European and Worldwide Knowledge Process Outsourcing Trends | Article

knowledge process outsourcing +KPOIn the 2007 Black Book of Outsourcing annual survey, 61 percent of the respondents noted that Knowledge Process Outsourcing (KPO) will be the fastest expanding outsourcing initiative in the next 12 months. Adventity is ranked in the top 25 firms in the survey’s list of the Best Managed Global Outsourcing Companies.

Adventity opened an office in London in August 2007 and is in advanced talks to launch an Eastern European delivery center in addition to its existing seven delivery centers worldwide. Currently it provides global integrated BPO/KPO services to more than 75 financial services and travel industry clients on five continents.

Sachin Sondhi, a Partner at Deloitte Consulting, who advises clients on their global footprint optimization, analyzes some of the leading trends in the KPO space. “KPO is an area that has gained a lot of traction since it is largely targeted at core business processes that drive client value,” he says. While most buyers traditionally looked at getting their feet wet with the transactional and technology side of outsourcing, the KPO model doesn’t subscribe to the strategy of “throw the function over the wall to a cheaper remote processor.”

He adds that some service providers are now reshaping the KPO space. As one example of KPO’s evolving new shape, Sondhi cites Adventity. “They have a pretty compelling value proposition in that their solution offering suggests that they are part and parcel of their clients’ environments, an integral part of those organizations. This is a unique approach, as opposed to saying to clients, ‘We’ll take over that function for you.’ They also focus more on the quality of the knowledge-based work than the quantity of outsourcing.”

We spoke with Niket Patankar, CEO and Co-Founder of Adventity, about the growth of KPO, how its value proposition and providers’ offerings are defining the KPO space, and key selection criteria when choosing a KPO service provider.

OC: What is currently driving the growth of KPO in the UK and across Europe?

Niket: The most important trend we are seeing is that companies are starting to realize the value proposition and true benefits of KPO. It’s no longer a question of “Can we save X percent of our KPO costs by having it delivered from a cost-effective location?” It’s taking shape as “How can KPO help our firm generate more business?” Or for an asset manager, for example, it’s: “How can it help me and my firm make more and more insightful trading ideas?” In such instances, the cost savings becomes incidental.

US companies are realizing KPO’s value proposition, and we are now seeing it catch on all across Europe and particularly in the UK.

Another strong trend is that buyers in the asset management and hedge fund space, for example, are opting for coverage in multiple markets across the globe. Today, we are covering companies, industries, and sectors in a lot of emerging and frontier markets in the Middle East, Vietnam, Africa, and Latin America. Our clients have started to take attractive investment positions in these regions; in doing their due diligence, they are looking for quality research coverage in these regions. Research is not available or as widespread in these countries, and the quality of the available research is not as strong as in developed markets.

OC: Are the companies that are looking for these types of services primarily multinationals?

Niket: Yes. For instance, in the UK we are working with a broad range of financial services firms. We’re helping investment banks with financial research and analysis, valuation and model building in equities, credit or convertible products. We’re also working with hedge funds, helping them analyze the securities they invest in. We’re also working with discretionary funds and a lot of investors in structured credit (collateralized loan obligations and collateralized debt obligations).

OC: So the lack of available, quality research is a significant driver for outsourcing this process?

Niket: They don’t have the bandwidth or the skill sets that are essential in doing the research and analysis on a granular level. In some cases, the work that we do replaces some of the work our clients did in house; but we take it to a different level of detailed analysis. And in that level there is an advantage of having a delivery center located in an offshore location.

OC: So offshore outsourcing provides the advantage of cost reduction for KPO even though you said earlier that cost becomes incidental when you look at the real value proposition of KPO.

Niket: Yes, labor arbitrage is a factor; but it’s not the first thing that world-class companies look at. It’s about how knowledge can help them do business more effectively and efficiently and how KPO help them do business in the countries, areas, and markets that are unexplored, where there is no information or data available. A significant trend in increased adoption is the focus on this deeper value play. This is starting to define the KPO marketplace.

OC: Can you give me examples of how this is defining the KPO space?

Niket: Adventity is currently working on models that help companies take advantage of opportunities that arise out of difficult situations–like what’s in the market today with the mortgage meltdown and the subprime clash in the United States. Our services help them with knowledge on how to aggressively step in and take advantage of the opportunities that are there because of the crash.

As another example, we are working with hedge funds in identifying investment opportunities. Other KPO service providers build basic models or produce basic valuation-related research. Reducing the costs associated with this service is the usual play. In contrast, Adventity builds the models but drills down to determine the top 10 opportunities that make sense and then does detailed due diligence on those 10 opportunities. We then present to our clients’ internal investment committees those detailed models along with a final recommendation on where the clients can profit.

Similarly in investment banking, KPO firms are involved in building company profiles and comparable company analysis. But Adventity has a model that embeds our team within the client’s team doing the work. This takes the process to a level where KPO can produce higher value.

We are definitely seeing a trend of companies realizing they can achieve greater value in KPO.

OC: Other than financial institutions, which industries are starting to adopt KPO, especially as a value play?

Niket: The entire corporate market is very aggressively looking at KPO in areas such as marketing and product development, corporate finance, and corporate strategy. They do a lot of business research on their competition and their target markets. They also do a lot of number crunching on their consumers and try to draw inferences that help them build out their product or consumer roll-out strategy, design marketing and advertising campaigns, and keep track of their campaign return on investment (ROI). A lot of telecom and consumer retail companies–and any kind of firm that has consumer data and consumer behavior reports–are looking at KPO. They’re not all adopting it yet, but they are looking at the value.

