Business Process Outsourcing: Making the Case for Utilities (2022)

In today's fast-paced marketplace, utilities and energy retailers alike are increasingly having to adapt to a constantly evolving business environment. Pricing pressures and the need for better customer service are forcing them to consider outsourcing as a way to reduce costs associated with specific functions such as customer billing. According to a report entitled Outsourcing 2003, by Chartwell Publishing, Inc., utilities are increasingly outsourcing specific tasks, the most common being bill printing and mailing. Outsourcing specific functions, however, may not be the end of the story. The University of Pennsylvania's Wharton School of Business began offering a course in business process outsourcing (BPO), which it defines as the outsourcing of processes central to a company’s operational structure. According to Ravi Aron, academic co-director at The Wharton School, many companies that initiate outsourcing for cost savings stick with it due to improvements in quality, then commit to it long-term, recognizing that BPO can even improve customer satisfaction. While many companies initially elect to outsource critical back-office functions, such as call centers, bill processing, document management, and management reporting, those businesses are finding compelling reasons to outsource entire processes, rather than just individual functions.

In an era of intense scrutiny by regulators and investors, the decision to outsource closely held business process functions has serious implications for utilities. Not only must executives consider the financial and operational impacts of any change, they must also consider the risks. Naturally, today’s utility executives are not easily convinced that they should outsource large parts of their operations. Among the major concerns are the following:

  • How will outsourcing impact earnings?
  • What will the total cost of ownership be over time?
  • Will the resulting return on investment be sufficient to satisfy analysts and shareholders?
  • In regulated markets where deregulation still looms on the horizon, will the revamped processes adequately support the new business model without negatively impacting the company’s financial performance and customer satisfaction?
  • In deregulated markets, which CIS platform will provide the greatest functionality, scalability and flexibility?

Experts See Importance of BPO
According to Jon Brock, Chief Operating Officer of Utilipoint, Inc. [Issue Alert, August 12, 2003], “Business Process Outsourcing can be a way to not only reduce costs, but gain efficiencies in unidentified areas of the utility due to best practice methodologies employed by the BPO providers.”

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This is particularly true for smaller energy retailers as BPO is usually the only real option beyond spreadsheets and Microsoft Access databases. Outsourcing circumvents up-front investment, as well as ongoing maintenance and operational costs, while providing required services and world-class customer service. Outsourcing also enables energy retailers to focus on their core competence: purchasing commodity energy and marketing it to consumers. The responsibilities, costs and risks associated with back-office activities – i.e., billing, customer service, remittance processing, statement generation, exceptions processing, and other business processes – rest on the shoulders of the outsourcer rather than the marketer.

The idea is taking hold. Zarko Sumic, president of Energy Information Strategies for Meta Group, recently wrote that outsourcing is becoming a more viable option, particularly to those companies that are evaluating the replacement option of their existing customer information system.

It is evident though, that the debate still continues. Many established utilities have long ignored the outsourcing model – at least with respect to the CIS and the back office. Why, executives ask, should we give up control of even functions we consider to be our lifeblood, never mind entire processes? The answer is compelling. BPO offers many advantages over in-house solutions. These advantages include: Improved financial stability – Services are provided at agreed-upon levels and at consistent prices. This eliminates capital investments and implementation fees while stabilizing operational, maintenance and upgrade costs. Plus, BPO costs can be shifted to the operating cost side of the balance sheet, thereby materially improving a utility’s bottom line. Improved control with lower risk – By operating under service level agreements, utilities are guaranteed that the outsourcer will deliver promised performance or else be subject to penalties. Plus, the outsourcer becomes an important buffer between the utility and technology providers, which eliminates issues surrounding licensing, production support and upgrades. Operational efficiencies – Because outsourcers serve multiple clients in multiple markets, they develop process and personnel efficiencies that generally cannot be matched in house. These efficiencies typically result in better service at competitive, if not lower, costs . Flexibility and scalability – Outsourcers make changes and ramp up or scale back faster and more efficiently than in-house resources. This enables utilities to respond faster and more cost-effectively to market and competitive dynamics while minimizing disruption to their customer base. Performance-based Service – With service level agreements in place, outsourcers are compelled to deliver strong customer service as exceeding contractual service levels is often tied to performance rewards. Truly world-class outsourcers build there solution around service level measurements that meet or exceed customer expectations.

