While it appears that capacity markets are here to stay, there is little consensus regarding the best design. Markets in the United States are in a state of flux, with debate raging over many...
or even just a part of any activity will create opportunities but also new types of risks, including:
- Loss of critical skills or developing the wrong skills. Outsourcing a key skill may mean a company loses its capability to innovate independently from a vendor.
- Loss of cross-functional skills. The interactions among skilled people in different functional activities often develop unexpected new insights or solutions.
- Loss of control over a supplier. Real problems can occur when the supplier's priorities do not match the buyer's. Remedying the conflicts is critical. If there is not sufficient depth in the market, powerful suppliers can hold a company ransom. But Quinn says that specialized suppliers can often produce higher value-added at lower cost for the activity than almost any integrated company. That is why he recommends benchmarking suppliers against internal operations to determine the value proposition of outsourcing. Furthermore, Quinn says outsourcing can force many types of risks and unwanted management problems onto suppliers.
Michael A. Beltz, executive vice president at Alliance Data Systems (ADS) and president of utility services at the company, says that he believes outsourcing customer information systems may be the answer for utilities that have legacy software systems and under-performing assets. "Most utilities are caught in the dilemma of needing to improve the quality of customer service, but doing so without significant IT investment and a corresponding rate-case increase," Beltz says. Furthermore, according to an ADS report, business process outsourcing provides an "insurance policy" for CIS implementation cost overruns and system failures.
Echoing Quinn, Bill Mahoney, president and CEO at Excelergy, says the question to ask when thinking about outsourcing is whether the utility's CIOs and managers are good at managing the relationship with outsource providers. He notes that a utility can take billions of dollars in costs, in some cases, off the books and look more attractive to Wall Street. The cost of ownership of IT and other systems is cheaper, particularly when implementing later generations of IT, Mahoney says. Indded, let the outsourcing lines be drawn.
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