Do What You Do Best
By John Koontz, International Billing Services
Business and management consultants find new issues to target like politicians in an election year. The result seems to be a lot of posturing, a new way to package an old concept and sometimes a solution that works better than a traditional approach.
A re-emerging idea in business is outsourcing. While much older than the latest hot-button concept, re-engineering, there is nonetheless a great timeliness to outsourcing and a symmetry with re-engineering.
The philosophy of outsourcing is simple: If it isn`t what you do best and most efficiently, find someone else to do it so you can focus your resources on what you do best. What utilities do best is generate, transmit and distribute power–cleanly, efficiently and safely. This process of creating energy and supplying it must remain the focus of successful utilities.
Utilities in general have enjoyed a protected market status. Most do not face competition but do have to answer to the public or a governmental body. But market forces are changing the business dynamic for many utility companies. Non-utility generators (NUGs) are already selling into the wholesale market and taking away industrial customers through lower rates. This, among other forces, will cause many utilities to re-engineer–to evaluate their processes and redefine their business models to make sure they work in this more competitive environment.
A 1994 survey of 60 utility and independent U.S. power companies conducted by the Janus Group, Glastonbury, Conn., found that re-engineering, staff reductions and reduced capital expenditures were favorite strategies aimed at retaining competitiveness.
“The future may be a `virtual company,`” the article stated, “that comprises less in-house talent and experience but more third-party personnel providing services on an outsourced basis. Because of their dependency, utilities and NUGs both will likely see outsourcing firms as indispensable resources.”
In approaching this re-engineering process many utilities will rightly turn to outsourcing for specific functions that are not profit centers for their businesses. Examples of outsourcing in utilities today exist already–a typical one is security. It makes sense to have your security force comprised of non-employees who may keep a higher vigil. Similarly, it makes sense to have legal counsel, advertising and public relations agencies, food services and other functions on retainer through business relationships, contracts or partnerships.
But what of other business areas? In many computer- and technology-intensive industries it is becoming commonplace to see data-entry and information technology (IT) management being performed by vendor partners. IBM, CSC and Perot Systems, to name a few, are firms that perform IT consulting under this sort of business model.
Utilities have traditionally been reluctant to engage partners in outsourcing relationships. A December 1994 Electric Light & Power article pointed out that utilities resist outsourcing because they don`t like to lose control of their information functions. It`s a consideration many outsourcing companies have recognized, with the result being greater control by the utility companies. More utilities today are looking at outsourcing non-core functions and some are actually doing it. A stunning example is the IT contract between Public Service of Colorado (PSCO) and IBM`s Integrated Systems Solutions Corp. (ISSC) who struck a 10-year, $500 million alliance this year to utilize each other`s strengths.
In the past four years at least six significant IT outsourcing deals have been signed, encompassing more than a billion dollars over a 10-year period.
Statement production and mailing are related to IT through both customer information systems and integrated open systems technology for statement production. If we explore the billing end of a utility business, you will instantly recognize that this is a vital function to the company. It is, nonetheless, a secondary function for utility companies, one that is strategic rather than core.
It`s about as much fun to send a bill as it is to receive one. It`s not easy, it`s not inexpensive and it can quickly become an administrative nightmare if managed poorly. A utility cannot afford to mismanage the process that actually fetches the remittance revenue and, as a frequent customer-communication vehicle, presents the utility`s face to the consumer. Billing must be a strategic process, encompassing a sound infrastructure that combines elements of customer service, data management, marketing, printing and mailing.
Utility companies will not make money by also being printing firms. That direction lacks “strategic common sense”–and not just from a cost perspective. In fact, in the outsourcing that has taken place in the utility industry, cost cutting was not the primary driver. The first priority was to take advantage of synergistic alliances allowing a greater focus on respective competitive advantages. A factor in creating the PSCO/ISSC alliance was the similarity in each other`s strategy: Both were looking to differentiate their products by moving increasingly commodity-type businesses into service orientations–to make a good thing more attractive through enhanced service.
Cost does eventually factor into outsourcing arrangements. Industry observers have noted that several outsourcing agreements came about after a focus on cost drew attention to the area. Once the vendor was allowed to demonstrate other advantages, they became the primary reasons. Cost cutting can be a part of it, but more often than not the decision is about cost savings–the difference is the infrastructure investment no longer required.
