Employable Talent: Key to Sustainability. June 2009

Transcription

1 Employable Talent: Key to Sustainability June 2009 Will the Philippines sustain its growth in the offshoring and outsourcing (O&O) Industry? Employable Talent is the key to sustainability and the critical factor that differentiates a location from another. This paper is a first of a series of reports to be provided by Tholons as a part of the Philippine BEST study. This will provide an update on the Skills Assessment results that have been conducted on newly hired employees to gain an understanding on the hiring levels of O&O companies in the Philippines vis-à-vis companies in India.

2 The Philippine BPO Landscape The past years proved to be a flourishing time for the Philippines in the Business Process Outsourcing (BPO) space. In the contact center space alone, Philippines has seen the number of contact centers grow by at least forty fold from 4 companies (year 2000) to at least 146 (year 2006) companies resulting in an estimated increase in revenue from US$24 million (year 2000) to US$2688 million (year 2006). 1 The non-voice and Information Technology Outsourcing (ITO) has also seen some growth, albeit, smaller compared to the voice BPO space. For example, the medical transcription services, now boasts of around 100 firms employing 9,000 individuals, with an estimated revenue of US$117 million (in 2006). Back Office Operations have combined revenues of around US$288 million (in 2006) with 36,000 full time employees under its wing. Likewise, the software development industry has around 500 companies with 79,469 employees and estimated revenues of US$272 million (in 2006). 2 Will the Philippines be able to sustain its growth in the Offshoring and Outsourcing (O&O) Industry? Will the Philippines be able to edge out its competitors from various emerging locations? Since 2006, Tholons has been annually tracking the emerging locations suitable for O&O investments. These locations were evaluated based on Scale and Quality of Workforce, Cost, Business Catalyst, Infrastructure, Risk Profile and Quality of life. Given the increasing pressure for Tier-1 global service providers to expand their reach, these providers are now not just looking for new countries to locate to but more specifically for Tier-2 and Tier-3 cities to expand into. 1 Taken from the Board of Investment (BOI) of the Department of Trade and Industry (DTI) presentation dated March Taken from the Board of Investment (BOI) of the Department of Trade and Industry (DTI) presentation dated March of 12

3 As much as the above criteria play an important role in an investor s decision to locate, the key question that needs to be answered is What proportion of a city s talent is EMPLOYABLE by the company? or What is the QUALITY of the city s talent? This in turn is followed up by the question What PROCESS is most suitable for the employable talent available in a city? A company will locate when it is able to find a destination that provides the best talent, best cost structure and minimal risk for the specific outsourcing service that it requires. Similar to India, there is a dearth of employment opportunities available in the Philippines but a serious lack of employable talent. A few statistics that highlight the concern: The Philippines produces around 405,000 college graduates per year of which 85,000 are in IT / Computer Engineering, 110,000 are in commerce / business related courses and 42,000 or so are in medical and allied / natural sciences. There is uncertainty as to the employability of these college graduates. However, acceptance in the outsourcing space is at an average rate of 8% - 10% only. A majority of the O&O companies are located within Metro Manila although cities such as Cebu, Dumaguete, Laguna, Clark and Subic have found a handful of O&O locators. The Philippine BEST Study In 2008, Tholons together with the Board of Investments (BOI) of the Department of Trade and Industry (DTI) of the Philippines embarked on a project entitled the Philippine Benchmarking and Evolution Study (Philippine BEST). The objective of the study is to help support the sustained growth of the Philippine Offshoring and Outsourcing (O&O) Industry by providing the government and the private sector with relevant data particularly in terms of the quality of employable talent. Part of the study was to conduct a Skills Assessment exam with the objective of being able to assess the size and employability of the talent pool in the O&O industry across selected Philippine cities. While it is recognized that talent is the key resource for the O&O industry, there is currently no way to benchmark talent across cities in the Philippines and against other countries. Obtaining this data will enable: O&O players to better determine the scope and scale of processes it can run in the different cities in the Philippines. Local government agencies and educational institutions to identify what it can do to increase the employability of its talent pool. 3 of 12

4 The Skills Assessment study is divided into 2 phases which aims to answer the respective questions below: For the purposes of this paper, we shall provide you the results of Phase 1. Methodology In order to gather the right data, Tholons has partnered with MeritTrac. MeritTrac is India s largest skills assessment company. Since its inception, it has tested over 4 million candidates for over 400 clients across industry verticals like IT, BPO, BFSI, Engineering, FMCG, Healthcare, Retail, Manufacturing, Public Sector Units and Education. MeritTrac is also the assessment partner of NASSCOM for its NAC-TECH and NAC-BPO. Both assessment exams were aimed at providing NASSCOM and the various stakeholders in the Indian O&O industry key talent data to help sustain its growth. With MeritTrac, we will be able to clearly benchmark Philippine talent with the talent in India, the world s leading O&O destination. Using our combined experience, Tholons and MeritTrac determined that the most basic skills sets needed by prospective employees to succeed in the Philippine O&O industry are English, Analytical Ability and Attention to Detail. We then designed the Abilities Test for Philippine BEST to assess these skills. We also considered the fact that bulk of the industry is in Voice BPO. We added the Spoken English Test (SET) and the Listening Comprehension Test (LCT) to provide a more comprehensive view. More detailed test descriptions are available in the following section. To date, we have had a total of 633 newly-hired (i.e. less than one year with the company) Philippine employees take the abilities exam, 361 for the SET and 480 for the LCT. For the Indian data, we used a sample of recruits (i.e. short-listed for hiring but not yet employed) that had taken a similar battery of tests. There were 783 that took the SET, 675 for the abilities exam and 272 for the Listening Comprehension Exam. 4 of 12

