The energy and utilities marketplace is one of the most challenging business
environments that exist today, and it is also an industry sector where business
transformation outsourcing (BTO) is helping companies overcome many challenges.
These pain points include: aging infrastructure assets; falling revenues and
net incomes; impoverished pension funds and rising healthcare costs; corporate
scandals that are casting doubt on deregulation, which utilities have eagerly
sought, and even raising the specter of re-regulation; credit downgrades; and
customer demands – from increasingly complex and variegated markets – that are
becoming ever harder to fulfill.

It is an industry environment where most major players are looking for new
ways to focus on their key market challenges and become more flexible in their
ability to respond to market and industry issues and events in real time. Increasingly,
leading companies in the energy and utilities sector are turning to BTO to implement
the large-scale changes needed to support growth, cut costs, manage risk, increase
organizational agility and develop the necessary capabilities to be competitive.

To implement these large-scale changes, many energy companies are aggressively
pursuing a range of initiatives including:

• Revolutionizing capital and operations and management budgeting processes;
• Reducing costs while at least maintaining reliability and service levels;
• Integrating business and technology for optimum flexibility;
• Improving knowledge management;
• Proactively managing regulatory relationships;
• Effectively managing the entire portfolio of assets; and
• Building a performance-based culture.

A key strategy for executing these types of initiatives is BTO. BTO is a service
that can deliver faster, more successfully and endure business transformation.
This is achieved by leveraging the expertise and scale of a partner who has
a comparative advantage in operating processes – a necessary trait when companies
look to pursue a broader strategic agenda.

The Difference Between BTO and BPO

Business transformation outsourcing has a broader scope and a deeper impact
on shareholder value and encourages far greater collaboration with external
providers than business process outsourcing (BPO). BTO is used to execute large-scale
change projects designed to increase shareholder value. BPO is primarily a tool
to cut costs and is applied to organizational processes on a piecemeal basis.
Rather than simply taking on support functions, as is typically the case in
a traditional outsourcing relationship, a BTO partner will collaborate to integrate
business processes back into the client organization, thus facilitating real
enterprise-level change. The BTO partner is involved at the strategic level,
and so is in a position to help clients enhance their core competencies.

As a large-scale transformation technique, BTO is designed to provide step
changes that can deliver managed growth, together with the agility to sustain
benefits in the face of competition. In the short term, conventional outsourcing
can deliver lower costs through scale and labor arbitrage benefits, but these
are likely to be eroded over time.

How BTO Delivers Business Results

There are groups of global companies that have successfully used BTO to execute
a broad range of strategies with strong results. The application of BTO has
been wide ranging: from improving business focus and entering new markets to
enhancing control over business units and completely changing operating models.
A common thread is that by sharing transformation with an external partner,
BTO has allowed these companies to make major changes on more than one front
simultaneously.

The result for these companies has been the creation of new capabilities that
have enabled the implementation of a broader strategic agenda.

Managing Business Processes for Williams

Williams, a leading natural gas producer, processor and pipeline company, and
IBM have partnered to help transform and manage certain business processes for
Williams. These business processes include accounting, finance and human resources,
as well as key aspects of Williams’ information technology, including enterprisewide
infrastructure and application development.

IBM Business Consultants will work with Williams to apply redesign and best
practices to these processes, in such areas as accounts payable, fixed assets,
general accounting, payroll, compensation and benefits administration.

Williams expects through BTO to reduce costs more quickly and at levels beyond
what the company projected it could accomplish on its own. The BTO arrangement
is also expected to improve Williams’ ability to adjust its support operations
as business conditions dictate while maintaining the high quality of service.

In providing Williams with a new level of HR, financial management and IT services,
IBM will deliver consulting methodologies, transformational technology solutions
and delivery skills. With IBM managing these business processes in a responsive,
flexible manner, Williams can focus its resources on core market and industry
challenges.

Innovative New Enterprise Models

Enel’s Innovations

Enel, for example, is one of the world’s major electricity companies and the
main operator in Italy. In 2001, Enel launched a unique and challenging project:
the creation of a new, intelligent network through the replacement of electromechanical
meters with remotely read and managed digital meters. The project involves 30
million interval meters. The system is mainly based on power line communication
using the existing low-voltage electricity network.

The new infrastructure provides Enel complete monitoring of its low-voltage
network, including information on the location and nature of faults. In the
event of power rationing, the system allows power curtailment, reducing the
maximum power available for the customer.

Beyond this functionality, the new infrastructure allows Enel to reduce the
cost of customer management more than 40 percent, while increasing customer
retention. The system also permits the company to reduce energy losses and customer
disputes. This gives Enel a ready platform for offering new services directly
to homes based on customer segmentation.

Enel and IBM are applying these technologies and methodologies through BTO
to a range of utility companies. For example, ASM Brescia, a multi-utility company,
recently announced that it is working with IBM consultants and Enel to develop
a comprehensive, integrated automated meter management (AMM) system.

Under the terms of the agreement ASM Brescia’s service offerings will transform
through BTO, to the remote management of both electricity distribution and other
services provided to more than 200,000 customers in the Brescia area, while
helping to improve the efficiency of those services delivered. To achieve this,
IBM will integrate 200,000 automated electronic meters, linking them directly
to ASM Brescia’s billing and customer service systems, and replacing all of
ASM Brescia’s traditional meters by 2006.

ASM Brescia customers will reap significant advantages as the new solution
allows meters in customer homes to be entirely remotely managed. ASM Brescia
customers will no longer be required to wait for a meter reader, and the monitoring
of consumption can be done in real time with accuracy. Over time, the solution
will allow the introduction of highly customized, flexible pricing options,
bringing even more control over energy consumption to ASM Brescia customers.

Embraceable BTO

Whether finding new ways to manage business processes to improve enterprise
responsiveness while lowering overall costs or applying the latest in analytics
and emerging technologies to create new business models, forward-thinking energy
and utility companies are embracing BTO.

Look for a BTO partner that continues to develop and acquire the necessary
business process skills and business innovation capabilities. Look for a BTO
partner that couples these with its existing technology and application management
expertise, so that they are in a unique position to help clients solve complex
business transformation challenges. As industry pressures continue to emerge,
and as traditional industry assets continue to age, this ability to work smarter
will help utility and energy companies meet the transformation challenge.