KPO at a Glance: Everything you need to know about KPOs

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Published: 03rd February 2009
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KPO at a Glance: Everything you need to know about KPOs

The next wave of offshore outsourcing has arrived and it revolves around high-end knowledge work. KPO, also known as Knowledge Process Outsourcing, refers to any outsourcing service that cuts into the traditional 'core capabilities' of many large organizations. Knowledge Process Outsourcing (KPO) suitably allows clients to unlock their otherwise jammed top-line growth by outsourcing all their core work to ideal locations where the talent is skilled and labor costs cheap.

With the recent economic disaster, cost reduction is probably the key driver for many organizations in the ITO and BPO sectors, whereas the key driver for KPO services would have to be "intellectual arbitrage". In the KPO industry, there is a very good mix of third party as well as captive structures, and recent surveys have shown that there will be a massive growth in the KPO industry with the onset of many hybrid multi-sourcing models. These models will most likely consist of captive units that effectively manage relationships with the third party KPO service providers.

KPO Industry Overview

Many official sources of market research have predicted that the KPO industry will be anywhere from US$ 10 billion to US$ 20 billion by the year 2010. Currently, India continues to be the leading country that provides KPO services. However, there are many other countries that have the potential to capture a fair share of the KPO market and this can only be done by better leveraging of the maturity and depth of existing skill sets, and in many cases, working on their non-English speaking populations.

Customers look for KPOs that provide the necessary skills and expertise, a good enough depth of knowledge and understanding, experience in core areas, customized solutions and above all, flexibility.

Some examples of KPO services include:

• Equity, Financial and Insurance Research

• Data Analytics, Integration and Management

• Intellectual Property, Paralegal Content and Services

• Animation and Simulation Services

• Market Research, Competitive Intelligence and General Business Research

• Research and Information Services in HR

• Engineering and Design Services

• Medical Content and Services

Why India?

India is probably one of the most favored destinations for the KPO industry for a variety of reasons. In addition to it having the advantage of being the first-mover and an established vendor base, it also proves to be advantageous for a number of reasons that include: its large English-speaking talent pool, the adequate knowledge and application of quality processes and standards, and its inherent domain expertise because of its large and extremely well developed domestic services industry.

Its current market value is pegged at roughly US$ 5 billion.

Challenges faced by the Indian KPO Industry

Some of the challenges likely to be faced by the KPO industry in the coming five years would include:

• Attracting the best Talent

• Acquiring the necessary Skill Sets

• Managing Conflicts of Interest

• Protecting Intellectual Property

The Internal challenges faced by the KPO industry would consist of recruiting and retaining the right kind of talent. As far as the customer challenge is concerned, aspects like the demand for consistent high quality, data security and compliance, and building credibility around knowledge and expertise are the number one challenges.

Furthermore, challenges arise in the form of competitor challenges with regards to some of the upcoming countries and many of the global KPOs located in India itself. The overall industry challenge faced by the KPO sector comes in the form of the information infrastructure and branding aspects.

Other challenges include heavy investments in training candidates, developing talent and hence retaining personnel. Complying with regulations and standards also proves to be very challenging along with the sales and marketing challenges in order to keep clients satisfied will always be present.

The Future Verdict of the KPO Industry

Market analysts have predicted that in the years to come, there will be a significant shift between the 'non-outsourceable' and 'outsourceable' activities within the KPO industry. With the change in offshoring strategies, new locations will be preferred to the older ones.

Surveys have also shown that in the future, a large number of insurers and global banks alike are more likely to embrace and adopt many of the KPO strategies. "Boutique" service providers will leverage KPOs in order to create new products, services, solutions and offerings. More rigorous compliance and regulatory control is expected to be demanded, as many of the KPO service providers are likely to start delivering more and more complex services.

The new areas of focus are more likely to lie in the fields of Healthcare and Clinical Research, Remote Education, Animation and SOX Compliance Related work. Analysts have predicted that the growth areas in the industry will witness a significant shift towards Value Added Services, Multi-Lingual Work, New Markets for IP work, and SMEs, which is a large potential yet to be tapped.

By the year 2010:

• India will most likely account for a major slice of the global KPO industry revenues.

• The global KPO market will grow by 30 percent per annum, approximately.

• There will be a tremendous increase in the number of jobs and the revenues in India are expected to rise by 12 percent per annum.

Yes, the KPO industry is here to stay. And although there are many challenges to be faced by the Indian KPO industry, there is a great overall potential for the growth of this market. Many organizations are still showing interest in outsourcing high-end knowledge based business processes to India.

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