5 Our statistical team confirms that this represents a sufficient base for overall comparisons. Out of the 633 Philippine exam takers, 61% are in voice BPO, 25% are in non-voice BPO, and 13% are in ITO. This is a good representation of the segregation of services currently offered in the Philippines. Chart 1: Philippine Sample Percentage Source: Tholons 2009 Participating companies in the Philippines include: Accenture ADEC Advanced Contact Solutions Alorica HSBC Pointwest Spark Teletech Telus West CCT Indra Limitations The following are the limitations to the study and the observations made: 1. There are differences in the quality and quantity of the sample between the Philippine and the Indian test takers. While the Philippine sample was that of new hires, the Indian test takers were shortlisted recruits. Likewise, there are currently more Indian test takers compared to the Philippine test-takers. 2. The whitepaper presents the results of the report and no normalization/statistical analysis has been performed with the results. 5 of 12

6 Initial Findings Based on the tests administered to date on the above examinees Spoken English Test (SET), Listening Comprehension Test (LCT), and the Abilities Test, we have found the following: 1. The hiring levels of the O&O companies in the Philippines are the same/comparable to O&O companies in India. This can be seen across all results and helps confirm the objectivity of the MeritTrac Test Suite. Given that the Indian and Philippine players generally serve the same markets/clients it makes sense that they all hire at comparable skill levels in order to do well. 2. The Philippine sample is stronger in Spoken English and Listening Comprehension but weaker in Overall Knowledge of English. This merits further investigation, but it appears that Filipino employees are still able to be effective by leveraging on their strong spoken English and listening comprehension skills to overcome weaknesses in their overall knowledge of English. 3. The Philippine sample is stronger in Analysis but weaker in Attention to Detail. In fact, the mean Philippine score (51%) exceeds the observed Indian O&O industry threshold for higher-end processes (44%). Again this warrants further investigation but this is consistent with basic Filipino and Indian worker profiles. Filipino workers tend to enjoy tasks that require creative and analytical thinking but tend to get bored with tasks that require a lot of attention to detail. While attention to detail is a skill, its practice can also be a function of attitude/work ethic. 4. The results of the Philippine sample indicate that the country has real potential to expand its delivery of higher end O&O work. This can be seen in the strong results in the SET (6% meet highest threshold vs. 1% in India), the LCT (9.02 average vs Indian sample, 9.0 Indian O&O industry cut-off) and the Analytical Skills Test (51% average vs. the Indian threshold for higher end processes of 50%). This migration can be facilitated by strengthening the workforce s overall knowledge of English and Attention to Detail. Highlights of the Study We compared the results of the newly hired Philippine test takers with the Indian takers across the various skills sets that have been identified as basic skills sets for the O&O Industry. The results are itemized below. 6 of 12

7 Spoken English Test (SET) For the SET exam, examinees were evaluated for their voice clarity, accent neutrality, fluency and grammar. There were two sections in this exam. The first section required the examinees to read a passage. The second section required the examinee to engage in a free flow/extemporaneous discussion based on list of provided topics. Examinees were then evaluated based on the criteria listed above. Results were analyzed on two levels - parameter and threshold. Parameter-wise Analysis The SET evaluates test takers on a scale of 1 to 5 on each, where 1 is the lowest score and 5 is the highest score. The mean (Average) scores of the examinees were computed for each parameter and a comparison was made below. Chart 2: SET Parameter-Wise Results Based on the above results, the Philippine sample did significantly better on Accent Neutrality, Fluency and Grammar. Threshold Analysis Source: Tholons 2009 These thresholds were observed by MeritTrac in India by correlating candidate test scores across the different SET parameters with acceptance levels of companies running different processes. 7 of 12

8 Chart 3: SET Threshold Analysis Source: Tholons 2009 To clarify, participants who have tested a 4,2,2,2 in the 4 criteria shall be classified under Threshold 1 while those with a 4,3,3,3 shall be classified under Threshold 2. Likewise, participants who scored a 3,2,2,2 will be classified as Threshold 0 given that their voice clarity scores are below 4. Based on the above analysis, the above chart shows that: Only 8% of the Philippine examinees did NOT meet the voice BPO standard (vs. 21% Indian sample) 41% would meet the threshold for lower-end voice processes like telemarketing and order taking (vs. 61% Indian sample) 44% would meet the threshold for most voice BPO s like customer service (vs. 17% of Indian sample) 6% would meet the threshold for the higher-end voice BPO s like domain knowledgeintensive sales and customer service (vs. 1% Indian sample) The above results should not come as a surprise given that majority of the Philippine test takers are employed in a voice-based BPO. Despite the obvious advantage, the fact that 50% of the Philippine test takers (vs. 18% of Indian test takers) meet the two highest thresholds indicates the ability of the country to deliver more of the higher end O&O work. Listening Comprehension Test (LCT) The LCT was designed to evaluate listening comprehension skills of non native speakers of English. Examinees were read passages and skits and were asked a battery of questions to determine their comprehension of what they have just heard. 8 of 12

