Bill Lemon, Senior Product
Marketing Manager, ConneXt
With the constant pressure of changing regulatory requirements and competition, how can a utility juggle all these changes and, at the end of the day, keep its increasingly sophisticated and demanding customers happy? In these uncertain times, the solution must supersede the problem, and the core of the solution is the Customer Information System (CIS). For utilities, the real challenges and difficulties begin in deciding if, how and when it can replace a CIS to meet new market demands.
CIS: The backbone of a utility
It’s unlikely that anyone would argue the importance of a CIS. The CIS keeps the utility in business, tracking customer energy use, processing that information, and then outputting bills to end users, which results in the utility achieving its ultimate goal: revenue. Consequently, the billing engine, the processor of billing statements for all the utility’s customers, is the most powerful aspect of a utility’s CIS. For example, if the CIS cannot obey regulators, the utility could be subject to millions of dollars in fines; by the same token, if it cannot support new business, the utility could see negative growth with a resultant diminishing of shareholder value.
In the days before the looming presence of deregulation, the CIS performed simple procedures within finite parameters. The billing engine was configured to provide one tally for total electricity consumption on a monthly cycle-a relatively simple and straightforward procedure. At that time, utilities were reading residential and commercial meters and were less concerned with the energy users. Essentially, Customer Relationship Management (CRM) was non-existent.
But in the early 1990s, open competition, mergers and acquisitions were becoming a reality. It became evident that the existing CIS, capable of billing one rate in one cycle, could not support the enhanced services necessary to remain competitive in the face of changing market forces. Deregulation was challenging the industry to move to a more customer-focused model from the regulator-focused incremental improvement model. New CIS technology would be the key to the utility’s success.
Deregulation changes the rules
Today’s energy providers find that the customer is increasingly more visible and a more crucial aspect of business. Cost containment, accuracy and clarity in billing are critical to customer retention. In the age of technology, customers are also more sophisticated than ever before, demanding higher levels of service and willing and able to exercise their right to change providers. As a result, a “survival of the fittest” mentality has permeated the industry. Aggressive competition threatens to push utilities that don’t accommodate new business rules-those that don’t put the customer first-out of the supply business.
With the addition of retail offerings and new services, utilities become more than energy distributors to their customers, strengthening already established relationships as well as creating new profit centers. The savvy, new economy utility actively sells and markets non-traditional products and services, producing new revenue streams. Often the CIS is a limiting factor in pursuing such a strategy. Conversely, utilities that haven’t historically demonstrated revenue growth have fallen out of favor with Wall Street.
The CIS takes on a new role in the development of Customer Relationship Management (CRM) by maintaining information on customer histories, outage management, automated meter reading and marketing data warehouses.
Coming up to speed
Many energy providers have attempted to modify existing legacy systems to meet new business rules-often times with disastrous results. Cost and schedule overruns have put these utilities in the public spotlight. Some system modifications or new implementations have resulted in systems that don’t provide the necessary flexibility and scalability to meet customer and regulatory demands. Other utilities have tried building all-encompassing systems, but most have fallen short of the requirements even after investments of up to $100 million. In the majority of cases, attempts to adapt an old CIS to function in the new energy market have been woefully inadequate.
According to a study conducted from 1994-98 by The Standish Group, only eight percent of utility CIS development projects initiated by the 30 study participants were successful. Of the remaining participants, 73 percent failed in the initial start and were restarted. Nineteen percent were completed, but were over budget, over the time estimate, and offered fewer features and functions than originally specified.
Often, utilities are waiting for more clearly defined deregulation rules before making an investment in a new CIS. However, the waiting game itself is a risky and expensive endeavor. While a utility takes a time-out to identify its goals, other energy providers-possible competitors-are developing new services and products that will attract new customers. What many utility executives fail to recognize is that it’s possible to find a CIS now that is both flexible and scalable and can accommodate changes that may transpire in years to come.
While purchasing and installing a new CIS is a major expenditure, the cost can be justified. A CIS that supports active selling of non-traditional products and services can be a major contributor to offsetting purchase and implementation costs. New revenue streams improve a utility’s economic vitality in the short-term. Installation of a new market CIS benefits a utility in the long term by demonstrating a commitment to customers as well as positioning itself as an innovator.
A CIS for the deregulating marketplace
A utility can improve profitability by installing a CIS that supports the needs of utilities and customers today, but also be easily re-configured to handle the business strategies of tomorrow. The benefits of the new CIS are:
- New Revenue Streams-With a new market CIS, utilities can offer new services and products to their customers, and the billing engine can charge for the non-metered products and apply different credit rules as needed. For example, a utility can establish partnerships with preferred providers, and customers can then purchase items like refrigerators, furnaces or air conditioners, either online or by phone. The CIS handles the financing of the product so that the entire transaction simply appears on the customer’s regular monthly utility bill. The customer benefit is that new, energy efficient and state-of-the-art appliances are easily within financial reach. The customer arranges financing terms with the utility and the purchase is divided up over a number of convenient monthly payments.
- Sophisticated Billing-The new CIS offers full-spectrum operational support, including meter reading, product administration and development, statements, adjustments, complex taxation and rate riders.
- Customer Relationship Management-The new CIS tracks lifetime relationships with all customers. This includes purchase history, credit history, demographics, usage and program participation.
- Off-the-Shelf Functionality-Most legacy CIS’s required that utilities delve into the software business, often with disappointing results. Off-the-shelf functionality means the utilities can configure and use the software without having to write it. The new market CIS can manage complex unbundled rate structures and accommodate multiple companies, subsidiaries and jurisdictions confronting mergers and acquisitions.
- Agility-With a powerful, flexible infrastructure, utilities can alter business process definitions at will. With the right CIS, most changes require only the selection of new parameters without programming. These changes can be implemented by analysts not programmers, thereby saving the utility both resources and money.
- Customer Service-A utility’s customer service is only as good as its frontline, the customer service agents. The new market CIS gives individual agents the tools they need to interact with customers quickly and efficiently. Additionally, the CIS will track customer activity, generate automatic statement messages and personalized correspondence.
Options for smaller utilities: Outsourcing billing
Percentage of utilities that outsource billing
Purchasing and installing a new CIS is a justifiable expenditure for mid- to large-sized utilities, but smaller utilities often don’t have resources to maintain their own information systems. However, small utilities can still reap the benefits of a modern CIS. For example, smaller companies don’t need a dedicated IT staff to maintain a CIS. Outsourcing billing, while initially off to a slow start in the energy business (see figure), is becoming the dominant business model for telecom and cable service billing.
A company can elect to outsource some or all of its billing processes, from printing and mailing, to customer service call center functions. This way, a smaller utility has access to the same sophisticated systems as a large utility at a fraction of the cost. With a large, exceedingly flexible and scalable CIS, utilities can create an additional profit center in taking on outsourced billing.
Differentiation in the marketplace can be achieved with a comprehensive, flexible, scalable CIS that supports non-traditional products and services. When properly deployed, the CIS’s capability to add new revenue streams can balance out the cost/risk ratio associated with the purchase and implementation of a new CIS.