Integreon

Infosys announced recently that it would move beyond business process outsourcing (BPO) to offer knowledge and legal process outsourcing services (KPO and LPO) (see Law & order: Infosys to foray into LPO business,The Economic Times, 5 Nov 2007). Last week a Dow Jones International Newswire article (no link available) titled “Infosys BPO to Focus on Knowledge Services” reported that Infosys already gets about 10% of its revenue from KPO work and offers “five services in its KPO business – analytics, financial planning and analysis, digital publishing, legal process outsourcing and research.”

With more than 80,000 employees, Infosys is one of the titans of the outsourcing industry and has more resources at its disposal than the existing KPO players, most of which are niche specialists with fewer than 1,000 employees. In 2001, when Integreon had 12 employees, few had heard of KPO and even fewer actually considered the opportunity to tap into a diverse, global talent pool for their knowledge work. INFY’s announcement signifies that KPO has become mainstream, and while I am certain that these large, diversified ITO (IT outsourcing) and BPO companies such as Infosys will make progress, I wonder if they will find legal and knowledge work a challenge:

• Each KPO program is customized for the client and generally small scale relative to what these ITO and BPO companies are used to. Management costs for a KPO program are much higher than for less complex BPO or ITO programs. They presumably understood this on entering the market but expecting it and living it are not the same.
• Building a high quality knowledge and legal services company is hard. Delivering perfect service to meet the hard to measure, exacting demands of bankers and lawyers, plus recruitment, training, and relationship management all require deep and specialized domain expertise that is hard to accumulate and keep.
• The strength of a large ITO or BPO brand may be a negative when selling to financial and legal professionals, which may think of a company such as Infosys primarily as an IT or call center company. “Should I work with an outsourcing generalist or should I go with a domain specialist that is focused on the specific high-value, high-touch, knowledge-intensive work that I do?”
• The strength of an ITO or BPO brand may also be a negative to potential employees. For these companies, managing a young lawyer’s career may prove not to fit the career development programs they have built over time for their young software engineers.”With my legal degree how will my career develop at a company that is rooted in engineering?”
• Over the last five years, we have observed little success by some of the big outsourcing companies trying to bundle ITO, BPO and KPO contracts together. As we have competed with them in the marketplace, we have found buyers appear to assess and value the skills associated with running an IT outsourcing program as very different from running say an M&A due diligence LPO program or an equity research KPO program.
• And finally, the Infosys sales team will need to be re-tooled to sell very different services to very different buyers, with very different buying criteria, from what they are used to.

I suspect that all of these challenges can be solved with a certain amount of time, money and management focus. Infosys and their peers will need to and can afford to invest in KPO, but it is unlikely that the economies of scale in their ITO or BPO business will apply to KPO. This fact that will not be lost on customers who will need to pay for this additional SG&A unless these companies decide to prioritise growth over profitability.

Integreon is perhaps the largest, global pure-play KPO with around 2,000 employees in India, US, Europe and the Philippines. The KPO market is and will remain smaller than the BPO market, but it is attractive and growing rapidly (by some estimates growing at over 40% per annum, projected to reach $US 17 billion by 2010). We will stick to our knitting and remain focused on providing KPO services based on deep domain expertise to investment banks, financial services, corporate legal departments and law firms.