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Selecting a BPO Partner
Even with these proven benefits, the decision to outsource is still difficult. Choosing the right outsourcer is a complex decision with far-reaching consequences. Factors to consider include the following:

The business case – Work with a provider that will help develop the business case for outsourcing, including a detailed return on investment analysis. Experience – Carefully evaluate the outsourcer’s experience and expertise, specifically in the utilities industry. Solution orientation – If an outsourcer offers limited CIS options, flexibility may be severely restricted. Better to choose a provider that is “solution agnostic” and willing to help you assess, identify and implement the best system for your circumstances.

Attitude – “Chemistry” is everything in a BPO relationship. If the outsourcer is supportive, creative and flexible before the deal is inked, they’ll likely be so afterward.

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Platform Considerations
All of the leading CIS platforms have strengths, but none can claim to address every issue:

  • Some platforms are well suited for municipal utilities, but may not be modular enough for deregulated energy retailers or robust enough for large distributors.
  • Other platforms are designed specifically for energy retailers in competitive markets, but don’t have sufficient functionality for regulated utilities, large municipals or cooperatives.
  • Many of the platforms appear to have full-scale functionality on the surface, but if you look “beneath the covers,” they are behind the times in technology. As a result, they pose significant risks in a traditional license model. Bottom line, there is no “silver-bullet” in the CIS market today.

The above are relevant issues for utilities considering outsourcing. It’s imperative to choose an outsourcer that understands the various platforms and can offer the best solution to fit various unique requirements. Such a provider offers distinct advantages:

  • Expertise in multiple platforms builds deep industry knowledge across the organization that can be leveraged by the client. As a multi-platform user, the outsourcer can objectively recommend the best solution based on a utility’s unique business requirements without being tied to a single platform. This vendor independence alleviates the proverbial “pound it to fit, paint it to match” problem often encountered with single platform vendors.
  • Technical configuration issues, during initial deployment and upgrades, are no longer a stumbling block, because the outsourcer builds the effort and related costs into its model. This is a significant advantage over in-house solutions, where the utility bears all of the expense, risk and responsibility associated with the development and maintenance of custom interfaces and system modifications.
  • As new technologies emerge, the outsourcer typically evaluates and tests new releases to maintain technical currency. The utility can tap into this wealth of knowledge and experience, selecting the technologies that best support its business without having to invest the time, resources and money in the evaluation and implementation process.

Outsourcing also addresses another critical issue – business continuity. With recent calamities, such as the rash of cyber-terror incidents, regional blackouts and international terrorism, disaster recovery must be a serious factor in any information technology decision. An outsourcer should be able to demonstrate beyond doubt that it has the experience, resources and capability to keep the utility’s back-office functions operational, regardless of the conditions under which those services are provided. No Time Like the Present
The current focus on boosting productivity and improving customer service continues to push outsourcing to the forefront of many discussions, and rightly so. Only until recently are the discussions about expanding from business functions to outsourcing entire processes beginning to take place. And as forward-thinking utility executives become better educated on this paradigm shift, the industry will continue to gravitate toward the smarter, more efficient solution that BPO offers.

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FAQs

What are the 5 steps for success in business process outsourcing? ›

Here is the 5-step process to outsourcing success:
  • Plot and Prepare. It's important that you conduct thorough research when you're seriously considering outsourcing. ...
  • Strike a Partnership with the Right Outsourcing Company. ...
  • Delegate and Restructure. ...
  • Provide Controlled Presence. ...
  • Evaluate the Performance.
5 Jul 2017

What are the steps of outsourcing process? ›

Training Business Process Outsourcing (BPO) consists of seven stages: assessment, proposal, due diligence, contracting, transition, governance and transfer. Each of the seven stages is described in chronological order below.

