# What Is Knowledge Process Outsourcing (KPO) and How Does It Work?

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## What Is Knowledge Process Outsourcing (KPO)?

Knowledge process outsourcing (KPO) is the [outsourcing](https://www.investopedia.com/terms/o/outsourcing.asp) of core, information-related business activities. KPO involves contracting out work to individuals who 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](https://www.investopedia.com/terms/o/offshore.asp) location to save costs or other resources.

### Key Takeaways

*   Knowledge process outsourcing (KPO) contracts out knowledge-based work to qualified subject matter experts.
*   Companies utilize KPO when they are looking for specialized knowledge and expertise and when they have a shortage of skilled professionals on staff.
*   Ideally, companies look to KPO to simultaneously obtain a highly skilled workforce at a lower cost.

## What Is the Purpose of Knowledge Process Outsourcing (KPO)?

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)](https://www.investopedia.com/terms/b/business-process-outsourcing.asp), which involves the outsourcing of labor and other operational work to a [third party](https://www.investopedia.com/terms/t/third-party.asp) 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](https://www.investopedia.com/terms/e/expert-network.asp) for permanent roles on a full-time basis.

## Types of KPO Services

Some common example of KPO outsourcing domains include:

*   Financial consultants
*   Research and development ([R&D](https://www.investopedia.com/terms/r/randd.asp))
*   Business operations (management consulting)
*   Technical analysis
*   Investments
*   Legal
*   Medical & healthcare
*   Data analysis and interpretation

## Reasons for Knowledge Process Outsourcing (KPO)

Companies utilize KPO when they are looking for specialized knowledge and expertise where that knowledge base or skill 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 obtain a highly skilled workforce at a lower cost.

For example, a [manufacturer](https://www.investopedia.com/articles/financial-analysis/091016/key-financial-ratios-manufacturing-companies.asp) 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.

## Advantages and Disadvantages of KPO

KPO can help companies reduce operational or production costs by creating new processes or streamlining efficiency. KPO fills the gap or need for skilled employees in a particular field. It also frees up existing staff, including management, to do other work, boosting efficiency and productivity.

The flexibility that comes with KPO allows a company to increase or reduce staff easily. For example, if economic conditions worsen, a company can easily reduce its KPO staff to cut costs. Conversely, a company can quickly hire specialized staff to boost [profits](https://www.investopedia.com/terms/p/profit.asp) or revenue. KPO helps a company to be more nimble and adapt to the changes in its industry and competitive landscape.

However, disadvantages do exist with KPO. Privacy of intellectual property and business security can be compromised if classified or proprietary information is lost, copied, or brought to a competitor. Companies have less control over the hiring process of outsourced workers. As a result, a company might not be able to ensure the character of its outsourced employees or the quality of their work. 

Implementing KPO can be time- and resource-intensive to establish a successful operation. Moreover, communication can be a concern and a challenge, due to legal, language, and cultural barriers. Another disadvantage: Existing employees might feel threatened by the hiring of outsourced workers and feel their jobs are at risk. 

Pros

*   Can create new processes or streamline efficiency, reducing costs
    
*   Frees up existing staff to do other work, boosting efficiency and productivity
    
*   Helps a company to be more nimble and adapt to industry changes
    
*   Eliminates cost of training and developing individuals in specialized skills
    

Cons

*   Privacy of intellectual property and business security may be compromised
    
*   Ensuring the character of outsourced employees and the quality of their work can be difficult
    
*   Language, cultural, and legal barriers present communication challenges
    
*   Existing employees may feel threatened
    

## What Is the Difference Between Knowledge Process Outsourcing and Business Process Outsourcing?

Knowledge process outsourcing (KPO) is the practice of outsourcing processes that involve highly specialized skills, such as data analysis and market research. Industries that may use KPO include legal, life sciences, and financial services, to help boost cost savings and efficiency.

By comparison, business process outsourcing (BPO) is a broader term used to describe outsourcing of different processes, most commonly categorized into back-office or front-office activities. These may include outsourcing accounts payable or payroll services to vendors outside of a company.

## What Are the Duties of KPO?

KPO vendors can provide a range of skills to an organization across analytical-intensive processes to help with operational efficiency and provide expertise, enabling the company to focus on revenue generation. Additionally, KPOs may offer new services, help in product development, and analyze data.

## What Is An Example of a KPO?

A KPO may work with a company to build a mobile app, providing expertise in user experience (UX) and user interface (UI) design services. Through this process, it could provide software development services that help the company bring the app to life, from the early conceptual stages to the final product.

As another example, a KPO may provide the coding and game architecture for video game development through its pool of skilled professionals.

## The Bottom Line

For organizations looking to outsource a knowledge function, such as research services and software development, KPOs offer a wide range of capabilities. Among the primary advantages of these services is that they allow companies to focus on their core competencies, while outsourcing functions that require a specialized set of skills and tools to utilize.