Kpo

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ADVISORY
IT ADVISORY
Knowledge Process Outsourcing
Unlocking top-line growth by outsourcing “the core”
At a glance
• Knowledge Process Outsourcing (KPO) enables clients to unlock their top-line growth by outsourcing their core work to locations that have a highly skilled and relatively cheap talent pool. We consider this to be the single most important factor that differentiates Knowledge Process Outsourcing from its predecessor, Business Process Outsourcing (BPO).

• KPO is about “intellectual arbitrage”. This differentiates KPO from IT Outsourcing (ITO) or Business Process Outsourcing (BPO), both of which emphasize cost arbitrage. KPO is characterized by niche offerings, highly skilled staff and a relatively small scale. It cuts into the traditional “core competencies” of many organizations.

• Knowledge processes are fundamentally different from business processes, with clear differences in process complexity, skill sets and scalability. • There is a good mix of both third-party and captive structures in the KPO industry at present. KPMG expects hybrid multi-sourcing models of KPO to emerge in the near future. They will likely consist of captive units managing relationships with third-party KPO providers.

• Organizations with experience in outsourcing IT and business processes will likely have a shorter learning curve when entering into KPO. • Acquiring the necessary skill sets, attracting talent, protecting intellectual property and managing conflicts-of-interest will likely be the major challenges facing the KPO industry over the next three years.

• We foresee a significant shift in boundaries between “outsourceable” and “non-outsourceable” activities.
• Activities that are analytical skills-intensive are expected to be increasingly outsourced going forward as KPO providers prove their execution capabilities. Activities that require high domain expertise will likely be at the lagging end of the outsourcing curve as service providers make concerted efforts to acquire these skills.

• Decisions about outsourcing may be accelerated to preserve and increase competitive advantage.
• “Boutique” providers will likely leverage KPO to create new services and offerings. • The KPO industry’s staff qualifications and skill-set requirements are significantly different from those of the BPO industry. This requires KPO providers to develop specialized recruitment and retention strategies.

• The location selection for KPO should take into account the nature of knowledge process work, skill sets, and supporting educational and certification organizations which are expected to produce a supply of talent in the selected location. • India is currently the leading country providing KPO services. However, other countries have the potential to capture significant KPO market share, by better leveraging the depth and maturity of existing skill sets, and in some cases, their non-English language capabilities.

• Within the KPO industry, legal and compliance departments are currently under resourced and inadequately empowered. This has implications for managing insider trading, conflicts-of-interest, intellectual property and professional indemnity liabilities.

Contents
Foreword ............................................................................... 2 About this study .................................................................... 4 Executive summary ............................................................... 6 The KPO phenomenon: myth or reality? ............................. 12 The rise of the financial services KPO ................................ 18 KPO domains within financial services ............................... 22 KPO’s geographic footprint ................................................. 26 Implications for global banks and insurers .......................... 36 Conclusion ........................................................................... 38 Appendix 1 – Profiling the KPO providers...
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