Outsourcing Vendor Starts to Cut IT Workers at Texas Utility

Capgemini plans layoffs, shift of 50 apps jobs to India

Capgemini Energy LP, which was formed in July to manage IT and back-office operations for energy conglomerate TXU Corp., this month plans to start dismissing about 230 former TXU workers, including 50 to 75 technology staffers.

The cuts follow the Oct. 1 expiration of a three-month job security guarantee for the TXU employees and include a mix of layoffs and offshore moves. For example, Capgemini Energy CEO Bob Pryor said last week that about 50 application development and maintenance positions are being shifted to a facility in Bangalore, India, that's owned by parent company Capgemini.

Pryor added that Dallas-based Capgemini Energy plans a second wave of downsizing at TXU in February. Although Pryor declined to say how many positions might be affected at that time, he said some IT infrastructure jobs will eventually be transferred to Bangalore and to a facility in Krakow, Poland.

Slashing Costs

The layoffs and offshore transfers are part of Capgemini Energy's cost-savings strategy for TXU, which is also based in Dallas. Pryor said that before TXU turned to the outsourcing vendor to provide IT, call center and business services, it was spending more than $1 billion a year on sales, general and administrative functions.

"There's a recognition that their costs were just too high," Pryor said. The operations that were outsourced account for $500 million of TXU's SG&A expenses, he added. On Sept. 1, Capgemini Energy submitted a plan to TXU spelling out steps it would take to reduce the costs by 30% over the next 16 months while improving IT and business-process service levels.

TXU's former IT workers and back-office employees will face a second round of downsizing in February, said Capgemini.
TXU's former IT workers and back-office employees will face a second round of downsizing in February, said Capgemini.
As part of the outsourcing agreement, Capgemini Energy supports the bulk of TXU's IT operations, including its IT infrastructure and its desktop computing, application development and software maintenance activities.

Pryor said that of the 2,700 TXU employees who transferred to Capgemini Energy as part of the 10-year, $3.5 billion outsourcing agreement, roughly 800 work in IT-related positions. The first round of layoffs, which Capgemini expects to complete early next month, could reduce the IT workforce by as much as 9%.

Rick Nicholson, an analyst at Meta Group Inc., noted that the TXU/Capgemini contract is complex and was pulled together in a relatively short period of time -- in only about 60 days, from what he was told. "I bet there are a number of issues that will pop up in the first year of the deal that they'll have to work through," he said.

Nicholson also questioned whether the plan to transfer jobs that support the regulated side of TXU's business out of state could be challenged by the Public Utility Commission of Texas or by state legislators.

But Terry Hadley, a spokesman for the Austin-based utility commission, said there are no existing laws that would prevent Capgemini Energy or TXU from moving any jobs out of the state.

Trey Trainor, chief of staff for State Rep. Phil King, the chairman of the Texas Legislature's committee on regulated industries, said that the panel doesn't have any hearings scheduled and that the legislature isn't scheduled to meet again until January.

Capgemini Energy is negotiating with several other companies and hopes to sign at least one more contract by next spring, Pryor said. The firm is "waiting to see how adding other clients affects us" on staffing before finalizing plans for the next round of cuts at TXU, he said.

Copyright © 2004 IDG Communications, Inc.

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