Software as a Service or Saas has been one of the most popular buzzwords in the tech world these year. Thanks to the popularity of several of its pioneers, the quick deployment, and the relative flexibility in pricing schemes, SaaS is being adopted by businesses of varying sizes, but mostly those of small and medium scale operations.

As the cost of hosting hardware and connectivity goes down and web-based services such as Google Docs, Zoho, or Picnick became more available, the idea of using the Web as an alternative to desktop productivity became more popular. These developments in the past couple of years have made doing everything online and storing nearly everything online made web-based services more popular, such that when SaaS first came into view, it became relatively easy to sell it both as an idea and as a practice that is necessity to business operations.

Still, much of businesses that have sizable IT departments prefer to do it “old skul” and create things in-house and going so far as hiring consultants to develop applications both on-shore and offshore. What gives?

Why develop applications in-house?

• Businesses with large IT workforces and a number of consultants find more value in building products or services for their own internal use instead of “renting” licensed applications. Building their own applications allows them to customize the features and functionalities with each build according to their unique requirements. Moreover, they have more control over the quality of the applications prior to deployment to the enterprise at large.

• No to “cookie cutter” agreements. SaaS agreements are hardly tailor-suited to meet unique business requirements of most clients. The service that one client sights up with is the same service that is being used by other clients.

• Large enterprises prefer to keep customer and business information away from third–or fourth–parties. SaaS providers share applications and space with other businesses, usually competitors. While there may be more positives than negatives in this practice, the idea of sharing the same space with a business competitor does not sit well with businesses, especially those that deal with sensitive data.

• Many large enterprises have to meet government regulations. The financial sector, for example, must meet regulations that govern how the industry should manage information about its assets and clients. Moreover, even without such regulations, financial industry players are not open to handing over their religiously protected data to third-parties, which is what SaaS providers are.

Why SaaS?

• It’s plug-and-play…almost. Ultimately, what you need is a computer and an internet access. The ease of implementation or deployment of SaaS enables a business to focus immediately on its core business instead of build an application (or its subsequent IT team) from the ground up, or purchase an application and negotiate with a service provider to host it.

• Flexible pricing models. This is ideal for businesses that do not have as much cash as big businesses. Most SaaS providers allow negotiated pricing in order to sign up a prospective client for the long term. Subsequently,

• No need to hire new IT staff. For companies or departments that do not have a lot of cash, there is no need to build large teams to produce and maintain applications. Instead, most SaaS companies have the teams to maintain the services themselves, which makes sense, because they own and know their own service and applications better.

Last October, 21, 2008, ideyatech celebrated its Anniversary at the Texas Roadhouse Grill at El Pueblo Real de Manila, Pasig City. The celebration was done in conjunction with the company’s 2008 4^th Quarter General Assembly.

We started with announcements concerning the employees, such as birthday celebrants, promotions, newly-hired employees, trainees, on-the-job trainees (OJTs) and the formalization of our support team. Ideyatech has noticeably grown in size, we are now 27 staff strong from 7 last year. Included are the second batch of J2EE trainees. Ideyatech’s J2EE Training Program commenced last October 16, 2008 and will run through 15 weeks.

Here are some of the highlights of Ideyatech’s success for the past 12 months:

• Established solid team of Java developers and a proven track record.
• Moved to a bigger and better office space (200 sqm).
• Maintained stable list of offshore clients from US, UK and Australia.
• More importantly, positive revenue returns.

The other part of the assembly centered on the different projects that we are handling. Reports were given by the project teams to inform everyone about the project and provide an update on its status and progress.

A short dialogue was provided by Allan regarding the “ecosystem” of Ideyatech, detailing how each entity involved—the developers, the company and the clients—affect each other. A very sensible concept how our business works and how we can help. The whole event was capped off by a discussion of the company’s goals for 2009.

