DTE Energy had realized that its learning processes needed a spark, so to put power behind its transformational efforts, the energy business turned to outsourcing.
by Andy Teng
If you were to ask Ray Kelly IV to characterize the learning function of most organizations, he might say it was analogous to coins underneath the cushions of a couch: You have to dig around to recover all that money.
That’s exactly what Kelly, the director of HR safety and technical training for DTE Energy, and his organization had to do back in 2006 to optimize the company’s learning process. But in implementing a comprehensive outsourced learning BPO solution from Raytheon beginning in 2007, the operator of Michigan’s largest utility captured more than just a few dollars. Not only did the five-year deal result in significant concrete savings, it is also raising the quality of training, improving process efficiency, and enabling the business to achieve its goals through more effective learning, Kelly said.
“We were going to focus on our strategic activities, making sure we were becoming partners with our business units, being at the table as they were working on designing or working on their organization versus doing the day-to-day tactical stuff. We wanted to change that relationship or that work so that we had someone else doing all the basic blocking and tackling,” said Kelly.
Trailblazing might not be a word most people associate with Detroit these days, but consider this: When Kelly first began looking at outsourced learning, there were nearly no predecessors in his vertical that had engaged in a comprehensive deal.
Even when it comes to outtasking—the outsourcing of narrowly defined learning functions—utilities were reluctant to turn over much of their training functions to outsiders, citing the unique skills required to run their business. That’s why when Kelly and his team first broached the idea, they were considered on the cutting edge of the practice. With little guidance from other utility practitioners, DTE Energy took a leap of faith by turning over a large swath of its learning services to Raytheon—a decision that Kelly said has proved successful two years into the deal.
As part of the contract, Raytheon delivers training administration; instructor-led training; course development; IT and call-center support; reporting; and additional back-office support similar to a project management office (PMO). Kelly said the outsourcing contract made vast improvements in DTE Energy’s existing learning processes as well as bolted onsignificant new capabilities through the establishment of a call center and the tracking of problematic issues. The company retains its leadership development curriculum, although there have been discussions about adding this work to the existing outsourcing contract. Furthermore, highly specialized training for utility repairs is also being handled internally because it would not have made economic sense to turn it over to Raytheon.
The energy giant was able to implement the comprehensive solution in a short period of time, requiring just three months to roll it out. Kelly said the company focused on having clear communications with all the stakeholders and ensured a smooth knowledge transfer process so no significant delivery or quality gaps occurred post implementation. “There’s never a good time to move from a fully internal service-provided activity to an external service-provided activity without a tremendous amount of energy spent on that transition activity, and we moved through that transition activity relatively quickly,” he said.
Typical training activities are in safety and compliance activities, including CPR, first aid, hazard communications, vehicle and mobile equipment training, electrical skills, welding, pipefitting, and others.
Even though DTE Energy is considered a learning outsourcing pioneer in the utilities industry, in many respects its journey is a typical learning BPO tale, one in which the buyer evolves from being a highly decentralized administrative organization to one that is more accountable, transparent, and efficient. And like many HR organizations that embrace outsourcing, cost was an important motivator for moving services to an external provider, but myriad other benefits also drew Kelly’s attention to outsourcing.
For instance, he said in a number of instances, his group provided services to various businesses of DTE Energy but did not have clear accountability for many of the issues around learning, training, and development. Furthermore, there was a significant disconnect among the learning professionals within the organization, leading to duplication of effort and a failure to share knowledge.
“Everybody was taking phone calls and fixing stuff in their own world and not sharing what they were fixing and how it might impact someone else. Even though we had 100 people in the [learning] organization, I don’t think we were connected very well,” said Kelly.
But for many organizations of DTE Energy’s size, such inefficiencies are not uncommon. It’s also why comprehensive learning outsourcing can have such a profound impact on cost savings and organizational throughput. As a diversified energy company, DTE Energy operates Detroit Edison, Michigan Consolidated Gas Co. (MichCon), and Citizens Gas Fuel. With these utilities serving more than 3.5 million accounts, they are DTE Energy’s largest businesses. Additionally, the company operates a number of other industry-related entities, including a coal transportation unit, a gas production business in Texas, private energy services catering to industrial manufacturers, an energy trading company, and a technology investment venture fund. In all, DTE Energy employs 11,000, most of whom are in Michigan.
As anyone familiar with learning services knows, it is one of the most difficult to transform among HR domains due to its decentralized nature, so when Kelly embarked on his vision, he understood the challenge and the rewards. After all, the learning function can be disparately practiced, territorial, and highly inefficient. But it can also produce a quick return on investment, especially as companies offload administrative burdens onto the service provider. But like any organization, DTE Energy’s first step in transforming its learning function was to identify the problems, which Kelly said were flagged through a formal evaluation the company undertook in 2005. These issues were later confirmed with the help of a local learning service provider. Through these assessments, the company discovered that the quality of learning delivery was inadequate, the processes didn’t function the way they were supposed to, and a “tremendous” amount of waste existed.
