What Is Knowledge Process Outsourcing (KPO)

Knowledge process outsourcing (KPO) is the outsourcing of core, information-related business activities. KPO involves outsourcing work to individuals that typically have advanced degrees and expertise in a specialized area.

The information-related work can be carried out by workers in a different company or by a subsidiary of the same organization. The subsidiary may be in the same country or in an offshore location to save costs or other resources.

Key Takeaways

  • Knowledge process outsourcing (KPO) is the outsourcing of core, information-related business activities to individuals that typically have advanced degrees and expertise in a specialized area.
  • Companies utilize KPO when they are looking for specialized knowledge and expertise and when they have a shortage of skilled professionals.
  • Ideally, companies look to KPO to simultaneously obtain a highly-skilled workforce at a lower cost.

Understanding Knowledge Process Outsourcing (KPO)

Knowledge process outsourcing (KPO) is the allocation of relatively high-level tasks, to an outside organization or a different group usually in a different geographic location.

KPO is different from business process outsourcing (BPO), which is the outsourcing of work to a third party to save money. Although KPO is a subset of BPO, KPO involves more specialized, analytical, and knowledge-based work.

Companies that engage in KPO look to obtain highly educated and skilled individuals without having the cost of training and developing those workers. Through KPO, a company can quickly add experts in specific fields to boost competitiveness and increase earnings.

Types of KPO Services

  • Financial consultants
  • Research and development
  • Business operations
  • Technical analysis
  • Investments
  • Legal
  • Medical
  • Data analysis and interpretation

Companies look to knowledge process outsourcing to simultaneously obtain a highly-skilled workforce at a lower cost with the goal of boosting competitiveness and increasing profits.

Reasons for Knowledge Process Outsourcing

Companies utilize KPO when they are looking for specialized knowledge and expertise and when they have a shortage of skilled professionals. However, companies that engage in KPO offshore are typically doing so to reduce costs by hiring skilled workers earning lower wages in another location. Ideally, companies look to KPO to simultaneously obtain a highly-skilled workforce at a lower cost.

For example, a manufacturer might use raw materials, add value to those materials through various processes, and then sell the result as a final product. The company might look to KPO to determine how to improve efficiency in their production process so that they can deliver maximum value for the lowest possible total cost. The result of KPO might also help the company create a competitive advantage.

Advantages and Disadvantages of KPO

KPO can help companies reduce the costs of their operations or producing their products and services. KPO also fills the gap or need for skilled employees in a particular field. KPO also frees up existing staff, including management, to do other work boosting efficiency and productivity.

The flexibility that comes with KPO allows a company to increase or reduce staff easily. For example, if economic conditions worsen, a company can easily reduce its KPO staff to cut costs. Conversely, a company can quickly hire specialized staff to boost profits or revenue. KPO helps a company to be more nimble and adapt to the changes in its industry and competitive landscape.

However, disadvantages exist with KPO. Privacy and security can be compromised if classified or proprietary information is lost, copied, or brought to a competitor. Companies have less control over the hiring process of outsourced workers. As a result, a company might not be able to ensure the character of their outsourced employees or the quality of their work. 

Implementing KPO can be time and resource-intensive to establish a successful operation. Also, communication can be a concern and a challenge, due to legal, language, and cultural barriers. Another disadvantage might be that existing employees might feel threatened by the hiring of outsourced workers and feel their jobs are at risk.