04/11/07

02:49:33 pm, Categories: Entrepreneurship, Business Trends, KPO  

Caution! Dire predictions ahead.

Now that we have figured out the true impact of BPO, we are being thrust into the middle of the KPO trend. For the uninitiated, business-process-outsourcing (moving IT delivery & operations offshore) was a $157B global phenomenon in 2006 and is expected to grow at a CAGR of 10% for the next few years. Knowledge-process-outsourcing (KPO) deals with the outsourcing of knowledge related activities. If you can think of an insular knowledge-intensive business function, it can probably be outsourced. Examples of functions that have already been outsourced include medical transcription, legal research (patent analysis & preparation), pharmaceutical / drug research & trials and financial research (M&A deals, equity analysis). OfficeTiger, one of the leading KPO firms, is targeting a $400B market for general research in the US. Other more conservative projections talk about the KPO market reaching $17B by 2010. For reference, it was about $2.5B in 2006.

With the open, easy flow of information across global borders, nations like India, China & Philippines are beginning to flex their muscle. The big advantage they have is a huge, low-cost, educated labor pool that has a flair for research and analysis. For example, the loaded cost for a research analyst in India is hovering around $15 / hour at present. If an enterprise can get an insular, knowledge-intensive business function done in another country at a third of what it costs here, it would be tough to argue against outsourcing that function. True, we need to factor in the language, time and cultural barriers. But these factors are not insurmountable, as we have seen in the last 3 – 4 years with BPO. And the fact remains - We are in an age of knowledge commoditization. If a knowledge-intensive business function is not a core competency or critical to its competitiveness, an enterprise would be hard-pressed to NOT outsource it.

So what are the implications of this trend? I think that most business functions in most industries will be impacted to some extent by KPO by 2015. The only business functions that will not be adversely affected are those that require on-site presence at customer premises, like sales & customer service. The only industries that will not be adversely affected are the services & retail industries, for similar reasons. There are several projections out there that estimate that China will account for 20% of the World GDP by 2015, based on its manufacturing prowess. I predict that the KPO trend will enable India and some of the key south-east Asian countries to account for over 5% of the World GDP by 2015 as well. A quarter of the World GDP being accounted for by a handful of countries in Asia. Sounds like fiction? Think again. All indications point to this scenario emerging within 8 to 10 years!

So what does this mean for Corporate America? There is a lot of literature out there that talks about Innovation being the only sustainable, competitive advantage for American enterprises. I would like to take that thought a bit further. Innovation in its current sense deals with continually revamping your product & service portfolio and target markets. I don’t believe that such a complacent approach to Innovation will help. We might even see the outsourcing of the Innovation business function, if we keep it this simple! To stay truly competitive, I believe that American enterprises will need to constantly keep re-inventing themselves by redefining their value chains and appropriately positioning themselves in the new value chains. And American enterprises would do well to borrow a couple of pages from the playbooks of successful entrepreneurs to develop this kind of agility in short-order.

Thoughts?

Sampath

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