A introductory guide to an effective KPO business model

by Time Doctor
KPO business model1

Companies are increasingly turning to KPO (knowledge process outsourcing) services to run their business operations more effectively and at lower costs.

With spiraling demand for such services, running a knowledge process business is a lucrative business proposition.

So if you are new to the KPO business model and looking for reliable information, we’ve got you covered.

In this article, we’ll explore the KPO business model in detail and lay out a 10-point guide to establishing and running a profitable KPO company.

Let’s get started.

What is the KPO business model?

The KPO business model revolves around value-added services related to the core business activities of a company.

These activities require high-level subject-matter expertise and are more demanding than routine back-office tasks that companies typically outsource to a business process outsourcing (BPO) firm.

For example, as a data analytics KPO firm, you may need to leverage a client’s internal data and perform additional research to dig out valuable insight into their operations. Such business insights may help the company:

  • Optimize its value chain.
  • Implement cost-saving measures.
  • Forecast future events and take preventive measures.
  • Deliver better products and services.
  • Supplement its existing capabilities and much more, depending on the business domain.

As part of your outsourcing contract, you may also be required to devise a strategic plan to overhaul the company’s existing business process management. The goal here is to improve the overall profitability and productivity.

So how are KPOs able to do all this?

KPOs have a team of domain experts equipped with cutting-edge tools and technology to offer these specialized services.

Some of the most sought-after knowledge process outsourcing services include:

  • Data analytics and management.
  • Business research services: Risk analysis, market research, etc.
  • Financial services: Investment research, business valuation, equity research, corporate finance analytics, financial modeling, asset management, etc.
  • Customer service optimization: Call center forecasting, customer support analytics, etc.
  • Human resource research and analytics.
  • Legal process management consulting.
  • Medical and pharmaceutical research and development.
  • Engineering design.
  • Content development and publishing, etc.

However, the exact nature of the services will depend on the outsourcing model you’ve chosen.

3 distinct types of KPO service models

Depending on parameters like the business type, nature of work, internal expertise level, etc., there can be different types of KPO delivery models, such as:  

  • Captive centers: In this setup, multinational companies establish their dedicated KPO unit in an offshore country with high availability of skilled talent and low cost of operations. 
  • Third-party KPO vendors: These are independent KPO companies or freelancers that handle a business’s knowledge intensive tasks, typically on a project or time basis. This is a viable option for companies that don’t have the resources to run a dedicated unit.
  • Virtual captives: This is a hybrid outsourcing model where a third-party vendor sets up and manages a captive center on the company’s behalf. This saves the company the initial investment in establishing a fully-owned captive center.

With this clear understanding of what KPO entails and its different delivery models, let’s shift our focus to building and running a successful KPO.

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10 crucial steps to build and run a successful KPO firm

The following best practices will help you avoid common pitfalls of the outsourcing industry, specifically concerning KPOs, and help you build an efficient and in-demand company:

1. Understand the outsourcing model

KPO is essentially a subset of the massive outsourcing industry. So it’s important that you understand the principles and foundations of the outsourcing sector before you step into it.

You should be aware of factors that drive potential clients to partner with an outsourcing service. It’ll help you design and market your services to attract a broad client base and position your business for success. 

And as it relates to the KPO sector specifically, your potential clients seek a specialized service at cost-effective rates. These services require a high level of analytical, technical, and creative skills. 

An expert team meeting these criteria will incur higher human costs than a BPO handling routine admin work. 

So it’s crucial that every decision you make, be it choosing your domain, team size, service type, pricing model, service locations, etc., is well considered. 

We’ll discuss these critical decisions in more detail in the following points.

2. Choose your niche carefully

The KPO sector is known for specialized knowledge services, and it’s counter-intuitive for a KPO firm to try to be a jack of all trades. 

To thrive in the marketplace, you must choose a line of business in which you have a strong foundation.

There are tons of business verticals KPOs cater to, including:

  • Academics and education.
  • Science and technology.
  • Information technology.
  • Banking and finance.
  • Healthcare, etc.

As a founder, you should consider your own skill set and qualifications before picking a KPO domain. First, it’ll help you stay on top of the services you offer, and second, you’ll be able to hire the right employees, knowing the core skills you need to provide these services. 

Besides, your domain expertise could be your unique selling point and set you apart from the competition. It’ll also instill a sense of confidence in potential clients.

3. Pick a suitable service location

It may seem like your business location isn’t a decisive factor in this digitally connected world. 

However, the reality is that your service location has a significant impact on your business’s visibility and profitability.

The outsourcing ecosystem in your city and around your office can shape your service quality and client outreach. 

For instance, it’s common for KPO executives to have in-person meetings with the client’s team, especially in legal and healthcare domains.

Having a low-cost but poorly located office away from the central business district can take away your competitive edge.

And not to forget the importance of the local tax structure and talent availability when considering a location. 

Here are a few pointers to keep in mind when shortlisting a location for your KPO firm:

  • Choose a city that has a thriving outsourcing ecosystem. If you’re looking at an offshore location, opt for a well-established market like the Philippines or the Indian KPO industry.
  • Stay updated on the local tax laws and any hidden business costs specific to that location. Ensure that you do a feasibility study based on your budget estimate.
  • Prioritize facilities over cheap rent. A prime business center or a dedicated industry corridor may be expensive but offers better infrastructure and visibility.
  • Take stock of the talent availability for your knowledge process specialization in and around your desired location.

