Knowledge Process Outsourcing (KPO)

Knowledge Process Outsourcing (KPO) is the process of outsourcing knowledge-intensive activities that are data-driven and encompass the process of gathering, managing, analyzing, and delivering objective insights into businesses. KPO services are broadly classified into four kinds of services:

  • Data Analytics and Insights: Addressing business problems across industries and domains to empower organizations with actionable insights through cutting-edge data analytics
  • Market Research/Business Research: Providing research services and strategy consulting for accurate and succinct answers to the most pressing business questions
  • Global Reporting and Performance Management: Providing efficient reporting and performance measurement across industries to achieve operational excellence and productivity
  • Data Management: Efficient solutions for data integration, storage, retrieval, and sharing for robust business reporting and analytics as required by various stakeholders

The scope of KPO business includes preparation of accounts, tax returns, computer-aided simulation, engineering design and development, financial services, etc.[1]

Reasons for Knowledge Process Outsourcing[2]
Companies utilize KPO when they are looking for specialized knowledge and expertise where that knowledge base or skills cannot be found in-house. However, companies that engage in KPO offshore also typically do so in order to reduce costs by hiring skilled workers earning lower wages in another location instead of hiring one directly as an employee. Ideally, companies look to KPO to simultaneously obtain a highly-skilled workforce at a lower cost. For example, a manufacturer might use raw materials, add value to those materials through various processes, and then sell the result as a final product. The company might look to KPO to determine how to improve efficiency in its production process so that it can deliver maximum value for the lowest possible total cost. The result of KPO might also help the company create a competitive advantage.

KPO can help companies reduce operational or production costs by creating new processes or streamlining efficiency. KPO also fills the gap or need for skilled employees in a particular field. KPO also frees up existing staff, including management, to do other work boosting efficiency and productivity. The flexibility that comes with KPO allows a company to increase or reduce staff easily. For example, if economic conditions worsen, a company can easily reduce its KPO staff to cut costs. Conversely, a company can quickly hire specialized staff to boost profits or revenue. KPO helps a company to be more nimble and adapt to the changes in its industry and competitive landscape.

However, disadvantages do exist with KPO. Privacy of intellectual property and business security can be compromised if classified or proprietary information is lost, copied, or brought to a competitor. Companies have less control over the hiring process of outsourced workers. As a result, a company might not be able to ensure the character of its outsourced employees or the quality of their work. Implementing KPO can be time- and resource-intensive to establish a successful operation. Moreover, communication can be a concern and a challenge, due to legal, language, and cultural barriers. Another disadvantage might be that existing employees might feel threatened by the hiring of outsourced workers and feel their jobs are at risk.

Knowledge Process Outsourcing (KPO) Vs. Business Process Outsourcing (BPO)[3]
Knowledge Process Outsourcing or KPO is a subset of BPO. KPO involves outsourcing core functions which may or may not give cost benefit to the parent company but surely helps in value addition. The processes which are outsourced to KPOs are usually more specialized and knowledge-based as compared to BPOs. Services included in KPOs are related to R&D, Capital and insurance market services, legal services, biotechnology, animation, design, etc. are the usual activities that are outsourced to KPOs. LPO or Legal Process Outsourcing is a special type of KPO dealing with legal services.

source: ICCS

A BPO is capable of handling both the front-end and back-end operations of an entity. BPO provides an array of services such as:

  • Customer care, i.e. call center, help desk, etc.
  • Human resources, i.e. recruitment and selection, training and placement, payroll processing, etc.
  • Technical support
  • Services related to finance and accounting.
  • Website services, i.e. web hosting, etc.
  • Transcription

The spectrum of services provided by KPO includes:

  • Investment research services
  • Market research services
  • Data analytics
  • Business research services
  • Others: Legal Process Outsourcing, Financial Process Outsourcing, Media Process Outsourcing.

One thing must be kept in mind KPO is nothing but an extended version of BPO. Over time, it has been observed that with the expansion of KPO, the BPO is losing its existence. Now, the service provider companies provide both BPO and KPO services simultaneously to the organization.

Major Segments of Knowledge Process Outsourcing[4]
A wide range of KPO solutions is crucial to meet the requirements of diverse industry segments such as

  • Data Management, Search, and Analytics: In industries such as FMCG (Fast-moving Consumer Goods), telecom and banking services, information regarding the market, competition, products and services, and customers is crucial to assist clients in gaining a better understanding of their business issues and to develop effective solutions. Key data analytics services provided by KPO firms include customer analysis, supply chain analysis, and retail analysis.
  • Engineering Design: Engineering Services Outsourcing (ESO) involves the outsourcing of activities ranging from design to production and maintenance. Diverse industrial sectors that benefit from ESO include automotive, aerospace, hi-tech/telecom, utilities, and construction/industrial machinery. KPO firms often perform design works using computer-aided design(CAD) and advanced engineering methods.
  • Remote Education and Publishing: Remote education segment is mostly operated through subcontract, direct and retail services models. Outsourcing publishing and remote education work would help publishing houses, educational institutes, information aggregators, professional societies, government agencies, universities, and corporations save costs.
  • Banking, Securities, and Insurance: Research-related activities by the banking, securities, and insurance sector fall under the preview of investment research. This research involves financial modeling, preparing the valuation of companies, stock process tracking, detailed company analysis and profiling, and more.
  • Market Research and Competitive Intelligence: Market research services often begin with data collection and data cleaning. High-end research-related works handled by KPO vendors include industrial and customer surveys, data analysis through statistical tools and techniques, report and presentation preparation, and more.

Risks and Benefits of Knowledge Process Outsourcing[5]

  • Benefits
    • Cost reduction
    • Shortage of skilled employees
    • Provides many graduates at a very low cost
    • High-end services are provided at a lower cost to decrease unemployment and benefit their economy
    • Provide flexibility in terms of HRM & time management
  • Risks
    • Security- Classified information about the company can be lost
    • Key talent retention
    • The character of the employee and the quality of the work cannot be assured
    • KPO is time-consuming and cannot provide a quick fix to the company seeking immediate results.
    • Lack of communication between partners due to legal, language, and cultural barriers can lead to complications
    • Quality of Personnel and Work Cannot Be Guaranteed
    • Shortage of Skilled Employees
    • Reduction in Communication due to Language barrier
    • Inability to protect the company's intellect property

See Also