Trends in Knowledge Process Outsourcing - Growth Opportunities in High-Level Processes (Strategic Focus)

The maturing knowledge process outsourcing (KPO) market represents a significant growth opportunity for vendors. As well as defining KPO, in relation to the broader outsourcing market, this report will assess how vendors can best position their offerings in order to take full advantage of the sector's blossoming potential.

Report Highlights
Knowledge process outsourcing (KPO) represents the next step in the evolutionary cycle of the outsourcing market. Just as the success of IT outsourcing paved the way for the growth of business process outsourcing (BPO), so the growing maturity of the BPO industry has led to the development of KPO.

The origins of the KPO industry can be traced back to the late 1990s, but it was not until 2003 that the market really began to take off. KPO was the subject of a large amount of hype which led many within the industry to make bold claims about how fast it would grow. The intensity of this hype has gradually died away as the market has matured.

Unlike the established horizontal BPO areas, such as F&A and HRO, which focus on non-core aspects of the client's business, KPO involves the outsourcing of core business functions. Clients are often reluctant to relinquish control over such areas, with quality and security being the major areas of concern.
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Table of Contents 3
Table of figures 4
Table of tables 4
Market opportunity 5
Defining Knowledge Process Outsourcing 5
Definitions of KPO include a broad range of services 5
Contract signings and M&A activity illustrate growing maturity of KPO 6
KPO acquisition activity 6
Many KPO vendors focus on specific vertical markets 7
The financial services industry is an ideal market for KPO 7
The current recession represents a major challenge for providers focused on the financial services sector 8
KPO vendors aim to go beyond cost arbitrage 9
Service Evolution 11
The Origins of the KPO Market 11
The KPO hype begins to grow 11
Growing maturity opens up significant opportunities 11
Offshore delivery has remained a constant feature of KPO 12
India remains the pre-eminent offshore location 12
Multi-shoring models are gaining traction 12
Evaluating emerging KPO delivery locations 13
China 14
Philippines 14
Sri Lanka 15
Hungary and the Czech Republic 15
Canada 16
Mexico and Brazil 16
Customer Impact 18
Clients have concerns over the outsourcing of core functions 18
Vendors can take steps to alleviate client concerns 18
KPO offers clients a range of potential benefits 19
Vendors place focus on 'intellectual arbitrage' 19
Large organizations consume the most knowledge-based services 19
Drivers behind dominance of KPO industry by large corporations 19
Breaking into the mid-market is a challenge for many vendors 20
Competitive Landscape 21
Global giants have struggled to establish themselves in the KPO market 21
India's leading outsourcers have well-established KPO offerings 22
The leading pure-play BPO vendors have strong presence in the KPO market 22
KPO specialists are able to target specific industries and service areas 23
Captive operations remain part of the KPO landscape 24
Go to Market 25
Scale is of lesser importance in KPO than BPO 25
Size does bring advantages 25
Niche providers can outperform industry giants 25
Technology as an enabler for KPO 26
Potential impact of the current recession on the KPO industry 26
Vendors may need to look beyond financial services 28
Recommendations 28
Investigate potential for growth in vertical markets outside of financial services 29
Look to develop a multi-shore delivery model 29
Use multi-shore delivery model to target emerging geographic markets 29
Recognize that strong client relationships are vital to the success of KPO deals 29
APPENDIX 30
Methodology 30
Further reading 30
Ask the analyst 30
Datamonitor consulting 30
Disclaimer 30
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Table 1: India's Top 10 BPO Providers, 2007-2008 6
Table 2: Acquisitions of KPO Vendors Since 2006 7
Table 3: Assessment of emerging KPO locations 14
Table 4: Analysis of key KPO vendors by service line 24
Figure 1: Rate the importance of the following factors in your decision to enter into a BPO contract (1 - Least Important; 4 - Most Important) 9
Figure 2: Total Contract Value of Outsourcing Deals ($m) against Number of Contracts, January 2008 to February 2009 27
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