Vertex, a UK-based utility industry outsourcing firm, announced July 14 that it has reached agreement with Alliance Data to acquire Alliance’s Utility Services business. This should be a positive step for Vertex and for the Utility Services business of Alliance Data, as well as for the utility clients of the two businesses.

 

Vertex has deep roots in the utility industry, something Alliance Data lacked when it entered the utility outsourcing business in the late 1990s. Vertex is an outgrowth of a UK utility, United Utilities, and took a CIS developed there to market via an ASP (application service provider) delivery model. In the spin-off Vertex took about 2,000 employees from United Utilities and a substantial number of them are still among Vertex’s current 8,000 employees who are located from India to North America. Vertex has moved beyond the early CIS ASP offering and now provides a number of business process outsourcing (BPO) services worldwide.

 

Vertex has wanted to penetrate more broadly in the North American utility industry (most of its current North American clients are in Canada) and this acquisition, with Alliance Data’s Utility Services’ 40-plus clients, many in the U.S., will represent a significant advance on that goal in one fell swoop. Alliance Data’s utility clients should be reassured because of Vertex’s deep utility roots.

 

Alliance Data Corp. entered the U.S. utility market because of it’s success as an outsourcer in other industries, most notably financial services, with the assumption that that experience would stand them well in serving utilities. There were two things wrong with that strategy and its timing. First, it was expected in the late 1990s that utility deregulation would drive customers to CIS outsourcing. When deregulation collapsed in most of the country, that didn’t happen. Secondly, Alliance Data executives seemed to consider the utility industry to be just like any other industry where they had excelled. They didn’t seem to recognize the unique characteristics of utilities and thus tended to take too many things for granted.

 

In recent months and years, Alliance Data has added some very knowledgeable utility specialists to its Utility Services division. But by the time that happened, the division didn’t represent the kind of rapid-growth business that Alliance Data Corp. executives were looking for in the first place. Those utility specialists are likely to be much more aligned with Vertex, which will benefit both the utility business and its customers—the utilities. Going forward, this combination also seems likely to have a much more realistic perception of the utility industry.

 

Outsourcing, particularly of CIS, remains a slow-growth business in the U.S. for the time being. But that may be about to change as utilities are being forced into demand response and other programs that will require a whole new generation of customer interactions. As utilities begin to cope with these wholesale changes, outsourcing CIS and other business processes likely will become more attractive for utility executives. But that will happen only if the systems offered are flexible, innovative and able to deal with rapid change. Having Alliance Data’s utility experts teamed with Vertex’s utility experts could help.

 

Alliance Data’s Utility Division officials have pointed out an error in a blog I posted here on March 14, portions of which also later were reprinted in an EnergyBiz magazine article, with some additions to the story as it appeared in the magazine. They have pointed out that the blog and the story contained one factual error and a failure to comply with official “branding” of the company. These are:

 

·  Alliance Data did not enter the utility outsourcing market with the acquisition of the former Orcom. Alliance had a presence in utility outsourcing up to four years prior to that acquisition. The Orcom acquisition considerably broadened Alliance Data’s presence in the market.

·  Alliance Data dropped “Systems” from its market-facing name on Nov. 22, 2005 although the parent corporation remained Alliance Data Systems Corp. I referred to the company as Alliance Data Systems in the blog. While not technically an error—the agreement outlined above is between Vertex and parent company, Alliance Data Systems Corp.—I should have used the more recent “market-facing” name.

Although not technically an error, for clarity in wording, I should have separated the "Utility Services" group from Alliance Data in the text of the earlier posting.  The Utility Services group is not giving up outsourcing of CIS for the utility industry, only Alliance Data, the parent company.  The Utility Services" group is what has been sold, pending regulatory approval.