Knowledge Process Outsourcing (KPO)
A type of outsourcing in which a different company or subsidiary (which may be based in the same country or offshore to save on taxes or other resources) in the same organization conducts knowledge and information-related work in order to save costs and resources is referred to as Knowledge process outsourcing (KPO). In general, it involves high-value work such as research, development, analysis, and advisory services by highly qualified staff of an organization. On behalf of the source company, KPO companies can also make business decisions, though these are typically low-level businesses and will easily be removed from their source company.
- A situation where an organization outsources high-level activities to a vendor is Knowledge Process Outsourcing (KPO).
- KPO services include accounts, tax returns, computer simulation support, design and development research, financial services, etc.
- Increasing an organization’s profit and position in the competitive market is one of the reasons why organizations practice KPO.
- The organization employing KPO minimizes cost since it is not required to establish any infrastructure or be responsible for any operating or running costs.
- There is a possibility of the organization’s privacy and security to be breached in a case where classified information is lost, duplicated or sold to its competitor by the employed KPO.
Understanding Knowledge Process Outsourcing (KPO)
From the previous definition, we understand that the situation where an organization outsources high-level activities to a vendor is KPO. Hence, the operations outsourced by the organization are key tasks. These tasks require knowledge, technical experience, and skills. An organization then outsources these activities to another organization or a branch company based in or offshore of the same country to minimize cost. The task is subcontracted for the receiving company’s skilled labor and subject-matter experience, but not to reduce the outsourcing company’s workload. It also offers the outsourcing company a chance to reduce costs as skilled and educated labor is much less costly in many developing countries. In summary, a KPO is an arm that covers a wide range of activities.
Types of KPO Services
KPO services include accounts, tax returns, computer simulation support, design and development research, financial services, etc; but are categorized into four main types. They include:
- Data Analytics and Insights: Fixing client problems in all sectors and fields to empower businesses through cutting-edge data analysis with real insights.
- Market Research / Business Research: Delivering factual, concise responses to the pressing market questions by delivering analytical services and strategic advice.
- Global Reporting and Performance Management: To achieve operational excellence and efficiency by providing effective monitoring and performance assessment across industries.
- Data Management: Efficient data integration, storage, collection, and shared solutions, as needed by various stakeholders, for comprehensive business reporting and analysis.
Reasons for Knowledge Process Outsourcing
Increasing an organization’s profit and position in the competitive market is one of the reasons why organizations practice knowledge process outsourcing. This can be achieved by the organization through KPO by spending less money and minimizing cost, while still getting the expertise workforce.
When an organization lacks or has a shortage of specialized skilled workforce, the organization makes up for this lack or shortage by practicing knowledge process outsourcing.
In a situation where an organization practices knowledge process outsourcing outside the shores of the country it is located in, such an organization usually does so in order to employ a highly-skilled workforce cheaply as compared to the country it is located; thereby, minimizing cost.
Let’s take an example by assuming company A is in the manufacturing industry. Company A is a manufacturer that makes use of raw materials before arriving at its final consumer good. Company A has to add value to its purchased raw materials before it can arrive at its final consumer good and sell it off to its customers. Along the line, Company A can decide to increase its production efficiency. Company A wants to do this in order to deliver the maximum value of its product to its consumers and also have an edge over its competitors. Company A can, therefore, use KPO to get highly specialized and skilled labor at a cost that won’t eat into its budget.
Advantages and Disadvantages of Knowledge Process Outsourcing
The advantages of KPO include:
- Cost-Effectiveness: The cost advantage is certainly one of the biggest benefits of KPO. The organization is not required to establish any infrastructure or be responsible for any operating or running costs. It also gets the skilled expertise at a reduced cost.
- Access to the brightest talent: KPO gives the business the brightest, most skilled and knowledgeable practitioners in the global pool of talent. The presence of such a talent in a developing country is also a huge cost minimization advantage.
- Focus: Externalizing certain operations, the organization will focus on its core functions.
- Improved resource utilization: An organization can make better use of the resources that they save when it outsources the non-core business planning process.
- There can be a loss of Security-Classified company information: When an organization practices knowledge process outsourcing, it can result in the loss of private information to a one time contract KPO.
- The skilled worker’s behavior and quality of his work can not be guaranteed: The skilled worker is not checked thoroughly like a regular employee. This leaves room for possible bad characters which might be detrimental to the success of getting the task completed. There is also no assurance that the work will be done in the way the organization wants.
- KPO needs time and can’t easily resolve the company’s instant quest for success.
- Encountering legal, language and cultural barriers can complicate communication between partners.
- Shortage of the organization’s skilled workers.