Business Process Outsourcing: Myth or Reality?

Fortnightly Magazine - September 2004


Business Process Outsourcing

The utility HR department is the new battleground.

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Today information technology (IT) outsourcing contracts are being signed on an almost weekly basis and are rapidly extending into business process outsourcing (BPO) deals covering a whole range of areas-customer care, human resources (HR), finance and accounting, and procurement, to name a few.

Recently, TXU Corp. agreed to enter into a partnership to outsource areas such as IT, human resources, the call center, billing, supply chain, and finance and accounting. The 10-year, $3.5 billion deal will help TXU deliver improved electric service for customers and higher satisfaction rates, while yielding significant savings for TXU.

Other recent examples include a 10-year, $1 billion outsourcing deal announced by Canadian hydroelectric generator BC Hydro for customer services, IT services, HR services, network computing services, financial systems, and purchasing. ENMAX Corp. in Calgary signed a 10-year customer care outsourcing agreement; and Southern Co. Gas agreed to a seven-year arrangement for call center, billing collections, exception-processing services, correspondence, and transaction and revenue operations.

Why the recent momentum toward BPO deals in the utility sector? For one, BPO is a means to control massive technology and infrastructure upgrades, and these back-office functions require constant care and feeding.

But beyond cost savings, utilities, like other businesses, are finding that the potential benefits of BPO can go deep into their operations. The economies of scale that enable providers of outsourced services to cut a client's costs are becoming less important than the economies of skill gained from calling on expertise that can chart the course of least risk.

Dispelling the Urban Myth

Providers of outsourced services are being employed to take primary responsibility for business processes and to make sure they link up with other processes within the operation. In addition, the provider can create and accelerate to market new strands to the client's business, galvanize change in the organization, and streamline management practices.

Increasingly, utilities use outsourcing as a fast-track route to becoming a high-performance business. They are leapfrogging other industries that have dabbled with occasional outsourcing agreements but have not committed fully to the concept. Such radical initiatives are in stark contrast to utilities' traditional reputations for hesitating to embrace change.

But there remains some reluctance in the utilities industry to fully embrace BPO, due in part to some myths surrounding this innovative concept. These include:

  • Utility outsourcing is a fad;
  • Outsourcing and a regulated environment don't mix;
  • Outsourcing leads to less flexibility and a loss of control of decisions;
  • Outsourcing is better done one function at a time;
  • Cutting costs through outsourcing leads to service degradation; and
  • Greater flexibility will erase the "customer touch."
  • In short, some executives fear losing control. But a solid, collaborative BPO relationship can give executives more control, and boost performance in the process. For those companies that have made such a move successfully, the key is a subtle combination of strict guidelines and demands, balanced by a spirit of collaboration and mutual respect.

    All companies that enter into BPO arrangements apply constraints. They set deadlines, enforce service levels, and approve