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It is being claimed that KPO is one step extension of Business Processing Outsourcing (BPO) because BPO Industry is shaping into Knowledge Process Outsourcing because of its favorable advantageous and future scope. But, let us not treat it only a 'B' replaced by a 'K'. In fact, Knowledge process can be defined as high added value processes chain where the achievement of objectives is highly dependent on the skills, domain knowledge and experience of the people carrying out the activity. And when this activity gets outsourced a new business activity emerges, which is generally known as Knowledge Process Outsourcing.

Knowledge Processing Outsourcing (popularly known as a KPO), calls for the application of specialized domain pertinent knowledge of a high level. The KPO typically involves a component of Business Processing Outsourcing (BPO), Research Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO business entities provide typical domain-based processes, advanced analytical skills and business expertise, rather than just process expertise. KPO Industry is handling more amount of high skilled work other than the BPO Industry. While KPO derives its strength from the depth of knowledge, experience and judgment factor; BPO in contrast is more about size, volume and efficiency.

In fact, it is the evolution and maturity of the Indian BPO sector that has given rise to yet another wave in the global outsourcing scenario: KPO or Knowledge Process Outsourcing. The success achieved by many overseas companies in outsourcing business process operations to India has encouraged many of the said companies to start outsourcing their high-end knowledge work as well. Cost savings, operational efficiencies, availability of and access to a highly skilled and talented workforce and improved quality are all underlying expectations in outsourcing high-end processes to India

The future of KPO has a high potential as it is not restricted to only Information Technology (IT) or Information Technology Enabled Services (ITES) sectors and includes other sectors like Legal Processes, Intellectual Property and Patent related services, Engineering Services, Web Development application, CAD/CAM Applications, Business Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO ) etc.

In today's competitive environment, focus is to concentrate on core specialization and core-competency areas and outsource the rest of the activities. Many companies and organizations have come to realize that by outsourcing non core activities, not only cost are minimized and efficiencies improved but the total business improves because the focus shifts to the key growth areas of the business activity.

Scope and Future of KPO

According to a report of National Association of Software and Services Companies (NASSCOM), the Indian chamber of commerce that serves as an interface to the Indian Software industry, Knowledge Process Outsourcing industry (KPO) is expected to reach USD 17 billion by 2010, of which USD 12 billion would be outsourced to India. Another report predicts that India will capture more than 70 percent of the KPO sector by 2010. Apart from India, countries such as Russia, China, the Czech Republic, Ireland, and Israel are also expected to join the KPO industry.

According to a recent study by “Evalueserve, a Gurgaon based outsourcing company having service chart for global world”, the global KPO market is expected to grow at a cumulative annual growth rate (CAGR) of 46 per cent, from $1.2 billion in 2003 to $17 billion in 2010. Compare this with the prediction for the low-end outsourcing services market. This is expected to have a CAGR of 26 per cent, from $ 7.7 billion to $39.8 billion in the same period.

Evalueserve says India provided $3.5 billion of BPO and KPO (but non-IT) services in 2003 and is expected to grow at a CAGR of 36 per cent during 2004 to 2010. Hence, it is likely to earn $30 billion in 2010 by providing these services.

Says country general manager, Kelly Services, Achal Khanna “India still maintains the competitive advantage for providing, the combination of the most cost-effective and high quality manpower- this is India's strength in the off-shoring business”.

In the future, it is envisaged that KPO has a high potential as it is not restricted only to Information Technology (IT) or Information Technology Enabled Services (ITES) sectors, and includes other sectors like Intellectual Property related services, Business Research and Analytics, Legal Research, Clinical Research, Publishing, Market Research (Market research KPO), etc.

"Over the past year or two, the outsourcing industry has been throwing up jobs for Doctors, Engineers, CAs, Architects," says Jacob William of the Bangalore-based Outsource2India, which employs 500 people and offers services in the big-buzz, big-bucks area of knowledge process outsourcing. "Unlike the first wave which was more about entering data and answering phone calls, these jobs involve skill and expertise."

