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CRM and Outsourcing: Outsourcing Growth?

A behind-the-scenes look at what industry influencers are saying.

Fortnightly Magazine - May 2006

interest in offloading non-core functions so they can concentrate on core business functions. “Most companies will favor lower-cost, discrete outsourcing options (such as transaction processing) rather than strategic, comprehensive outsourcing, thus reducing the overall size of the total available BPO market.” 3

As for vendors, Gartner recommends, “Be selective about targeting process domains. Don’t try and be all things to all people.” They further urge vendors to hone a vertical niche. The Gartner viewpoint appears to support the premise that selective outsourcing is the dominant trend now and will continue for at least the next several years.

To obtain a better understanding of the current situation, and in search of some insight into what the industry might see in the coming years, we approached leading industry analysts to get their take on the future of outsourcing—or equally important, the future of the utility industry in light of outsourcing. Below is a summary of the analysts’ conclusions.

Multi-Tower or Selective Outsourcing

Dennis Smith, chief industry analyst for Chartwell, states, “Utilities continue to look to outsourcers to supplement their services.” Smith goes on to cite outsourcing functions, such as credit and collections, or overflow in times of high-volume calling, as prime targets for outsourcing. Outsourcing discrete functions frees the utility’s CSRs to handle calls for priorities, such as billing inquiries, outages, and storm situations. 4

Smith sees the outsourcing trend continuing: “More utilities than ever outsource, and they will continue to do so.” But whether utilities will turn their entire customer care function over to an outsourcer is up for debate. “The industry faces special issues, such as regulatory review, that other industries don’t encounter,” says Smith. “We have seen examples of successful BPO arrangements, but these are most often in deregulated markets where retail choice is the driver.”

In 2005, UtiliPoint conducted a survey on outsourcing that netted responses from 308 North American utilities. The collective results showed that “over 77 percent of respondents indicated that they have either outsourced a customer service function, or that they were planning to outsource one in the next two years.” 5

A Future of Slow, Cautious Outsourcing Growth?

Warren Causey, an EnergyCentral analyst, differs from his colleagues in his view of the outsourcing trend. Causey states, “We think there will continue to be some opportunities for outsourcers, but no major surge in activity in the next few years.” Causey also sees investor-owned utilities as “very resistant” to outsourcing “just CIS or customer care.” However, according to Causey, “In cases where circumstances favor outsourcing an entire IT operation, they will include customer care. But these situations are relatively rare.”

Among smaller utilities, Causey states, “We think there will continue to be some gradual growth in outsourcing, but probably not a pace that will encourage more vendors to enter the market.” 6

UtiliPoint analyst Ethan Cohen cites the steep increase in natural-gas prices as a key driver that is making BPO more attractive to utilities. “Natural-gas utilities are entertaining BPO more readily in 2006. High natural-gas prices are causing natural-gas utilities to look at BPO to reduce costs