The document summarizes challenges facing the US utilities industry, including lower energy consumption and revenues due to economic factors, changing customer usage patterns, pricing constraints, deregulation, and environmental regulations. It also discusses the need for utilities companies to manage costs and focus on customer experience. Outsourcing non-core functions through business process outsourcing is presented as a strategic option to help utilities companies reduce costs, focus on core competencies, and improve performance.

1. Transforming
the US Utilities
Industry
through BPO
White Paper
Transforming Passion into Excellence
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2. Executive Summary
The US energy and utilities industry faces a number
of challenges as well as growth opportunities.
Technology, resource constraints, environmental
concerns, and customer preferences are impacting
the way energy is produced and used.The
energy and utilities industry is at a critical stage
of structural change and transformation from
being viewed as a general commodity provider
to a service provider that impacts many areas
of a consumer’s lifestyle and experiences. As
energy and utilities organizations focus on their
core competencies of delivering safe, reliable,
cost-effective clean energy, business process
outsourcing of their non-core functions can in
parallel deliver a better customer experience, lower
operational costs, and provide greater long-term
shareholder and customer value.
As US utilities emerge from the
recession to renewed growth, every
organization is adjusting to the new
economic reality of lower revenues
caused by lower consumption by their
residential and business consumers.
This trend will continue as business
and residential consumers readjust
their usage to the tougher economic
environment and adopt more energy-
efficient products to reduce their
cost structure. Utilities are finding
it difficult to justify rate increases
to their respective commissions due
to the current economic situation of
their consumers.
Management of utilities needs to
take strategic business steps in
the near term to manage revenue
streams and operating costs more
efficiently during this period of
slow growth. For companies that
can maneuver nimbly through this
business cycle, periods of economic
turbulence create more opportunities
than at any other time to move
from the middle of the pack into
leadership positions gaining a
competitive advantage.
Lower Consumption and Revenues
Impact Utilities
Need to Manage
Revenue
Streams &
Operating Costs
Lower
Consumption
of Energy
Lower
Revenues
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3. The utilities industry is facing challenges to maintain
its customer base and revenue structure in light of the
lower economic growth that is impacting customers’
consumption and spending behavior. To combat this
challenge, outsourcing is a strategic, cost-effective
option and solution for the utilities industry.
Pricing Constraints and
Changing Customer Usage
Patterns
In the past, as long as the energy flowed when and
where required, residential and small commercial
customers were satisfied with leaving all the decisions
about their energy supply to their trusted providers,
even if they were unhappy with the bill amount.
However, times have changed. Growing reliability
concerns, fear for the environment’s future, and ever
higher energy bills have some consumers wanting
to manage more of their energy supply decisions
themselves. Utilities will need to re-evaluate how
they segment and serve customers. Rising peak
demand, climate concerns, and potential capacity
shortages are forcing power companies to find ways
to lower demand for electricity. Companies are likely
to push the costs of load-shifting and conservation
programs on to consumers. This is transforming
utilities from being commodity sellers to being
service providers.
The combination of climate-change concerns and
high energy prices has led to energy consumers—
industrial, commercial, and residential—becoming
more active in managing their consumption
efficiently. Utilities will need to adjust their business
models and services to provide better options like
time-based billing to reduce peak time usage, which
reduces overall costs to the utility provider and
consumer. Consumers are also moving towards using
more energy-efficient products and focusing on
energy conservation as a means to reduce monthly
utility bills. Implementation of advanced metering by
utilities companies is giving consumers the option to
manage their energy consumption proactively with
new services like “Pay As You Go” and budget billing.
Market Deregulation,
Regulatory Changes, and
Environmental Regulation
Impact
While nearly two-thirds of utilities companies feel
deregulation has been a success so far, many are
uncertain about their ability to cope with unexpected
developments in the new deregulated marketplace.
Deregulation is expected to bring tangible efficiency
benefits, the most visible of these being lower
prices. However, expected price reductions have not
automatically followed due to issues surrounding the
efficiency and effectiveness of wholesale markets and
the pattern of prices. Deregulation has made it more
Challenges Facing the Utilities Industry
difficult to maintain profitable balance in the market.
In the US, for example, a tighter supply and demand
balance has pushed up wholesale commodity prices
and squeezed profit margins.
In the next five to 10 years, environmental regulation,
the focus on conservation and energy efficiency,
and inclusion of renewables in the resource mix
will become increasingly important issues. Primary
concerns relate to the costs associated with building
new plants and retrofitting existing plants to meet
environmental regulations, as well as the costs
associated with incorporating renewable resources
into the fuel mix. These increased costs will likely
impact monthly bills for end-users, putting further
pressure on the margins of utilities companies. With
these changes it is essential for utilities providers
to focus their resources on core competencies and
evaluate new options to reduce operating costs.