Also, of course, the talent is much more affordable. "Law firms in the US charge an average of $400-450 per hour, and we do the same work for $75 to $100 an hour" says Kamlani" who is an outsourcing provider in the same area.

In the Indian context, KPO salaries could be 25-50 per cent higher than those offered to the same domain experts such as Engineer, Doctor, CA, Lawyer, Architect, Biotechnologist, Economist, Statistician and MBAs, it said.

In its annual publication Strategic Review 2005, Nasscom has said the high-end activity of the BPO industry—the KPO or knowledge process outsourcing could be worth $15.5 billion by 2010.

According to earlier estimates, the BPO industry itself was expected to be about $20bn by 2008, hence a very significant portion of the sector—in excess of 50% is now projected to be knowledge based. This represents significant metamorphosis of call centre sector business to completely different model. Interestingly, Sunil Mehta, Nasscom vice-president research, distances himself from the estimates.

The projections are based on a white paper released by Evalueserve. The paper cites reasons for a possible KPO boom. It says higher savings by outsourcing knowledge based activities combined with the scarcity of specialized talent in developed countries could lead to growth in the KPO sector.

Billing rates for KPO are higher at $30-45 per hour compared to just $10-14 in the BPO business. However, the paper also warns of several challenges like higher quality standards, greater investments and inadequate talent.

The study estimates that while the compounded growth rate of BPO till 2010 would be just 26% KPO is expected to be grow at almost 46%.

Bottlenecks in Future Growth

A study on Knowledge Process Outsourcing (KPO) sector shows a huge supply gap that threatens to cripple its growth. Rocsearch, a UK-based research services company, has gathered evidence suggesting that the KPO market may just about reach a size of $5 billion by 2010, manned by 100,000 people instead of projections of a $12 billion market supported by 250,000 employees.

This accentuates Nasscom's projections of a shortfall of 500,000 workers in ITES and BPO sectors by 2010.

Assuming an average revenue per person of $55,000 over the next four years, 100,000 knowledge workers point to a $5 billion market. This size, though based on a CAGR of 32%, is still 60% less than the $12 billion potential projected by big KPOs, like Evalueserve, last year.

Rocsearch COO, Ashish Sinha says the sector is restricted by low employability despite high graduate turnout, and competing demand from other sectors as jobs grow faster than the workforce.

For example, all the 2,000-odd IIM and top 10 B-School graduates are employable, while less than half the 84,000 graduates from Tier-II B-Schools would make the grade.

The study sees only 500,000 of the over 3 million workers added to the labour pool in 2005 as employable in global firms and of these, just 2 in every 100 are likely to opt for work in knowledge space.

Why KPO?

If we look into any financial newspaper, magazine or any literature giving knowledge about the outsourcing business in India, what is found to be most referred word is KPO meaning thereby knowledge process outsourcing. Many new business concerns are coming day by day in Knowledge Processing Outsourcing Industry and KPO is emerging as a new sector that promises to provide long-term jobs for intellectual, analytical and knowledgeable people with a pay scales much higher than the BPO sector. The following are the few areas which are being associated with the KPO sector.

• Research & Development
• Financial Consultancy and Services
• Advanced Web Applications
• Business and Technical Analysis
• Learning Solutions
• Animation & Design
• Business & Market Research
• Pharmaceuticals and Biotechnology
• Medical Services
• Writing & Content Development
• Legal Services
• Intellectual Property (IP) Research
• Data Analytics
• Network Management
• Training & Consultancy

Now, why should some company invest time and money in knowledge process outsourcing? The basic fundamentals of outsourcing apply equally to knowledge based services as well. A shortage of skilled professionals and availability thereof at higher costs increase the cost of maintaining such services in the host country whereas the same job can be got done with similar precision and quality and at much lesser costs abroad. The major KPO benefits which can be derived are described below.

