When I need computer assistance, I call the EDS help desk in Chicago. To book a flight, I call a Maritz travel agent in Dallas. If a reader didn't receive his copy of T&D World, I contact Bellevue Data in Nebraska. If an advertiser wants reprints, I refer him to FosteReprints in Indiana. Customer product inquiries go to MediaBrains in Florida. And on it goes. My company has come to the realization that publishing is about content, sales and circulation. All other functions are candidates for outsourcing.

What is Core?

In today's subdued global economy, utilities have learned to appreciate the lower-but-steady returns of the regulated T&D business. Because most regulators are unwilling to approve significant rate increases, executives must hold down costs. Each business activity is put under the microscope as executives decide which functions are core and which are best handled through alliance partners.

Storm Clouds Grow

Jack Shearman, CEO of UMS Group, believes we are on the cusp of a major increase in utility outsourcing. He sees a combination of forces driving us in this direction:

• A growing supplier commitment to the utility market
• Unrelenting cost and earnings pressure on utilities
• Greater oversight by utility boards
• Higher risk aversion
• Growing impatience with high cost, inflexible labor.

Shearman is convinced these pressures will overcome the utility industry's historical opposition to outsourcing. He predicts that outsourcing will gain significant momentum once performance-based ratemaking regulatory deals are struck that will allow utilities to reward shareholders for taking (and managing) the risks inherent in large-scale outsourcing initiatives.

The Storm Moves In

Interestingly, one of the first utilities in North America to embrace a major outsourcing effort is BC Hydro, a provincial crown corporation serving 1.8 million customers in British Columbia, Canada. This utility has decided to focus on the core business of generating, transmitting and distributing electric power, and has moved decisively to outsource back-office support functions. According to Jay Grewal, director of business development at BC Hydro, “It's all about focusing on the core and finding others to handle the rest.”

Here is how the deal came about. In October 2001, the company put out a request of interest and received responses from 19 vendors. On April 19, 2002, BC Hydro employees were informed that the discussions had narrowed to a single proponent, Accenture. Then in February 2003, BC Hydro announced a 10-year deal valued at CDN$1.45 billion with Accenture Business Services to provide customer relationship management, corporate information technology, human resources, accounting, procurement, building services and office management services. This limited partnership is to be staffed by 1500 former BC Hydro employees.

A Major Storm

To give you an indication of the magnitude of this deal, the head count at BC Hydro will be reduced by one-third. BC Hydro projects the deal should save the company $250 million over the life of the contract. BC Hydro retains the responsibility to meet utility commission requirements. BC Hydro also retains the right to reacquire assets at the end of 10 years. This provides the company with the flexibility to bring the work back in-house or to move the duties to another company. The changes should be invisible to customers. Bills will continue to arrive on BC Hydro stationary. In fact, the same people will perform the same work out of the same offices.

This deal was not forced down employees' throats. Union Local 378 voted strongly in favor of the move. Roughly 90% of the impacted employees opted to go with the new company. While this high level of acceptance is partially because of the comparable salary and benefits, it's really more than that. By going with a company whose future is providing support services, these employees will generate revenue. They will no longer be considered costs to be contained.

Don't Get Caught in the Downpour

The move toward outsourcing is greater than any one industry or any one country. If Shearman is correct, this is not just an isolated thunderstorm. I expect to hear more deals of this magnitude in the months to come. Now is the time to use cold hard facts (not emotion) to determine whether your talents are critical to the success of your company. If not, you might want to hitch your wagon to another train. Once the storm clouds form, you might find yourself in a deluge with no easy path to escape harm's way.