How Far Can Outsourcing Go?

I notice I mentioned Cognizant in my last blog. Without meaning to start mentioning them every day, I just want to recount a few comments made when I had a chat to Martin Kochman today. Martin is the head of Business Process Outsourcing (BPO) operations for Cognizant in Europe and we had a chat on the phone earlier about some of the changes in the BPO sector.

What was particularly interesting were some of his views on the hard times faced by many companies as we head into recession. Martin remains very positive about the business outlook for the BPO sector as a whole. He said: “I still think that the total size of the market is growing, but we may see a slowing in the rate at which earlier growth targets are met. The fundamentals are still in place for this to be a significant market.”

He added: “Cost reduction will always drive some activity, but the boundaries between what organisations have considered ‘outsourcable’ will continue to be pushed and more is going to come into the realms of outsourced contracts.”

Martin clearly believes that the retained organisation is going to shrink. This implies that as times get harder, companies may even be exploring the outsourcing option even more than usual. In summary, Martin thinks it’s going to be a busy time for companies in IT and BPO services: “The market will grow. On the demand side there is more global recognition of the skills and standards required and so things like Knowledge Process Outsourcing (KPO) are becoming easier to package up and deliver remotely.”

Source from: Markkobayashihillary.computing.co.uk/2008/11/how-far-can-out.html

BPO to KPO: Profitable Transition

As the KPO market is expected to rise and touch $17 billion by 2010, the transition of leading Business Process outsourcing (BPO) companies to knowledge process outsourcing is but obvious. NASSCOM predicts a 45 % per annum growth in the KPO industry till 2010 and lucrative areas include engineering, design, biotechnology, pharmaceuticals, basic data search and integration and management.

According to Boston Consulting Group, Indian outsourcing industry is facing a rupee rise that reduces rupee profit margins. Analysts advice that increasing the percentage of KPO inclusion along with BPO services is a effective way to improve the condition of the balance sheet. Moreover, the global economy is increasingly driving towards knowledge intensive processes and hence, the creation, protection and monetization of knowledge is becoming increasingly important. BPO services are process intensive while KPO services are more domain knowledge intensive.

It has been established within most leading Indian BPO companies that BPO services alone can keep the profits flowing. Though BPO services remains the support business of many KPO services offer a 15-20 % higher profit margin than pure and plain BPO work such as data entry, mortgage processing and customer support. Global markets are becoming more flexible and products more complex, creating a demand for higher level of analysis of trends based on technical data. Hence, growth is more or less parallel to delivery of high-end competency on demand.

Niche KPOs in areas such as decisions support services and financial data services are built on domain capabilities and will thus remain unaffected by any future advance in BPO services. It can be safely said that a business model based solely on the execution of outsourced non core tasks cannot sustain a company anymore as it is in BPO outsourcing. The money spinners are the knowledge based, domain expertise intensive processes. Which is why niche KPO companies are battling higher competition and attrition of clients to newbie KPOs.