Definition of knowledge process outsourcing (KPO)

What is Knowledge Process Outsourcing (KPO)?

Knowledge Process Outsourcing (KPO) is the outsourcing of core business activities related to information. KPO involves outsourcing work to people who typically have advanced degrees and experience in a specialized area.

Information-related work may be performed by workers from a different company or by an affiliate of the same organization. The subsidiary may be in the same country or in a foreign location to save costs or other resources.

Key takeaways

  • Knowledge Process Outsourcing (KPO) hires knowledge-based work with qualified subject matter experts.
  • Companies use KPO when they are looking for specialized knowledge and experience and when they have a shortage of trained professionals on staff.
  • Ideally, companies turn to KPO to simultaneously obtain a highly skilled workforce at a lower cost.

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Understanding of knowledge process outsourcing

Knowledge process outsourcing is the intentional assignment of relatively high-level tasks that involve specialized knowledge or problem solving to an external organization or a third party that has a high level of subject matter expertise, often located in a different geographic region. to that of the company itself.

KPO is different from business process outsourcing (BPO), which involves outsourcing labor and other operational work to a third party to save money. Although KPO is a subset of BPO, KPO involves much more specialized, analytical, and knowledge-based work.

Companies participating in KPO seek to obtain highly skilled and skilled individuals without having the cost of training and developing those workers. Through KPO, a company can quickly add experts in specific fields to drive competitiveness and increase profits.

KPO service types

Some common examples of KPO outsourcing domains include:

  • Financial consultants
  • Research and development (R&D)
  • Business operations (management consulting)
  • Technical analysis
  • Investments
  • Legal
  • Medical and healthcare
  • Data analysis and interpretation

Reasons for outsourcing knowledge processes

Companies use KPO when looking for specialized knowledge and experience where that knowledge or skill base cannot be found internally. However, companies that participate in KPO abroad also often do so to cut costs by hiring skilled workers who earn lower wages elsewhere rather than hiring one directly as an employee. Ideally, companies turn to KPO to simultaneously obtain a highly skilled workforce at a lower cost.

For example, a manufacturer can use raw materials, add value to those materials through various processes, and then sell the result as a final product. The company could turn to KPO to determine how to improve the efficiency of its production process so that it can offer the maximum value for the lowest possible total cost. The result of KPO could also help the company create a competitive advantage.

Advantages and disadvantages of KPO

KPO can help companies reduce production or operating costs by creating new processes or optimizing efficiencies. KPO also fills the gap or need for skilled employees in a particular field. KPO also frees up existing staff, including administration, to perform other tasks that increase efficiency and productivity.

The flexibility that comes with KPO allows a company to easily increase or decrease staff. For example, if economic conditions worsen, a company can easily downsize its KPO staff to cut costs. In contrast, a company may quickly hire specialized personnel to increase profits or revenue. KPO helps a company be more agile and adapt to changes in its industry and competitive landscape.

However, there are downsides to KPO. Intellectual property privacy and business security can be compromised if classified or proprietary information is lost, copied, or given to a competitor. Companies have less control over the process of hiring outsourced workers. As a result, a company may not be able to guarantee the character of its outsourced employees or the quality of their work.

KPO implementation can take a lot of time and resources to establish a successful operation. Additionally, communication can be a concern and challenge due to legal, linguistic and cultural barriers. Another downside could be that existing employees may feel threatened by hiring contract workers and feel like their jobs are at risk.

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Mark Holland

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