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KPO – The Next Big OpportunityChallenges and Success Factors
Mohit Srivastava NASSCOM Emerging Companies Forum 2005
September 16, 2005
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 2
Presentation Plan
KPO - An Industry Overview
Key Growth Drivers
Captive vs. Third Party
From BPO to KPO - Challenges and Success Factors
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 3
Presentation Plan
KPO - An Industry Overview
Key Growth Drivers
Captive vs. Third Party
From BPO to KPO - Challenges and Success Factors
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 4
India, with its strong IT and BPO background, is well positioned to leverage the KPO opportunity
Source: Evalueserve Analysis
1990’s 1998 2000
IT Outsourcing
This involves offshoring of IT services, offshore software development and support
Business Process Outsourcing
This involves offshoring of low-end (contact center kind
of) work
Knowledge Process Outsourcing
This involves advanced analytical and technical skills as well as some
decision making
Revenues (India) for 2003-04:
IT Outsourcing = USD 21.5 billionBPO = USD 3.9 billionKPO = USD 0.72 billion
Revenues (India) for 2003-04:
IT Outsourcing = USD 21.5 billionBPO = USD 3.9 billionKPO = USD 0.72 billion
Expected CAGR during 2003-2010:
IT Outsourcing = 27.5%BPO = 30.6%KPO = 49.5%
Expected CAGR during 2003-2010:
IT Outsourcing = 27.5%BPO = 30.6%KPO = 49.5%
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 5
Global KPO market is expected to be USD 17 billion by 2010, with India having 71 % share
Source: Evalueserve Analysis
KPO market in India = USD 12 billion by 2010
Global KPO market = USD 17 billion by 2010
KPO market in India = USD 12 billion by 2010
Global KPO market = USD 17 billion by 2010
Indian KPO sector will increase its share in the Global KPO sector to 71% by 2010 from 56 % in 2003
Indian KPO sector will increase its share in the Global KPO sector to 71% by 2010 from 56 % in 2003
29%
18%12%
12%
12%
8%9%
Data Search, Integration and Management
Biotech and Pharma
Engineering and Design (incl. VLSI, Highway Design, etc.)
R&D (excl. Biotech, Pharma & VLSI, etc.)
Remote Education and Publishing
Animation and Simulation Services (incl. Analytics)
Others
By the year 2010, several new KPO services will become prominent in the global offshoring space
By the year 2010, several new KPO services will become prominent in the global offshoring space
Out of the estimated opportunity of USD 17 billion in the KPO sector in 2010, the major revenues will come from six prominent sectors
Out of the estimated opportunity of USD 17 billion in the KPO sector in 2010, the major revenues will come from six prominent sectors
5671
4429
0%
25%
50%
75%
100%
2003 2010
India Rest of World
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 6
Several MNCs offshoring high-end work to India
Financial Services
Telecom and IT
Semiconductor
Multinational Companies
Pharma/Biotech
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 7
…to offer massive employment opportunity …
820,000
250,000
BPO
KPORevenue generation (2010)
Employment opportunity (2010)
USD 18 billion
USD 12 billion
Indian non-IT off-shore servicesIndian non-IT off-shore services
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 8
Presentation Plan
KPO - An Industry Overview
Key Growth Drivers
Captive vs. Third Party
From BPO to KPO - Challenges and Success Factors
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 9
…several demand side and supply side factors fuelling the KPO trend …
Shortage of knowledge professionals in developed nations
Cost pressure
Reduced time to market
Need for more flexibility
Demand-side Trends
BPO and IT vendors maturing
Players moving up the value chain
Increasing domain expertise
Supply-side Trends
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 10
Demand-side drivers including shortage of labor, particularly in high-knowledge industries...
Expected shortfall of labor by FY 2010Expected shortfall of labor by FY 2010
5.6
0.7
0
1
2
3
4
5
The US The UK
Pro
fess
ion
als
(Mill
ion
s)
Majority of the shortfall in high-knowledge industry
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 11
….and significant cost savings will make global off-shoring an economic imperative for developed nations….
0
20
40
60
80
100
BPO KPO BPO KPO BPO KPO
US
D p
er h
our
On-shore Near-shore Off-shore
20 - 50
> 70
15 - 40
40 - 60
10 - 25
25 - 40
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 12
Supply-side drivers include maturing of BPO, and players moving up the value chain …
GrowthEmbryonic Mature Aging
Time
Ma
turi
ty Engineering
High
Low
Specialized players emerging Complexity quickly increasing From captives to third-party “Double Sourcing”
AccountingHR Admin
Insurance Claims
Tech Support
KnowledgeProcesses
IT Outsourcing
Call Centers
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 13
..the industry will keep growing due to addition of newer processes
The size of addressable market for BPO is high and it is expected to increase for many years. These market show no signs of maturity in the foreseeable future.
Ind
us
try
Siz
e
Time
Individual BPO processes will witness their respective lifecycles
Ind
us
try
Siz
e
Time
The combined effect is equivalent to an ever growing industry
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 14
Presentation Plan
KPO - An Industry Overview
Key Growth Drivers
Captive vs. Third Party
From BPO to KPO - Challenges and Success Factors
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 15
‘Buy’ increasingly becoming preferred setup, esp. for SMEs…
0 10 20 30 40
KPO
BPO
KPO
BPO
USD per hour
Mak
eB
uy
10 - 20
25 - 35
15 - 25
35 - 40Advantages of ‘Buy’ vs. ‘Make’:
• Faster ramp up• Lower complexity• Lower cost• Better control
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 16
But no ‘one model fit all’ approach possible…decision guided by combination of factors…
Factors Third-Party
Subsidiary
Initial investment and set-up costs Low High
Operational costs Low High
Initial set-up time Low High
Operations ramp-up time Low High
Management complexity Low High
Direct exposure to external/macroeconomic factors Low High
Direct control over organization culture and operations Low High
Direct control over intellectual capital base Low High
Data security Medium High
Direct control over internal processes Medium High
Third-party preferred Offshore subsidiary preferred
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 17
Presentation Plan
KPO - An Industry Overview
Key Growth Drivers
Captive vs. Third Party
From BPO to KPO - Challenges and Success Factors
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 18
Operational challenge
• Produce academic skill pool
• Recruiting of talent
• People development
• Meritocracy
• Performance management
• Retention
• Security
• Delivery processes
• Quality
• Productivity
• Confidentiality
• Intellectual Property
People-related Process-related
© Evalueserve, 2004. All Rights Reserved - Privileged and Confidential
Slide 19
Sales and management challenges
• Language/cultural sensitivity
• Understanding of local business environment
• Experience of selling professional services
• Established network with key decision makers
• Change in mindset from selling IT / BPO to KPO services
• Focus and specialization
• Synergistic diversification
• Partnerships and alliances
Local Sales Force Right Management Focus