Learn about the next wave, Knowledge Process Outsourcing (KPO), and how to catch it
Tuesday, January 31, 2006
The type of work being moved offshore continues to move "up the value chain" -- evolving from its roots of well-defined and often back-office or labor intensive tasks, to a newly-established and growing category called Knowledge Process Outsourcing (KPO). Unlike traditional business process outsourcing initiatives, KPO involves knowledge-intensive business processes that require significant domain expertise, analytic skills and judgment and decision making capabilities. The goal of KPO is to deliver value by providing superior enterprise decision-making as opposed to cost saving alone. Therefore, companies can improve top line results and better their bottom line.
The rise of a new class of KPO providers creates strategic growth opportunities for global companies looking for new ways to maximize the productivity and innovation of existing resources, without having to commit resources and divert focus by running their own captive center. Reflecting on significant growth in business process outsourcing (BPO) over the past three years, some believe the KPO segment is following a similar growth trajectory. According to a Deloitte Consulting study, the KPO industry is projected to grow to approximately $17-18 billion by 2010, with India expected to account for approximately $12-14 billion. Click here to find out more!
Though similar to the BPO industry in the areas of basic infrastructure and HR processes requirements (including significant data and security investments; competitive recruiting, training and retention programs) there is a much higher bar for KPO service providers. Beyond running secure global operations with a flow of top talent, service providers must have specific vertical and domain expertise, analytics process excellence, and an innovative and proactive culture. These are not back office processes; they are analytics-based knowledge processes that require independent judgment and action within a structured framework.
Over the past couple years, data analytics has exploded in the enterprise, and companies are refocusing and directing more effort on getting increased business value from their data. Many are investing in complex analytic solutions but are having trouble accessing top analytic talent to make it all work. It's no surprise that data analytics is the biggest chunk of the KPO market, at least from an employment perspective.
India is emerging as a key player in the KPO space due to its large base of highly qualified professionals, according to Pricewaterhouse Coopers (PwC). India has advantages over other locations as an offshore destination for KPO. The depth of knowledge, judgment and expertise that India's abundance of educated professionals can offer drives KPO. From doctors and lawyers to chemical engineers and PhD's, India is the world's third largest brain bank with approximately 2.5 million technical professionals. In India, six times more people go to universities than in China. And, it is no surprise that India is developing into the second largest English speaking resource in the world. Ernst & Young says India has already become the most preferred destination for over 100 Fortune 500 companies in the KPO space.
Expected Benefits of KPO
Data analysis and business intelligence are important competitive factors in almost every industry, whether it is healthcare, insurance, telecom, manufacturing, logistics or the financial sector. By leveraging resources that are more readily available and cost-effective in other locations around the world to execute KPO initiatives, companies can re-focus their existing resources to address other business-critical issues, while improving the analytics that power customer acquisition and retention strategies.
Historically, economic factors related to cost-cutting drove many companies to pursue outsourcing strategies. Today however, leading companies view outsourcing strategically. With access to a maturing, low cost talent pool, companies can do more with the same resources, while driving higher revenues and margins. In the field of analytics, that means accessing special skills to be able to move beyond reporting and simple analytics at an aggregated level. Companies can dig deeper into existing data to identify trends that can move the needle for the business, resulting in improved top-line results, greater market share and higher market capitalization. Examples include:
*More granular market and customer segmentation (e.g., the ability to do make retention or acquisition campaigns work at a micro-market level)
*More predictive response modeling and propensity/cross-sell/up sell modeling
*Precision marketing, churn prediction and management, customized products and services in finance, insurance, telecom services
*For retailers, store and shelf space management at neighborhood market level and store level
*Promotional efficiency tracking at micro-market level
*Category/brand performance measurement, tracking and control at micro-market level
*Market mix modeling at lower granularity levels of product, geography and time dimensions
*Precision and dynamic pricing, promotion and product portfolio design and optimization
*Primary, secondary and web-based market research
*Monetization, predictive analysis and portfolio management of intellectual property and patents
*Analytics and optimization algorithm R&D for ISVs in enterprise application areas such as, SCM, SRM, ERP, CRM, MR, BI, BPM
The Challenge of Measuring Quality and Productivity
KPO creates the need for a new business and engagement models, where measurement of quality and productivity vary from those associated with other types of outsourcing. Value-based measurements around service provider specialization, competency, scope of innovation, and impact on client business objectives replace the pure cost-based measurements associated with traditional outsourcing. Successful KPO engagements require more partnering and sharing of responsibilities and knowledge in order to improve performance versus rote compliance-to-process standards and automation structures alone.
KPO holds great promise for global organizations seeking to leverage the productivity and economies of scale that a strategic outsourcing relationship can provide. The service provider's best positioned to deliver the value that KPO promises have deep analytics skill, BI process excellence, vertical market expertise, high intellectual property assets and solid global infrastructure allowing for ongoing computing and storage of high volumes of data.
Distinctive Practices for Successful KPO
Unlike BPO, which has become a commodity operation, KPO service providers need to have distinguished practices and demonstrate deep vertical market domain expertise. Domain-specific knowledge is the key to understanding the business context and delivering timely, revenue-impacting insight -- that's what differentiates KPO from BPO. Providers who can demonstrate that domain knowledge will operate at the high-end of the value chain and provide their clients with significant value.
Rajaram Kudli is the Program Director for Symphony Services.
