Knowledge process outsourcing (KPO) has reached something of a revered status over the past year or two, hailed as the exciting progression of BPO into more specialist arenas. However, perhaps the sector isn’t quite as advanced as the hype would have us believe. At the NOA’s 2009 sourcing summit for example, a speaker asked the audience how many delegates could call their relationships KPO – and out of a room of 300, only two put up their hands. This doesn’t bode well for the sourcing industry’s new hope.

To gain a better idea of where KPO may move to in the future – and why it hasn’t taken off as quickly as one might hope - let’s go back to basics to establish where the sector is at now and what issues it is facing. How exactly do the experts see KPO at the present time?

“KPO is the next step in the evolution of BPO, and the natural progression of the value chain,” explains Ravi Shanker, vp BI and analytics at Capgemini. “It is the outsourcing of higher levels of judgment, deeper domain knowledge, and more complex decision making, which means that it can be applied to core tasks that directly impact clients.”

Patni Computer Systems’ Satish Joshi agrees with this definition: “The knowledge-intensive and judgment-based nature of KPO skills involve a higher degree of complexity and require specialist domain knowledge,” he says. “Examples include doctors, nurses, actuaries, pharmacists, lawyers, and architects. Such skills are short in supply or extremely expensive in the US and Europe.”

John Redfern, md, Inovis believes the sector is yet more specific than this: “KPO deals exclusively with the subcontracting of skilled work, such as B2B communications, to highly trained specialists,” he argues. “Project managers, migration experts and support teams with vast industry experience should be in place to provide a round-the-clock service.”

“The basic idea,” concludes Nigel Edwards, vp and European head of Cognizant’s BPO practice, “is that by applying new knowledge, skill-sets or business savvy that were not previously affordable or available, organisations can enable new services or capabilities that, in the past, could not be considered feasible, achieving a totally unexpected outcome.

“For example, one of our customers in the healthcare insurance industry has been taking advantage of skilled Indian labour to improve the effectiveness and extent of its investigation of fraudulent claims,” he explains.

But what advantages does this specialist sourcing offer to the greater masses, and to those doing the work themselves? Nigel Edwards believes that KPO arrangements give offshore workers a far greater degree of job satisfaction and potential for career progression – helping to address the high attrition rates and customer service issues associated with these processes.

“Tasks are typically analytical and require staff to be highly qualified, professional and mature,” he explains.

John Redfern adds that often, this level of service from highly qualified professionals is just not possible from an in-house team, which often has to divide its time managing a variety of different functions, with less specialist expertise in any one key area.

“By targeting individual business processes, KPO dispels the myth that outsourcing is for large multi-national organisations only, and proves that small and large business alike can benefit from this kind of service,” he believes.

“Whereas traditionally, outsourced contracts were often high-value, long term commitments, KPO contracts in today’s economy are targeted at a much wider pool of businesses and markets, and are just as likely to be low-cost contracts which run over shorter time frames,” he concludes.

If all of this sounds a little too glowing, the sector certainly doesn’t come without its drawbacks – one of which is organisations’ understandable reluctance at times to outsource key business processes – particularly if they are specialist to that company and require extremely specific skills. This could naturally cause some anxiety about the performance of the outsourcer from an end-user perspective – particularly if the operation is being moved offshore.

John Redfern goes further with regards to the outsourcing of specialist IT functions: “Perhaps understandably, many businesses have been uncomfortable with the prospect of third parties having access to company data.

“In addition, a lack of reliable IT infrastructure, both in terms of hardware and system availability has led to some apathy towards outsourcing,” he says.

This isn’t the only drawback, however. Satish Joshi argues that cost is another deterrent for those looking at KPO: “Because KPO skill sets involve specialised education, domain expertise along with analysis and decision-making as opposed to the more process driven and rule-based BPO, they need a substantial investment,” he argues. “In India context, KPO salaries could be 25-50 per cent higher than those offered to BPO professionals.”

Nigel Edwards disagrees with this hypothesis, however: “The wage differential between near and offshore skilled professionals with significant experience is greater than that of the graduates with lower levels of skill and experience traditionally hired into transaction processing operations,” he explains. “This means that KPO actually presents a better business case than the traditional BPO deals, albeit on a smaller scale.”

And what of the future for the KPO sector? Ravi Shanker argues the sector still has a long way to go before reaching a level of general acceptance to match BPO: “KPO is still an emerging market, which consists of a large number of niche players vying for sector specific opportunities based upon their own specialities,” he says. “By its very nature, the sectors and expertise involved make it a good fit for niche providers.

“That said, however,” he concludes, “there is certainly room for the major players in outsourcing and BPO to utilise their knowledge of existing markets and claim their position in this very exciting space during 2010 and beyond.”