Identifying process gaps was just the first step in the outsourcing journey. Because DTE Energy sought to take on such a comprehensive solution, and because there were few predecessors to whom Kelly could turn to for advice, it needed outside subject matter expertise to help determine the right solution and the right provider. Third-party advisors have always played a critical role in helping buyers to connect with the appropriate providers, and in hiring EquaTerra, DTE Energy sought out the consulting firm’s deep-domain experience for guidance. As a result of the collaboration with the consultant, Kelly said his department became an internal resource that others could turn to for outsourcing expertise.
Once DTE Energy gained the domain expertise it needed to go to market with, the company moved ahead with the request for proposal (RFP) process, which in the summer of 2006 narrowed the list of appropriate vendors to four, Kelly said. It was at this stage, he added, the company learned an important lesson: Taking time to build a highly detailed document that specifies the statement of work is critical to building a strong foundation with the outsourced vendor. During the process, DTE Energy saw its original RFP document balloon from 20 to 110 pages out of necessity. Kelly said he initially didn’t realize how critical it was to specify all aspects of the contract.
“When you start into this activity, data is paramount. And the more time you spend upfront, the less bickering, questioning, and waste you will have on the back end,” Kelly pointed out.
In doing that, DTE Energy focused on four critical areas it wanted its prospective provider to address. These included service quality, capability, personnel, and technology.
When it came to quality, it sought out providers with utility industry experience, but Kelly lamented that at the time there were no learning buyers in the same vertical undertaking a similar scope. As a result, it looked to the experience of buyers in businesses such as banking, aerospace, and steel manufacturing.
Lessons for Everyone
Indeed, the utilities sector was a new market for many providers at the time. Even though Raytheon is one of the leading BPO vendors in the industry, until it began serving DTE Energy, it had never delivered end-to-end learning BPO to anyone in this sector. As it turns out, DTE Energy is now Raytheon’s anchor client in the utilities business, and the provider said it has learned from the experience as well.
“With this particular engagement, the subject matter phase of it was a little different from what we experienced in the past. They had electrical, gas, and distribution businesses,” explained Dennis Guzik, a program manager at Raytheon. He and other members of the team pointed out that compliance and safety were two considerations that rose above all others in delivering curriculum and administrative services to DTE Energy.
Another way in which DTE Energy was unique in its learning services was that 98 percent of the courses were instructor-led training (ILT), which necessarily results in a high-cost base. Raytheon said it is working with the company to shift the ratio to a mix of 30 percent ILT and 70 percent online, although a 50-50 blend is more likely.
“A high priority is to create a safe and secure environment. To that end, you have to be very mindful of the federal regulations, state regulations, and city regulations. All of that drives their business,” added Raytheon’s Kathleen LaSalle, program manager.
Beyond industry experience, Raytheon also considered vendors’ strength of solution. Kelly said the selection process examined the details of the proposed offering, how deep it was, tangible examples of those solutions at work, and other factors.
As far as the personnel factor was concerned, DTE Energy wanted to make sure there was a cultural fit with its employees and that some of its workers would transition to the provider. “Because of the people involved in DTE Energy at the time and my affinity toward them, I wanted to make sure the solution brought forth for transformation and transition really spoke to how they would work with people and what kind of approach they would take,” Kelly recalled.
A final wrinkle to the project was the company’s migration to an SAP platform in 2007. Previously, it was using the Plateau learning management system and a home-grown system before that, but Kelly said he was concerned that implementing the learning BPO solution at the same time that SAP was being adopted would have resulted in significant difficulties for the workforce. As it turned out, he was right. After the initial implementation, satisfaction levels fell, which Kelly said was in part attributable to the technology shift. Some users of the LMS also had difficulties with adopting the new system, but that was an anticipated issue that Kelly and his team quickly addressed. He conceded that more work is needed to further improve the platform and move the process to his desired state.
“The processes we have documented and on which we worked with Raytheon to improve now emulate what we think are relatively good processes. But we don’t have total automation end to end, and there are things we have to do manually that we don’t want to do,” he said.
The Proof is in the Savings
Kelly said that since outsourcing learning, the company has made tremendous strides in improving quality, efficiency, and costs—the latter being the most apparent since his organization began the transformation efforts four years ago. Comparing his budget in 2008 with that in 2004, a sizable reduction has been achieved—in part because of outsourcing and in part because of internal efforts to measure and benchmark performance as well as troubleshoot problem processes.
