As we saw earlier, BPOs usually deal with fringe business activities such as customer care, finance and HR and at the same time, the USP of a BPO is their being cost effective. Companies usually outsource such processes to BPOs which are not directly linked to its value chain. And the motive behind such outsourcing is directly linked to cost reduction. On the other hand, highly specialised and knowledge based services are outsourced to KPOs. These activities are directly related to core offering of parent company. The motive behind such outsourcing is not only to reduce cost but to get specialised solutions for which availing in-house resources might be tough. The difference in BPOs and KPOs can also be judged by the way they hire people. While basic education may be enough for you to get a BPO job but a KPO job requires you to be competent in a particular field. Also, the training provided by the KPOs is more rigorous and sector specific. So if you are a 'Jack of all trades', KPOs may not be the right choice for you. Even businesses outsourcing their services to KPOs do a more extensive research before giving a contract to a particular KPO, as a good KPO can be the differentiating factor between a good market offering and a bad one. So if you compare the functionalities and expertise involved, KPOs are far better than BPOs, but both of them help businesses to streamline their operations and making them cost effective.
Why KPOs are emerging at a rapid pace now?
1) Lack of highly qualified professionals in developed countries. 2) BPOs are shifting further east to Philippines and Bangladesh, thus India is exploring KPOs as the next big thing for them. 3) As the US Government is taking steps to reduce outsourcing, BPO will get hit the most, unlike skill based KPOs.
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KPO is not just about 'Cost Arbitrage'
In fact, players solely based on cost differentials will hardly be sustainable in the long run. The central theme of KPO is to create value for the client by providing the highest-quality business expertise and superior productivity/effectiveness rather than cost savings based only on geographic cost arbitrage. KPO services help improve the time-to-market, access to special skills, absorb peak load and enhance organizational effectiveness. Moreover, it simplifies the process and makes it more flexible. Consistent quality is the key word and primarily drives the buying decisions. For example, an error made in a corporate finance valuation model can have a huge financial downside, which is likely to be in factors of 1000+, possibly larger than the savings made by having the spreadsheet produced in India. Similarly, a patent with badly written claims can damage the protection of multi million dollar products in global markets. Finally, the outsourcing solutions for high-end processes are usually highly customized, which is an important element of value creation for the client, but also requires the vendors to run multiple customized processes in parallel.
Large potential for SME customers
While KPO started initially in captive centers of large companies, moving to specialized vendors, who provide such services to large companies such as Investment Banks. This sector holds immense potential for the SMEs in the long-term. There are millions of SMEs, which can benefit from KPO; however, their average volumes are much lower than a few thousand US dollar projects up to 5-10 full-time employees).
While large companies predominantly use KPO for gaining access to talent and cost reduction, SMEs can further benefit from buying KPO services from specialized vendors by being able to gain access to very large resource pools quickly at no up front costs....