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4. Negative Customer Perception
As deregulation continues, more companies will need
to transition to a service-oriented structure in order to
be top performers in the industry. It will be imperative
for companies to focus on customer experience.
Research from the Teleperformance Worldwide
Customer Experience Survey for the US energy and
utilities sector in 2014 shows that 57% of survey
respondents were indifferent or dissatisfied with
their utilities service, and 36% would not recommend
Figure 1: Overall Customer Perception, 2013 and 2014 Comparison
(Source: Teleperformance Worldwide Multichannel Customer Experience Survey, US Energy and Utilities, 2013 and 2014)
the companies at all (see figure 1). Although there
is a negative customer perception overall, there is
evidence of some improvement when comparing
2013 to 2014 results. The high percentage of loyal
customers could be due to the competition in some
areas. Another reason could be because of regions
where customers simply do not have a choice or do
not realize they have a choice due to market changes
with deregulation.
Customer Satisfaction Customer Advocacy
30%
30%
40%
2013 2014
40%
24%
36%
Customer Loyalty
32%
37%
31%
2013 2014
43%
30%
27%
69%
16%
15%
2013 2014
79%
11%
10%
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White PaperTransforming the US Utilities Industry through BPO
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57%of
surveyrespondents
were indifferent or
dissatisfied
with their utilities
service.

5. contributed to the overall decline in US GDP.1
Energy
prices are expected to increase in 2015 as supply
constraints are felt globally (see figure 2). Volatility in
input costs and uncertain weather conditions require
utilities to improve demand forecasting.
Energy and utilities companies work relentlessly to
improve overall profitability by focusing on business
intelligence and driving costs out of the business.
Utilities will need to better forecast both demand
and energy usages, manage energy purchases more
effectively, and employ scenarios to determine how
economic and weather-related factors affect their
business models.
1. US Department of Commerce, Bureau of Economic Analysis,
“New BEA Data Provide Insights on How Harsh Winter
Impacted Industries in First Quarter,” July 2014.
Figure 2: US Electricity Summary, Retail Energy Prices by Year
(Source: US Energy Information Administration, “Short-Term Energy Outlook,” eia.gov, September 2014)
Retail Prices
2012 2013 2014 2015
Commercial Sector 10.09 10.29 10.67 10.76
Industrial Sector 6.67 6.82 7.05 7.02
(cents per kilowatthour)
Residential Sector 11.88 12.12 12.49 12.70
Managing Risks Due to
Volatile Input Costs and
Unfavorable Weather
Conditions
In the current trend of frequent global economic
fluctuations, changing input costs and volatile
weather conditions, the ability to manage risk within
a utilities company is an ongoing challenge. Between
2009 and 2012, input costs fluctuated between US $59
and $78 billion, causing some instability on company
margins. In the first quarter of 2014, unusually
harsh weather conditions caused a rise in the costs
of the inputs used by the utilities industry, which
Optimizing Supply Chain
Capabilities
Integrated supply chain management enables
improved planning and coordination, greater
inventory visibility and effectiveness, enhanced
customer service, cost control, and performance
measurement and tracking. With more effective
supply chain management capabilities, utilities can
manage strategy and operations across functional
areas such as order management, transportation,
physical distribution, and supply chain security.
Utilities will need to find newer opportunities to
optimize their ERPs and enhance supply chain
management functions as this directly contributes to
the bottom line by reducing operational costs.
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6. In order to deliver a better customer experience, lower
operational costs, and provide greater long-term
shareholder and customer value, try these top 10 ideas:
1. Initiate a strategic review of your core and non-
core competencies based on the changing market
environment.
2. Benchmark your performance against best global
practices to identify potential cost savings.
3. Understand what the competition is doing in the
industry and strategically build outsourcing into
your framework to gain a competitive advantage.
Top 10 Strategies to Improve Performance
4. Review ongoing deals for opportunities for
performance improvements based on lessons
learned and observed success factors.
5. Challenge your organization’s in-house
performance for all core and non-core functions.
6. Measure and improve customer service
performance by integrating analytics solutions to
observe customer activities, issues, and account
management.
7. Improve the quality of communications to
customers through transparent platforms and
processes to ensure bill accuracy and ease of
support.
8. Focus on what drives consumer satisfaction, such
as professionalism of the team, response time,
ability to quickly resolve issues, and empathy
provided by customer care agents.2
9. Evaluate a third-party strategic vendor to capture
cost benefits from outsourcing.
10. Understand other benefits derived from
outsourcing of non-core activities.
2. Teleperformance Worldwide Multichannel Customer
Experience Survey, US Energy and Utilities, 2013.
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7. Increased speed to the market, innovation, and
business transformation. The utilities industry
has seen increased volatility in consumption patterns
among its customers and churn in customers due to
the impact of the recession. This necessitates that
each organization has to respond quickly to market
situation to retain customers by providing value-
added service at the same or a lower cost. Non-core
support services are an important cost element
that can be optimized by business transformation.
