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Recent changes in the local regulatory conditions and deregulation are impacting the shape of the competitive landscape in the energy and utility industry, creating a need for cost reduction and increased operating efficiencies. Organizations operating within this sector are now required to investigate new avenues of value capture.

The difficulty in achieving the desired efficiencies is compounded by the necessity of finding solutions that result in zero-to-minimal negative impact on customer service. Outsourcing of processes, both in the IT and business arena, is proving to be a key ingredient in reaching these goals.

We have reviewed over 300 engagements that signed during the period between 1999 and the first quarter of 2005. 2004 was a banner year for outsourcing with a record number of deals signed.

This increased level of competitiveness is driving organizations to investigate new ways to identify value capture through outsourcing ITO and BPO functions. The majority of deals continue to be ITO with BPO comprising only about 15 percent of the number of transactions executed. While the majority of deals signed continue to be ITO, BPO deals have a disproportionate amount of total contract value (TCV), roughly 30 percent.

The key implication: there remains a significant amount of untapped savings by outsourcing business processes and functions. The questions are:

• What functions should companies consider?
• Is the organization prepared to meet the challenge?

Why Utilities Are Now Outsourcing Call Centers

One of the areas that is still an untapped source of cost savings is the investigation of alternative sourcing options in the customer care and call center environment.

Historically, it has been common in multiple industry sectors not to outsource customer-facing call centers. The fear was losing the intimacy of direct contact with the client base.

However, with the advent of electronic account management via automatic phone systems and Web sites, many of the traditional customer contact points are vanishing. The key is to understand the needs of the customer base and structure the solution to meet both the customer demands as well as efficiency improvements to stay competitive.

The customers of energy and utility companies have historically had a close relationship with their service providers. It was not uncommon for the home or business owner to have direct interaction with representatives of the service provider. This activity quite often occurred in the customer's home or business. This fostered a feeling of community between the customer and the service provider.

Clients in this sector have a stronger alliance to voice and accent, compared to other industries with more formal interactions; they often become frustrated and sometimes offended when they call what they envision as their local utility company with a question or problem and encounter a strong accent from thousands of miles away.

Key Considerations for Success

The key prerequisite for the successful transitioning or migration of customer care is to thoroughly understand segmentation of customer contacts. Once that is done, identify the appropriate location to relocate the activity. Identify target locations and evaluate multiple parameters to determine each location's attractiveness.

Companies need to investigate call segmentation and parsing to determine the required mix between native speaking and accent-neutralized speaking. By understanding the complexity of interactions and the related demands of an organization's customer base, the supplier can design customer care solutions that balance customer needs and the effective delivery of services.

As organizations start to pursue savings in this area, we will see a continual rise in BPO engagements and an increase in the presence of customer care support facilities, both outsourced and captive. One side effect of the increase in customer care support facilities in a localized geography is a corresponding rise in demand on the local skilled-labor pool. This increased strain can create an imbalance between supply and demand, creating the potential for an abnormally high inflation and attrition rate.

Key Steps in Alternative Sourcing of Call Centers

Understand your customer base and related call structure. Perform a customer and call segmentation analysis to determine which customer contacts can benefit from outsourcing, operating a captive, or offshoring to an outsourcing provider.

Once the customer and call segmentation analysis is complete, develop a risk profile to determine which customers and calls the organization would be comfortable migrating. For example, some organizations are hesitant to outsource or shift their high-value customers to a captive solution. However, in B2B environments, the savings are more important than the accent of the customer care agent.

The next key decision is whether to outsource or to implement a captive solution. Considering the complexity and depth of the procurement process, we will fast-forward past it to the point of either determining the location or validating the proposed location as being appropriate.

The attractiveness of a location is much more than how will it benefit the organization today, but also how will it benefit the organization five or ten years into the future. The benefit is not just the cost and potential cost savings a specific location brings, but the service improvement potential and the risk mitigation as well. Remember, all locations have not developed the same way; some have access to larger labor pools with better multilingual capabilities, while others have larger technology or back-office resources to draw on.

The two key factors that drive the attractiveness of a location are the savings offered by the location and the maturity of the location or the given process; in this case the process would be customer care capabilities and voice services. The savings potential is primarily based on the differences between the source location and the target locations, where salaries and real estate are the key cost drivers. The maturity of a location is based on multiple factors, ranging from cultural compatibility through infrastructure stability to the size of the requisite labor pool. These elements often vary due to unique conditions of the process or the organization's profile.

Location analysis should always be performed at the city level. Country comparisons will provide a high-level perspective, but will often overlook key variations between cities. These key variations are often the critical factors in the decision of which location is most appropriate for an organization's solution.

Publish Date: September 2005

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Copyright © 2005 - Everest Partners, L.P.

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