Business Week recently unveiled sponsored benchmark of 2008 IT competitiveness Index, where the Philippines ranked higher than most of its counterparts such India, China, Vietnam, Indonesia and Russia. Suffice to say, Philippines has emerged as one of the major players in the global outsourcing industry specifically on the strength of the following indicators:

• Overall business environment: 0.10
• IT infrastructure: 0.20
• Human capital: 0.20
• Legal environment: 0.10
• R&D environment: 0.25
• Support for IT industry development: 0.15

With a score of 29.8, which is way below the score of this year’s still most competitive country, the United States with 74.6, the Philippines has so much catching up to do. However, no matter the ranking, the country is taking the proverbial baby steps towards the right direction, as the information technology—particularly in software development—and communication are some of the key areas where Philippines can compete with other global players.

Let’s see how the country fares in some of the criteria used by the magazine’s Economist Intelligence Unit.

Overall business environment

The country posted a very positive 7.5% GDP growth in 2007, and if not for the recent challenges in the global financial market, the country could have posted at least 5.5% growth in the economy; the Philippine economy has been growing by a positive 5% since 2001. From a low of $1,400 purchasing power parity at the start of the decade, the Philippines enjoys some $3,400 PPP as of 2007.

IT Infrastructure

Thanks to increasing demand from businesses and consumers, local telcos have aggressively pursued broadband development in the past two years. Some $800 million have been spent so far by the country’s leading telcos on improving the infrastructure, which also rides on the popularity of mobile communication in the country. Mobile use enjoys an overall subscriber base of 67% of the population.

Human Capital

The US-based consulting firm, Meta Group ranks the Philippines as the top player in knowledge-based jobs and workers worldwide. The country boasts of a huge army of software engineers, content developers, creative designers, and professionals in accounting and finance, legal, and health care. The Philippines’ emphasis on English as the official mode of instruction is finally paying off, as the Philippines has the third largest English-speaking population.

Support for IT Developments

The government is one of the biggest supporters of the IT industry, thanks to the possibilities that it can provide in creating jobs and making the country globally competitive in business process outsourcing. Last year, the government unveiled regional ITC centers outside Metro Manila, allowing further access to a vast talent pool and tax breaks for businesses that set up offices in assigned economic zones.

The Philippines shows so much promise in offshoring that even India-headquartered outsourcing companies, such as Tata Consulting and Infosys have opened offices in Manila. The local association of outsourcing businesses aims to increase its workforce size to one million and earn revenues of up to US$13 billion by 2010.

When it comes to the outsourcing industry in the Philippines, the first thing—if not the only—that comes to mind is the contact center sector. With nearly half a million Filipinos employed, the call center industry is so far the brightest sector in the Philippine economy.

Beyond contact centers, the Philippines is also making waves in IT, particularly software development. In recent years, the tech sector has also embraced a more robust IT consulting, which includes implementation, deployment, and administration of IT systems.

Analysts project that the total size of the Philippines’ ICT sector will increase from US$1.2 billion in 2005 to US$2.3 billion by the end of the decade. The Philippine government recently unveiled a five-year program, which it hopes to generate up to US$12.8 billion, from the combined contact center and IT services sectors. Out of the projected worth, it is not known how much software development will contribute. But with satellite development centers for leading technology firms opening on these shores, it is safe to say that the application development outsourcing industry is on a growth path.

Taking advantage of the large number of college-educated workforce, engineers, and application developers all over the country, the government has opened regional centers to provide low-cost labor to firms based in Europe, North America and Australasia. The tech sector eyes the financial services industry; locally, SMEs will spur the growth in IT.

There are a number of challenges, though, that the tech sector faces. For one, the local market is not yet ready to sustain growth in the IT industry due to lack of funds and business models that do not fully integrate automation, analysts say. Moreover, competition from the rest of the region poses a challenge to projected growth. The Philippines is fourth, behind India, China and Malaysia, in attracting offshore outsourcing deals. Political upheavals and lack in infrastructure development hinder further growth.

Junior and middle management still need to keep up with emerging practices in process methodologies and management practices. According to a McKinsey Group report, The Philippines’ Offshoring Opportunity (2005):

“… for all its potential, the Philippines faces enormous challenges in achieving this goal. MGI research shows that, although it boasts widespread English language skills, very low costs, and promising human resource capabilities, it lags behind India and many other potential offshoring locations on several of the key criteria companies examine when choosing an offshoring location. These include risk, infrastructure, the availability of vendors, and the supply of middle managers who are key to establishing large offshore operations quickly.

