Business Process Outsourcing (BPO), a form of outsourcing that involves the contracting of the operations and responsibilities of a specific business process to a third-party service provider, has traditionally been used to create a leaner organisation without compromising on service quality.
It enables organisations to benefit from lower cost labour in developing countries such as India or China.
In the early days, BPO mostly consisted of outsourcing processes such as payroll, before growing to include employee benefits management and customer contact centres.
These days, BPO encompasses a number of functions key to the customer’s business strategy. This is a sure sign of IT-BPO services providers and pure-play BPOs gaining in terms of customer confidence.
In light of the increased scope of BPO, Gartner research recently predicted that BPO would reach $55.9 billion in outsourced operations by 2012 (Gartner on Outsourcing, 2008-2009).
However, following the news that some UK organisations are encountering issues with offshoring – such as customer service agents with poor language skills and lack of expertise – these low-value BPO contracts have run into some severe and well-publicised problems.
In the wake of these recent concerns, many organisations are now considering partnering with globally renowned BPOs to leverage a better skill-set to deliver business processes that are much more core to their strategy.
KPO – the next wave
Knowledge Process Outsourcing (KPO), a form of outsourcing in which knowledge-related and information-related work carried out by employees in a different company or by a subsidiary of the same organisation.
It offers higher-value processes that takes advantage of the wider availability of highly qualified talent in developing countries. Analyst firm IDC recently estimated that the KPO market would reach $15-20 billion by the year 2010 (IDC Outsourcing forum 2009).
An example of KPO would be when an insurance company that outsources the data entry of its claims forms (as part of a BPO initiative), also chooses to use a KPO service to evaluate new insurance applications based on a set of criteria or business rules. This work would then require the efforts of a more highly skilled set of workers than BPO.
KPO has several dimensions – market research (consumer behavior, segmentation, market sizing, competitive intelligence), financial research (equity research, business planning, valuation models, portfolio analysis) and business analytics (risk analysis, data cleansing and modeling, credit score carding, consumer loyalty, consumer satisfaction studies).
Clearly, this involves a vastly different set of activities from BPO, and can easily be called the next step in the evolution of process outsourcing.
The basic idea is that, by harnessing new knowledge and skill-sets that were not previously affordable or available, organisations can offer new services or capabilities that, in the past, could not be considered feasible, therefore achieving a different outcome from a pure BPO approach.
The recent shift to the KPO approach also has benefits for providers - involvement in these areas of a client’s business brings greater understanding of their business issues and the opportunity to serve clients better.
For outsourcing vendors who also offer IT services, there are opportunities to bundle together different services and offer complete packages to their clients, taking increased accountability for delivering business outcomes.