Outsourcing is certainly not a new strategy in the energy and utilities sector, but according to statistics from Arvato UK’s 2014 Outsourcing Index, activity across the industry is on the rise. The research, which analysed outsourcing contracts signed in the UK last year, found that the number of contracts signed by companies in the sector more than doubled year on year, with nearly £1.1 billion spent on agreements in 2014.
This suggests that outsourcing is becoming an increasingly popular approach in energy and utilities, accounting for 15 per cent of the UK’s total outsourcing deal value last year. Getting down into the detail, the prevailing trend was for larger, multi-process contracts focusing on services such as customer and payment management.
What is causing this growth? One reason is that in the face of unprecedented change, energy and utility businesses are turning to external partners to access new thinking and more sophisticated services to help them adapt. Challenges such as the need to improve customer services, particularly in the field of credit management, or implementing new technologies, mean the drivers for outsourcing are increasingly about business transformation rather than just reducing costs and operating more efficiently.
Contracts in the sector are therefore becoming increasingly sophisticated, as businesses look to adopt a multi-process approach to address the challenges while maintaining operational efficiency. This has become particularly prevalent across credit management business, as firms look to deliver a consistent customer journey to enhance the consumer experience.
Traditionally, companies in the energy and utilities sector have used different outsourcing providers for every customer intervention point within the recoveries life cycle, be that early arrears, late arrears or field services. This fragmented approach means customers interact with different third-party organisations at every point of their journey, which can lead to issues arising from a lack of information flow between these discrete service providers, different operational strategies and different customer engagement and governance standards.
We’re seeing a growing number of energy and utilities businesses explore the benefits of using a single supplier, where every service within the arrears management life cycle is facilitated within one multi-process outsourcing contract, enabling a customer to deal with the same company throughout their account life cycle.
Together with the inclusion of more services, increased contract sophistication is driving investment in technology and innovation. Instead of moving through early, late and final arrears strategies step by step, outsourcing providers are using technology to better align the customer interaction process. By creating customer account models based on previous cases and experience – through the use of data warehousing and integrated CRM systems – every customer can be targeted in the most strategic way, whether that’s a light touch approach via letter, a dialling campaign or a field response. We’re seeing this bring down collection time frames from six months to three weeks.
With this growth in investment and sophistication, contracts are expected to lengthen across the sector. Instead of lasting an average of three years, we expect deals to lengthen to five years.
While there will always be a place for offshoring within outsourcing, its geography is shifting. The Philippines has recently overtaken India as the top offshore destination, due to its well-developed infrastructure, skilled workforce and neutral accents. However, as wage inflation causes greater parity between the costs of on- and offshore work and clients procure more sophisticated, integrated services, we’re seeing a trend for more services to be delivered in the UK. Our 2014 index revealed that 92 per cent of outsourcing deals signed last year in the UK featured services being delivered onshore.
It’s likely that upcoming changes in the sector will also affect how services are delivered and by whom. The advent of smart metering, for example, is set to require significant transformation in utility supply chains. To put this into context, by 2021, the Smart Metering Implementation Programme will roll out 53 million electricity and gas meters to domestic and small non-domestic properties to help consumers manage their energy use, save money and reduce emissions.
To implement such wholesale transformation, we expect to see a growth in outsourcing in the next three to five years as energy and utility providers look to bring in the relevant expertise to deliver excellent customer services and the required logistics services.
The challenges faced by companies across the sector are transforming their approaches to outsourcing. Instead of procuring different functions from several third-party providers, firms are increasingly open to exploring a multi-process approach with a single, trusted outsourcing partner. By broadening the number of services in increasingly sophisticated contracts, firms can maintain operational efficiency, reduce costs and deliver excellent customer services, and as such, we expect outsourcing to continue to grow.
Brian Mouat, chief executive, Arvato Financial Solutions in the UK and Ireland