What is business process outsourcing PDF? ›

Business Process Outsourcing is the leveraging of technology or specialist process vendors to provide and manage an organization's critical and/or non-critical enterprise processes and applications. Outsourcing, Offshore-Outsourcing and Off-shoring are used interchangeably despite important technical differences.

What are the 5 outsourcing strategies? ›

5 Outsourced Strategies An Organisation Must Consider
  • Customer Service Outsourcing. ...
  • Finance & Accounting Outsourcing. ...
  • Catalogue Management Outsourcing. ...
  • Outbound Sales For Growth. ...
  • Back Office Outsourcing.
11 Oct 2021

How can we make outsourcing effective? ›

7 Ways to Make Outsourcing a Success Time After Time
  1. Take a disciplined approach. Too many entrepreneurs abandon everything they've learned about hiring or dealing with consultants. ...
  2. Hire right. ...
  3. Be absolutely clear. ...
  4. Make it a dialogue. ...
  5. Manage against clear deliverables. ...
  6. Payment varies. ...
  7. Take responsibility.
23 May 2019

How does business process outsourcing work? ›

Business process outsourcing (BPO) is the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administrates and manages the selected processes based on defined and measurable performance metrics.

Why is there successful outsourcing? ›

Outsourcing allows you the time and resources necessary for focusing on other aspects of the company, while still providing customers with high quality service they expect from their favorite brands. Even with all the pros, a major reason for the practice of outsourcing is to run a successful business model.

What are the three types of outsourcing contracts? ›

We have prepared a summary of the 4 most popular types of outsourcing agreements.
  • TIME & MATERIALS CONTRACT.
  • FIXED PRICE CONTRACT.
  • FLEXIBLE SCOPE (DSDM)
  • PAIN SHARE/GAIN SHARE.
17 Jun 2020

What is BPO simple answer? ›

BPO stands for Business Process Outsourcing. It generally is the process of subcontracting or outsourcing some business operations to a third party. It mainly consists of customer-related services like marketing and technical help.

What are the advantages of BPO? ›

5 Advantages of BPO
  • Cost Savings. One of the significant, key advantages of outsourcing business functions is the cost savings that come along with it. ...
  • Cost Savings. ...
  • Saving Time. ...
  • Saving Time. ...
  • Greater Efficiency. ...
  • Greater Efficiency. ...
  • Focus on Core Business Functions. ...
  • Focus on Core Business Functions.

How has BPO changed the world today? ›

BPO has made running a business easier, helped mitigate risk, increase quality assurance, reduce storage and operational costs, streamlined compliance efforts, and more. In fact, in a recent survey, 59% of business executives globally said they rely on outsourcing services to reduce costs.

What are the 4 types of outsourcing? ›

A few of the main categories include:
  • Professional outsourcing.
  • IT outsourcing.
  • Manufacturing outsourcing.
  • Project outsourcing.
  • Process outsourcing.
  • Operational outsourcing.

What are the risks of outsourcing business processes? ›

BPO risks include the following:
  • Security breaches. ...
  • Regulatory compliance requirements. ...
  • Unanticipated or higher costs. ...
  • Relationship challenges. ...
  • Overdependence on the external provider. ...
  • Increased potential for disruption.

What are the two 2 types of outsourcing? ›

IT Staff Augmentation and Dedicated Teams are the two types of outsourcing that have revolutionized software development. Through them, businesses from all around the world have been able to quickly develop high-quality software solutions designed specifically to match their needs.

What are the keys to a successful outsourcing relationship? ›

To establish a successful IT outsourcing partnership, you need to have the right toolset to support communication and collaboration between your employees and the vendor. “Communication solutions must be found which are tailored to this special partnership.

What are some advantages and disadvantages of outsourcing? ›

The Pros And Cons Of Outsourcing
  • Advantages Of Outsourcing. ...
  • You Don't Have To Hire More Employees. ...
  • Access To A Larger Talent Pool. ...
  • Lower Labor Cost. ...
  • Cons Of Outsourcing. ...
  • Lack Of Control. ...
  • Communication Issues. ...
  • Problems With Quality.
17 Jul 2017

How effective is outsourcing? ›

The benefits of outsourcing can be substantial - from cost savings and efficiency gains to greater competitive advantage. On the other hand, loss of control over the outsourced function is often a potential business risk.

