KPO vs BPO

The dividing line between KPO and BPO is still very faded; some experts say that KPO is not different from BPO. It is only a kind of BPO. Says Karnik, "Broadly, KPO is a subset of BPO. It just occupies the higher end of the BPO spectrum." In fact, KPO owes its existence to BPO. It is its natural progression. After reaping the benefits of outsourcing low-end processes to India, foreign companies are now trying their hands at outsourcing high-end processes to the country. "KPO is the next step in the outsourcing pyramid. For instance, in a financial service BPO, data entry of invoices has been around for some time. But given the value-formoney Indian BPOs have shown, international companies are thinking, why not broaden the scope to include financial analysis?" As in the words of Pavan Bagai, vice president EXL Service "Imagine unsorted data going through a black box and coming out as useful information. In KPOs the black box is your mind. There is no pre-defined process to reach a conclusion." In BPOs there is a pre-defined way to solve a problem. BPOs will normally include transaction processing, setting up a bank account, selling an insurance policy, technical support, voice and email-based support. The myth that Indian companies can only provide "software coolies" is soon changing to the reality of Indian companies being capable of almost anything, even rocket science! India has a large pool of knowledge workers in various sectors ranging from Pharmacy, Medicine, Law, Biotechnology, Education & Training, Engineering, Analytics, Design & Animation, Research & Development, Paralegal Content and even Intelligence services that can be put to use in a KPO. Low-end outsourcing services have an expected Cumulative Annual Growth Rate (CAGR) of 26% by 2010. In contrast, the global KPO market is poised for an expected CAGR of 46% by 2010. The following figure demonstrates the expected growth in the BPO and KPO markets over the next seven years. Its very evident from the about discussion that the KPOs are the next big thing about to happen in India. But the way to becoming a strong KPO power is not very smooth. As KPO delivers high value to organizations by providing domain-based processes and business expertise rather than just process expertise.

These processes demand advanced analytical and specialized skill of knowledge workers that have domain experience to their credit. Therefore outsourcing of knowledge processes face more challenges than BPO (Business Process Outsourcing). Some of the challenges involved in KPO will be maintaining higher quality standards, investment in KPO infrastructure, the lack of talent pool, requirement of higher level of control, confidentiality and enhanced risk management. Comparing these challenges with the Indian IT and ITES service providers, it is not surprising that India has been ranked the most preferred KPO destination owing to the country's large talent pool, quality IT training, friendly government policies and low labor costs.

What Is KPO
KPO A brief explanation: So what is this KPO? A typing error or a glorified abbreviation to replace BPO? KPO is a new phenomenon that is picking pace in India. It is "Knowledge Process Outsourcing". In simple words it is the upward shift of BPO in the value chain. Old BPO companies that used to provide basic backend or customer care support are moving up this value chain. "Unlike conventional BPO where the focus is on process expertise, in KPO, the focus is on knowledge expertise." KPO is involved in services like valuation and investment research, patent filing, legal and insurance claim processing, etc, explains Ranjit Singh, CEO, Techbooks, a publishing KPO.

Whats in it for India?

According to a study carried out by Baring Private Equity Partners (India) Limited, a venture capital financing firm, the size of the KPO industry, the high-end services entailed in business process outsourcing (BPO) activities, has the potential to touch $16 bn by 2010 globally. As per Nasscom estimates, the KPO industry is expected to grow by 45 per cent by 2010. Out of the $16 billion, which the KPO industry is likely to earn around $12 billion, would be outsourced from India.

The ideal KPO employee should possess domain specialization, computer skills & English proficiency. With the Indian way of education which lays great emphasis on higher education & specialization, a talent pool with specialized knowledge in any field is readily available. There is also tremendous emphasis on mathematics and science, resulting in a large number of science and engineering graduates. These graduates would fuel the growth of KPO in India. The cost advantage of Indian BPO is constantly being challenged by ever increasing might of China and Philippines. As it is mandatory for any living organism to mutate to stay alive in the ever changing environment, so is the case with business processes. Therefore change from BPO to KPO is inevitable and mandatory.

Business process outsourcing (BPO) is a form of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca Cola that outsourced large segments of its supply chain.[1]. In the contemporary context, it is primarily used to refer to the outsourcing of services. BPO is typically categorized into back office outsourcing - which includes internal business functions such as human resources or finance and accounting, and front office outsourcing - which includes customer-related services such as contact center services. BPO that is contracted outside a company's country is called offshore outsourcing. BPO that is contracted to a company's neighboring (or nearby) country is called nearshore outsourcing. Given the proximity of BPO to the information technology industry, it is also categorized as an information technology enabled service or ITES. Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are some of the sub-segments of business process outsourcing industry.

