An organisation is made up of various processes. If you take a service organisation e.g. Telecommunication, where there are various functions like sales of new connections, activation of service, segregation of connections into pre-paid and post paid, land line connections, internet services and then after sales services.
Now whenever you hear of a BPO, in your mind first thought comes is of Telecommunication service only, because we are using it daily and we often call up the customer care executive for resolving minor problems. This process of handling customers by customer care executives is best example of BPO.
This process of customer handling is also a process for the organisation which needs to be handled very effectively and hence BPO centre are set up.
KPO on the other hand is related to specified professional fields, like Law, taxation, accounting and technical and IT support. Here also the customer care executives handle your queries but there is a difference in the qualification of the customer executive. Usually qualified graduates are appointed as customer care executive in KPO's. E.g. Only a person with LLB or higher degree can be appointed in a KPO dealing with Law matters, a person holding B.Com and higher degrees can be appointed in a KPO dealing with accounting and taxation work.
For BPO such qualification is not needed and the nature of work is limited which is taught to the executives during their incubation period.
The BPO provide general service while KPO provide specialized services.
KPO can be said to be one step extension to BPO.
More or less they are both process outsourcing.