Business process outsourcing organizations can help
utilities optimize their ERP platforms to transform
their internal business processes. Implementation
of SRM solutions, dynamic discounting, electronic
invoicing, and purchasing card optimization can make
business processes more effective and efficient while
saving substantial hard dollars for the organization.
The key advantages derived from outsourcing for the
utilities industry are:
Reduce Operation expenditure and optimize
capital expenditure to improve financial
performance. Due to the large number of customers
that the utilities industry services, each organization
requires a large support organization in billing,
customer service, finance and accounting, order
management, and more to effectively manage its
customer base. These support structures are cost
centers for the organization and involve significant
capital and operational expenditure. Over time,
the support organization becomes a significant cost
component for any organization. As each organization
moves to manage the impact of economic downturn
on its margins, this is the appropriate time to look at
cost centers where such costs can be reduced while
maintaining required service delivery.
A business process outsourcing organization can help
utilities save an average of 30 percent of their cost
structure in their support organizations. Additional
savings on a yearly basis are possible through a gain
sharing outsourcing model. Sale of non-core contact
center assets with a buyback of rebadged services can
provide immediate cash flow while reducing annual
operating costs for utilities.
Competitive Advantages Gained from
Business Process Outsourcing
A BPO outsourcing
organization can
help utilities
savean average
of 30%of their
cost structure
in their support
organizations.
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8. Reallocate and focus critical resources on core
competencies. As the utilities industry gears up to
new technologies and substitute offerings available
from competitors, it is critical for each organization to
identify its core competencies and focus its financial
and human resources on augmenting and enhancing
its core competencies. Strategic review of the business
will provide an organization an opportunity to
evaluate non-core activities for outsourcing. This
will free up critical human and financial resources
to enable the organization to follow a strategy to
enhance its competitive position in the market.
Many global organizations have realized the benefits
of outsourcing non-core operations like customer
service, finance and accounting, and billing as these
can be performed more efficiently and at a lower cost
by a business process outsourcing partner. The bigger
advantage to an organization outsourcing non-core
activities is refocusing the organization’s experienced
human resources on high-value-added activities that
generate future innovation and customer growth.
Better control over headcount, performance,
and increase flexibility to scale operations.
Business process outsourcing provides utilities
companies with the flexibility to scale operations
in response to changing market conditions without
substantial investment. In the current economic
situation, organizations are resorting to massive
layoffs to reduce costs quickly. While this strategy
may help in the short run, it impacts organizations
in the long run as companies are not in a position
to scale up operations quickly and cost effectively
when the market moves to an expansionary phase.
Organizations also lose part of their knowledge base
as resources are laid off, which is felt externally by
customers who experience lower service standards.
Business process outsourcers can scale operations
rapidly as they have the capacity and business
model to do so quickly. By having a well-defined
performance management structure in place, an
organization has the opportunity for productivity
and process improvement gains during the life of the
outsourced arrangement, which may not be possible
while the processes are in-house. Business process
outsourcing organizations take on that capacity risk,
allowing utilities to change their non-core support
structure quickly and at a minimum cost.
Standardization and consolidation of non-
core activities across location. As the energy
and utilities industry gets consolidated through
acquisitions, each organization faces the challenges
of non-standardized activities performed in different
locations. This is accentuated during an acquisition
due to different policies and procedures of each
organization. The challenges that organizations
face in integrating acquisitions in most cases
directly impact customers who observe changes in
their service experience. The organization has an
opportunity to reduce costs by consolidating activities
and get process efficiencies while doing so. The BPO
provider can be a key player in an organization’s
strategic move to consolidate and standardize non-
core activities and create a shared service center
approach without the utility company having to take
on the additional costs.
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9. Closing Thoughts
As energy and utilities organizations gear up to compete in the “new normal”
global business environment, business process outsourcing is a strategy that will
be used by executive management to reduce costs, increase revenue, and provide
greater scalability and flexibility. Focusing on core competencies while leveraging
business outsourcers to provide cost-effective solutions will define and drive future
growth and profitability in the energy and utilities industry globally.
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10. 1010
This paper is part of a wide range of analysis created by Teleperformance to provide relevant information to guide better decisions for the future.
About
Teleperformance
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strategy, interacting with people all over the
world. It’s all about People. They are part of
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That’s why we deliver outstanding customer
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for our clients.
For more information, please visit
www.teleperformance.com.
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Teleperformance Customer Experience Lab (CX Lab)
is an innovative center for the research of specific
issues related to changing customer behaviors
with a focus on major drivers of satisfaction across
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The work of the CX Lab also addresses customer
preferences in different channels and how they
wish to interact with their favorite brands. The Lab
is supported by specialists and researchers with a
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11. Transforming Passion into Excellence
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