Meter to Cash Outsourcing

Transcription

1 Accenture Utilities Podcast Series Meter to Cash Outsourcing An interview on opportunities to unlock the value through outsourcing with Saurabh Gupta, vice president BPO research, Everest Group, and Chris Metzger, utilities BPO delivery lead for Accenture.

2 Narrator: Welcome to the Unlocking value through outsourcing podcast. Today, Saurabh Gupta, vice president BPO research for Everest Group, and Chris Metzger, utilities BPO delivery lead for Accenture, will talk about the latest Everest Group research report, Leveraging BPO to Drive Success in Utilities and Retail Energy Providers. Chris, over to you. Thanks for that introduction. Saurabh, first I wanted to congratulate you and the Everest Group for creating what I think is a valuable and timely industry analyst report. I ve been in the industry for nearly 20 years now, and I don t think I ve ever seen a time when a naturally dynamic industry has been going through so much change and so many challenges at the same time. Trying to improve service quality, reduce cost and enhance customer satisfaction all at the same time it s become quite a challenge for many of the companies we deal with. Saurabh, maybe you could walk us through some of the research findings. Sure, Chris. Thanks. You re absolutely right about the challenges utilities and retail energy providers face today. There are external challenges such as regulation, and simultaneously there s deregulation; there s increasing consumerism and lots of technological changes and all of them must be managed against an internal backdrop of financial constraints and the need for new capabilities. As a result, we analyzed more than 500 hundred outsourcing contracts signed by utilities and retail energy providers over the last decade or so. About 25 percent of these 500- odd contracts had BPO elements in them and more than 80 percent of them had meter-to-cash operations in scope. So clearly there is an increasing interest in outsourcing meterto-cash operations by retailers and utilities providers. What s even more interesting is that BPO contracts involving such meterto-cash operations have evolved through three distinct phases over the last decade. The first phase was that of the early 2000s, when the whole utilities BPO started. It soon gained momentum on the back of large back office transformational contracts. This period, which extended from roughly 2000 to 2004, was characterized by very large, multi-tower engagements in which meter-to-cash processes were bundled with other back office functions such as HR or finance and accounting, and even IT. So we saw momentum gaining in utilities BPO in the first half of However, that activity started to drop around Given that, these large multi-tower contracts had a high risk/reward profile. So instead of putting all of their eggs in one basket, utilities and retail energy providers started to focus on piecemeal BPO solutions, such as contact center or customer care. However, the third phase started in the late 2000s, three or four years ago. With mounting external and internal pressures, the meter-tocash outsourcing activity started to pick up again. The more recent deals we ve seen have been driven by the objective of optimizing meter-to-cash operations, and they ve refrained from the large multi-tower contracts we saw earlier. In today s context, I see three big factors that are driving the decision to outsource meter-to-cash. The first one is reducing cost to serve. According to our research, the meter-to-cash operations, which span customer sales, accounting and service functions, account for about 10 to 15 percent of the total costs, or what we call the nonfuel electric utility costs. Given such a large cost base, the business case for outsourcing meter-to-cash, in most instances, originates with a need for cost reduction. Beyond cost reduction and reducing cost to serve, there is a business optimization angle as well. Most utilities I talked to suffer from inferior data quality because they have disparate systems. They have inconsistent meter reading operations, especially in B2C, or the business-to-consumer segment. And there are myriad challenges: billing exceptions, disputes, a high degree of manual processing, delayed billing, poor receivables management and I can go on. So this often results in lower customer satisfaction. There is a high churn rate today and significant bad debts, and outsourcing is an 1

3 answer to optimize these business challenges. Beyond that, there is the third driver of meeting increasing customer expectations, which emanates from two things. First, the consumer demographics have evolved, and customers are demanding more from their utilities providers. Second, there is a progressive deregulation of retail markets worldwide, which has created intense competition among retailers. It s a challenge now to maintain the customer base. So the complexity and uncertainties in today s business environment are resulting in a renewed interest in meter-to-cash BPO. That s what our research indicates. Chris, how do these findings align with your experience? Thanks, Saurabh. That s a great explanation, and I think it s very consistent with what we ve been finding with both our current and prospective clients. We ve seen that while cost is always going to be a driver of outsourcing, clients no longer expect us to just do the same work for less; they expect us to do the work better and to bring more capabilities. We see this in what we call fourth- and fifth-generation outsourcing, with the fourth generation being characterized most notably by insight analytics, and fifth generation by computer platforms that can cut across various clients. When I think about insight analytics you brought up collections it s been a huge issue for all of our clients for many years now. But our ability to look at individual customer segments and drive the money into the utilities more quickly and more effectively with a lower operational cost is something they couldn t do on their own. That s partly because we bring systems to bear that we can invest in, that they re not able to, because they need to spend their money on the transmission and distribution assets. These are just a couple of examples that very clearly support the research you ve done. I think, as I looked at the paper, one of the things that was really valuable to me was the four levels of potential value creation from outsourcing that you ve highlighted. Could you do me a favor and just explain those four levels? Sure. As I mentioned and you kind of described it from a very practical standpoint as well the value creation potential from meterto-cash BPO is very robust, and it exists at multiple levels. At a basic level, it is a direct cost savings. What we ve seen by talking to a number of utilities who have outsourced is that, in a very typical outsourcing scenario, they can achieve about 30 to 40 percent savings as compared to in-house operations, thus meeting the key requirement of reducing the cost to serve that I highlighted earlier. The outsourcing service provider can also help in amortizing any up-front investments. So in an uncertain economic environment as we are in today, with reduced operational budgets, these savings can be used to fund other important initiatives such as capacity expansions and asset modernizations, which most utilities are in dire need of. Beyond these direct cost savings, utilities also benefit from increasing their operational transparency and generating more business insights, because utilities can now gain access to the global best practices and business processes process improvement opportunities like standardization, re-engineering, continuous monitoring of performance metrics, etc. that service providers offer. Utilities also will gain from access to expertise and innovation that these service providers offer, because now they can leverage their expertise in managing meterto-cash operations across multiple plans, not just these single utilities. These operational improvements result in much more consistent and improved service levels. We ve seen a lot of key business metrics being favorably impacted by outsourcing, such as more timely, accurate billing, revenue assurance through improved collections (it has improved), reductions in bad debt and overall more actionable customer service. All this basically results in improved customer engagement. And that s the big thing today. In fact, we ve seen that some outsourcing service providers can also generate targeted analysis of customer segments and introduce or enhance the customer self-service channels and the overall improved customer service. 2

