KPO Resource Center
The History of Knowledge Process Outsourcing (KPO)
Knowledge Process Outsourcing or KPO has been defined as “a continuation of BPO, though with rather more business complexity” in the book “Global Services: Moving to a Level Playing Field” by Kobayashi-Hillary and Sykes. KPO involves high-value work performed by highly skilled professionals who have specialized knowledge, skills and business expertise. While the business process outsourcing or BPO industry efficiently handles a huge volume of back-office processes, the KPO industry handles more of the high skilled work that requires a depth of knowledge, judgment and experience. BPO provides companies with process expertise while KPO provides them with business expertise and makes low-level business decisions consistent with the companies’ business plans. The types of KPO services that KPO firms offer are investment research services (fixed income and credit, equity, and quantitative research), market research services, intellectual property and patent research services, legal research and legal process services (also known as Legal Process Outsourcing), web development services, CAD/CAM applications, clinical research, publishing, business research analytics, educational services, engineering services, data acquisition and supply management services.
KPO was started by McKinsey in India when it opened up a knowledge center back in 1987 which was then closely followed by the opening of research centers of companies like GE, Gartner and Office Tiger. However, it was not until 2006 to 2007 that KPO took off. KPO is considered as the third generation of the outsourcing revolution. IT Outsourcing is known as the first generation while Business Process Outsourcing or BPO represents the second wave which came in 2002 to 2003. During these years, outsourcing firms started to offer more than just telemarketing and sales; they offered more complex transactions such as decision-making and problem solving tasks. Four years later, firms began offering knowledge-intensive BPO services currently regarded as KPO services. The workforce also changed when KPO firms started to provide KPO services to different foreign and local businesses. The KPO workforce profile became more diverse as people with MBAs and those with medical, engineering, design, medical and specialist business skills were being hired by KPO companies.
KPO’s central theme is to create solutions for clients by providing business expertise as opposed to BPO’s aim to provide process expertise to clients. BPOs work with standardized processes, but with the shift to KPO, providers also shifted to offering processes that involve technical skills, analytical thinking and decisive judgment based on experience. India is undoubtedly still the biggest player in the IT, BPO and KPO fields, having had the advantage of being the first country to benefit from the IT outsourcing boom early on. India is also reported to have the biggest talent pool with an advantage of 15 years’ experience over other countries’ talent pool. India’s workforce increases in number as young students graduate annually from some 400-degree granting institutions in the country. However, many countries such as the Philippines and China have appeared on the KPO map to provide KPO services to different foreign and local businesses. The lower cost of labor in India, the size of the talent pool, and the number of knowledge professionals are not the only bases of companies for choosing KPO firms that can provide them with the services they need. Businesses are looking at the scale and quality of the workforce, infrastructure, financial and risk environment, as well as the KPO firms’ inclination toward identifying skill sets and workforce-related metrics.
The KPO industry’s worldwide revenue in 2003 was reported to have reached around $1.2 billion according to US research firm Evaluserve. For the period of 2006 to 2007, the research firm reported that the KPO industry’s revenue amounted to $4.4 billion. According to the same Evaluserve report, the Indian KPO industry’s revenue in 2003 amounted to $1 billion and in 2006 to 2007 was reported at $3 billion. India’s KPO industry is aiming to claim 71% of the global KPO business. However, India is not the only big player in the global KPO sector as countries such as the Philippines, China, Israel and those in Latin America are starting to compete against India and are providing their own brand of KPO services.
Despite some negative feedback about offshore outsourcing, KPO firms are here to stay. The KPO industry in general has a bright future ahead and is expected to grow in the coming years. The KPO sector is expected to rack up around $16.7 billion in 2010 to 2011 as more and more businesses look for outsourced solutions and more KPO companies employ professionals with specific knowledge and skill sets. The US and UK’s aging workforce, the shortage of knowledge professionals in these countries, along with the fact that outsourced services provide cost-efficient solutions to companies constitute the primary growth drivers of the global KPO sector.
KPO firms in India see opportunities in new US healthcare regulations
Changes in the US healthcare space represent major opportunities for many KPO companies in India. New services and an even bigger workforce are being required by US healthcare companies to address these changes in both the provider and payer sides. In an interview with Intelenet, one of the global KPO service providers in India, details about the changes, new financial services and the US healthcare space in general come to light. The new regulations is expected to prompt healthcare companies to outsource many of their backend operations to KPO service providers in India or to other BPO and KPO destinations to cut costs and gain maximum profit.
Regulatory changes in the healthcare system will include opening up insurance. Before, insurance companies could only offer and provide insurance for people in a particular jurisdiction or state. This meant that an insurance company recognized by the federal government in the state of Texas is only allowed to provide health insurance to residents of the state of Texas. With the changes in health insurance regulations, this same insurance company based in Texas will be allowed to give insurance policies to individuals or groups across the United States. The changes will also mean that health insurance companies from other states will be allowed to issue policies to residents of Texas. The number of insurance providers is expected to go up due to the new healthcare regulation which in turn, will result to raised costs and profitability to both insurance payers and insurance providers. Changes in US healthcare will also impact its medical coding system as a consequence. A new medical code is also being prescribed for use.
