How KPOs can sustain their competitive advantage
posted in Outsourcing to India |Source: www.deccanherald.com
Thomas Friedman rendered us Indians a huge service when he wrote his now famous bestseller - The World is Flat. It outlined the phenomenon, the advantages and the mechanics of a previously little-known phrase “Outsourcing”, and the rest, as they say, is history.
The first wave of outsourcing resulted in what we all know as the BPO industry—this is now an US$8.4 billion industry, employing roughly 5,53,000 employees. The rationale behind the BPO movement was an understanding that companies could focus on core competencies while taking advantage of labour arbitrage, and hence save costs.
This worked well and, as we know, the BPO industry has been at the forefront of the new ‘Indian Revolution’ resulting in the corporatisation and globalisation of urban India with a completely new face to the world.
As buyers and suppliers became more comfortable with the idea of outsourcing per se, there came the realisation that more and more work could be outsourced, thus honing even further the ability of a business to focus on core competencies.
This got an added impetus with suppliers creating an opportunity to further mine a client for additional work. This was better and cheaper than acquiring a fresh client (classical wisdom states that it is seven times more expensive to acquire a fresh client than work with an existing one). This resulted in the beginning of the Knowledge Process Outsourcing (KPO) industry, an industry that is forecast to grow to a $16.7 billion worldwide industry, employing nearly 3.5 lakh professionals by 2011.
The early pioneers of this industry were the following:
Segment I: Existing multinationals that used cheaper destinations with readily available knowledge oriented talent pool for setting up captive knowledge units—GE with Genpact is the best example of this phenomenon.
The kind of work that this breed of ‘KPOs’ did was a little more ‘high end,’ and analytical; less transaction oriented, but more business oriented
Segment II: Erstwhile BPOs that logically extended offerings to include higher end / analytical / knowledge-oriented services. In many cases, these companies took / are taking the acquisition route to acquire the expertise that a knowledge organisation should possess.
Segment III: Almost at the same time, the industry saw the rise of ‘pure play’ KPOs—those that specialised in the knowledge game. These are boutique operations, very often still start-ups, specialising in niches of the knowledge research and analytics spectrum.
These operators have all contributed to the growing realisation amongst clients based in the western world—that India has a talent pool that goes beyond mere proficiency in the English language—that the educational standards are similar to those in the West, and the analytics that arise out of the Indian pool is actually adding value beyond merely saving costs.
Emerging sector
The KPO industry is currently just past the “introductory” stage of its Life Cycle Curve, and is now stepping into the next phase - growth.
Following the classical ‘S’ curve, this phase now entails many more players, many more clients, higher ramp ups of existing organisations, many more services offered. In fact, in some ways the industry is already showing atypical behaviour—it is seeing many consolidations / buyouts as well, a phenomenon typically characterising the maturity phase of the Life Cycle. These acquisitions are motivated sometimes by the desire of the Segment II players to acquire knowledge-related expertise (recent news talked of Infosys and Wipro eyeing a possible buyout of MarketRx; WNS recently acquired Marketics Technologies); and sometimes by the sheer realisation by clients that this is a useful service offering to have in-house rather than outsourced (R R Donnelley’s acquisition of Office Tiger).
