While KPO provides the benefits described above it comes with a number of significant risks that need to be managed in order to achieve the full benefit potential. Failure to manage these risks can result in costly mistakes and the abandonment the KPO model. The risks of pursing a KPO strategy can be grouped under external and internal risks.
External risks relate to factors that are outside the organization and are less controllable. Finding a suitable KPO vendor that can offer the necessary skills in a scalable, cost- effective manner can present some significant risk. Some KPO vendors are able to find suitable talent but they are suffering from salary inflation due to the increase in demand for skilled labour increases and the improvements of the standard of living abroad. Another factor affecting risk is the currency exchange fluctuations that can have an impact on cost savings. For example, a strengthening rupee can have a significant impact in the actual costs of outsourcing to India. The stronger rupee, combined with the impact of salary inflation, can make the benefits of outsourcing to India disappear.
Another external risk is the inability to protect a company’s intellectual property. Although improvements have been made over the years, protecting intellectual property continues to be an obstacle to the full acceptance of the KPO model. The laws and compliance rules abroad expose intellectual property to a significant risk with little options for control. Recent events with outsourcing vendors involved in security breaches and fraud heightens the sensitivity in this area and forces companies to find better ways to protect their intellectual property and customers’ privacy. For some industries, protecting data and privacy as well as conforming to the legal and compliance requirements at home and abroad are significant challenges to overcome.
The physical location of the KPO vendor creates risk associated with the economic and political environment of the country where the KPO vendor is situated. Companies that outsourced to India found their operations affected by the recent terrorist attacks targeting U.S. and British workers. Several studies have been prepared by KPO consulting companies ranking countries for outsourced operations. Those countries with higher political stability, language, time zone and culture alignment rank higher in the lists.
Internal risks relate to what the organization will experience when using a KPO vendor. A reduction in communication is a risk that is due to the language barriers sometimes inherited from doing business with countries where English is not the first language. KPO vendors are constantly trying to improve on their language capabilities by providing accent removal training or opening offices in locations with better English-language capabilities, like Chile or Mexico. Effective communication amongst employees and KPO vendor resources is crucial to the success of a KPO model. When communication is not maintained the business will suffer, as turnaround times get longer. The culture of the organization will also start to shift as processes are outsourced to a provider in another country. This is particularly important in voice-based processes requiring discussion and interaction with the KPO vendor.
Voice-based processes that require interaction with customers present some of the biggest challenges, and there are numerous documented cases of KPO and BPO failures involving voice-based processes. For example, Delta and United Airlines brought back their outsourced customer service operations to North America when it started to experience low rates of satisfaction for more sophisticated conversations with customers. The same applies for internal customers who deal with outsourced processes. Voice-based processes that are combined with knowledge-based activities are not good candidates for outsourcing using a KPO model for off-shore or near-shore vendors. An on-shore vendor may be better suited to mitigate this risk.
Another internal risk relates to the ability of management to manage KPO vendors in a remote location. Many managers are comfortable managing their own resources on an ad-hoc basis and usually lack a formal process that documents every decision made based on an analysis or specific parameters. Quality and performance metrics are usually non-existent and evaluated through a form-performance measurement process at the department or individual level. Managers will need to learn how to manage outsourced resources based on specific performance metrics and less subjective results.
In some cases, the outsourcing effort exposes inefficiencies and weak areas in the process and a decision needs to be made to outsource the process as is or to optimize it before outsourcing. Companies need to decide if the process or knowledge area needs to be optimized before outsourcing. Some organizations decide against outsourcing after improving their processes, since KPO vendors are not able to match the cost savings from the new improved process. Technology can also present some risks, including those related to the lack of sound networking, software applications and security infrastructure. The information technology department must be involved from the beginning to ensure the infrastructure, applications and data are in place and well protected, and that the KPO vendor is using the data and applications as was contractually agreed.
The risks associated with the impact on employees must also be considered. The KPO process has a negative impact on employee morale, and employees are needed to aid in the documentation, transition and training of the KPO vendor resources. During outsourcing, loosing key talent at home is likely; managers must have a plan to mitigate the likelihood of key talent departing before the knowledge process has been fully transitioned to the KPO vendor. Associated with this risk is the potential negative publicity than an organization can receive by publicly sharing that jobs, knowledge and potentially private information are being outsourced to a third party.
Another risk is associated with the decision-making process and the program management of the KPO effort. Decisions to outsource a core competence must start with the C-Level executives and must be threaded into the strategy. Outsourcing efforts managed at the department or business unit level carry a lot more risk and higher probability of failure. Executive support and a formal vendor-selection process must be used to reduce risks. Identification of the knowledge process for outsourcing must be performed as part of a larger strategic effort and formally managed through an experienced program manager. It can also be managed as part of a centralized outsourcing group that oversees all outsourcing efforts and monitors implementation and the on-going performance of the KPO vendor.
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