Proper outsourcing bears sweet fruit

Eric Hansen
Orcom Solutions

Marketplace challenges are forcing utilities to reevaluate their business models and look for ways to decrease costs and focus on their core business. Outsourcing of non-core (but mission-critical) activities such as customer care and billing systems is gaining popularity as a way for utilities to meet these new challenges and improve their bottom line.

Partners and contracts

When looking for the right outsourcing partner, it is important to ensure that the outsourcer, or application service provider (ASP), is an industry expert. One way to ensure that is to pick a company that actually operates its own software. Since it developed the software, it probably understands the industry, and certainly understands how to get the most out of the software. It is also well-positioned to keep software updated with the latest enhancements and to monitor industry changes.

Before a contract can be drafted, the utility must clearly understand the full scope of services they intend to outsource, which requires clear and complete documentation of existing processes. While all regulatory-related processes and timelines must be identified and met, in many instances, an outsourcer can demonstrate the best practices for other processes. Once these processes and timelines are documented, responsible parties for each activity should be identified and held accountable within the contract. A key success factor in maintaining a good long-term relationship is that the outsourcing contract needs to be flexible enough to reflect changes in business objectives, technology and economic conditions. Contracts should include the possibility to change service levels and project scope, have a structure for contract disputes and a contingency plan that addresses separation/divorce should the relationship become unsalvageable.

Service level agreements

Service level agreements (SLAs) are performance standards outlined within a contract. These service levels need to be objective and measurable, and if they are not achieved, penalties need to be outlined. For a successful outsourcing relationship, SLAs need to be comparable, at a minimum, to the utility’s in-house service levels.

SLA penalties for non-performance are only half of the equation. They must also include incentives and bonuses that reward innovation and superior performance, giving the vendor an incentive to exceed their contractual obligations.

Common SLAs (for utilities outsourcing their application service to a third-party vendor) include application availability and response time, data network availability and response time, help desk availability, batch processing and bill delivery. For business-process outsourcing, typical SLAs include the average speed of answer and abandonment rates, service order creation and billing accuracy, bill delivery to the post office, payment entering deadlines, cash postings, deposits to financial institutions, posting of collections batches, quality monitoring accuracy, and the type and intervals between collections notices.

To ensure that communication channels remain open and active, both the utility and the outsourcer need to view themselves and each other as crucial pieces-partners-in the business. The most effective way to promote this view is to assign relationship managers within each organization for day-to-day interaction. These relationship managers serve as points of contact for each member of the partnership, ensuring a consistent, accurate flow of information. The utility’s relationship manager must understand the contract goals, the SLAs, and the individual roles and reporting responsibilities of each team member.

Outsourcing applications and business processes offer utilities an excellent way to succeed in the changing market. However, this success depends upon how well utilities manage the relationship with the outsource provider. The foundation of great partnerships rests upon having a clear vision of the companies’ goals, a contract that allows for revision based upon process improvement and changing business requirements, SLAs with penalties and rewards, and a well-thought-out communications structure with a single point of contact. With this, a utility can focus on its core competency with the confidence that mission critical business processes will be met now and into the future.

Eric Hansen may be contacted at or 800-390-2430 x5536.

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