[edit] Industry size

India has revenues of 10.9 billion USD[2] from offshore BPO and 30 billion USD from IT and total BPO (expected in FY 2008). India thus has some 5-6% share of the total BPO Industry, but a commanding 63% share of the offshore component. This 63% is a drop from the 70% offshore share that India enjoyed last year, despite the industry growing 38% in India last year, other locations like Eastern Europe, Philippines, Morocco, Egypt and South Africa have emerged to take a share of the market[citation needed]. China is also

trying to grow from a very small base in this industry. However, while the BPO industry is expected to continue to grow in India, its market share of the offshore piece is expected to decline. Important centers in India are Bangalore, Hyderabad, Kolkata, Mumbai, Pune, Chennai and New Delhi. The top five Indian BPO exporters for 2006-2007 according to NASSCOM are Genpact, WNS Global Services, Transworks Information Services, IBM Daksh, and TCS BPO.[3] According to McKinsey, the global "addressable" BPO market is worth $122 $154 billion, of which: 35-40 retail banking, 25-35 insurance, 10-12 travel/hospitality, 10-12 auto, 8-10 telecoms, 8 pharma, 10-15 others and 20-25 is finance, accounting and HR. Moreover, they estimate that 8% of that capacity was utilized as of 2006

[edit] BPO Benefits and Limitations

An advantage of BPO is the way in which it helps to increase a companys flexibility. However, several sources[which?] have different ways in which they perceive organizational flexibility. Therefore business process outsourcing enhances the flexibility of an organization in different ways. Most services provided by BPO vendors are offered on a fee-for-service basis[citation needed]. This can help a company becoming more flexible by transforming fixed into variable costs.[4] A variable cost structure helps a company responding to changes in required capacity and does not require a company to invest in assets, thereby making the company more flexible.[5] Outsourcing may provide a firm with increased flexibility in its resource management and may reduce response times to major environmental changes[citation needed]. Another way in which BPO contributes to a companys flexibility is that a company is able to focus on its core competencies, without being burdened by the demands of bureaucratic restraints.[6] Key employees are herewith released from performing non-core or administrative processes and can invest more time and energy in building the firms core businesses.[7] The key lies in knowing which of the main value drivers to focus on customer intimacy, product leadership, or operational excellence. Focusing more on one of these drivers may help a company create a competitive edge.[8] A third way in which BPO increases organizational flexibility is by increasing the speed of business processes. Using techniques such as linear programming can reduce cycle time and inventory levels, which can increase efficiency and cut costs[citation needed]. Supply chain management with the effective use of supply chain partners and business process outsourcing increases the speed of several business processes, such as the throughput in the case of a manufacturing company.[9] Finally, flexibility is seen[who?]as a stage in the organizational life cycle. BPO helped to transform Nortel from a bureaucratic organization into a very agile competitor[citation needed]. A company can maintain growth goals while avoiding standard business bottlenecks.[10] BPO therefore allows firms to retain their entrepreneurial speed and agility, which they

would otherwise sacrifice in order to become efficient as they expanded. It avoids a premature internal transition from its informal entrepreneurial phase to a more bureaucratic mode of operation.[11] A company may be able to grow at a faster pace as it will be less constrained by large capital expenditures for people or equipment that may take years to amortize, may become outdated or turn out to be a poor match for the company over time. Although the above-mentioned arguments favor the view that BPO increases the flexibility of organizations, management needs to be careful with the implementation of it as there are a issues, which work against these advantages. Among problems, which arise in practice are: A failure to meet service levels, unclear contractual issues, changing requirements and unforeseen charges, and a dependence on the BPO which reduces flexibility. Consequently, these challenges need to be considered before a company decides to engage in business process outsourcing[12] A further issue is that in many cases there is little that differentiates the BPO providers other than size. They often provide similar services, have similar geographic footprints, leverage similar technology stacks, and have similar Quality Improvement approaches.[13]

