Conversion from BPO to KPO

[sams.raghu]

Conversion from BPO to KPO

While outsourcing is present in numerous business functions, including manufacturing, legal, financial and human resources, it is the term BPO (Business Process Outsourcing) that is largely in the news on a daily basis. India's capabilities in this area have been moving towards enhancing the nature of the work done. From mere data entry kind of work, the focus has shifted to transaction processing. Now, there is a nascent move towards knowledge process outsourcing (KPO).

Unlike in BPO where the focus is on executing standardized routine processes, KPO involves processes that demand advanced information search, analytical, interpretation and technical skills as well as some judgment and decision making. Examples of KPO functions are intellectual property or patent research, R&D in pharmaceuticals and biotechnology, data mining, database creation, and a range of analytical services such as equity research, competitive intelligence, industry reports and financial modeling. Many of these activities lend themselves to remote execution from anywhere.

Typical users of KPO services include market research and consulting firms, investment banks and financial services institutions, industry associations, media, publishing and database firms, and corporate planning departments of large Fortune 500 companies. Several global players such as McKinsey, Goldman Sachs, Reuters, IMS Health, Harris Interactive, Ipsos, Maritz, AC Nielsen, TN0S and the WPP group are already using India as a remote base.

The KPO Value Chain

Typically, the extent of off shoring is a function of the degree of e-enablement possible and the quality of the human capital required. Some activities such as paralegal and medical transcription require low quality human capital as compared to activities such as data mining and analysis, engineering design and e-learning. The latter are also highly amenable to IT enablement. Other services such as legal consulting, intellectual property research and strategic consulting require the highest level of human capital and are the least amenable to IT enablement.

A veritable gold mine

Companies in the KPO space thus need to make the transition from offering services that require low human capital quality and low IT enablement to those that require a high degree of human capital and IT enablement. The National Association of Software and Service Companies (NASSCOM) projects that the total global offshoring market opportunity by 2008 will touch $141 billion. Of this, data search, integration and management will account for $18 billion. Medical, legal content and associated services represent an opportunity of $2 billion. However, Scope e-Knowledge Center estimates that only 45-50 per cent (about $65-70 billion) of the total off-shoring opportunity is likely to be realized even by 2010. According to Scope, the global offshore BPO (non-IT) revenue in fiscal 2003 was close to $9 billion and this is expected to grow by about 35 per cent a year through 2008.

An obvious advantage of BPO is the immediate cost savings (over 30 per cent) and yet a steadfast focus on high quality standards. This also allows the in-house team (of the overseas client) to focus their expertise on more value-added work while delegating the lower-end work to more cost-effective resources. For India, it is a new job creator. It is estimated that the total number of jobs created so far as a result of outsourcing, primarily call centre operations, is about 180,000. Of these, the U.S. and the U.K. together have a share of over 86 per cent. By 2010, the share of non-call centre outsourcing is placed at 50 per cent of the total number of jobs created. One estimate places the KPO jobs alone at over a quarter of a million by then.

At the same time, companies abroad are skeptical about outsourcing high-end services for varied reasons such as data security, quality and professionalism in a remote location, political and regulatory climate.

Collaborative approach

Clearly, this is an evolutionary process and certain roadblocks that exist need to be taken care of. Companies need to adopt a collaborative approach to tackle such issues. For instance, Scope has addressed these issues by adopting a relationship-based model. In this model, concerns on quality and timeliness have been addressed by Scope through a process of pilots and phased transfer of work. Technology — hardware and software — is world class. International certifications such as ISO and BS7799 also help. Likewise, Service Level Agreements that are mutually fair have been put in place.

What helps the India case is the ready access to a large intellectual pool with expertise in areas such as research and analysis, not to mention reasonable English language skills (that need honing) and strong domain expertise.

But finally, it is the management that plays a vital role in enabling the smooth operationalisation of such remote knowledge partnerships.

There is tremendous potential in the KPO space. Only companies that have a strong pedigree, domain expertise, clear focus on the high-end space, a proactive solution orientation and a collaborative mindset will emerge as the winners.