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Interest in knowledge process outsourcing KPO is growing and on pace to increase steadily, according to a research report by TPI, the leading sourcing advisory firm. The comprehensive report Knowledge Process Offshoring, A Balanced View of An Emerging Market was conducted by TPI through primary and secondary research between January and April 2007 based on 73 service providers and 45 captive centers in India performing business process outsourcing BPO or KPO activities.
In an effort to understand the growing phenomenon of KPO and its true potential, TPI executed an extensive research exercise to develop an objective and balanced analysis of the KPO market. The report, which focuses on the offshoring component of outsourcing, reveals that the predicted general market growth rates of US dollar 12bn-US dollar17bn by 2010 for KPO are highly optimistic and growth is not likely to be that rapid until at least five years from now.
Factors supporting a more cautious growth include availability of trained manpower, complexity of services, intellectual property concerns and security issues. The report also provides a clear definition of the parameters of KPO addressing the marketplace concern about what exactly constitutes KPO, critical success factors in offshoring knowledge work, current market dynamics for KPO, KPO service providers, and the key factors affecting the growth of the KPO industry, among other key considerations.
TPI believes that the demand growth path for KPO services will be similar to that of ITO and BPO, fueled by large Global 2000 firms that form the bulk of offshoring buyers in the IT or business process space, said Mark Mayo, Partner and MD, Business Optimization Solutions, TPI. Global corporations are increasingly looking to incorporate offshoring as part of their forward looking strategies rather than employing it as a knee jerk reaction to cost pressures and as such we have seen the rise in interest of KPO as a viable and obtainable sourcing solution.
KPO goes beyond information technology outsourcing ITO and business process outsourcing BPO as it involves more high level, value added work, such as investment research and prototype development, where the effort is people intensive and the end product is arrived at through rigorous methodologies.
Due to the fact that KPO requires a sophisticated level of judgment, subjective analysis and interpretation, the end result can vary for each client, as opposed to BPO where a similar output is garnered generally each time. Also, unlike BPO, where an entire process is often offshored, KPO entails offshoring part of a larger process such as financial research and analysis, engineering and design services and pharmaceutical research outsourcing.
As organizations determine which of their critical and strategic functions can be performed in an offshore environment, a number of factors will influence their experience with KPO. These factors include the ability to divide knowledge work into smaller more manageable segments, to locate available talent with domain knowledge, specialized educational background and differentiated skills that arent already being used by their own domestic markets, and to account for security concerns such as legal issues and protecting Intellectual Property Rights IPR. Traditional barriers to entry employed by professions such as medicine, law and accounting limit the extent of services that can be offshored, as there could be licensing implications to processes being offshored.
The goal of KPO goes beyond simply cost-savings although the projected savings could total a significant 40 percent to 70 percent to more global implications enabling clients to obtain access to world class talent across the world and gain entry points to serve new and broader markets. Currently, India performs the widest range of KPO activity, especially in the areas of finance and accounting, and comprises 80percent of KPO performed worldwide. The financial services industry is responsible for more than 60percent of the KPO performed in India and KPO services, although in the beginning stages, have expanded to other industries such as banking, insurance, marketing and research and legal services. The report reveals that firms in the financial, banking and insurance industries were early adopters of KPO , for high-end analytical work.
Based on existing security concerns, many companies prefer to keep knowledge processes that include core intellectual property and sensitive data in house. Therefore, most knowledge processing leads to captive, or company-owned, offshore operations or the in house offshore development center of a company, opposed to utilizing third party vendors, because they potentially provide enhanced competitive advantage protection and help build institutional knowledge for future expansion. In addition to captives, pure-play KPO firms and established BPO players that are expanding their offerings to include KPO make up the KPO industry.
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