[edit] Threats
Risk is the major drawback with Business Process Outsourcing. Outsourcing of an Information System, for example, can cause security risks both from a communication and from a privacy perspective. For example, security of North American or European company data is more difficult to maintain when accessed or controlled in the SubContinent. From a knowledge perspective, a changing attitude in employees, underestimation of running costs and the major risk of losing independence, outsourcing leads to a different relationship between an organization and its contractor.[14][15] Risks and threats of outsourcing must therefore be managed, to achieve any benefits. In order to manage outsourcing in a structured way, maximizing positive outcome, and minimizing risks and avoiding any threats, a Business Continuity Management (BCM) model is setup. BCM consists of a set of steps, to successfully identify, manage and control the business processes that are, or can be outsourced.[16] Another framework, more focused on the identification process of potential outsourceable Information Systems, identified as AHP, is explained.[17] L. Willcocks, M. Lacity and G. Fitzgerald identify several contracting problems companies face, ranging from unclear contract formatting, to a lack of understanding of technical IT- processes.[18]

[edit] See also

Knowledge process outsourcing (KPO) is a form of outsourcing, in which knowledgerelated and information-related work is carried out by workers in a different company or by a subsidiary of the same organization, which may be in the same country or in an offshore location to save cost. Unlike the outsourcing of manufacturing, this typically involves high-value work carried out by highly skilled staff. KPO firms, in addition to providing expertise in the processes themselves, often make many low level business decisionstypically those that are easily undone if they conflict with higher-level business plans.

Contents
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1 Overview 2 Types of KPO services 3 Challenges to providers 4 Market researching 5 See also 6 References 7 External links

[edit] Overview
Process transparency is a major barrier to using KPO services.[clarification needed] Many organizations do not track carefully which decisions are made by whom, and rely so much on informal social processes (and "soft skills") that it is unclear how much the use of KPO would disrupt existing operations. However, requirements like Sarbanes-Oxley and radical transparency movements like full cost accounting, shareholder activism and eco-labels and moral purchasing require organizations to be more explicit about when and by whom decisions are made. These trends make it easier for outsourcing non-critical jobs to be considered by qualifying the impact of decisions in advance.[clarification needed] Furthermore, it becomes easier to evaluate and compare success. A fully developed service economy enables KPO by treating all functions as services.[clarification needed] So do more technical trends such as service oriented architecture, enterprise application integration and telework: it is easier to outsource a job if it is already being performed outside the head office. Organizations adopting ISO 9000 and ISO 19011 should also find it much easier to integrate externally provided KPO into their operations and audit them on a fair basis. As of 2007, most US organizations were hiring foreign professionals under H-1 visas to do jobs in the USA for several years, after which they would return to their home countries as managers to train and supervise others, continuing to report to their former business units.

The following extract from chapter two of the British Computer Society book 'Global Services: Moving to a Level Playing Field' by Mark Kobayashi-Hillary and Dr Richard Sykes attempts to define KPO: "KPO is merely a continuation of BPO, though with rather more business complexity. The defining difference is that KPO is usually focused on knowledge-intensive business processes that require significant domain expertise (application professionalism in the language of Chapter 1). The offshore team servicing a KPO contract cannot be easily hired overnight as they will be highly educated and trained, and trusted to take decisions on behalf of the client. IT outsourcing is strongly focused around technical professionalism, and the migration to business process outsourcing introduces this extra dimension of application professionalism. Ever more complex services, as implied by KPO, demonstrate this very well. The profile of people being hired to serve within KPO service companies are more diverse than just being drawn from technical IT services these are people with MBAs, and medical, engineering, design or other specialist business skills. KPO delivers higher value to organizations that offshore their domain-based processes, thereby enhancing the traditional cost quality paradigm of BPO. The central theme of KPO is to create value for the client by providing business expertise rather than process expertise. So KPO involves a shift from standardized processes to advanced analytical thinking, technical skills and decisive judgement based on experience."

[edit] Types of KPO services

KPO services include the following:

Investment research services (equity, fixed income and credit, and quantitative research) Market research services Legal research services (also known as Legal Process Outsourcing) Patent research services

[edit] Challenges to providers

In addition to the challenges faced by clients, KPO companies themselves have challenges:

High staff turnover, especially where work is not challenging to the employee's skills High cost of training and tendency to lose the most experienced employees to the clients Ensuring the security and confidentiality of information, especially when privacy laws vary from one country to another

[edit] Market researching

Leaders in the market research industry are slowly seeing the benefits offered by KPO and have begun outsourcing.[citation needed] Comprehensive IT solutions are offered by vendors who provide solutions covering the entire life cycle of a market research project. Smaller firms can also benefit from these solutions as they are cost effective and remain within the budget of smaller organizations. KPO is claimed to efficiently increase productivity and increase cost savings in the area of market research.[citation needed] Advocates claim that the trend is likely to prove increasingly popular in the global market research industry.