Saturday, July 3, 2010 |
A look into the history of knowledge process outsourcing indicates that the first outsourcing activities focused on acquiring support for technology implementation. This involved offshoring application development to cheap labor countries such as India. Following this move were other processes mostly in ITO (Information Technology outsourcing), making offshoring a means for 24/7 support. During the late 80’s to early 90’s, offshoring companies began to realize that this not only yielded significant cost savings, but also helped to mitigate risks, avoid capital outlays, and expand skill sets.
What naturally followed was the application of offshoring and its benefits to other areas besides IT. From IT, business processes were outsourced, now known as BPO (business process outsourcing). This initially involved tasks such as accounts payable or customer care. This later developed to include more knowledge-intensive processes such as treasury or industry-specific such as underwriting support for life insurance companies. Companies engaged in offshoring realized that utilizing third party services was a good strategy for cost, quality, and flexibility.
Outsourcing is now adopted as a business model for even the largest companies. Firms can now look to offshoring to not only deliver cost savings, but as having the potential to even handle processes that were once considered “core” to the company. Today’s providers are not only equipped to provide complex problem-solving skill sets, but can offer the necessary privacy, security and IP standards to effectively and safely handle sensitive data.
These developments have laid a foundation for the strategic partnership that can be created in what is known as KPO (knowledge process outsourcing). The size of the industry is estimated to range from $10 to $17 billion this year. The KPO market is expected to grow 50% to 70% annually. This is a stark comparison to the traditional BPO industry which has shown compounded annual growth rates of 34% over the last five years with a 24% growth rate expected for the next five years.
KPO service providers today are fully capable of supporting offshoring clients in the process of becoming complete knowledge competitors. They would, in the past, only provide horizontal services such as research and analytics (and at a discrete level). Today, KPO service providers offer highly publicized, comprehensive, domain-targeted knowledge services in a wide range of industries. These are services that cannot easily be found in-house or in the client’s domestic labor pool. Given these developments, the future looks bright for a KPO industry that is vertically specialized.