One of the most revolutionizing concepts in the world of business is “Outsourcing”. Outsourcing first entered the business vocabulary in the 1980s. This term refers to the process of delegating some operations to an external entity that specializes in those operations. The main motive in doing so is to cut costs as it might be economically beneficial to get the work done where the cost is lower.

The emergence of the “Knowledge Economy” is what boosted the growth of Knowledge Process Outsourcing. A knowledge economy focuses on the production and management of knowledge. This knowledge is, in turn, used to churn out economic benefits. This phrase was popularized by the management guru, Peter Drucker. The people who participate in this economy are known as the “Knowledge Workers”.

The most important factors in Knowledge Process Outsourcing are:

1. Intellectual Capital Management – Intellectual capital is comprised of knowledge and competence. This capital has to be managed well so that there is an effective transfer of knowledge.

2. Vendor Value Proposition – The components of the value of a vendor are knowledge methodology, knowledge dissemination, and client relationship management.

3. Business Process Management – The business process must be well understood within the firm and the knowledge must be shared and managed within the firm. There must be an understanding of the services offered.

4. Knowledge Management Technology – More and more firms have a repository of knowledge that is known by many names such as best practices, project debriefs, lessons learnt, etc… The stages that are involved in the developing of knowledge management technology within the firm are:

a. End-user Tools – The workers are trained in using the tools meant for the end-users.

b. Who Knows What – The information about the competencies and skill sets of individual workers are leveraged within the firm as well as to the partners so that everyone knows who to contact when there is need of a particular service.

c. What They Know – All the information of the workers are stored in a database so that others in the firm can use it too.

There are various perspectives within Knowledge Process Management. Information-based perspective means that the focus is on access to information. Technology-based perspective is concerned with the multifarious applications of Information Technology. Culture-based perspective involves sharing of available knowledge.

Knowledge Process Outsourcing (KPO) is an important offshoot of outsourcing, especially Business Process Outsourcing (BPO). The firms that specialize in KPO provide not only process oriented services but also business expertise based on research and domain knowledge. KPO is a service that is very typical of consulting firms. India, Philippines, and China are at the forefront of the KPO industry. Knowledge Process Outsourcing is most renowned in the IT sector even though market researchers envisage its growth in domains like Intellectual Property Services, Legal Research, Business Research, Clinical Research as well as Analytics and Publishing.

Some of the challenges that the KPO companies face are:
1. High training cost
2. High attrition rate
3. Information security and confidentiality

Knowledge Process Outsourcing has become a key component of outsourcing any services, especially in India. India is the “services hub” while China is the “manufacturing hub” of the world. Knowledge Management is leveraged to enhance the economy that benefits from Knowledge Process Outsourcing. It would do well for all firms to take a look at them and develop tools and methodologies to acquire and apply knowledge if they want to survive in the knowledge economy.