Knowledge Process Outsourcing

Knowledge Process Outsourcing (KPO), frequently compared to Business Process Outsourcing (BPO) is the next step in the outsourcing value chain. It is not an offshoot of BPO as people like to think but an independent industry. KPO is a form of outsourcing, in which knowledge-related 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. While BPO stresses on process expertise, KPO emphasizes business expertise. KPO requires advanced analytical and technical skills coupled with judgment to execute highly complex and customized processes.

Knowledge process can further be 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.

KPO involves a specialized domain knowledge of a higher level. It is a combination of BPO, Research Process Outsourcing (RPO) and Analysis Proves Outsourcing (APO). KPO Industry handles 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 (Business Process Outsourcing) in contrast is more about size, volume and efficiency.

The main driver for outsourcing is cost reduction coupled with the value adds of these services. Labor cost savings overseas are just too great to be ignored. In knowledge-intensive industries such as Analytics and Data Mining Services, Research and Development, and Intellectual Property Research, companies can save significantly 40 to 50% by off shoring work to low-wage countries. On the value front, KPOs typically offer competitive advantage to its clients by providing market and industry research, data and statistical analysis, competitive analysis, and support in legal and administration processes.

Having one or more offshore centers, provides flexibility in terms of human resource and time management. Outsourcing allows companies to add or reduce personnel easily avoiding an expensive layoff process. By utilizing the time difference between different parts of the globe, development can take place constantly. The ability to send massive data amounts anywhere via the Internet allows a continual collaboration on a large scale.

There are some minor risks associated with KPOs which are well handled by KPO (Knowledge Process Outsourcing) organizations to ensure optimum benefits to the outsourcing companies. There is a tight wall of security in place during the data transfer and during the knowledge transfer. The confidentiality of the data is maintained by the KPOs that take due care to maintain high quality of work and personnel. A full fledged data back up is in place at the KPOs to make sure the outsourcing company can access whatever information they require at any time. Time lines are worked out in advance to accommodate the necessary smooth work flow.

There is a high potential for KPOs in the present day scenario. The scope of KPOs is not restricted to Information Technology (IT) and Information Technology Enabled Services (ITES). KPOs have a future in other areas like Legal Processes, Intellectual Property and Patent Related Services etc. While the company concentrates on its core specialization and competency activities, it can outsource other activities and gain a lot of momentum in the core areas. There is a cost minimization this way and a total optimization in the business.

Business Process Outsourcing

Business Process Outsourcing (BPO) is a division of Outsourcing which includes contracting of operations and responsibilities of a specific area of business functions, to a third party service provider. BPO has been there in the manufacturing industry for many years now. Manufacturing industries typically have big divisions such as suppy chain that require services to handle.

Business Process Outsourcing (BPO) has two types of outsourcing; Back office outsourcing involves functions like human resources, accounting and finance; Front office has services related to customer related and contact center.

BPO that is contracted outside a company’s country is called offshore outsourcing and BPO that is contracted to a company’s neighboring country is called nearshore outsourcing.

Since BPO is close to Information Technology industry, it is generally called as information technology enabled service or ITES. Two segments of BPO are Knowledge Process Outsourcing (KPO) and Legal Process Outsourcing (LPO).

BPO has advantages and disadvantages. One of the advantages is it increases the company’s flexibility. Resources can be freed and a variable cost structure can be imposed giving a company a freedom to make changes as per the requirements. BPO allows a company to focus on its core competencies without being burdened by the demands of bureaucratic restraints. Key employees are released from non core processes and given time to focus on their actual core areas. This creates a competitive edge in the company. BPO can contribute to the increase in speed of business processes. Speed in business processes is another area where the company would benefit due to BPO. Business bottle necks can be avoided by companies and retain their goals in the right perspective. BPO would allow a company to retain their speed and agility which would not have been possible without BPO. A company would be able to grow at a faster pace with the flexibility that a BPO would give.

With many advantages of flexibility in the company operations, management needs to take cautious steps before embarking on a BPO. Areas where problems arise in practice are service levels, unclear contractual issues, changing requirements, and unforeseen changes. These challenges are not conducive to a company’s growth. A dependence on a BPO would reduce flexibility on operations of a company.

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. Employees no longer feel attached to many functions in the organization. Running costs may be underestimated leading to a major risk.

Risk factors must always be influenced to achieve maximum benefits. A business continuity model (BCM) should be in place to manage outsourcing in a structured way. Threats should be avoided by minimizing risks and maximizing positive outcome. A BCM is a series of steps to successfully identify, manage and control the business processes that can be outsourced.