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Knowledge Process Outsourcing (KPO) is a subsegment of BPO, wherein those processes which involve knowledge related work are handed over to outside party.

BPO

Business Process Outsourcing or BPO is the outsourcing of any segment/ process/ function of the business organization to an outside organization. The major cause behind the outsourcing of business process is to reduce costs and maximize efficiency. The focus is made on the process, i.e. the process is predetermined, and the provider has to bring consistency and productivity in the assigned processes.

KPO

Knowledge Process Outsourcing or KPO refers to the assignment or transfer of knowledge plus information related process to another organization. The organization may be a different entity or the subsidiary of the main organization that can be located in the same country or overseas to minimize cost.

KPO firms perform high-level tasks for which highly skilled personnel are required by the firms. It is an extended version of BPO. Low-level decisions can also be taken by these firms. It requires in-depth knowledge, domain expertise, judgment and interpretation power of the workers, who are capable of applying their knowledge because the work entails decision making on specific issues.

The KPO area has considerable measure of potential development in India. India confronts various efforts by securing itself as a worldwide KPO pioneer. The real test in setting up a KPO will be to obtain skilled employees. KPO organizations include high risk and confidentiality and the greater part of the work would be outsourced from the US. The area likewise obliges larger amount of control, confidentiality and enhanced risk management. Moreover, legal language and cultural barriers can result in genuine issues. Both organizations need to appreciate each other’s corporate and national societies and find common helpful approaches to create successful participation.

In India

India has a large number of post-graduates, PhDs and MBAs who are involved in KPO. The Indian National Association of Software and Service Companies (NASSCOM) estimated the total market size of the KPO sector in India in 2006 to be $1.5 billion. The year before, 2005, it had been $1.3 billion, with Evalueserve predicting that by 2010 it would be some $10 to $15 billion. The Indian government was predicting that by 2010 India would have 15% of the global KPO market. However, the global financial crisis, coupled with domestic economic problems such as the IPO of Reliance Power in 2009, caused people to re-evaluate these predictions, incurring worries that India’s IT, BPO, and KPO sectors which by then, combined, were $8.4 billion in export revenues would be greatly affected by these factors. The worldwide KPO industry is expected to reach about US $17 billion by 2015, of which US $12 billion would be outsourced to India. Furthermore, the Indian KPO area is likewise anticipated that it will utilize more than 2, 50,000 KPO experts by 2015.

Opportunity

• Cost-effective: KPO’s ensures savings in operational cost.
• Qualified human resource: To maintain quality in the activities, companies require a qualified and competent human resource, which is possible through KPO.
• Focus on core business activities: When a company outsources is peripheral or secondary services/activities, it can focus on the primary business functions and vendor organization looks after the KPO requirements.
• Service quality: KPO providers often use the state-of-the-art technology, software and infrastructure. And in this way, they maintain quality in services.
• Increase in Profits: Due to the reduction in the operational cost, it results in an increase in the overall profits.

Scope of Knowledge Process Outsourcing (KPO)

KPO is the advanced version of BPO. The outsourcing of the knowledge-based work by different companies is due to the excellent results given by KPO’s. It helps the companies in getting access to the skilled and talented pool of workforce. There are a wide variety of sectors which fall under KPO umbrella.

• Legal Services
• Engineering Services
• Life Sciences
• Web Development
• Health care Research
• Data Analytics
• Project Management
• Data Science
• Remote education

It offers services such as valuation and investment research, patent filing, R&D in pharmaceuticals, data mining, clinical research, legal and insurance claim processing, industry reports, financial modelling, competitive intelligence and so forth.

Traditional Outsourcing            

Many current laws are based on models and assumptions of traditional outsourcing, as follows:

• A data controller, who has been processing data inhouse, decides to outsource some of its data processing for example, payroll processing.
• It narrows the field down to several possible data processors and, after discussions with and evaluation of the contenders, chooses and hires a processor, with whom it enters into a data processing contract. The contract contains instructions tailored to that specific processing and other contractual provisions on how the processor must process the data.
• The processor may choose to engage or commission sub-contractors, ie sub-processors, to help it perform the processing tasks entrusted to it by the controller. For that purpose, it enters into contracts with its sub-processors.
• The processor (and/or any sub-processor) has full access to the relevant data, and actively processes the data for the controller, in accordance with the controller’s instructions and contracts.

