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Rediff.com  » Business » IT-BPO firms take KPO route to raise profits

IT-BPO firms take KPO route to raise profits

January 11, 2008 02:58 IST

Leading business process outsourcing outfits such as Infosys BPO, Zensar, TCS, Patni are fast growing their knowledge process outsourcing business in a bid to get a slice of the KPO pie that is expected to touch $17 billion by 2010.

Nasscom estimates that the KPO industry is poised for a 45 per cent per annum growth till 2010. The current hotspots in KPO are engineering and design, basic data search, integration and management and biotech & pharma.

Moreover, the Indian outsourcing industry that helps its clients save $1.5 billion annually, according to Boston Consulting Group, is facing a rising rupee that is eating into their rupee profit margins.

Increasing the percentage of KPO work in their BPO businesses is a good way to augment the balance sheets, argue analysts.

"With the global economy becoming increasingly knowledge and information-intensive, creating, protecting and monetising knowledge is becoming very critical. Unlike BPO, KPO is more knowledge-driven, while BPO is more of process expertise, KPO is more of domain expertise," explains Anish Zaveri, associate director, KPMG.

For instance, Infosys BPO that began its foray in knowledge services two years back. Today it comprises 9 per cent of its revenues.

Amitabh Chaudhry, CEO and MD, Infosys BPO, says: "In fact, we are growing our KPO business faster." The margins too are at least 15 to 20 per cent higher than pure vanilla BPO work like data entry, mortgage processing and customer support.

One of the main reasons for Infosys BPO's knowledge services growth is that it invests in a lot in proprietary automation, so people keep getting better and quicker at their jobs. Says Joydeep Mukherjee, head of knowledge services practice, Infosys BPO: "As the financial markets become more global and products become complex, our clients expect higher level of analysis of trends based on technical data. Our growth is tied to delivering high-end competency on demand."

Patni's BPO too is bullish about growing its knowledge services in 2008.

Sanjiv Kapur, senior VP and head (BPO), Patni says: "We have begun to handle complex outsourced processes like actuarial services and financial analytics for clients and we have been buoyed by the growth witnessed."

At present, the knowledges services are nothing to boast off, but Kapur is not ruling out inorganic growth in 2008 to penetrate the untapped KPO market. "BPO will always be our support business, but knowledge-based process in the financial and insurance, compliance services will be the money spinner for Patni BPO."

3i Infotech's BPO business head, Ravi Jaganathan, too has found the spark in the KPO business. "An isolated business model that includes core outsourced processes does not work anymore. Our financial data services have helped us built a long term relationship with the clients who put immense faith in our delivery model."

The company, he adds, has been able to beat the pressures on the profit margins by graduating to the high-end KPO services.

"BPO margins cannot sustain a company anymore and we need to best utilise the employed talent by knowledge services," Jaganathan reasons.

For instance, Zensar began a typical transaction processing BPO engagement with one of the world's largest retail companies in 2004.

"Over the last few years, the same engagement has been enhanced with projects in areas like decision support reports, which is a pure KPO activity. KPO by nature is defined as moving up the value chain from cost arbitrage to intellect arbitrage," he says.

Ganesh Natarajan, deputy chairman and CEO, Zensar Technologies. According to him, KPO as a service line is too specific and works on the concept of intellect arbitrage and requires thorough understanding of customer specific business.

"Hence, niche KPOs who have built domain capabilities should not be affected by the entry of big guerillas of IT and BPO."

Joel Perlman, president and co-founder, Copal Partners, a provider of financial analytics and research services agrees with him.

"We service over 40 blue chip clients including several global bulge bracket investment banks, hedge funds, private equity funds, consulting firms and Fortune 500 corporations and they are not moving business away from us. Infact, we expect deal sizes to get better in 2008."

His belief stems from the fact that Copal Partners has recorded a growth rate of over 200 per cent year-on-year for the past three years and is now also looking at acquiring niche KPO units in either the UK or India.

Niche KPO firms, besides seeing increased competition, are already battling high attrition of their employees to blue chip companies like Infosys and Patni.

The KPO industry is also facing a skill-set shortage that is worse than the shortage faced by the BPO industry, a fact that is exacerbating both churn rates (now currently at 25 per cent per annum) and salary inflation levels (30 per cent per annum), cites Zaveri.
Priyanka Joshi in New Delhi
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