Understanding Knowledge Process Outsourcing

Knowledge process outsourcing (KPO) is the outsourcing of core, information-related business activities. KPO involves contracting out 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.

Knowledge process outsourcing is the purposeful allocation of relatively high-level tasks involving specialized knowledge or problem-solving to an outside organization or third party that has a high level of subject matter expertise, often located in a different geographic region than the company itself.

KPO is different from business process outsourcing (BPO), which involves the outsourcing of labor and other operational work to a third party to save money. Although KPO is a subset of BPO, KPO involves far 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 to execute one-off or special projects that are not part of recurring activities. Through KPO, a company can quickly add experts in specific fields to boost competitiveness and increase earnings or to accomplish special tasks for which there is no need to internally hire subject matter experts for permanent roles on a full-time basis.

Companies utilize KPO when they are looking for specialized knowledge and expertise where that knowledge base or skills cannot be found in-house. However, companies that engage in KPO offshore also typically do so in order to reduce costs by hiring skilled workers earning lower wages in another location instead of hiring one directly as an employee. 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 its production process so that it can deliver maximum value for the lowest possible total cost. The result of KPO might also help the company create a competitive advantage.

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