To use a food analogy, current laws assume that you either cook food yourself (process data inhouse), or hire caterers, who may then engage sub-caterers (hire processors who may use sub-processors).

Cloud computing

Cloud computing is nothing more then the ability to do computing between different machines and different locations and combine the data from one application with another. The definition PetiteCloud uses is virtual machines plus API’s. Namely using virtualization to increase the effective number of computers within an organization control (either local or in “the cloud” [aka the public cloud like AWS]). For example, our inhouse cloud consists of 3 local machines (12 instances total) and our presence in the public cloud is 3 instances on RootBSD.

The cloud was designed from the ground up to harness the Internet, virtualization, and automation to streamline IT operations. Most cloud options are self-service, so that IT administrators can easily scale resources up and down with the simple click of a button. The cloud also employs systems management and automation tools to ensure that resources are being used to their full capacity and that resources are available in case demand increases.

Lower costs

One of the main reason’s organizations outsource is cost reduction. Instead of buying IT equipment and hiring more employees to do different tasks, they can outsource the tasks to a service provider, reducing or even eliminating overhead costs.

Flexibility

Outsourcing non-core activities to a BPO allows a company to be far more flexible. Firstly, the company does not have to invest in additionally fixed assets and can convert them to variable costs. It also increases flexibility in resource management of the client company and helps in adapting to changes in the environment much faster.

Optimum utilisation of the resources:

BPO enables optimum utilisation of resources of scarce resources. Outsourcing helps to capture new efficiencies and reallocate the resources. This increases the efficiency and productivity. Availability of skilled employees and adoption of sophisticated technologies leads to utilisation of resources and productivity.

Cost Effective

Outsourcing some of the business processes and activities can be very cost effective for the client company. They save on investing in fixed assets and fixed costs. And they can redirect these funds for their core activities.

Also outsourcing to developing countries proves to be very cost saving for these companies. For example, if any large MNC was to outsource their IT services to India, they would save an average of 30% of the company’s expenses. This is quite a significant difference.

Improved Human Resource:

Improved HR is another great advantage of outsourcing business processes. Cost effective manpower is yet another important factor of importance in BPO. Companies today, require productive and efficient human resource that can generate economies of scale. Due to outsourcing business can save Human resource cost, depending on their priorities. Outsourcing gives a company the ability to get access to skilled and trained man power at extremely low rates.

Speed

One of the biggest advantages of BPOs is that they increase the speed of the business processes outsourced to them. They have a very good response time and the clients can focus on the core activities. This fragmentation of activities speeds up the whole process and is very important in cases like customer service.

Focus on core business areas:

Efficient business strategy is essential to take the business to the top. Outsourcing enables the top management level to hand over critical but non-core activities of the business to the third party. This facilitates top management level to concentrate on the core activities.

Skilled Manpower

When you outsource one of your business activities to a BPO, you are insured of exemplary services provided by skilled manpower. So if you outsource your supply chain management, rest assured your supply chain will be handled by skilled supply chain managers who are experts in their field. Same goes for IT services or accounting etc.

Cater to changing customer demands:

It is another great advantage of outsourcing the business processes. Many BPOs provide the management with flexible services to meet the customers’ changing requirements, and to support company acquisitions, consolidations, and joint ventures.

Global expansion

If an organization decides to enter an overseas market, some activities that require local market knowledge, national law expertise, or fluency in a foreign language can be assigned to a BPO company. It helps in boosting efficiency and quicker expansion.

