"KPO represents the next stage in the evolution of the outsourcing market," says Ed Thomas, analyst, business process outsourcing, 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."
The origins of the KPO industry can be traced back to the late 1990s, but it was not until 2003 that the market really began to gain traction. At that time, KPO was the subject of a large amount of hype, which led many within the industry to make bold claims about how fast it would grow. According to the report, the intensity of this hype has gradually died away and, since 2006, a more mature KPO market has begun to emerge, with a significant amount of consolidation taking place and a growing awareness, among both vendors and clients, of the full extent of what could be achieved through KPO services.
Throughout the evolution of the KPO market, one feature that has remained constant is the leveraging of offshore delivery models. "India has been the focal point for the KPO industry since its inception. Increasingly, however, KPO vendors are adopting a multi-shoring approach to service delivery," added Thomas.
Unlike the established horizontal BPO areas, such as finance and accounting outsourcing and human resources outsourcing, which focus on non-core aspects of the client's business, KPO involves the outsourcing of core business functions, says the report. Clients are often reluctant to relinquish control over areas such as planning, auditing, analysis and research and development to third-party vendors, with quality and security being the major areas of concern.
Vendors can take steps to alleviate customer 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.
Thomas notes that KPO enables clients to tap into large pools of talent and leverage skills in niche areas, which otherwise would not be open to them. "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."
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.
Despite recent consolidation, scale is of lesser importance in KPO than BPO. "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," added Thomas. Niche providers are therefore capable of competing with, and even outperforming, the giants of the outsourcing industry. |
