Business Process Outsourcing versus Knowledge Process Outsourcing - Which One You Should Choose?

Outsourcing is a common theme for many businesses in all industries and sectors. You can outsource a common task or business strategy to a specialized firm.

Both business and knowledge process outsourcing are often considered the same but they are different.

What is Business Process Outsourcing (BPO)?

Business process outsourcing is the process of handing over front-end or peripheral activities to a third party.

It refers to arranging different business activities with the help of specialized skills and expertise of external partners.

Commonly, businesses outsource their non-core activities that require some form of specialization to save costs and time.

Each business can decide on the requirements of outsourcing tasks and the scope of the work to be outsourced. Most businesses decide to utilize third-party services to save costs and time but many do it to bridge the skill gap too.

Common Forms of BPO

Business process outsourcing can be done in different forms depending on the scope and complexity of the required activities.

Offshore: It involves outsourcing business activities to a third-party service provider in another country, usually at a longer distance.

The motive behind this form of BPO is often cheap labor costs.

Onshore: It is the process of outsourcing activities to a party in the same country. Usually, domestic skilled labor is utilized for this type of BPO.

Nearshore: It involves outsourcing to external partners in foreign but nearby countries. It is often considered a good blend of cheaper cost and better quality when outsourcing business functions.

Types of Services Provided Through BPO

Since BPO is more concerned with non-core activities, it may involve several types of operational and managerial services.

Some common types of services provided through BPO include:

●      Accounting, finance, and taxation services

●      Customer care, communication, and after-sale services

●      Data entry, documentation, and digitization of data

●      Back-office services including procurement, supply management, and logistics

●      IT, software, and automation services

●      Healthcare, insurance, and human resource processes

What is Knowledge Process Outsourcing (KPO)?

As the name suggests, KPO refers to utilizing third-party specialized services that involve knowledge-base and high-value processes.

KPO is more concerned with the strategic side of a business rather than the operational side as in the case of BPO. This type of outsourcing is value-driven and often more complex than BPO.

Since this type of outsourcing is knowledge-intensive, it requires a higher degree of specialization and expertise from the service provider. Therefore, these activities must be performed by highly skilled, qualified, and experienced service providers.

In contrast to BPO, the KPO side of outsourcing weighs more on value rather than time or cost-saving activities. Therefore, these services require analytical, strategic thinking, and advanced technical skills in a specific business function.

Common Forms of KPO

Knowledge process outsourcing can also be arranged in similar ways as BPO. However, the deciding factors are usually specialized skills and experience from the service provider rather than only cost.

Therefore, if the required talent pool is available domestically, the KPO can be arranged through onshore or nearshore processes.

Large organizations often arrange offshore KPO processes for broader needs of technical knowledge, shared expertise, and training local staff.

Types of Services Provided Through KPO

Some common types of services arranged through knowledge process outsourcing include:

●      Market, customer, and business research

●      Legal process outsourcing

●      Creative writing, designing, and designing

●      Data mining, data analysis, and forecasting models

●      Corporate training, educational, and learning arrangements

●      Financing, investment, and insurance planning services

As evident from the examples listed, KPO is linked to strategic and technical aspects of business outsourcing rather than operational processes.

BPO Vs KPO - Which One You Should Choose and How?

Both types of outsourcing activities are commonly used by all types of businesses. Many businesses use both types simultaneously too.

Although KPO is often regarded as the subset of BPO, some key differentiators can help you choose the right one for your business.

Strategic Vs Operational Needs

When indifferent between both these options, look into the basics first. If your outsourcing needs are routine and non-core activities, you need BPO.

On the other hand, if your needs are strategic and value-driven, you should choose KPO.

Type of Service Required

Then, delve into some details and understand the type of services required. The nature and complexity of these activities will help you make the right call.

For instance, if you want to outsource an accounting function, you’ll go for BPO. However, if you have complex and strategic accounting challenges, KPO through financial consultation will be the right choice for you.

Complexity of Required Work

BPO service providers can be individuals or firms with entry-level knowledge and experience. These are often routine tasks that are not complex.

Contrarily, KPO service providers are often specialized firms or experienced individuals. These tasks are complex and service providers need to make high-level decisions.

Availability of Services

Since KPO requires a higher degree of expertise, availability is often a challenge. However, BPO service providers are often available easily.

Therefore, a common theme in deciding between both types of outsourcing processes is to look at the available resources and expertise.

Internal Development Needs

Another key element to look at before deciding on the type of outsourcing is internal development for your staff.

If you want shared knowledge and parallel skill development of your staff, you should opt for KPO. However, if employee training is not a critical issue, BPO can do the job for you.

BPO Vs KPO - Common Benefits and Similarities

Although both types of outsourcing come with different utility and require different scenarios of application but they have some common benefits.

Cost-Effectiveness

An outsourced business function is always cheaper than arranging a full-time employee in the long term.

You can save on operational infrastructure, training, and supplies as well. Both these processes can help you save time and cost in the long run.

Access to External Talent Pool

Working with reputable service providers gives you a competitive advantage. Both these outsourcing processes allow you to access the external talent pool easily.

For instance, working with a specialized accounting firm can help you reduce costs and increase efficiency in your accounting function quickly.

Improved Business Efficiency

You can focus on the core activities of your business by outsourcing the tedious and routine tasks.

When you don’t possess the necessary skills to perform specific tasks, outsourcing helps you improve business efficiency by reducing the workload.

Help in Scalability and Growth

Developing skills and expertise for rapid growth often requires time and resources.

You can scale rapidly by outsourcing common tasks at cheaper costs and focusing on high-value activities to help grow in the market quickly.

Employee Training and Productivity Growth

Both BPO and KPO have a common theme of helping you with employee training and productivity in the long term.

Whenever you outsource from specialized service providers, your employees can benefit from shared knowledge and expertise.