Knowledge Process Outsourcing: Overview

Knowledge process outsourcing (KPO) involves entrusting an external party with an organization’s core activities, particularly those related to information and intellectual value. Unlike business process outsourcing (BPO), which focuses on repetitive tasks, KPO deals with analytical thinking and deep domain expertise. These knowledge processes are crucial for a company’s competitive advantage and vary based on industry and business focus.

In today’s rapidly evolving technological landscape and globalized market, companies face the challenge of maximizing productivity and cost efficiency. KPO serves as a strategy to transform outsourced processes into analytical and technical activities, enabling companies to achieve greater savings.

Although KPO is a relatively new sector compared to the mature BPO industry, it is less geographically diverse. The top destinations for KPO excel in areas such as talent availability, cost savings, infrastructure, and political stability. As market demand and macroeconomic factors drive growth, more attractive KPO destinations are emerging. China and Russia, for instance, can match India’s production rate of highly educated and skilled knowledge workers, while destinations like the Philippines and Latin America offer cost advantages and a rapidly expanding talent pool.

Knowledge Process Outsourcing & Business Process Outsourcing

KPO is characterized by small-scale and niche offerings from service providers who employ highly-skilled professionals. KPO allows companies to unlock their top-line growth by outsourcing core functions to a low-cost but talented labor pool. KPO is a higher-value outsourcing setup. BPO provides process expertise, while KPO provides business expertise. The hallmarks of KPO activities are complexity and customization.

In BPO, processes and methodologies are clearly-defined, the steps are standardized, and the outcome is predictable. Typical BPO activities include data entry, low-level customer support, invoice processing, rudimentary programming, and IT maintenance. On the other hand, knowledge processes do not follow rigid rules or steps, and the outcome depends on higher-level analysis, independent judgment, understanding, experience, and qualification. A knowledge activity is often highly complex and less defined than a non-core business process. These complex activities are typically hard to automate, and they require technical, analytical, and judgment skills.

KPO may be further classified into role-based and analysis-based models. Role-based activities are what skilled trade professionals, such as lawyers or programmers, perform regularly. Examples are physicians making a diagnosis, developers designing and testing a program, and engineers maintaining operations manuals. Meanwhile, analysis-based KPO tasks are case dependent, complex and dynamic. At the enterprise level, these activities include market strategy, investment research, competitive analysis, and roadmaps. Analysis-based KPO involves strategic or high-level corporate decisions that are best carried out by knowledge workers with strong critical-thinking capabilities.

The KPO industry requires very specific skills that focus on educational and other qualifications. For example, legal services require knowledge of U.S. or U.K. laws and legal applications, market research and analytics require statistical tools, database research and report writing, healthcare requires a medical or allied health degree and certification, and research and development requires a graduate or postgraduate degree. In addition, knowledge workers need basic skills in data and information processing, emotional intelligence, and good communication skills.

KPO as a Strategic Tool

Knowledge Process Outsourcing is a value-driven, strategic activity for many businesses. Instead of looking for the cheapest prices, managers are looking for the best value. A well-managed KPO campaign has a transformative effect on an organization. Like IT-BPO, KPO can open new opportunities and enable firms to respond quickly to changing market needs.

To gain maximum benefits from KPO, a strategic relationship between the organization and service provider is crucial. This can be long-term or short-term and differ in scale. Long-term partnerships have the advantage of providing best value that may be impossible to cover in an ad hoc or short-term project. Long-term KPO can provide a clearer assessment of the organization’s capabilities and a flexible way to build these capabilities.

According to the study Knowledge Process Outsourcing: India’s Emergence as a Global Leader published by the Asian Social Science Journal, both vendors and clients benefit from a strategic KPO model. KPO vendors reduce their client’s fixed and variable cost, and the service providers gain the company’s variable cost as revenue, split into gross profits (before taxes), employee costs, and overhead costs.

Beginnings and Evolution

Outsourcing in the information technology sector first began in the 1980’s, when companies started to work with entities outside the organization to develop systems and improve internal processes and services. The outsourcing industry and its segments have since evolved and expanded. Globalization and the need for innovation due to rapid technological changes have increased product, service, and outsourcing life cycles. The time was ripe for transformation, and a new form of outsourcing emerged. Like BPO, KPO has a great potential for growth and profits for businesses across industry verticals. Market research firms project a market size of about $374.3 Billion by 2030.

The growth of KPO in recent years has been partly due to technology and the need for specialized knowledge and expertise to manage and maintain technology-driven processes. In a globalized and knowledge-based economy, efficient production depends on the quality of information that organizations possess. Highly-skilled and well-educated professionals or knowledge workers are the keys to success in any business. Knowledge workers are highly-educated professionals whose work is the output of their skills.

The shortage of skilled labor and potential for more savings and added value have led businesses to outsource knowledge processes to countries like India, the Philippines, China, and Eastern Europe, locations that are also established BPO destinations. However, the usual reason for outsourcing knowledge processes goes beyond cost reduction. According to industry analysts, the strength of adopting a KPO strategy is the added value gained from outside experts, such as improved innovation and sustainable competitive advantage. An organization may outsource knowledge-intensive processes like market research, statistical and competitive analysis, and legal support to third parties that have specific experience and domain expertise in these areas.

To learn more about outsourcing, you can read our Top 8 Qualities of an Outsourcing Company in the Philippines article. We invite you to follow us on social media and to visit our website to learn more about our services.

About Us: Sourcefit is a widely recognized US-managed business process outsourcing company based in Manila, Philippines. We proudly serve over 100 clients with a workforce of more than 1,300 employees. Our global centers can serve multiple markets, and our staff is highly proficient in English, Spanish, French, and Portuguese. Whether you need a few or many employees, we can help you achieve your business goals and build high-quality offshore teams.

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Sourcefit’s commitment to excellence has been recognized through numerous industry awards and certifications.

We recently received the Fortress Cyber Security Award from the Business Intelligence Group. Sourcefit was also honored with the prestigious recognition of Best Outsourcing Solutions Provider in the Philippines during the 2023 Business Excellence Awards.

Other awards include: FT ranking of 500 high-growth Asia-Pacific, The Marketing Excellence Awards, Inquirer Growth ChampionHR Asia Awards, among others.

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