The Hindu Business Line : Moving up the KPO ladder

In the past few years the KPO (Knowledge Process Outsourcing) business has gathered momentum. Consider the figures: The Indian ITES-BPO segment continued to chart strong year-on-year growth at 37 per cent for FY 2005-06. As per estimates of various studies, the global KPO industry shall range from anywhere between $12 billion and $15.5 billion for 2010. According to industry experts, India should see a sustained, ongoing 30 per cent growth rate the next five years. According to a Nasscom-McKinsey report, the BPO (non-IT) opportunity for 2008 is $141 billion; however, Evalueserve estimates that only $54.6 billion will be realised by 2010, and 2.12 million people in low-wage countries will be thereby employed.

As in any other business, the shakeout has begun. Smaller firms are getting integrated with larger players and clients have become more demanding in terms of the nature and quality of the work. The emergence of the KPO business has also signalled the transition of India, from being a data processer to providing complex, sophisticated analytical skills.

Outsourcing to India has provided companies with significant benefits — of labour cost arbitrage, business process enhancements and improvements. And in the KPO space, clients demand continuous innovation and increasingly complex services. After all, KPOs offer a significant cost advantage, with clients regularly reporting savings of 25-50 per cent over the original cost base. Earlier, companies outsourced only proprietary processes and the contract sizes ranged from $10,000 to $100,000 per project.

Now, investment banks outsource financial modelling and contract sizes range from $5 million to $50 million for three- to five-year projects. A roadmap will show the evolution of services over a time-frame of five years. The client is one of the top five global investment banks, with over 20,000 staff in global locations. It commands more than 20 per cent of the global M&A market share and is one of the leaders in more than 10 industry groups. Moreover, the client regularly features among top three in Euro Money and institutional rankings.

Why scale up?

Most companies in the KPO space are small compared with ITES-BPO players. This is partly due to the initial small scope and high-end nature of the business. But now, it is time for the big-ticket orders to flow in. Moreover, companies with one or two large clients can cement their relationship and provide a one-stop service centre. This also helps clients focus on one outsourcing provider. The challenge is to replicate the success of a two-man team to a 200-member group. It is essential to define quality levels, maintain , and improve on them.

Smaller players in the industry usually do not have strong systems in place. They have neither governance policies nor SOP guidelines in place. Typically, there are two phases to building a system: The investment phase and the returns phase. In the first , a provider should clearly identify the process in consultation with the client and then provide proof of concept. Stabilising and scaling operations are part of the second phase.

One of the key areas of scaling up in the KPO business is the ability to innovate and anticipate a client's need. Most KPO providers do not realise the need to `industrialise' processes early enough, as they assume this to be `knowledge' based and think that processes cannot be industrialised.

It is important to remember that innovative execution is the key for meeting challenges and developing a mature, stable system.

Over the years, most BPO providers have learnt the need to put in place standardised processes, service level agreements, and strict quality control. For this sector, industrialising processes is the key to scale. Another trend is a business continuity plan for emergencies.

How KPOs can innovate

KPOs can go beyond standardised processes. They can define quality for highly subjective and judgmental processes and create monitoring/checking systems. Industrialising processes alone will not be enough; companies must standardise complex processes to achieve scale. Complex analysis requires not only domain experience, but also domain expertise. For this, companies can provide training programmes in complex skill-sets and set high professional standards. Given the regulatory-sensitive nature of the information that flows into KPOs, employee due diligence, and security and confidentiality practices should be mandatory.

(The author is Senior Vice-President, Knowledge Services, Integreon.)