Over the years, different models have been used for conducting business in BPO. The regular outsourcing models of on-shoring, near-shoring and offshoring are seen in BPO as well. TPI, a sourcing advisory, has observed that in addition to on-shoring, near-shoring and offshoring, BPO operations are also conducted through the following three business models:

• Transactional BPO: Transactional BPO handles one aspect of a process only. The customer has to carry out a significant part of the process in-house and hence the customer owns the risk of the process. Also, outsourcing many aspects of the process in a transactional mode leads to complex fragmentation which can pose as a threat to productive delivery.
• Niche BPO: A niche BPO carries out 3-4 aspects of a process. A niche BPO, which also makes certain investments in the customer’s process, aims at improving the efficiency of the process. The vendor in a niche BPO works in close coordination with the buyer, sometimes seeking the services of the customer’s employees. Both the vendor and the buyer share the risk of the process.
• Comprehensive BPO: A comprehensive BPO handles both transactional and administrative tasks in a process and takes 70 percent responsibility of the output. The vendor purchases the buyer’s assets and also hires most of its employees. Comprehensive BPO has bulk deals lasting for 7-10 years.

• Robotic Process Automation (RPA):

The robotics process automation (RPA) is the new technology which is emerged in the last few years. It will completely change the business process outsourcing industry. BPO service providers are adopting many customize software & cloud-based tools which aid to the automation. RPA is very efficient. It will help the company save cost but will lead to job losses in the business process outsourcing industry.

• Focus on Communications Tools:

Previously every business process outsourcing company was highly dependent on website & IVR systems for the customer management. But in the 20th century, everyone is on social media & there are also different communications tools like Live chat, Whatsapp, Skype, and others. These tools are changing the customer management & also helping to reach the level of customer delight. Many BPO companies are investing in Live agent services. These customer representatives are able to deal with the customer grievances in real time.

• IT role in BPO services:

IT has influenced each & every industry. The business process outsourcing industry is not an exception. Many BPO companies are using custom software, portal, business analytics software, process automation software and many more. It helps companies reduce cost & turnaround time for business. It directly helps increase business efficiency.

• New startups:

Every year millions of startups are getting started globally. They are under pressure to succeed with very few resources that’s why they outsource their IT infrastructure, networking, cloud database, software development, etc. It helps them focus on core business operations. But it is observed that most the BPO companies ignore this kind work as the requirement of such players is very small. They prefer to focus on Medium & large organizations.

1. Traditional IT services/IT Outsourcing companies:

 These are big companies that already have a good track record of services in traditional IT areas. They have started offering BPO services to leverage their expertise and the client relationships that are already in existence. In India, large IT services companies like Infosys, WIPRO, Tata Consultancy, Satyam etc. have started offering BPO services either directly or through their subsidiaries.

2. Consulting firms:

Consulting firms have the distinct advantage of working with several companies and are hence exposed to the best practices followed worldwide. Their domain knowledge gives them tremendous competitive advantage as also the CEO level relationships that they have built over the years. Hewitt, Accenture and Ernst & Young are some of the consulting firms in this category.

3. Pure play BPO vendors:

These companies have been set up exclusively for undertaking BPO contracts. Such companies have mushroomed in the past couple of years, especially relatively lower and Transaction BPO providers and Niche providers. This growth is especially in the areas of transcription, call centres, e-accounts etc.

Criteria for selecting an outsourcing vendor

In an outsourcing deal, buyers want to achieve superior quality service at lower cost and minimum involvement. On the other hand, outsourcing the work to an external agency exposes the customer to risks of the work being delivered poorly. In such a scenario, selection of a vendor for outsourcing is a difficult task, which becomes even more complex while selecting an offshore vendor. Customers generally follow the criteria mentioned below for selecting an outsourcing supplier:

1. Cost savings.

 The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost re-structuring. Access to lower cost economies through offshoring called “labor arbitrage” generated by the wage gap between industrialized and developing nations.

2. Focus on Core Business.

Resources (for example investment, people, infrastructure) are focused on developing the core business. For example, often organizations outsource their IT support to specialised IT services companies.

3. Cost restructuring.

Operating leverage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.

4. Improve quality.

Achieve a step change in quality through contracting out the service with a new service level agreement.

5. Knowledge

Access to intellectual property and wider experience and knowledge.

6. Contract

Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.

7. Operational expertise

Access to operational best practice that would be too difficult or time consuming to develop in-house.

8. Access to talent

Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering.

9. Capacity management

An improved method of capacity management of services and technology where the risk in providing the excess capacity is borne by the supplier.

10. Catalyst for change

An organization can use an outsourcing agreement as a catalyst for major step change that cannot be achieved alone. The outsourcer becomes a Change agent in the process.

