The decision to buy, build, and/or sell information technology assets carries many pitfalls, especially for a regulated utility.
Finding the Utility's Core
Where should outsourcing end—and the real utility begin?
When utilities evaluate business process outsourcing, they need to determine which processes are most advantageous to outsource—core or non-core? These terms sometimes are used interchangeably, but it is important to note the difference between the two. By definition, a core competence is an area of specialized expertise that is the result of harmonizing complex streams of technology and work activity. On the other hand, core functions are those processes, like customer care or emergency restoration, that a utility is obligated to provide.
Many utilities consider all processes—from transmission and delivery through customer service—as core competencies to be kept in-house. However, when service costs of utilities are compared, this conclusion is questionable.
For instance, recent FERC data on customer-service costs for electric utilities with 1 million to 5 million customers shows a wide range across the utilities.
If customer service is a core competence, we should see a tight clustering of the data points, accompanied by a downward trending of service costs as the customer base increases (reflecting normalization for such factors as wage rates, etc.). In contrast, there is little correlation between the number of customers and the amount spent on "core" customer service functions.
The More Important Metric: Performance
Rather than debating the merits of core or non-core, perhaps the more critical questions utilities should ask are:
- How are our key processes performing?
- Are they cost-efficient and effective?
- Do they enhance or inhibit our corporate performance?
If the answer to the latter two questions is "no," perhaps it is time that business process outsourcing (BPO) be considered core to a utility's performance.
Cost-effective process performance is a BPO provider's core competence. Leading outsourcers develop an understanding of how the utility uses technology to serve customers, how well well it performs customer services, where the gaps are, and where the overlaps occur. Examples of this performance include:
- 400,000 billing exceptions resolved within 60 days for a Southwest retail provider;
- 75 percent fewer service disconnects for a large Western gas retailer; and
- $9 million in accounts receivable recaptured in just 12 months by a multi-jurisdictional retail water and wastewater utility.
Most executives agree; there is tremendous opportunity to take costs out of utility operations. So perhaps it's time for utilities to decouple the idea of "core competencies" from the decision of how best to provision them. By assessing performance through this filter, utilities can discern which processes are the most advantageous to outsource.
Workforce Retirement, Unions, and BPO: The Middle Ground
The average age of the energy industry workforce is nearing 50, with an estimated 45 percent eligible for retirement over the next five years. As such, utilities and their unions are seeking new ways to revitalize their workforce, cut health care and pension costs, and forestall skill loss. Fortunately, utilities, unions, and outsourcing providers don't have to be adversaries. As a performance partner, BPO providers offer many options that