unknown at the beginning of a change project.  Thus no matter how solid a program may be when it is launched, it will become out-of-date while it is being implemented.  With the rapid results approach, there is a built-in flexibility and adaptability so that quick alterations in approach can be made and the organization can respond with agility to changes in the environment.

All that is needed to make the kinds of huge gains the Philippines is envisioning is to carry out many rapid-cycle projects, over and over, in expanding waves.  As the confidence of managers and government leaders increases, the connection between BPA/P’s large-scale vision and grassroots implementation will become more understood.  Increasingly large-scale goals can then be set with the expanding knowledge of how to mobilize key stakeholders in achieving them.

By incorporating a rapid results approach, BPA/P and other stakeholders in the Philippines’ outsourcing future will greatly enhance the prospects for the success of their vision and for developing a stellar Brand Philippines, which the country so richly deserves.