|
"When Knowledge Comes, Wisdom Lingers Outside"
KPO is about outsourcing depth driven core processes to third party. This can benefit the company as a value addition tool wherein they would receive input from knowledge workers having global perspective and experience. Risk involved is higher in outsourcing such requirements as any screw ups in the resultant service by the vendor will have long term and detrimental impact on the organization.
India inherently has the inclination towards a knowledge-based economy. Knowledge is power which Indians are proving to the world at large sitting right in their homeland. A more proper acronym to describe this would be Knowledge Process Outsourcing (KPO).
Genesis of KPO
Michael Porter’s competitive advantage model propagated that nations should specialize in those areas where it has key resources and strengths whereas outsource, other requirements to other nations having competitive advantage in the same. This was practiced to achieve manufacturing efficiencies and economies of scale. In theory for this to work the factors of production should be freely movable. However labor is not easily moveable. This restriction of labor can be advantage to nations having high-level knowledge work force.
The western country has an aging population whereas the median age in India is 24 years. Business Process Outsourcing (BPO) to India has started due to this very fact. Although there was hue and cry in western nations about jobs being lost to India, the experts from the US had argued that it was only low-skilled jobs that have been outsourced and top positions are still being held by their own citizens.
Before the dust could settle, there came the next wave of outsourcing-Knowledge Process Outsourcing (KPO). Companies realized the untapped knowledge base that India had to offer. The existing BPOs started moving up the knowledge graph and provide not only data base management but also knowledge based applied services.
The companies have now developed advanced analytical software tools for designing and taking major managerial decisions. It requires knowledge of competition, regulation and market conditions. KPO refers to knowledge intensive work involving specific domain expertise. Indian companies have seen the opportunity and grabbed it to move up the value chain process in previously unexplored areas like research, investment, finance, legal services, patent filing, insurance investigations etc.
How does KPO work?
Taking an example of KPO marketing firm in Pharmaceutical Industry, the company can develop analytical tools for designing assignments based on knowledge of market regulations, environment, competitors and market conditions. The customer can now focus their sales force only to those segments relevant to the overall revenue growth of the organization while reducing operational cost of having sales force visit each and every doctor. In India although the KPO is at its infant stage, the future looks bright. Already top companies are heading towards KPO industry in India. Examples include Jack Welch Research Centre in Bangalore, the IBM Research labs in IIT, New Delhi and Mckinsey Knowledge Center servicing the research needs of its consultants around the globe. The British bank HSBC has back office in China and India. French companies have call centers in Mauritius.
Scope and importance
KPO market is estimated to grow at a cumulative annual growth rate of 46% from $1.2 to $17 bn in 2010. In terms of numbers, BPO business is more attractive. It has been predicted that the low-end outsourcing service market, (BPO) is to grow at CAGR of 26% from $7.7 bn to $39.8 bn by 2010. India provided $3.5 bn of BPO and KPO (non-IT) services in 2003 and is expected to grow at 36% CAGR during 2004-2010. Thus the scope of high-end KPO opportunities for Indian companies is enormous. All major integrated design manufacturers like Motorola, Intel, Analog devices have set up offshore centers. The compensation for chip designers in the US is $7000 per month compared to $1200 per month in India. Obviously the cost savings are luring the companies.
The scope of offshoring depends on the degree of flexibility, grasping of processes and level of competiveness of human resources to provide quality services at cost advantage. The Indian KPO sector is expected to employ more than 2, 50,000 professionals by 2010.
Apart from India, Russia, China, the Czech Republic, Ireland and Israel are also expected to emerge as the competitive destinations for the KPO industry. Geographical advantage will help China in getting more business from Japan and Korea. It will also have the advantage in terms of language and cultural similarities. Close proximity to Europe shall help Russia and it being the destination for number of medical professionals and engineers shall add to the competitiveness.
BPO vs. KPO
KPO is seen as an extension of BPO. In mere sense it is not true. KPO industry unlike BPO provides domain based processes and business expertise. KPO is more like a challenge as it demands advanced and expert skills on part of its employees. BPO on the other hand is more or less like a commodity business which stretches more on information technology and its various sectors.
BPO and KPO services differ on many fundamental grounds. KPO represents high-end consulting whereas BPO is low-skilled outsourcing.
The HRM tools like recruitment retention and motivation methods will differ. Age profile of the organization in KPO will be different from BPO. The organizational environment of KPO will differ as unlike the BPO worker, the knowledge worker would aspire for leadership, independence, professional challenges and ownership. The concerns of automated control in BPO might not be shared by KPO as KPO organization would be concerned with motivating the professional workers. Organization would have to appreciate the competencies and find ways to retain such knowledge pools.
KPO industry will be more complex to define than BPO industry. The existing BPO companies will have an advantage to move up the value chain and diversify in specific domain for KPO. The companies which have already started operating in specific industry domain or marketing domestically may grow and provide their services globally. Or a specialized professional can be hired by the global companies to attain the benefit of global cultural intelligence. Therefore, it would be difficult to define KPO industry as compared to BPO industry.
Economic impact
As increasing companies decide to offshore the number of professionals in this industry will step-up. The commoditization of BPO services, with margins being lower in low end work will make moving to higher end of value chain more attractive. There would be increase in high skilled professionals and the compensation would be obviously more than low end work leading to growth of the country.
But there can be an argument for the economic welfare of the US from this offshoring business. During the boom of the 1990s, there was import of professionals from around the world to the US. Now, by sending routine tasks back to the nations with surplus educated workforce, the US can redeploy the resources and capital for R&D and high-skilled tasks. Globalization of services should balance the economies as it does in the case of manufacturing.
Conclusion
KPO is offshoring the core processes to various foreign destinations. This ultimately benefits the companies as it will have value added by high skilled knowledge working having global perspective and multi-cultural judgment and views. But risk involved in offshoring the core processes is much higher. The quality of services should not suffer. The competency or the judgment of the knowledge worker would become crucial for protecting the offshoring organizations’ goodwill, market share and image. The critical areas of infrastructure, manpower and intellectual resources of service provider’s country are highly important.
KPO Industry has vast potentials which India can capitalize as it has cost advantage in terms of low cost high skilled employees available in abundance. This competitive edge will help Indian vendors move up the knowledge continuum and shift from BPO to KPO. But care has to be taken that this does not prove too expensive. Indian salaries have gone up by 14% in 2007 and if they continue to increase at same growth rate, it will increase by 2.5 times by 2010 reducing the cost arbitrage benefit. This scenario may make India too costly and there might be shift to other attractive offshore destinations.
|
Home / Refer Resources / Industry Articles / Knowledge Process Outsourcing- Moving up the knowledge continuum