The KPO industry in India is perhaps the most popular offshore outsourcing industry that many American and European companies flock to for their outsourcing needs. Intelenet is one of the many KPO firms in India that provides backend office services to many of these companies. Intelenet is currently providing services for Blackstone portfolio companies and firms operating in the US healthcare space either for the provider or the payer side. Because of the recent regulatory changes to healthcare occurring in the United States, many KPO companies in India – not just Intelenet – see more opportunities for the KPO industry in India to grow.
One of the many KPO services in India that are expected to grow due to US healthcare regulation changes is medical coding. KPO firms in India that offer medical coding see this as an opportunity to come in and help with codification. American companies will need to retrain their people in coding as the system for medical coding changes. They need to get more people into coding due to the number of codes rising. Since this is expected to have a huge impact on healthcare companies’ profitability and costs, KPO companies in India can come in and provide coding services and other operational services. Intelenet, which has offices in the United States and India, sees this as a big opportunity for KPO in India and the company particularly to attract more investors, provide more local jobs and leverage its expertise in the healthcare industry. Healthcare companies in the US do not have to retrain their people because Intelenet can get people onshore in the US to do codification or provide these companies with an offshore solution.
Healthcare costs are sure to skyrocket when these regulations are implemented. In 2008 alone, the United States spent about $2.4 trillion on healthcare. This amount is about 17% of the United States’ GDP. However, only 20% of the American population is insured, and that $2.4 trillion was spent on only 80% of the insured American population. It is almost certain that that figure will go up within the succeeding years as spending on healthcare will also rise exponentially. Healthcare providers will have to look for ways to cut operational costs, and outsourcing services to KPO companies in India and to other KPO destinations may be the best way to do so.
KPO Firm in India Expands Operations to Other Cities
FirstObject Technologies Limited, a KPO service provider in India with operations in Hyderabad, is planning to invest $2.5 million to set up 150-seater facilities at the Visakhapatnam Special Economic Zone (VSEZ) and at the Software Technology Parks of India (STPI)-Kakinada.
The bad news is recent strikes that have affected some KPO service providers in India based in Hyderabad prompted the company to scout for new locations outside the city. The good news is, it is proving to be a boon to other Tier-II and Tier-III cities as FirstObject and other KPO firms in India continue to find ways to minimize the risk to its delivery model.
Hyderabad is one of the major centers of this business in the country and many KPO service providers in India are based there. It was primarily the US and European banks and finance and insurance companies looking to outsource their operations to BPO and KPO firms in India who found Hyderabad an ideal location.
This year Hyderabad is expected to replace Bangalore and Mumbai as preferred destinations for IT companies looking for KPO services in India, according to “IT Outsourcing to India – Analysis of Cities” by Gartner Inc.
The 2004 report cited improving infrastructure, overall skills availability, good quality educational institutions and active political support as some of the important drivers for making Hyderabad a top location for KPO companies in India.
Unfortunately, recent labor-related disputes have affected KPO firms in India that operate in Hyderabad. “Almost 15 productive days were lost because of the recent strikes. This is affecting our regular functioning and client servicing,” Vivek Hebbar, chairman of FirstObject Technologies Limited told Business Standard. He also cited attrition and non-availability of required manpower in Hyderabad as factors for expanding its KPO services in India to new sites.
The two new facilities of the KPO company in India will focus on developing MBBS, law, management, engineering and other high-end courseware for Indian and foreign colleges and universities. Additionally, it will provide courseware for entrance tests like IIT-JEE through an ASP platform.
Discussion with the officials of the VSEZ and STPI-Kakinada had already started and FirstObject. VSEZ is the major industrial center in the state of Andhra Pradesh where several industrial units in the public and private sectors are located. (STPI)-Kakinada is part of a nationwide network that provides KPO companies in India that specializes in software development with export-oriented unit scheme, world-class data connectivity, consulting and infrastructure solutions.
The company says operations in SEZ and STPI-Kakinada will start by March of this year, proof of the resilience and flexibility of the KPO industry in India.
FirstObject, entered the KPO industry in India almost two years ago with Bloomberg, Reuters and Dow Zones among its active clients. The KPO firm in India currently employs more than a hundred people in the country and around the globe. It services its KPO clients from Hyderabad. It plans to acquire 50 new clients across businesses by March 2010.
Knowledge Process Outsourcing Firms in India Assure Clients No Service Disruption Despite Terrorist Attack
Knowledge Process Outsourcing service providers in India are beefing up security following a series of terror attacks in the information-technology hub development centers in the city of Pune. Despite the incident most of Knowledge Process Outsourcing companies in India that are headquartered in the city – most of which are software developers – assured clients that delivery of services will not be disrupted.
