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A note on the KPO business in India

Moving up the KPO ladder

In the past few years, the KPO business has gained momentum. Consider the figures: the Indian ITES-BPO segment (of which, KPO is a part) continued to chart strong year-on-year growth at 37% for FY 2005-06 (Source: NASSCOM). As per estimates of various studies, the global KPO industry shall range from anywhere between $12 billion and $15.5 billion for 2010. According to industry experts, India should see a sustained, ongoing 30% growth rate for the next five years. According to a NASSCOM-McKinsey report, the BPO (non-IT) opportunity for 2008 is $141 billion; however, Evalueserve estimates that only $54.6 billion will be realized by 2010, and 2.12 million people in low-wage countries will be thereby employed. As in any other business, the shakeout has begun. Smaller players are getting integrated with larger players (both captive and third-party), and clients have become more demanding in terms of the nature and quality of the work. The emergence of the KPO business has also signaled the transition from India being a provider of data processing skills to providing complex, sophisticated analytical skills.

Outsourcing to India has provided companies with significant benefits over the arbitrage in labor costs, through business process enhancements and improvements. And in the KPO space, clients demand continuous innovation and increasingly complex services. After all, KPOs offer a significant cost advantage, with clients regularly reporting savings between 25-50% over the original cost base. Earlier, companies outsourced only proprietary processes and contract sizes ranged from $10,000 to $100,000 per project. Now, investment banks outsource financial modeling and contract sizes range from $5 million to $50 million for 3-5 year projects. Consider one of Integreon’s (a 1000-people KPO with delivery centers in Mumbai and New York) clients. A roadmap will show the evolution of services over a time frame of five years. The client is one of the top five global investment banks, with over 20,000 staff in global locations. It commands more than 20% of the global M&A market share and is one of the leaders in more than 10 industry groups. Moreover, the client regularly features among top three in Euromoney and Institutional Rankings.

Why scale up
Most companies in the KPO space are small compared with ITES-BPO players. This is partly due to the initial small scope and high-end nature of the KPO business. But now, it’s time for the big-ticket orders to flow in. Moreover, companies with one or two large clients can cement their relationship with these clients and provide a one-stop service centre; this also helps clients focus on one outsourcing provider. The challenge is to replicate the success of a 2-member team to a 200-member team. It is essential to define quality levels, maintain them, and at times improve on them. Smaller players in the industry do not have strong systems in place; they have neither governance policies nor SOP guidelines in place.

How to scale operationally
Typically, there are two phases to building a system: the investment phase and the returns phase. In the first phase, a provider should clearly identify the process in consultation with the client and then provide proof of concept. Stabilizing and scaling operations are part of the second phase. One of the key areas of scaling up especially in the KPO business is the ability to innovate and anticipate a client’s need. You simply cannot start a new process and shift existing resources. Most KPO providers do not realize the need to ‘industrialize’ processes early enough assuming that as it is ‘knowledge’ based, processes cannot be industrialized. It is important to remember that innovative execution is the key for meeting challenges and developing a mature, stable system.

Lessons from the IT/BPO industry
Over the years, most BPO providers have learnt the need to put in place standardized processes, service level agreements (SLAs), and strict quality control. For this sector, industrializing processes is the key to scale. Another trend is a business continuity plan for contingency.

How KPOs can innovate
KPOs can go a step further than standardized processes. They can define quality for highly subjective and judgmental processes (output) and create systems to check. For instance, Integreon has a concept to measure output and define efficiency: the EWU (Equivalent Work Unit). Industrializing processes will not be enough; companies must standardize complex processes to achieve scale. Complex analysis requires not just domain experience, but more importantly, domain expertise. For this, companies can provide training programs for complex skill sets and establish high professional standards. Given the regulatory-sensitive nature of the information that flows into KPOs, employee due diligence, and security and confidentiality practices should be mandatory.

Contributed by:

Lokendra Tomar, Senior Vice-President for Knowledge Services, Integreon

Disclaimer:

This work is a contribution of our readers, including firms and individuals. It represents opinions and ideas of the author alone and not India Reports. India Reports is not liable for errors in information or statistics. This work has not been subjected to our stringent plagiarism checks.

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