Cost Minimization or Revenue Maximization?

By Roxane Richter

The Costs and Benefits of Customer Care

Perched atop the proverbial double-edged sword of decreasing customer care costs while increasing customer service and revenues, utilities find themselves hard pressed to focus on cost minimization and revenue maximization in their strategic planning. New methods on customer care metrics benchmark based on a variety of factors-everything from call center wait times to customer averages and customer events to financial levels and more.

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“Most companies that have CRM feel like it’s about cost minimization rather than revenue maximization,” said Jeff Felton, Skipping Stone principal. “Utilities are going around saying their goal is ‘We want to be No. 1 in customer care.’ Who are you kidding? No, you want to provide minimum adequate service-without getting the PUC on your back-with minimum required costs. The less they put out on customer costs, the more it adds to the bottom line.”

Felton said many utilities try benchmarking efforts aimed at comparing their customer care and call center functions, yet many fail to achieve significant results due to several pitfalls, including: a reliance on “point in time” data (no ongoing data collection and analysis); a focus on financial, not operational, tactics; a non-enterprise-wide view; and a focus on “averages” (not specific segments of customers or variances in events that skew averages disproportionately). He added that a better view of customer costs is constructed by segmenting events by customer, as opposed to working with “averages.” Using this methodology, he said a company could show a net savings of $7.21 per customer (about 28 percent) in the segment (see Figure 1).

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“This method finds patterns-not to increase revenue but to minimize customer care call costs,” Felton said. “Think about the overall end goal: To provide hassle-free complete service (from the customer’s view), so no calls into the call center is the ultimate goal; to remove the need for the call center and nip the problem in the bud.”

According to Felton, utilities should adopt a “customer optimization framework” methodology to better understand and control customer care costs. Such a methodology involves the following steps:

  1. Know thy business. Identify all the events within the organization that result in customer calls. A starting point is in analyzing call center traffic over a period of time, or mapping the business processes that result in customer touches. Meter reading, billing, bill print, field service order processing, and credit and collection are good starting points.
  2. Develop a repository. Create a data mart capable of capturing and tracking events by customer. An existing customer relationship management (CRM) application may provide this capability, or one may consider popular business intelligence products on the market.
  3. Capture the data. Develop ETL (extract, translate and load) procedures to capture the data from the application that creates the event and load or “log” it into the repository. Saving the data in a permanent repository also allows for iterative and historical analysis.
  4. Analyze this. Once you have the data at the most granular level-by customer or account-any level of analysis is possible from using sophisticated analytics tools to provide regression and trend analysis, to simple sort and selections from an Access database or an Excel spreadsheet.
  5. Find the “low-hanging fruit.” Find that class of customer that is on a certain rate, lives in a certain area, and has a certain credit profile, etc. that causes them to call or be contacted most often.
  6. Develop a “fire and reload” approach. Devise and implement some improvements-such as including credit messages in the same envelope with the bill for customers receiving multiple mailings on the same day-then monitor the data to see if the improvement had the intended effect.
  7. Institutionalize the process. Start with a pilot. Work out the kinks and then extend the program to other areas of focus, eventually linking events across the entire organization.

$3 Per Call = What Level of Service?

From a customer’s point of view, there are two things that succeed in making a utility customer happy, said Len Tanner, Orcom’s vice president of operations: one, having access to a fully functional VRU or IVR to retrieve basic account information (average IVR usage runs 5 percent to 10 percent, though 20 percent to 25 percent is favorable); and two, having access to account information via the Web (online customer care, not necessarily online billing functionality). But both of these services come with costs. And on average, customer care costs run anywhere from $3 to $40 per call, providing a mega-wide berth of services and costs in between.

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“Clearly, utilities today are focused on cost minimization rather than revenue maximization. I get alarmed when I hear about a $3 best-in-class service cost-but then I ask what level of service is that?” said Tanner. “The problem is the difference between a 15-second wait time compared to a 60-second wait could mean a 25 to 40 percent increase in customer care costs, and most utilities aren’t going to get that approved by their board. It’s just not worth the money.”

And speaking of costs, there are numerous customer care cost components-both direct and indirect-to consider, according to Bend, Oregon-based Orcom, a provider of customer software and services (see Figure 2).


According to Orcom, outsourcing the customer care function offers utilities a number of advantages including: reduced cost of operations (possible 20 to 40 percent savings); improved customer care; reduced risk (taking “technology pressure” off utilities by maintaining responsibility for continual technology updates); and scalability without major capital investment (scalable infrastructure frees utilities to pursue growth plans and merger and acquisition strategies). According to the Gartner Group, worldwide business process outsourcing services will grow from $207.7 billion in 1999 to $543.5 billion in 2004. And outsourcing revenue will reach $101.6 billion in 2001, an 8 percent increase over 2000 revenue of $93.8 billion.

As ever, analysts continue to point to a future where a decrease in costs and an increase in shareholder value hold sway. “If ENRON has taught utilities anything, it is that even the largest companies can lose sight of basic principles like delivering quality service to customers,” said Dr. Zarko Sumic, vice president of Energy Information Strategies at META Group. “Utilities must focus on increasing quality of service to their customers, and outsourcing customer care and billing business processes is a good way to prepare for a profitable future.”

Quality vs. Quantity

Atlanta-based Witness Systems, a provider of business-driven multimedia recording, performance analysis and electronic learning management software, monitors the quality of customer interactions across the telephone, e-mail and Web.

Witness Systems’ browser-based eQuality collaboration architecture is an integrated, closed-loop performance optimization tool that lets companies record, evaluate, analyze and learn from customer contacts and the touch points they use. Customer touch points have varying costs-from 4 cents for Web self-service to $5.01 for service via a sales representative (see Figure 3).

Other stand-alone modules by Witness cover many related areas such as: eQuality Balance (business-driven voice and data recording application); eQuality Response (records and evaluates e-mail contacts); eQuality Interactive (records and analyzes collaborative Web chat interactions); eQuality Discover (monitors site and stores recorded sample Web sessions to help ensure consumer experiences flow well from a design, content and navigation perspective, and that the channel is a profitable medium); eQuality Evaluation (evaluation and scoring of CSR performance); eQuality Analysis (combines information from disparate technology sources); eQuality Now (online CSR training); and eQuality Connect (integration product line with Web-enabled and e-CRM applications). Already, Witness provides its software to some 300 clients with multiple contact centers, including Alliant Energy, American Airlines, AT&T, Best Buy, Columbia House, Continental Airlines, Dow Jones & Company, Radio Shack, Verizon Wireless, VISA, Wells Fargo, Xerox and others. And the company is braced for an anticipated 40 percent growth in multimedia contact centers by 2003.

In the end, the best news to come out of utility customer care concerns is the current trend of moving away from low handle-time calls and toward one-call resolution, which is critical to customer satisfaction, said Oscar Alban, Witness Systems principal, market consultant. Alban added that customer satisfaction levels drop drastically by the third call (to resolve a specific issue)-from 90 percent to less than 60 percent if the customer has to make numerous calls in to resolve a problem.

And while current statistics show as much as 80 percent of all Web interactions end up going through a call center anyway, getting a one-shot resolution sounds like a great beginning to good customer care.

A veteran energy journalist with more than a decade of reporting experience, Roxane Richter specializes in covering trading,risk, digital exchanges and IT systems. She can be reached at

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