Analytic Outsourcing Review: Dude, Where's My Analysis?

Analytic outsourcing has come into prominence in recent years with the growing independence of the KPO (Knowledge Process Outsourcing) segment of the BPO (Business Process Outsourcing) market as an independent sector of its own right. The multi-billion dollar KPO market in India is dominated by both established names in consulting and outsourcing as well as some newer players. Firms like Evalueserve (www.evalueserve.com), Genpact (www.genpact.com), McKinsey & Co (mckinsey.com) and Accenture (accenture.com) are leading the pack in this sector, while traditional BPO companies like TCS, Wipro, Infosys, WNS and EXL are also making a push into this sector, driven by the higher margins in KPO projects. Other countries such as China, Russia, Poland, the Philippines and Hungary are also ambitiously pursuing KPO opportunities, but India still has the lion's share of the global KPO market.

With the prolific outsourcing of more and more analytic functions to external vendors, it becomes important to understand the ramifications of the decision to outsource analytics to onshore or offshore units (either captive or independent) for companies vs. conducting it in-house. Let's first of all understand why this decision is very different from other types of outsourcing.

Differentiating a Business Process vs. Knowledge Process from an Outsourcing Perspective

Business Process Outsourcing entails taking a routine business process that is consistently repeatable, follows standard industry procedures and doesn't require client-vendor interaction on a regular basis and outsourcing it to an external entity. Knowledge Process Outsourcing on the other hand entails processes that are not consistently repeatable, do not necessarily have standard industry norms of execution, require more frequent client-vendor interaction and require a high degree of custom expertise that doesn't necessarily form the curriculum of standard business education. An additional point of difference is that BPO projects contain modules that can be separated and assigned to different entities with much more ease than KPO projects, especially analytic projects where modules are exponentially more integrated. KPO projects also have higher visibility within C-level stakeholders at end-clients than BPO projects.

Is Analytic Outsourcing For You?

There are several factors to be considered in evaluating the decision to outsource analytics vs. retaining it in-house:

• Access to or ability to assimilate analytic talent in-house

• Ability to constantly update in-house talent with latest analytic developments and techniques

• Availability of necessary data in-house and capability to organize it

• Financial Cost vs. benefit of conducting analytic research in-house

• Risks from outsourcing research function

• Advantage of third-party unbiased opinion and access to industry best-practices available to external vendors

With all the opportunities for efficiency, there are a few strategic disadvantages being overlooked by several business organizations that have outsourced a significant amount of their analytics to offshore entities. For instance, analytic projects often have the tendency to yield corollary business insights that may not have been the original goal of the analysis. The persons and entities within the organization may be the most qualified to identify and leverage such opportunities, compared to external vendors. This is especially important to firms where innovation is a critical part of the business model.

Long-term Outlook

The proliferation of analytic outsourcing is inevitable in the long-term, as firms try to focus on their core competitive advantage and leverage comparable yet cheaper talent in offshore markets. At the same time active firms that do not outsource the entire analytic process but manage to retain insight generation at a strategic level should prove to have somewhat of an edge over passive firms that outsource the entire analytic insight generation process. This will especially be an advantage during turning-points in industry and shifts in economic cycles and trends, which will require a deep understanding of all facets of the business and a rapid development and execution of appropriate strategic changes. Also the best KPO firms to partner with will be the ones that do not follow a "black-box" approach to analytics, but are willing to allow some level of scrutiny to their process (of course within the limits of Intellectual Property protection constraints).

By Joy V. Joseph (Published on KDNuggets News 6 Dec 2008)