A Complete Guide to KPO: Meaning, Types, Pros and Cons
The Knowledge Process Outsourcing (KPO) industry is exploding right now. One of the main driving factors for organizations to adopt this model is the significant cost reduction. However, there are other advantages too, such as agility, efficiency, and access to a larger pool of talent, that make the idea of outsourcing knowledge-related tasks to third-party professionals so appealing.
In this article, we will explain KPO in greater detail and also highlight the pros and cons of involving an outside party to manage your organization’s core business activities.
What is KPO?
Managing a business today is like walking a tightrope. Balancing between maintaining high levels of efficiency, staying competitive, being innovative, and meeting evolving customer demands without burning out the team calls for serious strategic interventions.
It’s not always the company that has a larger team that emerges as a winner in this tough landscape. Often, it is the business that outsources some of its tasks to an outside vendor so its people can focus on growth, strategy, and other critical aspects of the business, which gives it an edge.
The demand for faster growth and success is what has created the need for the KPO industry.
Let’s begin by understanding what is Knowledge Processing Outsourcing. This is a business strategy that involves outsourcing important, information-heavy business processes to an external service provider who possesses the requisite education and expertise in your sector. The dual advantage is that not only does this free up your in-house team, but it also opens up access to a larger talent pool of specialists while leveraging lower labor prices.
A business can hire freelancers or give the contract domestically, or it can choose a third-party vendor from a different country to outsource some of its business operations.
Before we look at the advantages and disadvantages, let’s look at the different types of KPO services available.
Six Common Applications of KPO Services
With knowledge outsourcing as its core area, KPO services can extend into several industries. There are several types of KPOs, and here are six knowledge process outsourcing examples. Let’s look at what benefits they can offer a business:
Data Analytics and Interpretation
KPO companies often possess the expertise to collect and analyze data for businesses and also offer actionable insights that can be used to improve performance.
Market Research
Outsourcing market research includes surveying techniques, statistics, and analytics of customers and the market to better understand their needs and grow your business.
Financial Consulting
Finding a KPO proficient in finance-related services can take a load off your to-do list. A finance consultant can analyze assets, income, and expenses and provide you with a financial plan suitable for your business goals. Some vendors can also offer investment research, accounting, and payroll services.
Management Consulting
Some KPOs are equipped to offer recommendations and strategies for improving their clients’ businesses. The work of a management consultant can include research and advice about business operations, guidance on leadership, human resources, etc., and also support project execution.
Advanced Data Entry and Management
KPO services are also beneficial for businesses looking to set up systems for capturing, storing, retrieving, and sharing data. In a data-centric landscape, this function is beneficial for critical industries for their daily operations.
Legal Process Outsourcing (LPO)
Outsourcing legal processes to a specialized LPO provider can leave the in-house team free to focus on critical matters. LPO services can include drafting and reviewing contracts, collecting digital evidence for legal processes, and litigation support
What are the Key Benefits of KPOs?
Now that we understand the many types of knowledge process outsourcing and where they can be utilized, let’s take a look at how KPO solutions can help businesses.
Enhanced Efficiency
KPOs can offer you a thorough, advanced business process analysis that can benefit your business in many ways. Real-time data capture can help you understand if your company is operating optimally, and the vendor can make recommendations for improvement. You can then make changes to ensure everything works seamlessly.
Improved Results at Lower Costs
KPOs can help reduce operational costs and improve profitability by allowing you to tap into a vast pool of qualified and skilled professionals from countries with relatively low labor costs. Further, when you outsource to a third party, you don’t have to pay for:
- Training
- Equipment
- Office space
- Employee salaries
Access to Qualified Specialists
Certain businesses operate in a specialized field where experts might be hard to come by. KPO makes the process easier by opening the door to experts worldwide. All you need is to find a service provider with the qualified staff members you need.
Leverage Up-To-Date Methods
To remain relevant, KPO service providers must be equipped with the latest technology and methods. This way, you can keep pace with industry breakthroughs and improve your competitive edge without investing time and money in researching new methods or purchasing new equipment.
Access to New Markets
With KPOs, businesses can access new markets that can create new avenues for growth and progress. Choose a third-party KPO partner who is an expert in your industry and therefore possesses knowledge in regions that might be a blind spot for you. Additionally, if your KPO operates out of a different country, this partnership can help you discover new markets internationally that would otherwise have been beyond your reach.
Three Potential Disadvantages of KPO
Undoubtedly, KPOs make immense strategic sense. However, there are possible challenges you could encounter.
Security Concerns
Most KPOs will need to access core business functions, raising security concerns around sensitive data. The third-party vendor could share your Intellectual Property (IP) or other proprietary information outside the company. In case the vendor is in another country, security protocols and laws may be different. It is therefore important to choose KPO service providers that are compliant with the regulations of your country.
Communication Difficulties
Language barriers, time zone differences, and even work culture can create communication difficulties with KPOs. Overcoming these can be possible by choosing the right outsourcing partner by checking for language and professional compatibility. Picking the right communication tools can make the process easier. Further, it helps to establish:
- Approved communication channels
- Project timeframes
- Expectations
- Key Performance Indicators (KPIs)
Quality Control Issues
The third critical potential challenge with a KPO partnership is the quality of service that you receive. This is usually because clients don’t have direct control over the vendor’s workflow. This can be avoided by:
- Researching the KPO
- Understanding their processes
- Discussing how they can collaborate with you
- Setting expectations via a Service Level Agreement
Making Outsourcing Work
Outsourcing is a core business idea that can offer numerous benefits to businesses and organizations. Besides improving efficiency and increasing profitability, KPOs can also provide access to a global pool of technical knowledge and resources.
However, as we’ve outlined above, there are some obstacles to look out for. If you’re considering KPO for your organization, use this guide to understand your needs and consider all parameters before choosing a KPO partnership.
Learn how ProHance can help
Arvind Sagar
Arvind Sagar is a Senior Advisor at ProHance, bringing extensive experience in strategic advisory roles. He has worked across diverse industries including IT services, consulting, and business transformation. At ProHance, he guides enterprise clients in driving operational efficiency and digital transformation.
