The Business Process Outsourcing (BPO) industry is projected to grow by approximately 9.1% globally between 2022 and 2030. All industries within the BPO service sector, including Knowledge Process Outsourcing (KPO), will see substantial developments and improvements soon.
India, for instance, has seen its KPO industry grow by over 45% in the last five years.
As a result, it’s important for employers to explore the benefits of KPO and understand how they can gain from it.
In this article, we’ll explore 11 important ways KPO can help your company, its three potential risks, and some key differences between KPO and BPO. We’ll also take a look at some of the top KPO companies in the world.
Table of Contents
- 11 important benefits of KPO
- 3 potential risks of knowledge process outsourcing
- The most common types of KPO services
- KPO vs. BPO: What’s the difference?
Let’s go.
11 important benefits of KPO
Knowledge Process Outsourcing (KPO) is a type of outsourcing that specializes in high-level and knowledge-based services. In KPO, businesses outsource their core, information-related tasks like business operations, finances, etc., to a third-party agent, company, or freelancer.
This process has several benefits, some of which include:
1. Access to specialized talent
KPO is a knowledge-based industry that relies on the field expertise of individuals. KPO jobs have very specific requirements that may include solid IT skills, domain knowledge, previous work experience, and high-level decision-making skills
So when you choose knowledge process outsourcing companies, you’ll have access to some of the most skilled and highly-trained professionals in the market.
For example, if you hire a KPO accountant, they’ll already have sufficient experience dealing with various financial needs like tax processing, payroll, etc., and be well-equipped to cater to your needs. In contrast, your in-house talent may not have that kind of expertise.
2. Substantially lower operational costs
Implementing a KPO strategy into your business processes can help you save or lower costs in a number of ways. Here’s how:
For example, it’s more cost-effective to outsource financial services or human resources to outsourcing companies in low-income offshore countries and save costs while availing high-quality talent.
For instance, the average salary of a project manager in New York is USD 138,000/year while that of a project manager in Vietnam is USD 19,864/year.
Moreover, you’ll also save on operational costs. A KPO service provider will usually work from a remote location in your country or offshore. So you’ll also save costs on the infrastructure, resources, training, and technologies you’d have to invest in otherwise.
3. Access to advanced technology
Since knowledge process outsourcing primarily specializes in domain expertise, most KPO solutions have access to the latest technology and software tools used in the field.
By extension, hiring a skilled worker through a KPO process will give you access to these technologies for your company’s needs.
For example, if you hire a KPO service provider with expertise in data analytics or data management, they’ll have access to the latest technology and tools like Google Analytics, Microsoft Power BI, etc. Not only will this give you a competitive advantage, but it’s also less expensive than subscribing to these technologies and training employees for it.
4. 24-hour operations
If you’ve outsourced your business to an offshore KPO, you get an added advantage of 24-hour support in your core processes due to the time difference between your locations.
For example, when you outsource core processes like product development or recruitment, you can give any relevant instructions to the KPO teams during your work hours. Once the outsourced team signs in, they can immediately implement these edits and continue work while saving valuable time. This speeds up processes like recruitment and employment.
Similarly, if you’re using a KPO team for project development, a 24-hour support would also help identify bugs at an early stage.
5. Access to global markets
One of the most inherent advantages of outsourcing knowledge processes to different countries is that it gives you access to capture global markets and audiences.
For example, outsourcing locations like Romania, Hungary, or Bulgaria offer easy access to most of central Europe. They also share convenient time zones with the UK. As a result, outsourcers can gain access to international markets through these vendors, and study the market before setting up shop there.
6. Improved work efficiency
Outsourcing high-level processes in one area of your business can ultimately improve your company’s operational efficiency as a whole.
KPO companies are highly efficient and focused on improving and optimizing core functions in an organization. So when you outsource to the KPO sector, you’ll have optimized productivity in important processes, leaving you more time, money, human resources, and other resources to invest elsewhere in your business.
7. Increased scalability and flexibility
One of the most important benefits of hiring KPO companies is that they’re highly flexible in terms of their outsourcing services and contract lengths.
For example, you can start with a small budget and a limited number of services from your vendor. As time progresses, you can scale up and increase your budget. Alternatively, you can also cut down on the services if you’re not satisfied with the quality or have other financial reasons.
8. Optimized and evolved core competencies
Knowledge process outsourcing companies often only hire highly skilled individuals with specialized knowledge. So if you partner with one of these companies, it’s a great opportunity to evaluate your current company processes and look for any skill gaps.
You can also have the outsourced employees alter your high-level processes or optimize them for maximum profitability. For example, you can have an outsourced IT project manager review the current project plan and make any necessary changes according to client requirements.
9. Better resource utilization
In BPO, outsourcing non-core activities allow managers and employees more capacity to focus on any core business function. Similarly, businesses can utilize KPO solutions to outsource important (core) processes to specialized vendors.
This frees up more capacity and time for you to recruit employees for other important functions.
For example, you can outsource your core activities like tax processing or financial services to a third party service provider. This way, you won’t have to build an in-house accounting team and benefit from the vendor’s expertise.
Outsourcing to a KPO company will also reduce the existing workload on your employees, positively affecting their productivity.
10. Greater tax benefits
If you’re outsourcing to an offshore KPO firm, you become eligible for lower tax rates depending on the location of the firm. Moreover, many developing countries offer great tax benefits to hire employees from their local talent.
For example, the UAE and Germany have one of the highest corporate tax rates in the world, at 55% and 29.9% as of 2023. However, businesses in these countries can outsource some of their processes to developing nations like India, Vietnam, or Malaysia to avail of tax benefits.