9 Parameter-wise analysis The comparison is made based on the mean score for the listening Comprehension Test. The basic cut-off used by Indian O&O companies is a 9. Chart 4: Listening Comprehension Comparison (Raw Score) Source: Tholons 2009 Based on the above, the Philippine test takers (9.02) were significantly better than the Indian test takers (7.79). This skill is not only a key driver of effectiveness in voice BPO processes, but is also crucial for development towards higher end O&O processes. Abilities Test The abilities exam is composed of tests for 3 skill sets English Ability, Analytical Ability and Attention to detail. Parameter-wise analysis The mean (Average) scores of the examinees were computed for each parameter and a comparison was made below. Chart 5: Abilities Test Comparison Source: Tholons of 12

10 The Philippine sample did better in Analytical Ability (51.11% vs. 44.0%) but poorer in Overall Knowledge of English (52.06% vs %) and Attention to Detail (46.99% vs %). These results are generally consistent with basic profiles of Filipino and Indian workers. The strength in analytical ability is a good indicator of potential to move to higher end O&O processes. Threshold Analysis As in the SET, these thresholds were observed by MeritTrac in India by correlating candidate test scores across the different abilities parameters with acceptance levels of companies running different processes. Unlike the SET which had 3 hiring thresholds (lower-end, middle, higherend), the Abilities Test only had 2 thresholds (lower-end and higher-end). Chart 6: Abilities Threshold Comparison Source: Tholons 2009 The Philippine sample s average score in English Ability falls below the lower-end threshold used in India. Given the Philippines success in the voice BPO segment, it indicates that Filipino employees are able to leverage their strengths in spoken English and listening comprehension to compensate for this weakness and still be effective. This also means that there could be an opportunity to improve the labor force s knowledge of English. The Philippine sample s average Analytical Ability score is above the threshold used by higher-end O&O companies in India. Similar with the analysis above, this shows strong potential for Philippines to move towards high-end O&O work. The average Attention to Detail score surpasses the acceptance level for low-end BPO work but needs improvement to reach the high-end BPO processes. 10 of 12

11 Moving Forward The initial phase has given an indication that the hire-able rates for Philippines and India are comparable. It has also given an indication as to the basic skill sets that the Philippines excel in and the skill sets that it needs to improve on. As this is the first phase in this skills assessment exercise, the next phase will provide more answers and provide more data to arm the Philippines with identifying which Tier-2 and Tier-3 cities have employable talent thereby enabling the Philippines to promote the capabilities of these cities talents to the right investors. Moving forward, a couple of ongoing programs will provide us with more sample data for further analysis. Working with the Business Processing Association of the Philippine (BPAP), we are expecting to expand the testing of the hired employees. A comparison of the skill sets between newly hired and employees on the production floor can be made. Likewise, working with the various universities and local government units, a comparison on the employability of the potential graduates can now be made. 11 of 12

12 About Tholons Author: Manuel Ravago Editor: Nishant Verma Vice President Tholons is a Services Globalization and Investment Advisory firm that combines "Best of Breed" consulting experience with deep execution expertise and investment insights to deliver truly effective services to its clients. Tholons offers a detailed understanding of business processes and combines it with practical hands-on expertise in executing the strategy. Tholons draws upon the considerable experience of a handpicked team, which has successfully formulated and executed globalization strategies to unlock value for Global Fortune 1000 companies. Service providers leverage Tholons expertise to optimize their global delivery model. Tholons advisors engage with government bodies to build compelling strategies for making countries attractive destination for outsourcing. Copyright Notice This Tholons document was published as part of the Tholons Advisory, Investments and Research Services portfolio, covering all consulting projects and publications. For further information related to this document, reprint rights or general inquiries regarding other Tholons services, contact info@tholons.com or call any of our global offices. Reproduction of this document and all content within is prohibited unless authorized by Tholons. All rights reserved. For more details about Tholons' Services Globalization and Investment Advisory capabilities, please visit our website at: You may also contact: Saugata Sengupta saugata@tholons.com THOLONS Global Offices North America Office 5 Penn Plaza, 23rd Floor New York, NY Phone: Fax: Europe Office Asmec Centre Eagle House, Bracknell Berkshire RG12 1HB, UK Phone: Asia Office 2/10, 2nd Floor, 80 Ft Road RMV Extension Stage II Bangalore , India Phone: Philippines Office 15th floor, Petron Megaplaza Building Buendia cor. Makati Avenue Makati City, Philippines Phone: of 12