11. Enhance capacity for innovation

Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation.

12. Reduce time to market

The acceleration of the development or production of a product through the additional capability brought by the supplier.

13. Commodification

The trend of standardizing business processes, IT Services, and application services which enable to buy at the right price, allows businesses access to services which were only available to large corporations.

14. Risk management

An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.

15. Venture Capital

Some countries match government funds venture capital with private venture capital for startups that start businesses in their country.

16. Tax Benefit

Countries offer tax incentives to move manufacturing operations to counter high corporate taxes within another country.

Challenges for the BPO Vendor

All the different kinds of BPO vendors described above face various challenges:

Long-term contracts:

BPO contracts (as against IT services outsourcing contracts) are long-term which requires vendors to invest up-front in technology, people and infrastructure. Most BPO rampups require customized solutions to back the re-engineered processes.

People and HR issues:

Attrition, poaching of experienced people by competitors, leave of absence, stress, long training periods and the big investments associated with training are some of the serious people or HR related challenges that BPO vendors face day in day out.

Fast scaling-up needs:

A BPO vendor should be able to grow with the client. Large BPO contracts are usually bagged only by big BPO vendors as the client has the confidence in their ability to deliver and manage the critical, yet non-core, process across different geographical areas, time zones, languages and situations.

Quality turnaround time requirement:

Clients are usually extremely stringent about quality standards of the services provided by the BPO vendors and the time they take for the same.

Industry expertise:

Though the client outsources one of the several processes it performs, successful BPO vendors are expected to understand it in the light of the others that the company performs and have not been outsourced. This is essential to help the BPO vendor understand the exact requirements in the larger scheme of things. This will have a positive impact on quality and delivery time.

Long gestation period for ROI:

Large capital investments generate returns over a long term. Initially, the vendor needs to create the infrastructure to manage complex processes, invest in technology, systems and people and achieve critical mass to scale up and down with the client’s requirements. However, the initial period can be long and stretch up to two years in some cases. BPO vendors need to have patience and financial backing to carry it through such times.

Business process outsourcing (BPO) is a type of outsourcing wherein a third-party service provider is employed to carry out one or more business functions in a company. The third party is responsible for carrying out all operations related to the business function.

Business process outsourcing (BPO) is the practice of contracting a specific work process or processes to an external service provider. The services can include payroll, accounting, telemarketing, data recording, social media marketing, customer support, and more. BPO usually fills supplementary as opposed to core business functions, with services that could be either technical or nontechnical.

From fledgling startups to massive Fortune 500 companies, businesses of all sizes outsource processes, and the demand continues to grow, as new and innovative services are introduced and businesses seek advantages to get ahead of the competition. BPO can be an alternative to labor migration, allowing the labor force to remain in their home country while contributing their skills abroad.

BPO is often divided into two main types of services: back office and front office. Back-office services include internal business processes, such as billing or purchasing. Front-office services pertain to the contracting company’s customers, such as marketing and tech support. BPOs can combine these services so that they work together, not independently.

The BPO industry is divided into three categories, based on the location of the vendor. A business can achieve total process optimization by combining the three categories:

• Offshore vendors are located outside of the company’s own country. For example, a U.S. company may use an offshore BPO vendor in the Philippines.
• Nearshore vendors are located in countries that neighbor the contracting company’s country. For example, in the United States, a BPO in Mexico is considered a nearshore vendor.
• Onshore vendors operate within the same country as the contractor, although they may be located in a different city or state. For example, a company in Seattle, Washington, could use an onshore outsourcing vendor located in Seattle, Washington, or in Huntsville, Alabama.

Organizations contract with BPO vendors for two main areas:

• Back office operations: They include payment processing, information technology services, quality assurance, etc.
• Front office operations: They include marketing, sales, customer relations, and grievance redressal.

Reasons of BPO

Some people believe that businesses are only after the tax break associated with outsourcing jobs, or “shipping jobs overseas” as some political ads claim. According to PolitiFact, this is a flawed notion. PolitiFact concedes that there are tax breaks for a company when it relocates, whether out of country or to a different state, but there is no specific tax break or loophole in the U.S. tax code related to outsourcing.