What is an example of business process outsourcing? ›

Call centers are a type of BPO. For example, a manufacturer may outsource their customer service to a call center. But business process outsourcing isn't limited to customer service, or to call centers. The same manufacturer might use BPO to outsource payroll, accounting, and similar administrative tasks.

What is the future of business process outsourcing? ›

The Future Of BPO

CAGR [compound annual growth rate] of over 7%” between 2020 and 2024. The report summary further notes that “the business process outsourcing market size has the potential to grow by US$76.90 billion during 2020–2024” and that its market growth momentum could accelerate.

What are the 4 BPO services? ›

These subcategories include:
  • Front-Office BPO.
  • Back-Office BPO.
  • Offshore BPO.
  • Nearshore BPO.
  • Onshore/Domestic BPO.
14 Jul 2021

What is the best situation to outsource? ›

A Company Should Outsource When You Need to Focus on Your Business-Critical. Adding people to your team to do skills not part of your core business can be daunting, time-consuming and expensive, not to mention limiting to your business growth.

Why do companies engage in outsourcing? ›

Companies outsource jobs and services for several reasons. These reasons may be cost saving, cutting back on resources, making more room for growth, remaining on top of the industry ranks, and more. Businesses are better off with outsourcing as one of their major business models.

Will outsourcing importance grow in the future? ›

Will outsourcing survive in years to come? The answer is a definite yes. Outsourcing will continue to survive in the future, as it provides companies the access to specialized skills and save on time and effort, which can be channeled into the other core business ventures.

What are the services of outsourcing? ›

They frequently outsource customer service and call service functions. They can outsource other types of work as well, including manufacturing processes, human resources tasks and financial functions such as bookkeeping and payroll processing.

What is another word for outsourcing? ›

Outsourcing Synonyms - WordHippo Thesaurus.
...
What is another word for outsourcing?
sourcingdeploying
redistributingsubcontracting
utilisingUKutilizingUS
1 more row

Who is the largest BPO? ›

Accenture is one of the largest professional services companies in the world and employs more than 500,000 people globally.

How many types of BPO are there? ›

BPO is often divided into two main types of services: back office and front office. Back-office services include internal business processes, such as billing or purchasing. Front-office services pertain to the contracting company's customers, such as marketing and tech support.

What should I say in an interview introduction? ›

Greet the interviewer/interviewers and start by formally stating your name, qualification, specific training, interests, or previous experience. How can I introduce myself as a fresher? As a fresher, after stating your name, qualifications, emphasize your interests and industry-specific qualities.

How does BPO industry help our economy? ›

Because of the BPO's impact on the country's economy, the industry receives great support from the government*, providing perks such as tax holidays and exemptions, among many others. One great example of this relationship is the creation of the Data Privacy Act*.

What is business process outsourcing explain its types and benefits? ›

Business Process Outsourcing (BPO) is a form of outsourcing where one organization delegates one or more business processes to another company. The business functions that are most commonly outsourced are customer support, back-office, payroll, HR activities, data entry services, market research, etc.

Why BPO is the fastest growing industry? ›

In India, Business Process Outsourcing (BPO) is the fastest growing segment of the ITES (Information Technology Enabled Services) industry. Factors such as economy of scale, business risk mitigation, cost advantage, utilization improvement and superior competency have all lead to the growth of the Indian BPO industry.

What is the biggest challenge facing the BPO industry today? ›

10 Common Challenges of BPO Industry
  • Changing Political Scenarios. Political situations in regions of America and Europe can affect the BPO industry drastically. ...
  • Exceeding Customer Expectations. ...
  • Shoestring Budgets. ...
  • Health Concerns. ...
  • Customer Attrition. ...
  • Scarcity of Talent. ...
  • Employee Attrition. ...
  • Communication Channels.

Why BPO is in demand in today's era? ›

It is economical.

From both the demand and supply viewpoint, BPOs are an economical choice for companies based out of the US, UK, Europe, and others. After all, globalization has boosted the demand for BPO services because of the decreasing trade barriers.

