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

Knowledge Process Outsourcing Represents the Next Generation of Outsourcing Services

KPO is likely to gain traction as business process outsourcing providers conttinue to build financial services-specific expertise.

Knowledge process outsourcing, or KPO — in which service providers take over high-level tasks requiring professional judgment and industry experience — looks to be the next frontier for the outsourcing industry. Many expect financial services companies to lead the way in KPO, and there’s data to support such a view. For example, 45 percent of financial services executives who participated in a recent InformationWeek Analytics survey said they see the industry knowledge of their business process outsourcing (BPO) providers significantly improving. That’s more than any other area of improvement.

Top Five Drivers of Business Process Outsourcing: Financial Services vs. Other Industries

Business Process Outsourcing: Financial Services vs. Other Industries

Another reason is that there’s a notable “strategic minority” of companies, according to the InformationWeek Analytics survey of 372 business technology professionals, including 110 in financial services, that see BPO as a road to competitive advantage, with goals such as transforming processes and increasing revenue, not merely cutting costs and meeting short-term goals. In financial services, that strategic group is about 15 percent (with another 24 percent responding that BPO is “more strategic than tactical”).

Yet the top concerns about BPO revealed by the survey will only be magnified as financial services companies consider KPO, which might be used for capital market functions such as equity research in support of domestic analysts. It takes a high degree of trust to transfer custody of customer data, share tacit knowledge and work as a single team. Yet the No. 1 concern financial services companies have about BPO is data security, according to InformationWeek Analytics, a sibling property of Wall Street & Technology. No. 2 is the difficulty of managing BPO, followed by tension between employees and outsourcers, the difficulty in reversing deals, and reduced flexibility to change processes.

Where’s the Outsourcing Innovation?

There’s also the question of whether outsourcers have the innovation capability needed for KPO. Just 10 percent of financial companies gave providers high marks for innovating process change. Only 16 percent of financial services respondents said they see improvement in vendors assigning quality people for their projects. Companies that aren’t getting bright ideas and top people on everyday projects won’t likely rush vendors up the knowledge stack.

All signs point to companies’ use of BPO continuing to grow. The survey finds 28 percent of companies plan to increase BPO, about four times more than those planning to decrease the use of outsourcing. Yet cost cutting through additional outsourcing only goes so far. Given that outsourcing is mature — with organizations having made significant investments in offshore BPO capabilities — any increase in the amount of outsourcing has to press beyond self-imposed limits and barriers with which companies have become comfortable. Market pressures — including troubles within the financial services industry — may compel companies to push those limits into areas such as KPO.

By Chris Murphy, InformationWeek
August 14, 2008
Source: Wallstreetandtech.com/operations/showArticle.jhtml?articleID=210100188

New and further improved outsourcing – Knowledge process outsourcing

The KPMG International report claims that KPO or knowledge process outsourcing has come of age with the markets touching billions of dollars. KPO is posed to form the third generation of outsourcing where its USP remains the arbitrage of technical expertise and domain knowledge rather than cost reduction such as with its counterparts BPO and ITO. The global KPO market is set to be worth between US$10billion and US$17billion within two years according to research by KPMG.

The global financial sector has harnessed this business model to the maximum extent. The services in the KPO financial sector alone are expected to reach US$5 billion by 2010. KPO has already been used to handle credit scoring, loss protection calculations and fraud analytics and more.

Outsourcing made its debut in the 1980s with Information Technology Outsourcing or ITO where third party organizations managed internal IT system’s maintenance, development and application. This was followed by Business Process Outsourcing or BPO in the 1990s where elementary or standardized processes that were supplementary to an organization’s core activities were outsourced to another organization. And then entered KPO where the focus is one task and expertise that are central to an organizations core competency or competitive advantage. The outsourcing industry has thus moved by leaps and bounds. It used to be supplementary and cost cutting measure and now has become an intrinsic and indispensible model.

The concerns regarding KPO according to Bob Hayward, KPMG IT advisory director could be the risk faced by valuable intellectual capital due to lacunas in the service provider’s legal and compliance departments. Also, KPO calls for a highly specialized skill set and defined domain expertise hence, the available talent pool is smaller. KPO organizations are stepping up ramp up and retention processes to attract and keep a workforce with required qualifications and skills.

India is a dominant force in the KPO industry due to the easy availability and apparent abundance of qualified and trained staff and experienced professionals. A report by GlobalSourcing Now identifies India as the leading KPO destination. A large pool of trained staff and technical professionals are reversing the myth that India is good to provide software professionals only, says the report. Organizations from all over the world are leveraging the benefits of India’s knowledge base. The report predicts that by 2010 the KPO market in India will be worth US $12 billions and will employ more than 250,000 professionals.

Following India that following countries are also predicted to join the KPO rat race – Russia, China, the Czech Republic, Ireland, and Israel