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.