What is the scope of BPO in the current market? ›

Report Overview. The global business process outsourcing market was valued at USD 245.9 billion in 2021 and is projected to expand at a compound annual growth rate (CAGR) of 9.1% from 2022 to 2030.

What are the levels of outsourcing? ›

The three tiers of outsourcing are as follows:
  • Project-Level Outsourcing. During project-level outsourcing, companies outsource certain aspects of a project to third-party providers, such as developing a part for a new product.
  • Program-Level Outsourcing. ...
  • Division-Level Outsourcing.

What is business process outsourcing and how important outsourcing in the company? ›

Business process outsourcing (BPO) is the practice of contracting a work process or processes to an external service provider. BPO fills supplementary business functions like payroll, accounting, telemarketing, data recording, social media, customer support, and more.

What is the role of outsourcing in HRM planning? ›

It helps organization to focus on internal resources towards doing what they do best and simultaneously helps to control the bottom lines. HR outsourcing helps an organization to gain cost and time efficiencies and provides cutting edge over their human resource strategies and improves services to their employees.

What are core competencies of outsourcing? ›

Outsourcing frees up your staff to focus on their core competencies – i.e., what they're good at. By dedicating their time to their strengths, you derive the maximum benefit from their talents. Bringing in specialists will usually mean faster execution.

What are the 4 types of outsourcing? ›

A few of the main categories include:
  • Professional outsourcing.
  • IT outsourcing.
  • Manufacturing outsourcing.
  • Project outsourcing.
  • Process outsourcing.
  • Operational outsourcing.

Which is the best example of outsourcing? ›

Advertising, office and warehouse cleaning, and website development are the best examples of outsourcing. Most business owners delegate authority to outsourced specialists when it comes to bookkeeping, maintenance, recruitment. This helps enterprises to focus most of their resources on the main activity.

What is an example of business process outsourcing? ›

Call centers are a type of BPO. For example, a manufacturer may outsource their customer service to a call center. But business process outsourcing isn't limited to customer service, or to call centers. The same manufacturer might use BPO to outsource payroll, accounting, and similar administrative tasks.

What is BPO and its benefits? ›

Business process outsourcing, or BPO, is the practice of hiring a third party to take care of specific work processes for your business. This can include things like your website content, your payroll, accounting, customer support, social media marketing, and many more.

How does a company benefit from a BPO? ›

Organizations contract with BPO vendors for back office and front office operations. BPO offers several benefits, such as lower costs, global expansion, and higher efficiency, while some of the drawbacks include security issues, hidden costs, and overdependence.

Who is responsible for outsourcing? ›

The outside company, which is known as the service provider or a third-party provider, arranges for its own workers or computer systems to perform the tasks or services either on site at the hiring company's own facilities or at external locations. Companies today can outsource a number of tasks or services.

What are the most commonly outsourced HR activities? ›

Key takeaway: Common HR outsourcing functions include payroll processing, benefits administration, employee relations, hiring and employee counseling.

What are the benefits of outsourcing HR functions? ›

6 Benefits Of Outsourcing HR Functions
  • Save Money With Lower Administration Costs. ...
  • Ability To Offer More Services Due To Lower Limitations. ...
  • Happier Employees. ...
  • Minimizing And Effectively Managing Risk. ...
  • Streamlining Vital Functions. ...
  • Efficient Performance Management.

What helps business firms to focus on core activities? ›

Outsourcing is big business today, even for small businesses. Outsourcing is big business today, even for small businesses. Claims processing, training, human resources, fleet maintenance and data centers are all successfully outsourced.

What is the relationship between an organization's core competency and outsourcing? ›

Outsourcing can provide a shortcut to a more competitive product, but it undermines the development of enhancing learning skills and knowledge over time. The outsourcing of an organization's core competencies may result in significant changes in an organization's relationships with its partners.

Should a core competence ever be outsourced? ›

Outsourcing a core function may give you a short-term uplift, but it also means you fail to build the expertise within your company. If you want to build a sustainable competitive advantage, you simply can't outsource your core functions to another who may not be as invested in your success.

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