How to Outsource Virtually Everything

Be The Outsourcer

THE PROLIFERATION OF OUTSOURCERS in Alberta is all about seeing and seizing an opportunity. The entrepreneurial-minded founders of Stawowski McGill & Partners saw an opportunity for a different type of accounting firm when they heard their clients complain that they did not feel they had access to “CFO-type expertise,” says Brian McGill. “A small business simply cannot afford the $150,000 to $350,000 a year a person like that would command in the Alberta market.”

The firm’s current business model is predicated on the premise that if a small business wants CFO-type expertise, SM&P partners can provide it at a price that’s fair to them but significantly less than a full-time, in-house CFO would require. When clients, unused to buying this type of service from their accountants, were skeptical, SM&P was willing to put its profits on the line. Early clients were told, “If this doesn’t work, we’re not going to charge you,” recalls Stan Stawowski. “Once clients saw that we were willing to put money where our mouths were, it was easier to get buy in.”

At HSE Integrated Ltd., David Yager faced a similar challenge. The oilpatch veteran joined HSE’s predecessor company as CEO and chairman five years ago. The company had a handful of outsourcing contracts for medical and safety services, the oilsands were starting to boom, and the less-than-stellar safety and environmental record of Alberta’s flagship industry was in the headlines. Yager smelled gold. He just had to position HSE appropriately.

“The question I started asking five years ago is this: Do companies fulfill their safety obligations around their assets, the environment and the communities in which they work because they are good at it, or because nobody else is available to do it for them?” he says.

Yager figured it was the latter. He had a hunch that most companies would love to outsource critical and expensive functions such as on-site medical clinics and the medics and technicians necessary to staff them, servicing of safety equipment, aspects of training, and environmental testing. He was sure HSE could deliver these services more cost-effectively and make a persuasive financial argument to potential clients. But he also knew that no company that valued its stock price and corporate reputation would outsource health and safety functions to “a small, fly-by-night owner-operator.”

Yager recapitalized and reorganized the company, and then took it on an acquisition spree, transforming it into a national company with 21 locations and a diverse portfolio of services. “That was phase one,” he says. “We had to be somebody clients would talk to.” Then, they had to convince companies that traditionally handled such issues in-house that they should outsource them to HSE. Much explaining – and a little begging – occurred. “We showed up in Fort McMurray and said, ‘Hi, we’re here,’” recalls Yager. “And the oilsands firms said, ‘Who are you? And why do I need you?’ They were doing it all themselves because they didn’t know there was anyone there who could do it for them.”

As the contracts started to trickle in, Yager says, “We had to earn our stripes and credibility…. For what we do, the equipment has to work and people have to be well-trained.” Now comes phase three. Companies are now starting to come to HSE, frequently in the planning stages of their projects. “The real growth years for this project are in the future,” says Yager. “I see an $8-billion a year industry here. Syncrude told us at one point they spend $40 million a year on what we do. Imperial Oil told us they spend 3% of their revenue on this. One analyst says a country will spend up to 2% of its GDP on what we do. It’s big business.”

So is utility billing. Or, it became one when Alberta deregulated its utilities. And there was no way retailers such as Gas Alberta Energy were going to do billing in-house. Larry Dykstra knew it from day one.

“We don’t have the resources internally to keep up with what is going on in the Alberta distribution and transportation system,” says Dykstra, Gas Alberta’s vice-president, marketing. “Our strength is managing the commodity for customers. That’s what we’re good at and those are the relationships we had been building for years…. It was almost a necessity for us to outsource the billing, because we did not have a billing system.” And purchasing one – and keeping on top of it – was a prohibitive cost.

It was an incredible opportunity for an entrepreneurial outsourcer, and a Calgary company called Cognera Corporation seized it, creating massive billing systems tailored to the deregulating and changing Alberta market. Now, you probably haven’t heard of Cognera. But if you’re an Alberta utility services or gas marketing company, you’re probably outsourcing your billing to Cognera. That’s because Cognera is now the largest commercial and industrial billing vendor in the province. Its clients include Gas Alberta, Enmax, Nexen, Integrys Energy Services and the City of Lethbridge.

They use Cognera for the same reason Gas Alberta does: “Billing is not their core competency,” says Nishaant Sangavi, Cognera’s manager of business development. “Their core competency is selling gas or selling energy.” Every once in a while, Sangavi says, a happy customer will say they want to take Cognera in-house. “And then they say, but if we did that we would totally screw it up because that’s not our competency.”

It is Cognera’s core competency. The company’s success to date illustrates why, when done right, outsourcing is so effective – and appealing. The software and hardware required to manage Alberta’s deregulated utility market is complex, expensive and constantly changing. Cognera owns, maintains and hosts the required systems, and Cognera’s customers share the cost of keeping the systems running and updated as a cohort.

Everyone’s happy: the entrepreneurs who decide to outsource and the entrepreneurs who seized the opportunity and provide the outsourcing service. When it’s done right, of course. And, when the outsourcer and outsourcee fit. Sangavi notes that Cognera’s best relationships are with customers like Gas Alberta, with which Cognera “grew up.” McGill and Stawowski echo the sentiment: for most of their SME clients, for example, the seven-person SM&P is a better “fit” than one of the big accounting firms.

“We’re entrepreneurs as well as accountants,” Stawowski says.

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