If the Philippines is to capitalize on the opportunities that are undoubtedly there for the taking, the government, together with the private sector, must work to strengthen the perceived attractiveness and reality of offshoring to the Philippines.”

Read more…

Offshore outsourcing is a brilliant business strategy for many businesses. Gartner analysts predict that offshore outsourcing will rise by 8.9% in 2008, and the trend will continue on to 2009. However, it is not (yet) a perfect solution to various business issues and requirements. Before engaging the services of vendors, whether by offshore or onshore outsourcing, it is important to know that outsourcing has its own sets of issues.

The bright side of the debate is that if a business understands the issues surrounding outsourcing, these “cons” can easily be turned into “pros” that will add up to profitability and result in better quality of products and services. Below are some of the risks that you must understand about outsourcing:

• You are putting parts of your business in someone else’s hands. Realize that you are inviting a third party into your own operations. Business matters that used to be kept within your company’s walls are being laid open to the scrutiny of the vendor, or as some say, consultant. While trust must be established between the company and the vendor, it is absolutely necessary to form security measures from contracts to security audits. And be hard-headed in the implementation of these contracts. In most security breaches, the weakest points are not the systems put in place to prevent data leaks, but humans, the staff themselves, who fail to understand the enormity of keeping corporate information secure.

• Business experts and visionaries are still a weak spot among outsourcing destination. Offshore outsourcing vendors can provide highly skilled workers who can perform volume tasks. However, management is often a weak spot among vendors. This means the lack of familiarity or knowledge of established processes by your company, lack of enough knowledge about your business or industry. In cases like these, it is important to know the people who will lead your outsourcing team. In many situations, middle- and junior managers receive months-long trainings on-shore before getting their feet wet with actual project delivery.

• Unfavorable business conditions in offshore destinations include economic and political factors. If you think that you are giving away control of parts of your businesses to companies located outside your country, consider how much less control you will have if you factor in the political and economic upheavals in that country.  Any upheavals at all poses risks of operational disruptions. You must make sure that there are business continuity measures put in place in case it is business unusual offshore.

• Businesses only consider outsourcing in terms of cost-savings instead of value to the company. This weakness happens on both ends of the outsourcing spectrum. Both business and vendor only see outsourcing as a way to cut costs instead of adding value to the company’s product, services, customer relationship, among other things. Instead of concentrating on the outsourcing relationship in terms of money savings alone, it is important to add long-term product or service innovation and process improvement in the mix. The money saved today can be reinvested into bigger endeavors tomorrow.

Outsourcing, especially offshore outsourcing, has been constantly cast in a bad light for its perceived ill effects on the job security of thousands of workers from developed economies. However, it is interesting to ask this question: If outsourcing’s negative effects far outweigh its positive results, then why does it still flourish? Is it all about the money? Apparently, the answer is “No”.

This is not to say that outsourcing does not have its bad side. In this two-part blog post, let us explore where outsourcing works, and where it should improve.

• Outsourcing allows small and medium size businesses to have more workers. Small and medium-size enterprises do not have the luxury of permanently employing large armies of workers to work on projects, such as software development, QA, accounting systems, documentation, or customer management. However, outsourcing allows them to engage as many workers as their projects need—or as they can afford—temporarily. At the end of a project’s lifecycle, a lot of companies find it easier to halt relationships with vendors than with employees.

• Outsourcing allows companies to focus on their core competencies. This is one of the most popular and oft-repeated responses to outsourcing critics, and it is worth mentioning many times over. By outsourcing processes that require low or mid-level skills, companies can focus on parts of their operations that need high levels of skills gathered from extensive industry experiences. Basic Java development can be handled by offshore workers, while software architecture and design are best handled by onshore resources.

• Outsourcing offers staffing flexibility. With hundreds of thousands of available workers in application development, customer management, and support services available in low-income service providers, companies have the flexibility to hire on project basis. At the end their projects, it is easier to decide whether to retain talents or hire new ones, even new vendors.

• Outsourcing saves money. Offshore workers in an emerging economy, such as the Philippines, can provide the same quality of work at a much lower cost. Outsource workers in emerging markets are college graduates and most have job experiences relevant to outsourcing requirements. For example, IT workers in Manila are college degree holders who have also received formal trainings in specific programming languages. On top of that, IT vendors also arm their workers with trainings in consulting, customer management, communication, and methodologies. Over time, the smaller amount paid to low-wage outsource workers increase in value.