Benefits of KPO

Standardized technical education is widely available to all in the developing countries especially in India. This skilled and trained manpower is accessible at very low cost as well. It, therefore, is always a wise decision and makes sense to utilize such services. Outsourcing of activities to KPO companies can provide the following benefits:

• Valuable cost savings that can be utilized elsewhere.
• Trained professionals at work.
• Standard operational efficiency.
• Increase in profits.
• Savings in time and management energy for maintaining in house services.
• Option to recruit a larger work force without raising costs.

What KPO can deliver to you?

Any company involved as service provider in the KPO industry works in close coordination and association with the client and provides services that are predefined in terms of quality and standard of work. While working with a KPO firm, the outsourcing company can expect to get the following:

• Good quality work.
• Lower costs.
• • On time delivery of services.
• Uninterrupted services.
• Adaptability to changes in required quality.

Does it imply that with the rise of KPO entities, BPO (Business Process Outsourcing) become extinct. It is undoubtable that KPO is a step ahead of BPO but this does not mean the end of BPO. The BPO Industry will exist and continue to be successful in India . BPO has its own strengths and way to solve a particular problem and the BPO market is long term in nature as compared to the KPO market. With every passing day the BPO market expanding and so is the various systems and processes through it. The following are various areas in which the BPO presence shall not remain in existence but shall also keep growing.

• Data processing
• Basic data entry
• Department Outsourcing
• Provides technical support
• Provides email support to its customers

Even after the entry of KPO in the Indian market, the amount of total revenue earned in the outsourcing industry in BPO will be higher as compared to the KPO industry. The BPO exports will be as higher as $20 billion by the end of 2010 in comparison to KPO projections of $12 billion in the same period. As per a recent study done by experts the BPO industry is expected to grow globally at a CAGR of over 26 percent by 2010.

Evolution of Knowledge Process Outsourcing (KPO) : BPO, LPO, RPO, HRO, MBPO

In the present scenario where activities of various nature are being outsourced to India from various parts of the world, different activities are being assigned a common word i.e. Knowledge Process outsourcing (KPO). But the word has definite connotation and can not be used for all kinds of the activities. We are trying to define different forms of outsourcing activities and to show how these are different as well parts of KPO but are definitely not BPO activities.

Difference between KPO and BPO, LPO, RPO, HR and MBPO. To understand this let us try to understand what we mean by BPO, LPO, RPO, HR and MBPO.

What does BPO stand for? What does it mean?

BPO stands for Business Process Outsourcing. Major corporations in the US and Europe are outsourcing their back office operations to India to save costs. e.g. employee payroll, data entry, voice calling for back end activities etc. Although these jobs usually are not directly IT-related, their data-based orientation often means that they require IT departmental support to be successfully outsourced.

What is LPO?

There is a new addition to the BPO family — legal process outsourcing or LPO. When it began, LPO consisted mostly of low-end transcription work, but no longer. LPO now includes a huge range of legal processes, such as patent application drafting, legal research, pre-litigation documentation, advising clients, writing software licensing agreements and drafting distribution agreements. The offshoring of U.S. legal jobs is already ramping up, as some experts predict that 79,000 lawyers' jobs are poised to move from the U.S. to countries like India by 2015.

What is RPO?

RPO stands for Research Process Outsourcing. This is popular in the biotech industry. Clients outsource their R&D work. This was termed reportedly by India's biotech queen Kiran Mazumdar-Shaw.

RPO also stands for Recruitment Process Outsourcing. RPO is a key component of Human Resource Outsourcing (HRO). The RPO team basically handles all the recruitment.

What is HRO?

HRO stands for Human Resource Outsourcing. HR is getting outsourced to third party providers who can bring in the benefits of knowing the domain.

HR as an activity, it comprises of a group of activities, which include payroll management, training, staffing, benefits administration, travel and expenses management, retirement and benefits planning, risk management, compensation consulting, etc. These activities are outsourced by which the client can concentrate on their core competency.

