Knowledge process outsourcing (KPO) started as an offshoot of the success of the Business Process Outsourcing (BPO) model. The first initiative was in the form of setting up knowledge centres, which led to the establishment of captive centres rendering services in the field of research and analytics. Today there are several niche third party service providers with domain expertise that make India a favourite destination for KPO.

KPO refers to the outsourcing of high-end complex tasks and processes like market research, investment research, patent filing, legal and analytic services, sourcing and information management, and others. It emerged as a strategic growth tool fulfilling the need to maintain equilibrium between the cost of acquisition and maintenance of knowledge vis-à-vis the returns through that knowledge. Knowledge has become a tool to compete in the present frenzied market competition, characterized by lower operational costs, increased consolidation and diminishing global trade barriers. The KPO business model got additional strength from improved communications, networking, highly-skilled labour pools and cost arbitrage.

The three Ps

The KPO industry is currently just past the introductory stage of its life cycle-curve, and is now stepping into the next phase – growth. This phase involves many more players, many more clients, higher ramp-ups of existing organizations, and the offering of more services. But as the industry enters the growth phase, it has to start thinking of growing more productively and faster. Some questions that may arise could be: How to grow faster? How to make sure that productivity increases? And, most importantly, what will be the differential factor in the common domain? That is, what will give a firm the cutting edge – and in other words, how will it sustain a competitive advantage?

A successful outsourcing venture requires optimum combination of the three Ps – plan, process and people. The first element, a good plan, needs to be clear, comprehensive, flexible and in line with market dynamics. In the context of the KPO industry, a business plan needs to take into account and accommodate, among other things, economic considerations such as exchange rate fluctuations, global economic trends and their impact on the outsourcing industry.

Sometimes unconnected factors like rising oil prices can have a significant impact on inflow of business into the industry. The repercussions of such dynamics need to be studied and accommodated in a business plan.

The second critical element of success is a structured and process-driven environment. Discretion needs to be minimized and systems must be set up accounting for an objective and clockwork functioning. Processes needs to make inroads into operations, administration, human resources – etc, all the verticals of an organization to increase productivity. It shows where the organization has reached – its activities are repeatable, defined, managed and optimized. Setting up of processes also mandates their effective implementation. At the same time, a buffer should be created and flexibility to meet extraordinary circumstances needs to be ensured.

The third pillar of a successful organization is its people. In the service industry, the intellectual strength of an organization resides in its people. It is critical to have the right kind of people in the right numbers doing the right job for a business to be successful.

Quality control

Knowledge process outsourcing (KPO) is reasonably new and evolving constantly with time. This evolution and growth prospects have encouraged multiple players to test the market, while the number of personnel trained to deliver services remains limited. The gap between resource demand and supply has increased the threat of employee attrition. For every well-trained person, multiple job offers await, with every new company willing to pay higher and higher compensation to attract the best talent. Corporations lately have been adopting many techniques, varying from providing recreation facilities, to granting flexible timing and target-based incentives to attract and retain talent.

Responding to this trend, an organization needs to develop an employee-hiring-and-retention strategy. The industry has a lot to offer in terms of the learning and exposure that employees receive, but the drive to make sure people-capital is not eroded is a challenge.

Consistent performance is a leading contributing factor to success. With steady rupee appreciation, cost arbitrage has ceased to be the only advantage in outsourcing. Organizations worldwide are beginning to look at outsourcing as an avenue to access qualified and trained resources and enhance the quality of their operations, thereby enabling them to focus more on their core competencies. For a KPO service provider, this expectation translates into a need to create robust quality control mechanisms. Multiple check-points need to be built into the work-flow process to ensure thorough checking and strict quality control. Effective measurement and error control systems need to be built.

Confidentiality

An effective mechanism for ensuring and maintaining quality is to provide regular training to the personnel. A well-crafted training programme merging domain issues with operational business requirements is ideal. A decisive element of any training programme is identification of the areas in which training is needed, an effective training methodology and educated trainers to give the required insight to trainees. In the business environment, a training programme is typically a combination of classroom sessions with on-the-job training to give the new joiners operational familiarity. The first leg of training is then followed up with periodic updates and notification sessions on the latest domain and client-specific issues.

Security and confidentiality of information is a no-compromise zone for clients in the outsourcing industry. The leaders of outsourcing have had a tough time in breaking down firms' unwillingness to send important documents or information to unseen offshore people. The transition of information demands trust, a virtue that the offshore vendor needs to earn by providing convincing evidence of stringent security and confidentiality standards. The concept of security has expanded from strictly IT and physical security to employee confidentiality. Clients raise concerns about employees leaking confidential client information or using the information to the detriment of the client after they discontinue working with a particular offshore vendor.