Outsourcing helps your business by allowing it to focus its energies and resources on its core strengths. However, the success of outsourcing depends on a lot of factors, the top of which comes from you, the party that decides on whether outsourcing will actually help you achieve your business goals.

What are the success factors involved in outsourcing? The list can be very long, as it all depends on a company’s goals, size, budget, and the risks it is willing to take. The following are some common ways to make an outsourcing project successful:

• Identify your business goals. Know why you are outsourcing in the first place. Is it to cut costs? Is it to have more flexibility in growing your manpower? Is it to provide better customer service? The most common reason behind outsourcing is to cut costs. However, this poses a risk in the long run. There are savings that can be made by shipping some business processes to low-wage economies, but make sure that you also get more value for how little you are willing to spend in terms of process improvement, quality, and customer satisfaction.
• Choose your vendor carefully. Before signing an agreement with a vendor, make sure that you have made ample background checks for its financial stability, management team, flexibility, workforce, and best of all, the methodologies that it implements in the course of your project cycle. Search for reference that will vouch for the capabilities of the vendor. This is the third party that will handle part of your business. No matter the size, each part of your overall operations plays a crucial role in your business success. Choose your vendor well.
• Engage everyone’s support. Everyone from all levels of the organization should support the involvement of outsourced personnel–or consultants–in the project. Top executives should buy in to the project because they are ultimately responsible for the venture. Regular employees should show not see outsourcing as a threat to their employment.
• Agree on project management methodologies, and training and communication plans. Depending on the complexity of the project, there is a high learning curve involved at the start of the project. Make sure that prior to the start of the project’s outsourcing, all blueprints are laid out. Communication and training plans, implementations methods, channels and facilities are crucial in the knowledge transfer. And most of all, the project methodologies should be agreed upon in order to keep risks at minimum levels.

When it comes to outsourcing opportunities in the Philippines, one most often calls to mind call centers or customer service. Being an English-speaking country (Philippines is the third largest English-speaking country in the world), it has an edge over call center outsourcing destinations, such as India or even China. The Philippines also boasts of college educated customer service agents who are adept at handling customer complaints and requests.

Next to call center or customer service support, Philippines has also made a considerable progress in the medical transcription business. On top of the labor force’s ability to speak and write in English, it has a surplus of workers with degrees in the medical field, such as nursing, pharmacy, and medical technology, thanks to the growing trend of exporting medical workers to developed countries, such as the US, UK, and the Middle East.

Software Development Outsourcing to the Philippines

Is Philippines in a good position to take a cut in the technology outsourcing pie? Fortunately, the answer is yes, according to analysts.

While still trailing behind India and China, the country “is already emerging as a strong player in this rapidly evolving industry, demonstrating that it can compete with India and other low-wage destinations in creating value,” according to a 2005 report by the McKinsey Global Institute (MGI). Case in point: While Philippines’ population is 16 times smaller than China, it produces twice as many engineers, according to MGI.

In 2007, the Philippines captured USD 4.1 billion or 1.4% of the global outsourcing market share. According to a Reuters report, diversifying outsourced opportunities beyond call centers will earn the country up to $12.2 billion by 2010.

Opportunities Despite Tech Spending Crunch

Because of the global economic crunch, cuts in IT spending are inevitable. The upside of belt-tightening measures is off-shoring of technology jobs. Of course, the downside could be that the growth of off-shored tech opportunities may not be as high as it was projected in the past years. Still, opportunities abound for outsourcing destinations, such as the Philippines.

Filipino engineers and generalist tech workers have become attractive to foreign companies. “Poaching” of tech workers by other Southeast Asian countries has been observed over the past 3 years, thanks to their technical and communication skills. This temporary diaspora of Filipino tech workers offers better earning opportunities to the workers themselves, but on a larger and more important scale, world-class training experiences that they can bring back home.

If the tech industry can supply ample technical and managerial training to its workers, the Philippines can become a more attractive outsourcing destination for technical development. The country should not rest on its call center laurels alone.