BPO companies in India (including KPO firms) are exempt from the 18% Goods & Services Tax (GST). So companies outsourcing here will pay minimal tax while accessing the high-quality talent and skilled labor.
11. Improved risk mitigation
Partnering with a KPO firm allows individuals experienced in their field to handle the operations of processes you are not specialized in. Simply put, KPO providers are better equipped to identify potential risks in your business activities and then escalate them for resolution.
This way, you’ll also be better prepared for any risks with minimal loss.
For example, you won’t be spending anything on infrastructure or resources to scale up. So if the business venture does go under, you can minimize your loss and won’t have to worry about locked resources in failed ventures.
Find out more about offshore outsourcing here!
Speaking of risks, let’s understand some potential disadvantages of KPO to further prevent them in your future projects.
3 potential risks of knowledge process outsourcing
KPO is an in-demand industry with a lot of potential for development. However, it also has its fair share of potential risks that outsourcers need to know about before considering KPO vendors.
Here are three key risks of knowledge process outsourcing:
1. Lack of operational control
Since KPOs involve highly skilled professionals, they may want more operational independence. However, it’s natural to feel skeptical about directly handing over your confidential data to a new company. So you’ll want to be in the know about all processes.
You can start by hiring trustworthy and competent people. For example, if you hire a KPO project manager, you need to ensure that they have the right skills and know-how to undertake important business decisions with proper communication with your in-house team.
Then you can initially ask the project manager to consult you for important decision making. Once you’re confident in their skills, you can hand over the operations to your KPO manager.
Moreover, you can use time tracking tools like Time Doctor to manage the overall productivity of your outsourced team.
Time Doctor is a powerful productivity analytics tools that is being used by distributed teams across the world. It offers valuable real-time insights into employee performance.
Here are some ways Time Doctor can help improve productivity and work efficiency:
- Track time spent on tasks using the manual and automatic time tracking mode.
- Use idle time tracking to prevent tracking inactive time as active.
- Check which employees are present, late, partially late, or absent using attendance reports.
- Use the optional screencasts feature to monitor employee time use.
- Generate daily, weekly, or monthly productivity reports for all outsourced employees.
- Manage payroll for outsourced vendors or freelancers and automate payments.
2. Data security issues
Certain KPO roles like lawyers, accountants, or IT consultants require you to share your company’s important data with the outsourced agent. In such cases, you run the risk of data security breaches or intellectual property violations.
So what can be done?
To start with, ensure that you’re hiring the right KPO vendors. Make sure to check their client testimonials regarding their data security protocols. You can also map out your security requirements in a contract with your KPO providers.
3. Communication barriers
Most kinds of outsourced business processes, including KPOs, potentially run the risk of facing communication barriers with their outsourcing partners. This could be due to a difference in time zones, language barriers, cultural barriers, or problems due to internet connectivity.
Whatever the case, these communication barriers can eventually affect important business processes and cause delays in the decision-making process. So it’s important to define your communication channels like Gmail, Slack, etc. to ensure proper coordination between teams. You should also set standard communication procedures, including the hours of communication, hierarchy, etc.
Next, let’s take a look at some common types of KPO services.
The most common types of KPO services
Knowledge Process Outsourcing encompasses several different industries with its umbrella. While all of these are information-related services, they sometimes vary in their level of complexity.
Some common types of KPO services are:
- Business operations: Management consulting services, technology, HR, brand, marketing, communications, knowledge, business development, etc.
- Investment banking: Financial research for investment banks, brokerage houses, financial institutions, etc.
- Legal Process Outsourcing (LPO): Accounts payable, litigation research, drafting contracts, patent services, etc.
- Research and development (R&D): Market research, customer analysis, etc.
- Supply chain or value chain management: Purchasing, manufacturing, inventory management, demand planning, etc.
- Medical & healthcare: Market research, managing healthcare provider’s bills and submitting them to insurance companies, etc.
- Data analysis and interpretation: Analyzing supplier, customer, finance and employee data.
Now, let’s understand some key differences between KPO and BPO.
KPO vs. BPO: What’s the difference?
Business Process Outsourcing (BPO) is a broad field that refers to companies outsourcing non-core business processes, like customer service or data entry, to a third-party agency in the same country or abroad.
Knowledge Process Outsourcing (KPO) is the outsourcing of core knowledge-intensive activities to a third-party vendor or freelancers. These activities tend to be data-driven and often encompass the process of gathering, managing, analyzing, and delivering market research and objective insights into businesses. KPO is considered to be a subset of BPO.
Now let’s look ar the other differences between the two::
- Purpose: KPO requires expertise in knowledge, while the BPO industry requires expertise in the process.
- Scope of tasks: KPO focuses on complex, core processes while BPO deals with simpler, surface-level (non-core) tasks.
- Level of autonomy: KPO providers usually have full autonomy over their decisions, while BPO vendors tend to follow the directions offered by host companies.
- Level of expertise: KPO employees are highly skilled professionals with expertise in their fields. On the other hand, BPO hires employees with basic education, strong communication skills, and general computer knowledge.
Final thoughts
Knowledge Process Outsourcing (KPO) is a great means to obtain valuable insights into your core business processes. Employers can benefit from the innumerable advantages of KPO, including cost-effective labor, increased efficiency, and risk mitigation.
So make sure you understand how KPO can factor into your business processes and make full use of its advantages.
Refer to this guide and other related articles on the Time Doctor blog to gain a better understanding of KPO, BPO, offshore outsourcing, and other similar concepts.
Liam Martin is a co-founder of Time Doctor which is software to improve productivity and help keep track and know what your team is working on, even when working from home.