[BETA] Fortnightly

The pros and cons of outsourcing utilities' IT functions.

Utility companies have a lot to think about these days. Whether or not to outsource information technologies (IT) is part of the equation being calculated in the present economy. While some managers feel anxiety at turning over important company functions to outsiders, others see it as an opportunity to free up IT staff for other work. And keeping up with ever-changing technology is a daunting task.

Companies that specialize in outsourcing are certain not only that they can save utility companies money and make utility staff available for in-house work, but that they can improve IT performance, thereby giving their clients a leg up on competitors. Other factors are involved, of course, but the experts believe there is no better time to outsource IT, and that the elimination of operational errors is perhaps the most important advantage to be had. They claim their experience translates into improved reliability, allowing utilities to attain a level of quality and service that could not be achieved alone.

That could explain why BC Hydro on Feb. 28 of this year signed a 10-year contract valued at $1 billion with Accenture, designed to save customers money while improving customer care. BC Hydro will outsource its entire customer services, some IT services, network-computing services, HR services, financial systems, purchasing and building, and office services.

Outsourcing Trends

Experts say that IT outsourcing by utilities will increase. According to Etienne H. Deffarges, global managing partner of utilities at Accenture, the trend is definitely upward. The industry is in trouble and is under financial pressure. Therefore, outsourcing is a fairly reliable way to cut costs. Second, as if cost pressures were not enough, the industry is also under a great burden to improve in areas such as customer service and use of technology.

"A good outsourcing program, principally in an area like customer care-metering, billing, managing call centers-can help improve customer service as well as reduce costs, and that is very important for utilities," said Deffarges. "We actually ran a survey in the United States, where we demonstrated that companies that have the best customer services also have the highest allowed rate of return." He emphasized that IT is an area greatly scrutinized by regulators.

Nicholson said he is starting to see the very beginning of a decentralization trend. "You have two things going on: pressure to reduce IT budgets, and central IT organizations starting to lose some control back out to the lines of business. Those two things together tell us to expect to see more outsourcing. Either one of those factors alone could lead you to the conclusion that you will see more outsourcing, but the two of them together make a pretty strong case," he says. And while the trend may not be toward pure IT outsourcing, it will most likely be toward a combination of business process and IT outsourcing, experts say.

Economies of Scale

Another reason utilities are finding themselves in need of IT outsourcing is purely related to size. Bill Morris, managing partner of Accenture's utility