Knowledge Process Outsourcing Industry in India provides great opportunities for growth but also presents abundant sources of risk. Even the most stable Knowledge Process Outsourcing service providers in India can be negatively impacted by unpredictable and unwelcome events such acts of terrorism, a pandemic outbreak of diseases, or a collapsing market economy halfway across the world.
In whatever form, a crisis can trigger serious problems, including declining earnings, liquidity and cash-flow shortfalls for the Knowledge Process Outsourcing industry in India. The damage can be aggravated further by the delayed or limited response to these events. Fortunately, Knowledge Process Outsourcing Industry in India is taking its cue from recent events.
The November 2008 Mumbai attacks exposed security vulnerabilities the country did not realize it had. By the end of the 60-hour rampage that targeted three of the city’s top hotels had been contained security experts and law enforcers in India realized the new reality they were now facing.
“A robust contingency plan will help organizations minimize loss and disruption and ensure business continuity,” H&A Country Manager (India) Ashish Sonal said in a press statement regarding the potential and serious threat of the Avian influenza virus (H5N1) to the vibrant Knowledge Process Outsourcing industry in India. “Organizations with functional crisis management plans would be in a better position to mitigate risks and ensure business continuity.”
The bomb explosion at Pune City show that the Knowledge Process Outsourcing companies in India have taken the lessons learned from those crises to heart.
Tata Consultancy Services Ltd., the largest Knowledge Process Outsourcing service company in India in the IT sector, issued precautionary advisory to its more than 1,000 employees following the blast. “TCS has a very strong business continuity plan…,” a company spokesperson told Dow Jones Newswires, indicating that the incident will not cause any disruptions to the company’s operations.
Other Knowledge Process Outsourcing service providers in India are also taking necessary steps in light of the attack. “Keeping the situation in mind, we have asked employees to be more cautious,” according to official statements by MphasiS Ltd., a medium-sized software exporter.
Meanwhile MindTree Ltd., one of the mid-sized Knowledge Process Outsourcing firms in India with around 900 employees at its software development center in Pune City, said it has already taken measures addressing security issues following the major terror attacks in Mumbai last year. “Post 26/11, the company has done a comprehensive review of the security at all the facilities across the country,” MindTree vice president and head of operations K.P.M. Das informed Dow Jones Newswires.
The attacks in Pune City was not a wake up call for the Knowledge Process Outsourcing Industry in India. They are already up and ready for the next worst case scenario.
India’s KPO Industry Service Sector Include Emerging Field of Bioinformatics and Cheminformatics
In 2004, Evalueserve, a global market research and Intellectual Property services firm forecasted the success of business process outsourcing (BPO) and knowledge process outsourcing (KPO) in India, among the other global BPO/KPO service providers in the world. The organization cited the tandem of cost and quality benefits as the primary reason why organizations all around the world are looking to BPO and KPO service providers in India for several if not one of their business processes. By this year, the global Research and Analysis industry is estimated to reach US$ 17 billion, US$ 12 of which will be contributed by the KPO industry in India. Today, KPO service providers in India are already impacting other industries encompassed by Research and Analysis, including bioinformatics, data mining and analysis, biotech and pharmaceutical research (Contract Research) and Intellectual Property Research (IPR).
Today, India offers a wide array of KPO services that include the emerging fields of bioinformatics and cheminformatics, which utilizes several computer technologies in managing, mining and analyzing chemical structures and related property data and information. Because bioinformatics and cheminformatics are highly specialized, KPO firms in India are gearing to be the leader in providing unparalleled services that will utilize information technology for data management and analysis. The KPO industry in India is also looking to provide services in bioinformatics, an interdisciplinary research area that manage and analyze biological data through the use of various mathematical, statistical and information technology tools.
KPO service providers in India are offering core advantages that include a significantly decreased time from lab to market, increased efficiency and productivity, considerably minimized financial risk through minimized operational and ownership costs and direct access to an array of specialized talent. India’s KPO space boasts of experience in research and development areas such as molecular biology, DNA sequencing, molecular biology software packages, and molecular modeling.
The Indian biotechnology industry boasts of an impressive growth rate of 28.09% from year 2005, and is estimated to reach $5 billion by the end of this year. Because of this considerable growth, the local government took a step towards liberalization and deregulation by offering 10-year tax concessions on revenue to KPO firms in India making research and development investments.
More than just government incentives, the KPO industry in India is fully supported by a wide array of science and technology organizations including several Indian Institute of Technology (IITs), Indian Institute of Management (IIMs) in the country, ivy-league institutes of formal education where their workforce is honed to fill in highly-specialized jobs tailored for KPO clients. The Indian Institute of Information Technology (IIIT) was also established to generate highly competitive individuals to lead the research and development sectors in the KPO industry in India.
The KPO industry in India now serves as the ideal Research and Analysis watering hole with its scientific and research talent, high-quality R&D services and continuously improving infrastructure. These core competencies are just some of the many facets of India’s KPO industry that others have yet to compete against.