KPO: The VSOP of Outsourcing

More companies in all industries are looking into Knowledge Process Outsourcing – that is, outsourcing highly-skilled jobs. And they’re finding out that KPO is quite different from “traditional” outsourcing.

When buying outsourced services, organizations frequently hear about the benefits of scale and standardization. The idea is that a resource serving only a single client can’t be as efficient as one that is used by multiple clients. Supply and demand play a role in this value proposition, of course, but that preceding pitch is the essence of outsourcing’s business promise.

In KPO, the motives frequently transcend those of scale. What we’re seeing, instead, is the tendency to pursue KPO for purposes of capacity.  It’s all about gaining more capability – at favorable prices, sure, but the access to skilled professionals is the driver of these deals.

When companies have a hard time attracting and retaining skilled technicians to perform analytics, research, engineering, legal or marketing tasks, KPO can be the answer.

And more often than not, the pursuit of a KPO solution leads to captive offshore operations, which tend to start small and grow over time. Why captives? Because these models better protect the competitive advantage of a KPO and help to build institutional knowledge for future expansion.

My colleagues, Indy Banerjee, Jui Narendran and Rukmini Priyadarshini just published a great piece of research on the offshoring component of this topic, Knowledge Process Offshoring (KPO): A Balanced View of an Emerging Market.  It’s worth a read.