Changing face of outsourcing

Times are changing, and rapidly so. Outsourcing may have started off on the basis of a labour arbitrage benefit in non-core jobs, but it is now rapidly redefining business models. Changing macro-economic factors supplemented by technological advances have led to the evolution of the outsourcing industry. There is a growing movement up the value chain towards Knowledge Process Outsourcing (KPO), as higher end skilled processes are executed efficiently and speedily through experts.

Growth engine

KPO, simply put, is BPO but at a higher level in the intellectual value chain. The crux of KPO is to provide value to the client primarily in business critical and strategic decision making processes.

KPO is expected to be one of the major segments of the outsourcing business, not only in terms of the revenue stream it would generate, but also the profitability it implies, and the creation of new jobs. As per recent projections by NASSCOM, KPO revenues will be approximately US$ 17 billion by 2010, implying a growth rate of 45 per cent. Improved productivity would be a key driver for the KPO Industry — 240 per cent higher for the KPO than the BPO industry. The US is the largest consumer of outsourced services, followed by Europe.

The constantly higher need for flexibility, drastic reduction in time required to ‘go to the market’, increased competition in the global arena, and of course, cost pressures, have all been the driving forces of KPO. Traditional sectors which have seen KPOs bloom are healthcare, pharmaceuticals, bio-technology and intellectual property rights (IPR). However, recent ‘hot areas’ are financial and legal services, and even communication and media services.

Each of these sectors has been the genesis of ‘pure play’ niche/boutique type KPO firms. Of course, it is only logical that the KPO space has also seen the entrance of BPO companies attempting to rapidly acquire capabilities for providing multiple solutions to a single client, as a one-stop shop alternative. In addition, large firms are moving their research and analytics divisions to offshore locations, making up the third kind of KPO players.

For example, Intel and Texas instruments have off-shored a part of their R&D to India, while Goldman Sachs does equity research and portfolio management of US securities from India and is able to provide 24x7 service to its internal and external customers.

Advantage India

Like in the BPO space, India is positioned at the fore front of the KPO revolution too. As it is, thanks to the time zone difference, India can easily help enable 24x7 capabilities for organisations across the globe. India, today, has an additional edge in ‘knowledge’ based services basically because of its large, cost efficient talent pool. India churns out around 75,000 MBA graduates and more than 2,50,000 graduates annually with excellent proficiency in English speaking and writing skills.

The additional ‘secret recipe’ that India seems to possess is made up of rigorous processes, high productivity, confidentiality, sound HR policies and good risk management skills — all in the right quantities. Processes like high level customer interactions, integrated with customer relationship management (CRM) skills, on-time delivery processes, quality checks while ensuring compliance and yet confidentiality to the clients are now very much an ingrained part of our corporate culture.

HR processes have also refined to ensure that the ‘right’ talent is recruited, that performance management procedures are in place to boost employees’ performance levels and that attrition is reduced through a mix of learning, skill enhancement, as well as fat paychecks.

Evolving paradigm

Even as the world is getting excited about KPOs, off-shoring has already moved one step ahead. This can be seen in the quality of services — which have shifted to high-end decision making analytics. These services in fact require greater levels of client interaction and co-working than plain vanilla BPO or KPO offerings. This means that the rationale for outsourcing is shifting from cost saving to value addition; and the working relationship is shifting from one of buyer-supplier to one of partners and collaborators.

Some niche organisations have spotted this opportunity early on and are now focused on providing specialised and customised services to clients. One such company is Empower Research LLC, working in the emerging field of Business Research and Information Consulting (BRIC). Empower provides value-driven, customised research and analytics to clients across industries, thus supporting strategic decision making.

In future KPO will get increasingly rarefied at the top with offerings like BRIC, will margins here start getting squeezed.