In the US context, HR outsourcing is a huge area. For instance, nearly about 29-30 per cent of the outsourcing space is HR.

What is MBPO?

MBPO stands for Medical Business Process Outsourcing. Apollo Hospitals is the first major hospital to be getting into this.

What is Procurement BPO?

Procurement BPO is transfer of management and execution of one of more procurement activities, transfer of the entire procurement sub-segments or transfer of the entire procurement business functions to an external provider. It offers increased productivity, cost reduction and business transformation to the client. It has a market potential of $10 billion by 2006.

KPO A Step Ahead of BPO

Demand Side Perspective of KPO: Well beyond cost arbitrage!

The global KPO industry is still in a nascent stage. However, it is growing at a rapid pace. The sectors that are expected to 'shine' within the KPO industry include data search, integration and management services, financial services, research and analytics, technology research, computer aided simulation and engineering design and professional services, such as business research and legal services.

Unlike the conventional BPO, where the focus is on process expertise, the focus in KPO, is on knowledge expertise and requires service providers to possess advanced technical and analytical skills.

Some of the other factors fuelling growth in KPO are:

1. Developed economies, such as the US, the UK, and countries in Western Europe are increasingly facing a shortage of highly trained and specialized professionals in various knowledge-intensive high skill sectors, such as R&D in VLSI, engineering design, IT, financial risk management, etc.
2. Buyers of off shoring services save more at the high end of the value chain, as compared to the low end on a per-job basis.
3. High-quality specialized vendors and successful captives have emerged as role models and created awareness for KPO, both in the West as well as in India.

KPO is not just about 'Cost Arbitrage' In fact, players solely based on cost differentials will hardly be sustainable in the long run. The central theme of KPO is to create value for the client by providing the highest-quality business expertise and superior productivity/effectiveness rather than cost savings based only on geographic cost arbitrage. KPO services help improve the time-to-market, access to special skills, absorb peak load and enhance organizational effectiveness. Moreover, it simplifies the process and makes it more flexible. Consistent quality is the key word and primarily drives the buying decisions. For example, an error made in a corporate finance valuation model can have a huge financial downside, which is likely to be in factors of 1000+, possibly larger than the savings made by having the spreadsheet produced in India. Similarly, a patent with badly written claims can damage the protection of multi million dollar products in global markets. Finally, the outsourcing solutions for high-end processes are usually highly customized, which is an important element of value creation for the client, but also requires the vendors to run multiple customized processes in parallel.

Large potential for SME customers

While KPO started initially in captive centers of large companies, moving to specialized vendors, who provide such services to large companies such as Investment Banks. This sector holds immense potential for the SMEs in the long-term. There are millions of SMEs, which can benefit from KPO; however, their average volumes are much lower than a few thousand US dollar projects up to 5-10 full-time employees).

While large companies predominantly use KPO for gaining access to talent and cost reduction, SMEs can further benefit from buying KPO services from specialized vendors by being able to gain access to very large resource pools quickly at no up front costs. Additionally, it allows them to vary their cost base in the face of short-term demand swings, which creates the possibility of new business models.

KPO A Step Ahead of BPO

From 'Make' to 'Buy' With the advent of specialized and high-quality KPO vendors in India, customers will increasingly go the 'buy' route rather than setting up their captive offshore centers. Setting up a captive takes at least a year to stabilize quality, consumes a very large amount of senior management attention, and often ends up with higher operating costs and less management control than working with one or two vendors. This effect is particularly strong in KPO, since most companies do not want to build in-house capabilities in such fields in India due to the lack of critical mass, which is currently likely to be around 200+ professionals and that too, with an increasing trend. (E.g. Business Research)

US/UK biggest markets, but large potential of non-English speaking markets
The US and the UK account for the largest share of KPO due to English language, the widespread NRI community and their existing comfort levels with off shoring services to India and similar destinations.