4. Study your competitors

The KPO business model is a relatively new entry in the outsourcing sphere compared to the BPO industry. But even in such a short span, there are several inspiring success stories to look up to and learn from. 

Moreover, several prominent BPO services, including Genpact, Infosys BPO, etc., have successfully branched out to become leading KPO providers.

So as a new or aspiring KPO entrepreneur, you have many valuable insights to gain by studying the competition in your niche.

A competitive analysis will also help you spot shortcomings in your competitors’ strategy and existing market gaps that you can capitalize on.

Here are a few tips to help KPO startups with competitive market research:

  • Start by identifying who you’re competing with – KPO solutions in the same domain as you.
  • Find out the scope of the KPO services they offer.
  • Research their sales and marketing tactics – what channels do they use to engage potential and existing clients.
  • Look up professional certifications that your competitors have and how they advertise them.
  • Check out their pricing plans and what additional perks they offer.
  • Take note of the client reviews for your peer companies to understand what they and doing right or wrong.
  • Examine their recruitment strategy to get insights into talent availability and sourcing.

5. Choose a suitable legal entity

You’ll need to create a legal business entity when starting a new knowledge process outsourcing company. 

The type of this entity will impact how far you can scale in the future and shape the services you can offer.

For example, in India, a leading global knowledge processing outsourcing hub, you can register your KPO business as:

  • A one-person company.
  • Sole proprietorship.
  • Joint venture: Limited liability partnership (LLC).
  • A public company, etc.

Each entity has different regulations regarding taxes, paperwork, registration process, fundraising, etc.

So it’s vital to make an informed decision after considering your current and future plans. 

Also, ensure that you understand the company laws in your jurisdiction and assess every option available. You can choose to onboard a legal expert to help you with that.

6. Sort out your documentation

Registering a new KPO will require you to get legal documents, such as a Certificate of Incorporation, business license, state permit, insurance documents, etc. 

Being complacent with this step could lead you into legal troubles in the future or prevent you from even starting.

It’s advisable to consult an expert who specializes in local laws to help you manage your documentation (unless you’re running a legal process outsourcing company). 

Besides legal documentation, a KPO service provider should prioritize getting professional certificates in their specific niches. This may also include degree certificates for each member of your core team.

These certificates will lend more credibility to the knowledge services you offer.

7. Hire top-notch domain specialists

Whichever KPO domain you operate in, you’ll always need high-quality human capital resources to offer high-end services.

The size of your staff will depend on many factors, including the business scale you are aiming for and the initial investment.

It’s important to note that domain specialists may be hard to source and typically command higher pay packages than new or even experienced staff in some other business functions. 

So you should have a well-thought-out recruitment and retention plan as part of your KPO strategy.

At times, you’ll need to be flexible with your hiring approach to get in-demand specialists onboard. For example, a renowned instructor or a scientist may only offer their services on specific days during the week. 

Besides specialists in the key competencies, you’ll also need skilled professionals in other business functions like marketing, HR, etc., especially as your team grows.

8. Brainstorm a client acquisition and retention strategy

You may have a sizable competition in your space as an individual or company offering knowledge process services. 

Having professional certificates or extensive domain experience may not always guarantee a good client base. 

You’ll need to promote your brand rigorously to cut through the competition and be seen by potential clients. As part of your marketing strategy, you can:

  • Advertise your business services on domain-specific portals, forums, and social media channels.
  • Attend events like business expos and fairs, workshops, etc., to connect and network with executives from companies in your niche.
  • Work out lucrative and flexible pricing models to attract clients with different budgets.

And once you acquire these clients, ensure you maintain a standard service level to keep them happy and satisfied.

9. Monitor and analyze your operations

Knowledge service providers are often tasked with optimizing clients’ existing setup and adding value in some way or other. 

To do that on a consistent basis, KPOs must constantly monitor their service standards and internal productivity levels. KPO teams should also be highly time and resource-effective.

Thankfully, advanced software tools can help you stay on top of different business aspects.

For example, Time Doctor, a time and productivity tracking tool, can help you measure and track your team’s efficiency. It offers excellent time tracking functionality to record every second your team spends working on client projects. 

You can then use the time data to pay your team members fairly and bill your clients accurately.

You also get several additional features like insightful reports, employee scheduling, payroll management, etc., to manage your team more effectively.

A tool like Time Doctor becomes indispensable for KPOs in the workforce optimization space, which are often required to find productivity bottlenecks and suggest ways to improve workforce efficiency at the client site.

10. Build robust data and IP protection systems

An outsourcing company usually has access to personal client data. For example, a human resource KPO may have web activity or financial data of the client’s employees. 

Similarly, KPOs may also have access to their client’s intellectual property, including patented technology, research papers, business strategies, etc.

Any breach of such data may affect your brand’s reputation and may result in legal troubles. 

So, a KPO provider must fortify its systems and processes with the latest data and IP protection standards like PCI, HIPAA, GLBA, etc.

Final thoughts

Knowledge process outsourcing has emerged as a profitable business proposition for entrepreneurs with specialized know-how.

A key reason behind the growing popularity of KPOs among different verticals is their ability to add value to the business without costing a fortune. 

Let the essential practices shared in this article guide you through your KPO journey and maximize your chances of success.

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