Beyond BPO: The move to knowledge process outsourcing

Business process outsourcing is changing. Increasing numbers of organisations are realising that sourcing global talent can unearth valuable new business opportunities.


Organisations have been outsourcing and offshoring business processes for many years now, to take advantage of the lower cost of labour in developing countries such as India or China.

Many of these Business Process Outsourcing (BPO) contracts have focused on large scale transaction processing, frequently in “non-core” processes such as Accounting or HR, or in areas of perceived lower value or complexity. Recently this trend has changed.

Low-value, ‘lift and drop’ contracts have run into some severe and well-publicised problems. In the UK, most of us have had or heard about a bad experience with an offshore customer service agent with inadequate language skills or a lack of knowledge.

On the other side of the fence, the offshore call centre agents themselves often face daunting overnight shifts (to field daytime calls from the other side of the world) and work offering limited professional challenge for skilled graduates.

In these circumstances it’s not surprising that offshore staff attrition can routinely be over 50% and sometimes over 100%, and that serious questions around customer satisfaction and operational stability have been raised.

As these problems have hindered the development of offshore call centres and even prompted some organisations to use their relocated, onshore call centres as a selling point, other factors have led BPO providers to offer more complex, knowledge-based services that sit far closer to the core business.

These higher-value processes, while still offering reduced cost, also take advantage of the wider availability of very qualified talent in developing countries, exploit the benefits of operating in different time zones and allow added flexibility for ad-hoc or short-term projects.

The issue of global talent is key - onshore availability of skilled graduates is very small compared with a country such as India, where it’s estimated that around 2.5million new graduates and 500,000 postgraduates enter the job market every year, and the price of offshore talent is far lower.

In fact, the wage differential between near and offshore skilled professionals with significant experience is greater than that of the graduates with lower levels of skill and experience traditionally hired into transaction processing operations. This means that knowledge-based BPO actually presents a better business case than low-value deals, albeit on a smaller scale.

Crucially, higher-value BPO arrangements give offshore workers a far greater degree of job satisfaction and potential for career progression - helping to address the high attrition rates and customer service issues associated with transactional and support processes. Tasks are typically analytical and require staff to be highly qualified, professional and mature.

With many organisations now operating on a global scale, using third-party talent sourced from worldwide locations also means that business can respond and serve customers regardless of the time zone they operate in. The flexibility of using a third-party BPO provider also allows organisations to easily and quickly scale operations up or down in line with seasonal or otherwise predictable peaks.

The cost savings offered by high-value BPO deals are important, but arguably of greater significance are the new results that were not available with onshore fulfilment.

Most human-capital-intensive business processes within corporations were designed and based on certain underlying assumptions about the supply, demand and price for talent in the geography where the process needs to be performed. When this underlying constraint is relaxed through global sourcing, the results can be dramatically different.

The basic idea is that by applying new knowledge, skill-sets or business savvy that were not previously affordable or available, organisations can enable new services or capabilities that, in the past, could not be considered feasible, therefore achieving a totally unexpected outcome.

For example, one of our customers in the healthcare insurance industry has been taking advantage of skilled Indian labour to improve the effectiveness and extent of its investigation of fraudulent claims. Previously, with onshore employees the company wouldn’t investigate any cases below $1000, as the costs involved would outweigh that of the potential fraud itself.

Taking advantage of the lower cost of labour has allowed the threshold to be brought down to $500, allowing more leads to be chased and reducing margin leakage.

This Knowledge Process Outsourcing approach also has benefits for providers - involvement in these areas of a client’s business brings greater understanding of business issues and the opportunity to serve clients better.

For those outsourcing vendors who also offer IT services, there are opportunities to bundle together different services and offer complete packages to their clients, taking increasing accountability for delivering business outcomes.

Cost remains a strong motivator in outsourcing decisions, but the ability to source global talent to deliver business processes brings new challenges and opportunities.

Organisations have to change their decision process to make the most of worldwide knowledge, and ask themselves not how much more cheaply and efficiently a particular process can be done, but why they are doing it in the first place and whether they could achieve a very different customer experience if they had access to skills, expertise and talent at price points which were not previously possible.

Martin Kochman, is European Head of BPO, at outsourcer Cognizant

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