4 These are some of the benefits that we ve seen talking to our clients. What have you seen, Chris? What are some of the benefits that your clients have identified? There have been quite a few, Saurabh, and I ll give you a couple of examples. The first is with a current client, one of our large Canadian utilities clients. What we had done there was to strive to deliver about CAD $250 million in savings over the first 10 years of the contract. That was something we were able to do successfully. But I think what was most notable about it was that we were able to improve the quality and performance markedly. It wasn t just about the cost reductions. By making thoughtful decisions along with the client leadership team, we were able to do the right thing for the customer and the utility. So deliver the bottom-line savings while also improving the customer experience. The second example I d give you is a prospective client with whom we haven t yet done the outsourcing arrangement. As we talked to the chief operating officer, who is quite a forward-looking gentleman, he s thinking that what he wants to do with the savings is not take them to the bottom line, but rather reinvest in the customer experience. I think that s exactly in line with what you were just talking about, Saurabh, which is to say that because the dynamic is changing so much and customer expectations are changing so much, we re looking at different models for what to do with the savings that outsourcing can generate. Saurabh? Those are great examples. What we ve seen is that in order to unlock the full value-creation potential from meter-to-cash outsourcing, there are five main building blocks that you need to consider to create a successful long-term outsourcing relationship. I want to spend a little bit of time on these because identifying valuecreation potential is easier than implementing it, and I think a lot of focus has to be on creating the right partnership. The first building block is selecting the right service provider. The selection of the service provider is critical to the outsourcing return on investment. Beyond just scope, scale and service levels, I think in this market of utilities BPO, domain and process expertise are critical to success in outsourcing. We always advise our clients to look at their service provider from a domain expertise perspective, beyond just scale and scope. Adding a value-defined contract is a must-have as well. The outsourcing contract must align the client s economic and transformation goals. The economic goals could be either around costs, investments or incentives, and transformation goals could be around process improvements, customer satisfaction, service levels or performance metrics. In a lot of cases, we ve also seen that including some incentive-based pricing structures in contracts, like gain sharing or outcomebased pricing, also creates some sort of a skin in the game for the service provider, motivating them to continuously improve the service delivery. So a value-defined contract is a must-have. The third building block involves collaborative governance. One of the pitfalls we ve seen is a delay in establishing a governance structure. That s a must-avoid pitfall that can limit the value of the initiative. Just like governance, I think, managing the transition to the service provider is equally critical. The fourth one is effective change management, and I cannot overemphasize the importance of change management: It s a crucial, crucial requirement for success. We ve seen that frequent and accurate communication, especially around early wins and successes an initiative has seen, must be made, and senior management visibility and engagement in change management at all stages of the engagement before the engagement, during transition and even after plays a very important role in making sure that employees are committed and, overall, you are creating a successful initiative. Last but not least, the quality of the relationship between the buyer and the service provider is the ultimate determinant of success. We believe these things need to work more in a spirit of partnership than based purely on the terms and conditions of the contract. Only then can you really create a successful relationship. 3

5 So to summarize, it s a journey, and taking the right first step is very important. Therefore, what we advise is to begin with an end in mind. Understand the desired outcomes from all angles be it cost, customer relationship or capability. And there are five building blocks: Elect the right service provider. Define a well-defined contract with structure that aligns your goals. Build collaborative governance. Focus on effective change management. And, most importantly, operate in a spirit of partnership. Thanks very much, Saurabh. Narrator: I d like to thank our listeners for joining us today for this installment of the utilities podcast series. To learn more about this full report, please visit or We also encourage you to learn more about Accenture s utilities industry capabilities and to listen to other podcasts in this series. Those are the five building blocks to achieve success from a meterto-cash outsourcing initiative. That s it from my perspective. Thanks, Chris, for inviting me to this conversation. I really enjoyed it, and I hope the listeners enjoyed it as well. Copyright 2012 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 4