“There’s been some good documented savings around how much we have saved and how much the quality has improved,” Kelly pointed out. “That’s not to say that we’re not looking for more opportunities to improve and make sure customer satisfaction is improving at the same time.”
At the same time, his organization can better account for its budget because responsibilities are clearly delineated. Kelly pointed out that his group offloaded some of the support services it previously provided to other units. In the past, as much as 20 percent of the budget that Kelly thought was going to technical training work was actually used for subject matter expertise (SME) work for other business units.
The company now has processes that foster continuous improvements through improved data collection and mechanisms for identifying problems in learning administration and course development. The addition of the call center also enables the company to quickly get answers when a problem does arise.
“We have gotten better processes, period—where everybody in a space or a particular area follows a set cadence and a set of processes. I think we knew [establishing] the call center was going to be the right thing to do, and it’s been outstanding; you get much better data more timely on what the issues are.”
Benchmarking the Results
Kelly noted that DTE Energy contracted for a “robust” set of service level agreements with Raytheon to continuously improve speed and quality of the training services. The agreement helps him to thoroughly benchmark and track learning activities and satisfaction levels. To aid utilization, the company has also formed a learning governance team comprised of senior executives who provide feedback to Kelly so his group can better deliver services to the their business needs.
Furthermore, he explained, the company can now provide “deeper” subject matter expertise without having to increase spending. By having Raytheon in charge of new course development and making sure DTE Energy has the SME resources it needs, Kelly’s organization is able to give business units all the skilled workers they need to service their customers.
As a results, some additional areas of improvements include scheduling and technology. The support of the call center is also being heavily promoted to various business units.
Most importantly, Kelly added, his team is now focused on strategic initiatives rather than day-to-day administrative chores. This is a far cry from when his organization was simply reacting to problems. And it’s also the core value any organization should get from outsourcing non-essential services: more time for the retained organization to focus on critical activities.
“Just within my own sphere of activity, I had six or seven direct reports that did nothing but run the day-to-day business. Now I have a service provider manager and a program manager that do that, and I have four direct reports that are now focused on performance improvement activities with our major clients,” he said. “Not only did I reduce the number of required folks, but also I now have them at the table with their thought leaders and businesses identifying changes that are going to occur.”
And that may be one result of outsourcing learning that everyone in the organization can appreciate. With a significant bloc of its workforce boasting 25 to 30 years of work experience, DTE Energy will need to ensure that it continuously trains new workers to replace the ones lost to retirement and to other reasons. Kelly now has a much more efficient process to help business leaders meet the company’s growth plans in the years ahead.
Sidebar: A Well-planned Start Keeps the Outsourcing Effort on Track
Any comprehensive outsourcing engagement can be a complex series of transactions, regardless of whether it’s learning, HR administration, recruitment, or others. In DTE Energy’s case, turning over much of its learning services was expectedly laborious and required the buy-in and support of many internal stakeholders. As Ray Kelly, the director of HR safety and technical training, summed up: “It’s been a lot of work. That would be one of the detracting factors. I didn’t know exactly what to expect because I had never been through it before.”
But before you dismiss learning BPO as an unwieldy exercise, keep in mind that the rewards can be vast, very tangible, and help HR sponsors win kudos among the C-suite. Kelly said to lessen the burden of implementation, keep in mind the following critical steps.
- Consider using a third-party advisor. DTE Energy turned to EquaTerra for its insights on contracting and sourcing. Kelly said its consultants helped him better understand how contracts are structured, the mechanics of selection, and defining scope of service. The relationship laid the foundation on which the contract was built.
- Understand what to benchmark to ensure processes are improved. A diligent review of key metrics should be undertaken, and don’t follow just those recommended by the provider. Look to other practitioners for guidance.
- Make sure to develop a very detailed statement of work—in Kelly’s case, his organization refers to it as a scope of work (SOW). “I can’t stress enough how important it is to get a good, granular grasp of what your service offering looks like,” he said. “We call it scope of work, and it started out as a two-page document and it’s 19 pages now; it details everything we do.”
Although all of these steps require considerable internal work, Kelly said buyers will be more successful and better predict outcomes by doing so. Not to do so could invite confusion and duplication of work later on.
Once implemented, an outsourced learning solution will need the continued support of both buyer and provider to further win buy-in. Raytheon said it is helping DTE Energy develop metric scorecards to tie its learning results to improved business outcomes, which would help the rest of the organizations to realize the value of a well-structured program. Kelly added that internally he also must improve his department’s efforts to publicize enhanced capabilities and successes gained through the outsourcing arrangement.
“Another thing we are finding out that we need to do better is sell ourselves, communicate the successes, and communicate the improvements,” he said, adding that doing so will win the confidence of users throughout the organization and further the buy-in of users from all corners of the organization.