This will be a great Short. Capgemini's consulting kids are more corrupt than Arthur Andersen's old boys.
Posted on 05/18/2004 10:28:48 PM PDT by lewislynn
TXU outsourcing strategy breaks with tradition
12:12 AM CDT on Wednesday, May 19, 2004
By SUDEEP REDDY / The Dallas Morning News
GRAPEVINE – TXU Corp.'s $3.5 billion outsourcing deal, which would transfer more than a fifth of the company's U.S. employees to a new joint venture, marks a sharp departure from traditional practices in the nation's utility industry.
Executives from TXU and Capgemini, the company's new outsourcing partner, said at an investor conference Tuesday that the 10-year agreement would improve customer service and offer the Dallas-based utility $175 million in annual operating cost savings.
For Paris-based Capgemini, which will own the vast majority of the venture, Capgemini Energy LP, the deal marks an opportunity to dramatically expand its U.S. utility industry practice.
But for the 2,700 affected workers, the outsourcing contract they learned about Tuesday morning brings uncertainty and surprise, according to some employees at TXU's headquarters building in downtown Dallas.
Under the agreement, all TXU employees will receive job offers, but their employment will be guaranteed for only three months.
It's possible that the companies could determine that layoffs are needed, officials said, though they also stressed the opportunities for growth if the venture succeeds in bringing in new clients.
They said they hope Capgemini Energy can become a model for the nation's utilities in an era of deregulation, offering expertise in technology and business processes geared to the industry.
Despite its wide scope, the outsourcing partnership was only a piece of the strategy that TXU unveiled to investors and Wall Street analysts at the one-day conference at the Gaylord Texan Resort & Convention Center.
After a 90-day review by John Wilder, TXU's new chief executive, company officials unleashed a torrent of details about how they would reform the utility for a competitive marketplace and restore its standing with investors after a failed overseas expansion.
Mr. Wilder said TXU would cut the number of employees in its central corporate functions from about 2,000 to 40, moving away from the structure of a traditional utility.
Everyone else would be based in one of four business units. TXU employed 5,647 people in the Dallas-Fort Worth area at the end of 2003, accounting for almost half of the company's North American employees.
In a seven-hour meeting, TXU executives presented data on everything from customer outages to tree-trimming programs to new supply-sourcing plans, with metrics on how the company would improve in the coming years and achieve top industry rankings in each category.
"We're moving from a B-C student to the dean's list," Mr. Wilder told investors and analysts.
Sweeping plans
In the 86 days since he was named to lead the utility, Mr. Wilder has announced plans to sell TXU's Australian operations, its regulated gas business and other assets to help trim a massive debt load and slash costs from the $11 billion company.
The latest plans, he said, center on raising TXU's competitiveness and improving customers' experience with the company through shorter hold times and faster resolution of service problems.
The outsourcing agreement was "the fastest way to get the service levels where we wanted them to be," he said. "It is the best way to take what we've got and try to build on it."
In the deal, affected TXU employees will join Capgemini Energy by July 1. Excluding about 950 call-center workers in Irving, Houston and Waco, the positions that will be outsourced are concentrated at TXU's downtown headquarters. Many of them work in information technology jobs, billing and human resources.
TXU and Capgemini officials said the structure could help preserve jobs that certainly would have been cut within TXU.
Some employees interviewed outside TXU's headquarters said they realize that they're operating in a harsher environment.
"I'm not naive enough to think that there's a guarantee, that I'm safe," said Wendell Wallace, a 13-year TXU employee who said his job would not be affected by the outsourcing deal. "There's no reason to be upset. It's business. Job guarantees are a thing of the past."
But others, who asked that their names not be used, talked about being disappointed and worried.
Some job cuts are inevitable, outsourcing industry experts said.
"There's only three levers to pull on in an outsourcing deal: cheaper people, less people and cheaper gear," said Ben Trowbridge, chief executive of the Trowbridge Group in Dallas, which consults on outsourcing issues.
"The odds are that TXU has been paying some high percentage over the market norm" for labor, Mr. Trowbridge said. "Utilities are known for being very paternalistic in terms of social promotions and wage increases."
Minimizing cuts
Regular attrition at TXU and new clients could minimize cuts, said Chell Smith, chief executive of Capgemini America Inc.
The outsourcing deal is a huge win for Capgemini, one of a handful of upstarts that have brought new competition to the technology outsourcing industry.
Capgemini has already built a similar "utility outsourcing hub" in Canada through an agreement with Ontario Power Generation and HydroOne.
"We've been on this concept for a while, and we've played it out successfully in Canada," said Mark Fronmuller, U.S. utility practice leader for Capgemini.
The company's widespread initiatives for slashing costs and mitigating its risks in a volatile marketplace appealed to those gathered at the investor conference.
The business plans that executives presented Tuesday were geared toward bringing what Mr. Wilder calls an "industrial culture" to the utility business.
Investors had been anticipating Tuesday's meeting to learn what TXU would project for its 2005 earnings. TXU raised that guidance far beyond Wall Street expectations, estimating next year's operational earnings at $3.75 to $4.25 a share, at least 60 percent higher than 2004 figures.
TXU's new approach, from the outsourcing deal to a planned joint venture for an energy trading business, shows that executives are thinking "outside the box," said Paul Patterson, an analyst at Glenrock Associates. "The amount of savings that they're coming up with is really incredible," he said.
Shares of TXU closed at $38.05, up 9.8 percent, or $3.40.
Staff writers Crayton Harrison and Roger Yu contributed to this report from Dallas.
E-mail sreddy@dallasnews.com
This will be a great Short. Capgemini's consulting kids are more corrupt than Arthur Andersen's old boys.
They should fit right in then.
You are SO much more savvy than the market! I can't wait to see how much money you make on your "hypothetical" short . . . .
Very funny! No, I'm talking long term...not the one day boost from a headcount-reduction announcement.
Yes, and I'm asking if you put your money where your mouth is . . . or are you full of hot air?
Oh, definitely hot air on this one. Worth watching for a potential Short, even so.
If I had a dollar for all of the "potential" shorts that I passed up . . . .
When the French femmes talk to a few of us Texans on the phone, they will surrender immediately.
Is there a single strategic industry which the Government will protect from the corruption of foreign ownership? Most water systems are owned by a British sub of a German conc=glomerate, Nestle owns a huge percentage of the food processing industry, there is no domestic shipbuilding industry to speak of, Boeing hands manufacturing tech out like free candy in order to get contracts now, all corrupted by merger mania, the need for corporations to defend themselves from raiders, and the touch of foreign hands.
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