KPO Demystified

September 15, 2012

1. What is Knowledge Process Outsourcing?

Knowledge Process Outsourcing (KPO) is the outsourcing of high-end business functions in an organization. These functions include both core and non-core activities. 

How it is different from Business Process Outsourcing 

2. KPO Value Chain examples 

	Low-end	High-end
Business Analytics	Back office support, Data Collection, Data Entry, Secondary Research	Analysis and Statistical Modelling	Synthesis/Reports/Presentations
Legal	Data Entry, Transcription	Patent Search, Contract Drafting	Litigation Support, Legal Research

 

3. What functions does it cover? 

KPO being a nascent segment, there is no universal consensus on the processes that can be classified within the ambit of KPO. Currently, the following knowledge functions are outsourced to varying extents. 

 

Segment	Segment breakdown	Key skills requirement
Legal Services	Patent search, contract drafting, legal research, litigation support, secretarial work, legal coding, transcription	Proficiency with English, knowledge of the client country laws.
Engineering Services	2D and 3D modelling, conversion, finite analysis, value engineering, dynamic analysis, etc.	CAD/CAM, drafting, modelling, product design.
Content Development & Publishing	Data warehousing, content planning, proofing, pre-press production, writing, editing, designing, etc	English writing skills, journalism/editing experience, knowledge of design tools and more.
Market Research & Data Analysis	Primary research, surveys, secondary research, statistical modelling, report writing, synthesis.	Analytical skills, knowledge of statistical tools, presentations, MBA, Econometrics.
Financial Research & Analytics	Industry research, company valuation, equity research & analysis, due diligence, financial reporting, risk assessment	Knowledge of financial markets, statistical tools and a masters in finance – CFA, MBA finance, etc.
Biotech/Pharmaceuticals	Clinical research, gene mapping, drug discovery, etc.	Masters in science, medicine etc.
Education & Training	Instructional design, courseware development	Subject matter expertise, teaching experience.

4. How big is the sector globally? How big will it get?

There are varying estimates on the growth of the global KPO sector. These estimates range from $10 billion (ASSOCHAM) to $17 billion (Evalueserve), by 2010. Given below is an estimate of the growth of various segments within KPO in India.

Segment	Revenue (2006-07)*	Expected Revenue (2010-11)*
Banking, Securities & Insurance Research	$175	$600
Data Management, Search & Analytics	$590	$2500
Business & Consulting Research	$125	$450
Human Resources - Research & Analytics	$25	$120
Market Research & Comp. Intelligence	$175	$460
Eng. Design & Architecture, CAD	$315	$950
Game-design & Animation Services	$245	$900
Legal, Paralegal & Intellectual Property	$95	$500
Scientific & Medical Content Publishing	$165	$100
Remote Education. Publishing, Tech. Writing	$300	$1,000
Contract Res. Orgs, Biotech Services	$580	$2,500
Translation and Localization	$75	$360
Marketing & Sales Support, Answering RFPs	$20	$150
Remote Logistic services & Procurement	$40	$160
Network Optimization & Analytics	$125	$450
TOTAL	$3,050	$11,200
*In millions Source: Evalueserve

5. India – the most preferred KPO destination

India is expected to corner a lion’s share of the overall KPO market. By 2010, India is expected to account for almost 70 percent of global market. India’s dominance – though imminent in the near future – could be severely tested by some of the emerging destinations such as the Philippines, Russia, Ukraine, Poland, China, South Africa, Singapore, Ireland, Australia, Canada and Wales.

6. Key Issues in the KPO sector

Skills Acquisition and Retention
One of the decisive factors for the growth of any destination will be the ability to acquire the right kind of talent and retain it. For India, it will be a major challenge with high annual churn rates and wage inflation playing dampener. In fact, UK based research firm RocSearch has tempered the optimism with its findings that the Indian KPO market may only grow up to $10 billion by 2010 as opposed to the industry estimates of $12 billion. The corresponding number of professionals employed in this sector will be only 100,000 as opposed to the predicted 250,000.

On the other hand, destinations such as Australia and Canada have a substantial pipeline of skilled talent waiting for the opportunity. While it is true that outsourcing of knowledge processes relies more on intellectual arbitrage more than cost arbitrage, a high wage inflation rate and turnover may ward off clients. 

IP Management & Data Security 
Outsourcing high-end functions to an offshore location involves the exchange of confidential information, especially in segments such as financial services and biotech. In such a situation, vendors need to have stringent internal measures to prevent any misuse or trading of sensitive information. The government on its part should come down heavily on any IP or data theft or infringement. 

Training and Development
Knowledge processes require a high degree of specialization. In addition to the required educational degree, professionals also need to be abreast of the laws or methodologies governing the process in the client destination. Be it legal processes, pharma outsourcing or financial services outsourcing, any knowledge process requires familiarity with the concerned domain as it exists in the client country.