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April 30, 2009

Knowledge Process Outsourcing (KPO) Market Growing: Datamonitor

By Brendan B. Read, Senior Contributing Editor


Outsourcing is no longer limited to what organizations perceive as non-core functions such as business processes that include customer acquisition and care, billing/collections, and sales or business process outsourcing (BPO). Businesses especially appear to be increasingly interested in outsourcing key core tasks such as planning, auditing, and R&D, known as knowledge process outsourcing (KPO) for the same reasons. These are: lowered costs and increased flexibility and access to qualified professionals.
 
A new and pioneering report by Datamonitor, “Trends in Knowledge Process Outsourcing – Growth Opportunities in High-Level Processes” discusses the market, the main players active in the sector and analyzes how the recession will impact demand for KPO services. It also assesses how providers of KPO service providers can best position their offerings to take full advantage of the sector’s potential.
 
While KPO is not new--the industry can be traced back to the late 1990s—it gained traction in 2003 and then became overhyped. Since 2006, a more mature KPO market has begun to emerge, says the research firm, with a significant amount of consolidation taking place. There is also growing awareness, among both vendors and clients, of the full extent of what could be achieved through KPO services.
 
“KPO represents the next stage in the evolution of the outsourcing market,” says Ed Thomas, analyst for business process outsourcing (BPO) at Datamonitor and author of the report. “Unlike BPO, which refers to the transfer of mainly transactional, non-core processes to specialist providers, KPO involves the outsourcing of core business processes, for example planning and auditing, which require a high level of domain expertise.”
 
Thomas points out that, throughout the evolution of the KPO market, one feature that has remained constant is the leveraging of offshore delivery models. While India has been the focal point for the KPO industry since its inception, suppliers are adopting a multi-shoring approach.
 
Datamonitor has identified eight key locations that have emerged as viable options for service delivery, including China, the Philippines, Sri Lanka, Hungary, the Czech Republic, Canada, Mexico and Brazil. The report assesses the strengths and weaknesses of these geographies and looks at how they can form part of a vendor’s multi-shore delivery model.
 
There are issues that are braking but not stopping KPO demand. One of them is the reluctance of many potential clients to relinquish control to third-party vendors, with quality and security being the major areas of concern. The report says that suppliers can take steps to alleviate these worries, such as aligning themselves with established business standards that cover process quality or security capabilities, or by offering services on a short-term, single-project basis.
 
 “By improving efficiencies and freeing up resources within the client’s own organization, KPO can help to improve customers’ time-to-market, a business benefit which goes beyond simply delivering ‘your mess for less’ services in the style of transactional outsourcing, ” explains Thomas.
 
Despite recent trends towards consolidation, the KPO market remains extremely fragmented. When the hype around the industry was at its height during 2004/2005, new vendors claiming to provide KPO services would appear on an extremely regular basis. While many of them have not survived, a significant number did, and are still operating.
 
Yet unlike with BPO, scale is less important with KPO. Small niche firms can provide competitive services that can outperform that of the larger players.
 
 “Whereas BPO vendors typically harness economies of scale to deliver significant cost savings, the main selling point of KPO is its ability to deliver targeted, domain-specific knowledge, with scale playing less of a part in a vendor’s go-to-market proposition,” says Thomas. 
 

Brendan B. Read is TMCnet’s Senior Contributing Editor. To read more of Brendan’s articles, please visit his columnist page.

Edited by Stefania Viscusi


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