Responding to these concerns, KPO vendors need to develop multilevel security systems using a combination of physical and electronic methods and high-end technology tools, such as firewalls and encryption techniques to ensure data security at all levels. Rigorous and regular security audits must be an essential part of the security system. Some companies are beginning to request their employees to undergo a thorough screening and background check and to sign confidentiality agreements to ensure employee confidentiality. Regular training sessions are being given to employees on various aspects of information and other security to develop a culture of privacy and data protection.

Ethical behaviour

In the KPO industry knowledge is leveraged to create differentiation. The industry is moving from basic and moderately complex work to work of high complexity. KPOs in the field of legal and IP outsourcing that work on legal and patent-related matters often face questions about whether the product of the service provider company is covered by the attorney-client privilege and the attorney work-product doctrine. There is a need to overcome such perception hurdles as they have a major bearing on the inflow of legal and IP-related outsourced work.

A client seeking professional legal advice and assistance from an attorney makes the communications between the client and the attorney eligible for protection under the attorney-client privilege. The attorney-client privilege protects communications made in confidence between a lawyer and a client for the purpose of seeking or giving legal advice without fear of discovery by third parties.

The attorney-client privilege extends to both written and oral communications. It is a two-way protection, covering communications originating from both the client and the attorney. Communications originating with contract attorneys and agents (including contract attorneys, patent agents, patent engineers and paralegals from non-US jurisdictions) are protected under the attorney-client privilege if the contract attorneys, patent agents, patent engineers or paralegals acted at the direction and control of the client's attorney.

The work-product doctrine allows attorneys and clients to create documents and gather information in the course of rendering legal advice without fear that those documents may be discoverable by third parties. The doctrine protects information that is prepared by or for a lawyer or client in anticipation of litigation or for trial.

Thus the determining factor in outsourcing legal services in an ethically permissible manner is to pick the right legal process outsourcing (LPO) provider. That is, the question for an attorney is not whether it is permissible to outsource legal work, but whether the chosen provider enables lawyers to satisfy their professional ethical obligations. Addressing and resolving client concerns about conflicts of interest, practice of law, the attorney-client privilege, client confidence, and delivery of the client's work in a secure and seamless fashion, will definitely give a firm the edge over other players in the common domain.

Patent-specific work, which involves export control, must also be addressed. Accurate classification of the technology in question is crucial in ensuring compliance. Invention classification should be a joint effort between inventor and attorney, with the service provider acting as a safety net.

Cultural differences

Last but not least, a sustainable competitive advantage resides in mitigating hurdles of perception, such as miscommunication and cultural discomfort. Cross-cultural risk factors have assumed a significant place in offshore outsourcing, in the light of many potential start-ups going awry because the risk-assessment dimension of two cultures coming together in an outsourcing arrangement was not given its due importance. Cultural mismatch and failure to integrate leads to poor strategic alignment, communication and execution, and these issues are key reasons for the failure of any business relationship. Developing risk-assessment and risk mitigation strategies to address cross-cultural risk factors with adequate analysis and solutions is needed to predict the potential impact of cross-cultural factors and to plan for mitigating their effect.

More complex hurdles

By 2010 the global KPO market is expected to grow in excess of 30% a year. There are a number of key drivers behind the growth of KPO. The vendors have already shown their ability to execute high-end knowledge-work efficiently. The above discussion pertains to the factors(s) or attribute(s) driving sustainability and client advantage.

Customers today are informed and demanding. They have their requirements clearly defined and expect the service provider to match their expectations. An outsourcer in search of a KPO wants a service provider that has the necessary expertise and skill, and has a depth of knowledge and understanding of the services it offers, along with the relevant experience in the focused areas. The service provider in the KPO domain must customize solutions for the client, and must be flexible. It is a small price to pay for that degree of difference over competitors.

As the KPO industry moves on from the growth phase, it will face hurdles very different in nature and character from today, such as different regulatory pressures. KPO deals with knowledge, and things can take a turn if countries become concerned about losing their strategic knowledge. Export controls restricting international dissemination of certain technologies have already been adopted in certain jurisdictions in the patent-specific outsourcing field, but how far the other knowledge domains such as financial analysis and statistical analysis skill-sets will be covered under technical disclosures is an issue which only time can clarify.

Regulatory and compliance control will be likely to be more rigorously demanded, as knowledge service providers deliver more complex services. As of now the growth phase is a stage where productive tools and models are important.

Savi Gupta

Savi Gupta is general manager of Clairvolex Knowledge Processes Pvt Ltd, a New Delhi based KPO. She is a qualified Company Secretary and has a Bachelors degree in Law. Having risen through the hierarchy in the legal and IP outsourcing sector, Savi has extensive experience in the dynamics of outsourcing. Savi is also a prolific writer. She has written on aspects of knowledge process outsourcing for various publications, both online and in print. She can be reached at savi@clairvolex.com