What is relevant to this argument, however, is that the U.S. corporate income tax is one of the highest in the developed world (39.1 percent). Therefore, U.S. companies benefit from outsourcing operations to countries with a lower income tax because businesses pay the rate of their host country. In addition, businesses cite many other reasons to engage in outsourcing:

• To decrease costs: Outsourcing cuts down on costs for in-house labor, particularly for staffing and training, and for the work space to accommodate local employees. An outsourcing company physically located in a developing country leverages lower-cost labor markets. Finally, outsourcing enables businesses to use variable-cost models, like fee-for-service plans, instead of fixed-cost models that are required when retaining local employees.
• To concentrate on key functions: Outsourcing allows businesses to hone in on their main offerings instead of company functions that aren’t directly tied to their core processes. For example, when outsourcing, the company won’t have to monitor the payroll accountant’s performance. Rather, it can focus its energies on highlighting its business differentiators and maximizing overall growth. In turn, these actions can boost a company’s competitive advantage and enhance its interactions with the value chain. Ultimately, the company can enjoy improved customer satisfaction and increased profits.
• To achieve better results in noncore functions: Outsourcing companies specialize in what are considered noncore functions of other businesses, delivering world-class capabilities for its clients. In fact, an outsourcing company that invests in specialized processes and technologies can deliver cutting-edge breakthroughs to its clients. For example, a gaming design company may not want to pay for the latest payroll program on the market, but an outsourcing business that offers payroll services would likely make that investment to benefit its own performance, as well as that of its clients.
• To expand their global presence: Some outsourcing companies can serve customers in multiple languages, around the clock, thus relieving the local company of the responsibility. Outsourcing companies can leverage their presence in multiple countries and keep the local company’s redundant divisions to a minimum. For example, WNS Global has 37 “delivery centers” across the world and specializes in business process management.
• To enable flexibility: Companies that outsource their noncritical functions can act more quickly and more efficiently when managing the risks associated with introducing new products or services. They can also reassign their internal resources to more critical functions to help ensure better coverage and allocate responsibility.
• To improve speed and efficiency: Companies that outsource processes are opting to let specialists handle those tasks, thus saving time, improving accuracy, and increasing their capacity. For example, a BPO that specializes in records management can automatically index documents, making them available for retrieval and keeping a company in compliance with legal requirements. This replaces manual data entry and storage.

Business process outsourcing (BPO) and information technology outsourcing (ITO) both represent ways that a business can reach beyond its own capabilities and introduce another provider for support. Each of these providers have unique roles, but there is some overlap as well. Essentially, a company turns to ITO and BPO providers to create more efficient work flows. An ITO provider should create cost savings tied to computer networks and other information technology systems, while a BPO provider’s services should lead to greater operational efficiencies in most all areas of a business.

A business may turn to hire both ITO and BPO providers. The scope of services offered by both of these providers is different, and one does not eliminate the need for the other. Also, on average, there is no rivalry between the types of services offered by BPO and ITO providers.

Unless financial savings are uncovered relating to technology systems and procedures, an ITO provider has not made a difference. Once a BPO provider has been hired, improvements in business processes that may lead to greater financial results at a business must be realized in order for that service to be deemed a success. The efficiencies attained through a BPO provider could be tied to human resources, finance, or really any operational area of an organization that is part of a company’s core business.

Although ITO and BPO services are designed to complement one another, it may make sense for an organization to adopt one before the other. Introducing an ITO provider first can lead to the quickest financial savings, which is a good place to begin. An ITO provider does not need to remain engaged over the long term, as after potential cost savings are identified, those changes can be appropriated by the business. Once any cost savings are realized, the conditions may be ripe for a BPO provider to enter the scenario and create greater operational efficiencies throughout the organization.

Other differentiating factors between ITO and BPO firms include the expertise behind each provider. ITO professionals are skilled to recognize the types of technology capabilities that are needed at an organization, ranging from storage to support to wireless services. Providers should be able to negotiate costs and terms or streamline services based on the knowledge that these industry professionals possess. BPO providers perform specific tasks on behalf of an organization, such as customer service, accounting, or personnel management.