Knowledge Process Outsourcing: The Next Wave
By Mario Biscocho

The last few years saw the rapid growth of the Business Process Outsourcing (BPO) industry brought about by an increasingly competitive and changing global environment, with severe pressure on efficiency and cost effectiveness. Typically, the processes are handled through offshoring (captive) like what Lawson, Citibank, Aviva, Baker & McKenzie and the like have done, outsourcing (third-party provider) as employed by the likes of Alcoa, Bell Canada and Credit Suisse, or a hybrid (combination of the two) as adopted by the likes of Honeywell, Genzyme, and Barclays Global.

The telecom and internet revolution have enabled the outsourcing or offshoring of an ever-widening array of services. From IT to call centers to transaction processing, and now to analytics, equity research, market research, legal, pre-media, online tutoring, engineering design—the number of services that can be sent offshore has literally exploded. Looking ahead into the future, newer services and niches will keep emerging. More interesting is the fact that many of the newer services are driven by specialized knowledge and command significantly higher billing rates than the traditional BPO.

This has literally attracted hordes of aspiring vendors, and an increasing number of aspirants from different locations. While the traditional BPO requires economies of scale and a factory type process orientation, the KPO can exist on a smaller scale. In other words, barriers to entry are not as high. Coupled with this, the wide diversity of services or niches make this business attractive not only to outsourcing companies, but to professionals across the board—lawyers, doctors, finance types, market researchers, accountants, graphic designers, engineers, writers, and so on.

Quoting Mr. Arun Jethmalani (CEO of Valuenotes, India), BPO and KPO can be differentiated as follows:

 

BPO

KPO

Nature of Business

Knowledge is applied by a few, while majority follow “process” with limited knowledge

Majority of the work needs “knowledge” on part of individual workers, often involving decision-making or judgment

 

Call centers, data entry, claims processing, payroll, transcription

Market research, data analytics, patent filing, clinical research

Employee profiles

Predominantly “qualified” manpower, with specific skill sets

“Professionals”, with domain knowledge and wider skill sets

 

Science or commerce graduates with basic knowledge and computer skills

Lawyers, engineers, accountants, doctors, etc.

Drivers

Cost reduction and a focus on core competencies

Resource extension, skill availability, intense competition, and reduced time to market

Contract size

Typically longer-duration contracts, ranging from six months to five or ten years, with large teams

Much shorter durations (project-based work) ranging from anywhere from a few days to years, team sizes can be small or large

Measurability

Process-driven execution with high efficiency levels, which can be controlled by well-defined quality checks

Specialized execution and subjective value addition. Quality and deliverables cannot be precisely defined.

Client-vendor relationships

Greater stress on automation and compliance to standards and requirements; sub-contractor

Greater stress on partnering, integration, and sharing of responsibilities; resource extension

Evaluation

Learning curve flattens; further improvement in productivity or cost

Continuous learning; ability to keep adding value to customers

          
Currently, there are two models of KPO vendors:

a) Diversified vendors offering multiple (often unrelated) services; and
b) Niche players focused on “narrower” opportunity.

The diversified multi-service providers typically offer a wide variety of disparate services (horizontal diversification); cater to multiple domains (diversification across verticals); seek to build capacities across multiple locations (geographical diversification); leverage on their ability to provide “complete” solutions with a mix of offerings to large clients; and, have a business model that seeks to leverage scale. While the niche players usually have focused offerings built around the following: specific services; specific verticals; targeted client segments; and, have a business model that seeks to leverage specialized knowledge. Each model offers advantages and disadvantages, and the use of either one will depend on the need of the client company as well as its overall direction and strategy.

The decision on which model of KPO outsourcing, or even offshoring, is key and the other decision point is the choice of location. Typically, the parameters included in the selection are the following: labor quality; labor availability; language skills; infrastructure availability; close proximity to current operations; labor costs; risk profile (political, social, and natural disasters; regulatory or legal; and, tax impact and advantages.

The trend is definitely felt and seen all over, with its very strong compelling reason to be the way to go about doing business in the global arena. KPO is a fundamental component of globalization and cannot be reversed. In the words of IBM’s boss, Sam Palmisano, “The genie’s out of the bottle and there is no stopping it.”