Where does the KPO industry stand? A few observations on its evolution so far

Outsourcing in the services sector has been happening for the past couple of decades, with a slew of information technology (ITO) and business processes (BPO) getting outsourced to global locations. Over the past 8 to 10 years, there has been considerable interest in the market for knowledge processes outsourcing (KPO). These critical and high-end services are the most recent entrants in the outsourcing space. In order to understand more about the KPO industry, my team and I spoke to decision makers from the buyer and vendor communities to gather opinions and gain insights. This preliminary exercise brought us a varied spectrum of insights on aspects such as industry challenges, vendor concerns, segmental growth rates, end customer segments et al.

What we know so far is that the evolution of the KPO industry was very distinct from that of the ITO and the BPO market. After these two services were outsourced, service providers enquired about further needs for outsourcing services. Trust built over the years from existing outsourcing relationships brought high-end, value-added work on the sourcing table. This work was not heavily dependent on the location of the delivery team and it involved a higher level of judgment and rigorous methodologies by smaller teams. The nature of work was more sophisticated and involved a higher degree of partnership and collaboration. To sum up, the KPO industry involves complex processes, requires insights and analysis based on skills and judgment, require people with a higher education background and specialized knowledge, and the end results can vary from provider to provider. The list of key KPO segments is illustrated in exhibit 1.

Exhibit 1: Key KPO segments

In the current scenario, we’d like you to share your views through a quick poll on the attractiveness of various KPO segments.

Growth from KPO has shown increasing trends over the past few years, with the demand for these segments peaking in the aftermath of the global financial crisis. During this period, companies from all major industry verticals outsourced selectively and strategically to improve their risk assessment models, save labour costs, meet compliances and act on insights generated to help them understand the market and their customers better. The KPO industry today consists of a variety of service providers like niche players offering a single KPO segment, multi-service players with aligned service offerings, and the “Big Fish” – larger IT-BPO giants who have entered the KPO market.

From the intelligence gained so far, we thought of researching the KPO industry further to determine key segments for the future and their buyers, address those buyers’ challenges and benchmark service provider capabilities. Our findings will be released as a series of periodic KPO industry segment updates. You can share your insights on the industry by participating in the ValueNotes Annual KPO industry survey.

- Sameer Murdeshwar, Analyst, ValueNotes Sourcing Practice

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