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Companies that aim to reduce costs and improve efficiency often turn to third-party service providers to leverage their expertise and economies of scale. When businesses want to subcontract work, they employ business process outsourcing (BPO) or knowledge process outsourcing (KPO) providers. However, many still confuse the two outsourcing solutions.
Let us look at KPO vs. BPO. This article discusses their definitions, similarities, differences, and benefits. It also shares tips for choosing between two options.
Definition of BPO
So what is BPO? It involves delegating non-core business functionalities to specialized third-party service providers who perform the task at a more affordable cost and with greater efficiency. BPO services include front-office functions, administrative support, human resources (HR), and customer-related services such as call centers or contact centers.
More than half of businesses use BPO to cut costs. By outsourcing non-primary functions, companies can concentrate on core business activities and achieve significant benefits.
Offshore, nearshore, and onshore outsourcing are different types of BPO based on location.
- Offshore outsourcing involves outsourcing work to vendors in faraway countries with lower labor costs.
- Nearshore outsourcing entails outsourcing work to providers in nearby countries with similar languages and cultures to minimize communication barriers.
- Onshore outsourcing, or domestic or onshore BPO, is leveraging services from an external organization in the same country.
The other major classifications of BPO are service-specific.
- Call or contact center outsourcing manages client interactions across channels to provide customer care, technical support, and sales assistance. What is technical support in a call center? It is a service that assists users with questions concerning their technical products.
- Healthcare outsourcing specializes in medical coding, billing, and transcription.
- Financial outsourcing offers accounting, bookkeeping, taxation, and financial analysis solutions.
- Data entry processing provides offline data entry (updating data, creating documents, and managing spreadsheets) and online data entry (updating databases, website data, and catalogs).
The primary benefits of BPO are:
- Readily available human capital at lower wages,
- Higher profit margins,
- Core operations focus, and
- Easy access to infrastructure and the latest technology.
The high attrition rate is the main challenge for BPO. High turnover is due to the monotonous nature of work and a lack of career growth. Moreover, certain unions and politicians oppose BPO to retain jobs in their home countries.
Definition of KPO
KPO is where a client delegates essential business activities that require a complex and technologically advanced system to help them make low-level decisions. The total value of the KPO industry is $35.31 billion at present.
Unlike BPO, KPO providers must understand the client’s knowledge-based needs and provide custom solutions. KPO employees must have process-specific analytical and technical skills. They should have in-depth knowledge and domain expertise in the area since they must decide on certain low-level issues arising from the process.
KPO typically handles:
- Market research,
- Investment Research,
- Business research,
- Legal process outsourcing,
- Data analysis,
- Corporate training services, and
- Learning and education solutions.
The main benefits of KPO include:
- Fewer resource requirements and per-head desk space,
- Lower asset investment and operational expense,
- More available internal resources,
- Higher competitiveness, and
- Easy access to highly skilled professionals.
Hiring and retaining talent in sectors such as law, management, finance, medicine, and engineering is the primary challenge in KPO. The rising competition from other countries that have joined the outsourcing market also poses a challenge. Lastly, KPO providers must regularly invest in the newest tools to remain top industry players.
Comparison Between KPO and BPO
When enterprises contemplate outsourcing select peripheral functions of their organization, they often weigh the merits of KPO and BPO models.
Within the realm of BPO, third-party providers undertake routine business tasks on behalf of their clients. In contrast, KPO vendors are entrusted with handling information and rendering decisions of a more nuanced nature on behalf of clients. While both options share similarities, the latter necessitates a heightened level of expertise.
Here is a side-by-side comparison of KPO versus BPO.
| BPO | KPO | |
|---|---|---|
| Definition | Outsourcing of peripheral business activities to a third party | Outsourcing of information- and knowledge-related functions |
| Activities | Based on set rules and processes Repetitive tasks with established targets | Involve domain expertise, judgment, and knowledge. Must provide forecasts and insights to the client |
| Driven by | Volume | Insights |
| Degree of Complexity | Not complex | Complex processes that need handling information for low-level decisions |
| Expertise | Employees must have a sound understanding of the process | Staff must be a domain expert |
| Arbitrage | Cost | Knowledge and cost |
| Skill level | Basic education, communication skills, and computer knowledge | Highly qualified professionals with advanced technical skills |
| Focus area | Low-level process | High-level process |
| Coordination | Low coordination | High coordination |
| Process | Pre-defined process | Needs application and business understanding |
Similarities Between KPO and BPO
Now that we’ve compared KPO and BPO let’s delve into their shared attributes. These two solutions exhibit similarities when it comes to their advantages. Some key common benefits encompass:
- Save on costs. Both KPO and BPO offerings yield cost-saving advantages. Third-party providers possess robust processes and consistently invest in process enhancement through re-engineering and utilizing cutting-edge tools to maintain competitiveness. Consequently, BPO and KPO engagements alleviate the financial burdens associated with staffing, training, administrative, and other overhead costs.
- Enhance non-core functions. Professionals within the BPO and KPO domains are equipped with the requisite expertise in their respective fields. This expertise empowers them to efficiently and effectively handle non-core activities, with a steadfast commitment to delivering top-notch service to clients.
- Focus on primary business activities.The adoption of KPO and BPO solutions facilitates the allocation of a client’s workforce toward primary business functions. This strategic shift empowers clients to cultivate increased profitability and elevate overall productivity.
How to Choose Between KPO and BPO
BPO and KPO are connected to specific operational activities in an organization. So, how do you know which one you need? Consider the following indicators:
BPO is best used when:
- The work you want to outsource is less complex;
- The service function is pre-defined and has set rules;
- You only need workers with basic qualifications; and
- Volume drives the function.
KPO is most applicable when:
- Processes need a deep understanding and application of different business segments;
- Specializations are knowledge-based;
- The project is more complex and requires domain expertise;
- Workers must have in-depth knowledge and expertise; and
- Insights drive the function.
The Bottom Line
Compare KPO with BPO before choosing. Both solutions are beneficial, but your choice will depend on your business type and the jobs you plan to outsource. The skill level needed for the function is also crucial in choosing between two options.
Unity Communications has options for both, giving you resources for entry-level inbound customer service for bookkeepers, project managers, and more. Let’s connect to discuss more.