European companies are still far behind in terms of off shoring even BPO processes, but are increasingly opening up to the idea of off shoring higher end work to countries like India. However, this trend is likely to pick up only if issues related to language proficiency and cultural context are handled properly. If addressed appropriately, the non-English segment could become an excellent growth opportunity for Indian companies.

Customers want focus rather than breadth or size Buyers of off shoring services are increasingly looking for those KPO players, which have the necessary expertise, depth and experience in focused areas of KPO. KPO players need to focus on particular market segments, in terms of services provided, industry verticals, functional skills as well as the type of clients served. Typically, customers look for the skill rather than for the size of a vendor and prefer focused vendors over vendors offering large varieties of BPO, IT and KPO services. They want vendors who will totally customize their solutions and offer both project-based delivery models as well as dedicated centers.

Flexibility and speed are critical. For example, in Business Research, customers are asking vendors to run projects from a few thousand US dollars upwards and expect complex global and multi-lingual research projects to start after as little as 15 minutes after the requests have been made.

Supply Side Perspective of KPO: People, Quality, Differentiation and Marketing KPO is centered on professionals possessing the right skill sets. Therefore, access to a large, high-quality skill pool is a precondition for successful KPO operations, captive or third party. For this reason, KPO operations are likely to emerge in countries with the highest educational standards, providing a large number of highly qualified professionals (Engineers, MBAs, PhDs, CFAs, Lawyers, etc.) such as India, China and Russia. India is likely to capture about 70% of the market for KPO, but the challenges will be significant.

The ingredients of successful KPO are recruiting and training the right professionals, providing consistent quality over time, improving productivity to or beyond Western levels and successfully marketing the services to skeptical customers.

Setting up successful KPO companies, captives and third-party vendors, is very difficult and there are significant barriers to enter have been reflected in the past and the huge list of unsuccessful entries clearly reflect this.

People Philosophy and Development

KPO companies are professional services companies and not white-collar factories. Therefore, world-class people development processes are at the root of successful KPOs. Developing professionals faster and better than anyone else will translate directly into better quality, productivity, retention and success in the market place. Meritocracy and true employee care are only a few elements of such a philosophy.

Recruiting

Recruiting the right people is critical and requires significant hiring, building brand equity at the right schools and in the open market. Successful players can attract better people. The interview-to-offer ratios of successful players are about 25:1 and the offer acceptance rates are as high as 80%.

Training

One of the Best practices in KPO is the huge investment (about 15% of the total work time) and developing skills sets such as, functional skills, cross-cultural skills, as well as managerial skills.

Quality and Expertise

The objective must be to deliver world-class quality at often even improved service levels. Successful KPOs measure quality and get feedback for each individual project sometimes as small as a few thousand US dollars. In-depth expertise is required as well. For example, customers require Junior

Equity Research

Analysts to understand the market dynamics in Oncology when creating a valuation model for a pharmaceutical company active in Oncology.

The expertise required can be in industry verticals, functional areas (e.g. Risk Management) or in geographic knowledge (e.g. understanding mid-sized German companies).

Focus

The 'Jack in all Trades' approach is not likely to work in KPO. The work at KPO requires domain expertise and therefore the culture and customer requirement of KPOs and BPOs vary significantly. Hence, it is important that KPOs develop expertise in few areas and excel in them. There is a reason for why Western Law Firms, for example, do not offer R&D and Insurance Claims Analytics and Call Center Operations at the same time.

Innovation and Differentiation

KPO companies have the unique opportunity to create new markets, since their price points allow them to offer new types of services simply not available in high-wage countries for cost reasons. However, buyers who offer Innovative services will differentiate successful KPO companies from players who offer cost arbitrage and will give them a sustainable place in the world markets.

Marketing & Sales and Branding

Selling KPO services in the West will require a Western sales force and significant branding efforts in the medium-term. As of now, tapping the SME potential and selling into Continental Europe requires local support. Successful branding will be another necessary ingredient to generate a sufficient 'pull' in the market.