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January 5, 2005

EDF Energy: outsourcing is not the only way to save

UK utility EDF Energy has outsourced its customer management systems to a number of contractors for the next three years, at a cost of GBP9 million. Some savings will come from the outsourcer, though Datamonitor analysis suggests more could be made through process efficiencies such as boosting the number of direct debit customers it serves.

By CBR Staff Writer

EDF Energy is looking to outsourcers to deliver cost and process efficiencies.

With over 5 million customer accounts, EDF Energy is one of the largest UK suppliers. At the end of 2004, the company contracted out the handling of its customer management systems to a number of companies, one key beneficiary being Capgemini. The cost of the contracts total GBP9 million over the next three years.

The focus is to design and implement a modern customer-handling system that will lower costs in the medium term and deliver operational efficiencies that will continue to deliver cost savings.

The key in delivering these process savings is being able to understand the real and hidden costs of various processes. Datamonitor has constructed a cost-to-serve model that accounts for the interdependencies between different service departments. It shows that EDF Energy has the second lowest cost-to-serve in the UK.

For all UK suppliers, the largest component in Datamonitor’s cost-to-serve is attributed to maintenance costs (EDF Energy had the second highest proportion of maintenance costs, with 43.7%). This accounted for key maintenance – primarily IT costs, such as billing and call center systems. The model shows that for every GBP1 million saved on IT customer service expenditure, EDF Energy’s cost-to-serve would fall by 23 pence per customer.

However, EDF Energy requires its outsourcers to deliver on process efficiencies across its customer-handling infrastructure. For example, if EDF Energy increased the number of customers who paid on receipt of their first bill, the company could lower costs by GBP1.79 million, or 39 pence per customer. Other process related costs, from increasing its below UK average direct debit customer base through to call automation, could further deliver the cost savings EDF Energy demands. The outsourcers have three years in which to deliver, but with higher wholesale prices and margins tightening, EDF’s outsourcers must deliver quickly to retain their contracts.

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