Like all alliances, an outsourcing contract must provide an opportunity for both partners. It must be entered into as partners, with a willingness to bear risk in order to gain reward. In the case of outsourcing statement production and mailing, the risks of technological investment go to the statement producer, who is responsible for anticipating postal changes, modernizing equipment and maintaining flexibility for the utility customer.
It`s about technology
Statement production and mailing is not about printing–it`s about data, which means revenue, which means marketing opportunities, which represents utilities to their customers. And what happens to this data is dependent upon IT. Open-architecture customer information systems are critical to maintaining advantages in the face of competition. The platform for a utility`s communications determines whether it can stay ahead of market needs and keep pace with technological innovation.
Why should a utility company operate a factory that produces bills and does not operate at capacity, even sitting idle some of the time? Why not take advantage of a `virtual factory,` one where you don`t overpay for labor equipment costs (through low utilization rates) and operational costs?
In such an environment the statement package producer must allay the fears the customer will naturally have regarding security, flexibility, turnaround, quality and disaster recovery. In short, to win business currently
done in-house the statement production company can`t be `just as good as`–it must be better.
What to look for
When evaluating a firm for an outsourcing statement production and mailing decision, there are many considerations to keep in mind. Here are some and why they make a difference.
Quality. Integrity in design, processing and mailing is essential. The statement has to look right, be right and get there right. Flexibility in formatting, guidance and experience in forms design and a quality-checked processing system are crucial. Look for technology integration that provides statistical process quality control and leads to the greatest flexibility with a deliverable rate as close to zero defects as possible.
Flexibility. Appearance, weight, new components, messaging capabilities and mail timing all may change quickly. The statement mailer must be able to adapt with no warning and encourage acceptance of further process enhancements. Changing U.S. Postal Service rates and reclassifications can spell doom for a system tied to inflexible systems technology. Flexibility also means choices in statement size and appearance and control that goes to the client, with the client dictating when the job is truly ready to be run.
Cost efficiency. Per-statement costs must be lower than in-house costs, enabling that money to be put to better use. Low factory utilization in house means fixed costs are less efficient.
Leadership and innovation. Anticipate the future, strive for improvements, and take an active role shaping the statement production and mailing industries. “Yesterday`s technology today” is not a good selling slogan. Partnership with the U.S. Postal Service is a must, too, since that part of the delivery system has stringent restrictions, and optimum utilization of postal processing regulations adds further advantages.
Solutions focused. Integrated solutions, ability to adjust to market dynamics and providing client control over the process are vital to maintaining a partner relationship and access to crucial data. This kind of control can be dubbed a “virtual factory.” A system that processes a data transmission, defines production`s specifications on-line and cedes authority to release the job to print is the ideal system for the customer and offers the greatest measure of visibility and control.
Effective use of integrated open-systems technology in customer service, customer communication and statement design and delivery results in a competitive advantage. Any effort that results in higher customer satisfaction, a stated goal among many of the Janus Group survey respondents, will be a key factor in retaining and recruiting customers.
One power company senior executive said that one of the key focuses for the future will be providing outstanding customer service, which will become increasingly important as competition grows.
“The New Electric Bill is Here! The New Electric Bill is Here!” No one jumps for joy when they receive a bill. However, a billing statement can and should be much more than a kindly demand for payment. The statement package can be an integrated communications package, one that acts as a marketing and corporate communications medium and as a customer service instrument.
Special messages can be printed on individual bills so that consumers can be made aware of a utility`s commitment to the community and environment. Announcements, important customer service information and promotions can be placed on the bill front, back, send envelope, remit envelope or included as an insert with the statement.
The decision to outsource is not a simple one. But there are advantages to creating a partnership with an industry leader. Keep the key components in mind when approaching the topic:
Is the area within our core competency?
Can someone else do it better and with greater value to our business?
Do I retain control?
Will this result in an advantage?
With answers to these questions, utilities will be better prepared for success as they face a changing landscape of competition.
John Koontz is vice president of Business Development for International Billing Services, El Dorado Hills, Calif., the largest first-class mailer in the United States.