Where should outsourcing end—and the real utility begin?
Richard Charles is vice president of Business Development with the Utilities Service Division of Alliance Data Systems. Contact him at firstname.lastname@example.org.
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.