The Next Pot of Gold

In the nineties the offshore software development model got legitimized, with

the recognition of the Y2K problem. Tons of legacy code started moving to India,

initially for remediation and subsequently for migration or just plain

maintenance. Software industry's then big theme: Now that we have millions of

lines of code in our grasp, how do we move up the value chain, understand our

customers domains, and move from being technology service providers to true

transformation partners for our global customers. The same story is now being

repeated in the world of BPO, as all companies in the business, large, medium

and small embrace knowledge process outsourcing (KPO) as the next big frontier.

According to the business research firm Evalueserve, the revenue for the

global KPO market was $1.29 bn in FY 2003 and this is expected to grow to $17 bn

by FY 2010-a cumulative annual growth rate of 46%. In contrast, the revenue

from plain vanilla BPO services will grow from $7.7 bn in FY 2003 to $39.8 bn in

FY 2010, a cumulative annual growth rate of 26%. The key customers for KPO

services are, of course, the market research and consulting firms, investment

banks and financial services institutions, and corporate planning departments of

large Fortune 500 companies. These services can also be easily used by small-

and medium-sized enterprises due to the project-based nature of the work. Add to

this a plethora of firms in financial services, telecom and technology,

pharmaceuticals and biotech, and various other sectors such as automotive, oil

and gas-and the opportunities are really sizeable.

The sensitive nature of this work has meant it to be preferably done in

captive users. Early pioneers like McKinsey through their McKinsey Knowledge

Center (MCKC) and other big firms like Goldman Sachs, Reuters, IMS Health,

Harris Interactive, Ipsos, Maritz, AC Nielsen, TN0S and the WPP group are

already using India as a remote base. The work ranges from data analytics for

the shipping and transport industry to merchandise planning and allocation in

retail to analysis of historical data on doctors, drugs they prescribed and

market data on new drug launches. In the legal field, even patent research,

involving writing patent applications for the US clients, has begun to happen

out of India. This is expensive when done in the US where a typical application

costs between $10,000-15,000 for drafting and filing with United States Patent

and Trademark Office (USPTO). In an offshore mode, an intellectual property

specialist in an offshore location can produce a preliminary draft of a patent

application that is then reviewed and modified by a registered US patent

attorney who ultimately files it with the USPTO. This can result in cost savings

of up to 50%.

In the area of data mining and analytics, destinations such as Russia and

India are ideal because they provide a large pool of engineers and PhDs at much

lower costs. However, executing KPO projects is not easy. It requires a

professional service culture rather than a BPO culture. Processes executed

within the KPO domain require higher quality standards because the stakes for

the clients are high. Furthermore, the clients are likely to have apprehension

about the quality of the services delivered (especially by low-cost

destinations) and these may be difficult to alleviate. To manage these

perceptions and ensure smooth delivery, vendors work in an "80-20"

mode, which involves parking some credible professionals in the field to support

the offshore workers. Another key challenge in the management of a KPO is the

identification of performance criteria: setting the right expectations with the

end-client, continuous assessment and monitoring, constructive feedback, and

appropriate coaching and mentoring for all professionals employed in the

business. If all this is done KPO can truly be a rewarding practice for

professionals and firms alike.

The author is deputy chairman & MD of Zensar and a member of NASSCOM's

Executive Council for 2005-07 Ganesh

Natarajan