We are building quantitative models for our clients in the corporate space. For example, this helps them determine how to acquire a consumer most profitably at the lowest cost of acquisition and, once acquired, how to maximize the lifetime value of the customer. Or, once they have a customer and know the value of that customer, how they can prevent their top customers from defecting to a competitor’s product.

OC: Are there other KPO trends you’ve noted?

Niket: Many of the companies looking to KPO–especially those in financial services–must move quickly because markets shrink quickly. So they need to crunch the timeframe that it usually takes from the time a company starts thinking about KPO to the time the contract gets completed.

We are seeing companies start KPO on a pilot basis and conducting the due diligence while the pilot is going on. Once the pilot seems to be getting successful, they start getting the contract ready so they can start the longer-term relationship when the pilot is over.

OC: What expertise and capabilities should buyers look for when evaluating and selecting a KPO provider?

Niket: There are providers that specialize in quantitative modeling, some that specialize in research, some specialize in analyzing consumer behavior, and some do several of these pieces. Currently the KPO space has a broad range of competition. But in the KPO business, domain is really, really important. For example, in financial services, three areas of knowledge would comprise the domain expertise: knowledge of the industry, knowledge of financial products, and how to bring all of that together into a product or service delivered from an offshore location. Buyers need to realize that if the provider lacks the domain expertise, the cost benefits will quickly erode or would shrink over time to a level where the business case doesn’t make sense.

OC: What are the average cost benefits if the provider has domain expertise?

Niket: The cost benefits would remain about 60-70 percent–even more in some cases. But to the extent that the parties leverage the provider’s domain expertise even further, they can create a revenue enhancer or other value-add to the business. Then the cost savings become ancillary.

OC: Are there other selection criteria buyers need to keep in mind besides domain expertise?

Niket: Look at the provider’s ability to service your requirements over scale, over multiple cycles, and over a large set of analyses across multiple industries, companies, or countries. Many KPO providers can usually do an analysis of one company very well or very quickly. But can they analyze about 500 companies based in 30 countries in a two-month timeframe? And can they scale up to do that analysis of not just one company but many? The real test is whether the provider can scale it and yet maintain the same level of quality it had for doing just one company.

OC: How much has the KPO market actually grown during the past years?

Niket: It is difficult to quantify because some of the providers are not public, and some that are public don’t have significant divisions in KPO or break out those numbers to quantify and analyze growth. But at the very least, it’s a 100 to 200 percent growth rate, based on the growth we are seeing at Adventity. Our company was established in December 2003. We have a current headcount of approximately 2,600 and expect that to increase to 3,500 by year end and then increase to 5,000 by the end of 2008.

OC: How long do you predict growth will continue at such a high rate?

Niket: The market is now just kind of beginning to wake up. I think we have seen just a handful of market participants opening up to KPO. As the full potential opens up, we’ll see the growth increasing over the next three to four years and then taper off in five to seven years as we move to more mature markets in KPO.

Lessons from Outsourcing Journal:

  • Companies, especially in the financial services arena, are starting to realize the value proposition and true benefits of KPO extend far beyond cost reduction.
  • Many companies lack the bandwidth in house for conducting skilled research. A KPO provider not only has the resources but also the skill sets for doing research and analysis on a granular level.
  • The entire corporate market is very aggressively looking at KPO in areas such as marketing and product development, corporate finance, consumer behavior, and corporate strategy.
  • Often, the buyer’s business need for KPO services drives companies to act quickly and shrink the timeframe for getting to a signed contract. Companies, especially financial services firms, are starting with pilot KPO projects and conducting due diligence and contract negotiation during the pilot.
  • To ensure ROI, domain expertise (industry and products), along with the capacity to scale research and analysis services quickly over multiple industries, companies, and countries are the key provider selection criteria in KPO.


1 Comment on "European and Worldwide Knowledge Process Outsourcing Trends | Article"

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  1. Speaking of the legal knowledge process outsourcing, it can be said that the services they provide compare favorably with much of what attorneys produce at high-quality law firms in the West. In at least one case, the off-shored services are managed on-site by a reputable American law firm, and supervised by a team of U.S.-licensed attorneys who have been practicing at the top of their fields. This gives clients both quality assurance and accountability. Also, when corporations and law firms outsource legal services to the best legal KPO companies, the work is done by top law graduates, experienced lawyers, and/or former law professors from some of the best companies, law firms and law schools in India. And again, often those recruits in turn are trained and supervised by respected U.S. or U.K. attorneys.
    Off-shore legal outsourcing can lead to savings of up to 50% or much more. As The New York Times reported: “The reason for the shift [to outsourcing legal work] echoes the reason companies are sending other work abroad: they save substantial amounts of money. Some companies say they can reduce certain legal costs by as much as 50 percent, and receive work that rivals what they can obtain in the United States. According to Dennis Archer, the President of the American Bar Association, ‘The need to cut costs reaches across many departments, so it should be no surprise that it goes to the legal department as well.’” The financial benefits of off-shore legal outsourcing can be seen not only in the obvious differences between salaries and costs of living among the workforces of the U.S. and India, but also in the cost of office space, which is ultimately paid for by a law firm’s clients. Many law firms locate all or most of their personnel in relatively expensive offices in the largest cities in the United States and the United Kingdom. This has led to a situation where much of each dollar or pound that these firms charge their clients pays for office rent. In Mysore, India, for example legal outsourcing employees work in state-of-the-art facilities at 1/43rd the cost of comparable space in major U.S. cities. This is a major part of the way that an legal KPO can keep its promise to clients that they are paying for legal services, not real estate.

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