Moving up the value chain: Knowledge continuum

An oft-heard refrain among BPO industry experts is that Indian units should try to move up the value chain. What does this really mean? What exactly must BPO units do to move up this so-called value chain? How do we classify BPO units on the basis of their relative position in the value chain? What is meant by the knowledge continuum? This article seeks to answer these questions so that HR managers in Indian BPO units can have a better understanding of their business environment.

Different types of BPO services can be classified according to the knowledge required to carry out the different types of work that they do. This can best be understood when BPO work is classified with reference to what is called the “knowledge continuum,”: a concept developed by academics Ravi Aron & Jitendra Singh of the Wharton School, Pennsylvania University.
With reference to any business unit, raw data needs to be transformed into knowledge before it can support decision making. Intervention by information workers are needed at various stages to convert, translate, transform and validate this data so that it becomes usable knowledge that can support decision making. According to Aron and Singh “the knowledge continuum can be thought of as having a ‘data origin’ and a ‘knowledge end’ which services the decision makers within a corporation.”

Five distinct levels of knowledge intensity can be identified in this data to knowledge conversion route:

* Data entry and conversion: the information worker converts non-digitized data into digitized data (includes medical transcription),
* Rule set processing: the information worker is required to process data and sometimes make judgments based on a set of rules provided by the client (a lot of call center work falls in this category although the work involves direct customer interaction),
* Problem solving: in this sort of work the information worker has more discretion, the rules here are fluid and less amenable to structuring than in the rule-set processing genre,
* Direct independent customer interaction: call centers and contact centers do this type of work but here the information worker is required to handle more elaborate interaction often entirely independently, that is, without any given script, with the client’s customers,
* Expert ‘knowledge’ services: this type of work requires specialists in particular domains and are similar to services provided by consultants.

Add to this concept the idea of revenue distance of a business process, say Aron and Singh, and what we have is a model for understanding how outsourcing firms go about gradually outsourcing different processes requiring different levels of knowledge intensity. The revenue distance of a business process is the distance between the locus of revenue capture by a firm and the process that supports this capture of revenue. If all the processes that support the creation and capture of value by a firm are ranked in the order of their criticality, where the most critical process is located closest to the point of revenue capture and the least critical process is located the farthest away from the point of revenue capture with all other processes located in-between depending on their criticality, then the process located furthest from the point of revenue capture is most likely to be outsourced first, then the next furthest and so on while the firm may not outsource at all the processes closest to the point of revenue capture.

On the basis of these ideas, Aron and Singh have worked out what is called a value chain/workforce pyramid which results from plotting various business processes in a grid where the X-axis represents the number of information workers needed while the Y-axis represents the level of expertise needed by information workers (or the strategic impact of the process to the outsourcing firm or inverse of revenue distance). At the apex of the pyramid are processes which have the least revenue distance for the outsourcing firm requiring the least number of information workers although these workers must be having the highest expertise. At the bottom end of the pyramid are processes with the highest revenue distance requiring many information workers although these workers need have almost no expertise at all.

Thus, at the base of the pyramid are data entry/conversion processes, then in the next level rule-set processes, then problem solving processes, then direct independent customer interaction and finally expert knowledge services.

While outsourcing firms as a rule move up the value chain while progressively outsourcing various business processes, service provider firms must try to progressively move up the value chain by trying to get jobs higher up in the pyramid.

So, where is your company located in the value chain/workforce pyramid? Are you handling low knowledge processes only? If so, start thinking of ways to help management move up the value chain. For instance, why not have a recruitment policy with a capacity building program embedded in it?