by Paul Grey
The Customer Information System is the software system central to a utility’s customer-facing operations. Modern CIS software products offer dramatic advantages over previous generations of software technology, so most utilities that are supporting their customer service operations with CIS software that’s more than 10 years old recognize the need to update their CIS.
Unfortunately, the persistently high cost of implementing a new CIS in-house can prove to be an insurmountable business case barrier. Some utilities have chosen Business Process Outsourcing as an alternate route, but BPO for utility customer service brings with it a new set of issues and risks that many utilities will find unacceptable.
How does a utility move to a new CIS while avoiding the CIS installation cost barrier and the other concerns associated with utility customer service BPO? A new service model provides an answer. Meter-to-cash transaction outsourcing offers a new approach that delivers the benefits of outsourcing with a world-class CIS, without many of the risks inherent in the BPO approach.
Prices are down but implementation costs are up
Improvements in call center, bad debt and back-office operations can yield significant savings, yet many utilities are unable to gain efficiencies due to limitations imposed by an inflexible CIS. And, as the software and hardware technology becomes obsolete, maintenance costs can become increasingly expensive.
One limitation of a legacy CIS is its inability to handle new initiatives in advanced metering and demand response. When the CIS cannot handle the demand pricing programs being introduced-and few can-many utilities introduce additional smaller systems to deal with the specifics of advanced metering and demand billing, adding them as a “bolt-on” to the CIS. Bolt-on systems like these make sense in the short term, but add cost, complexity and risk in the long term.
Utility mergers are another driver of CIS replacement. They typically require consolidation of customer data onto a single CIS before merger-synergy cost savings are achieved, as frequently the utilities’ pre-merger customer information systems are not designed to handle the large scale multi-jurisdiction requirements of the merged utility. A mantra often heard within a merged utility is “one system, one company” and that “one system” must be a new CIS.
Wouldn’t utilities facing issues such as these move to a market-leading utility CIS software product, proven to have many of the capabilities that would offer immediate efficiency and new billing capabilities? Not always. The low number of new CIS installations in the U.S. in the last few years indicates a widespread unwillingness to install a new CIS. Why? The main barriers are cost, time and risk. New in-house CIS installations are too costly, take too long and involve too much business risk.
The very cost pressure that makes a new CIS so desirable is also the major barrier to a new CIS implementation. Faced with the need to make a business case to justify expenditure, the cost of implementing a new CIS in-house, even when amortized over many years, can outweigh any savings.
Even though hardware and CIS software costs have come down dramatically, Gartner Group analysts confirm that CIS implementation costs have not been reduced, and if anything have increased. The biggest element of the implementation costs, which can represent 70 percent of the total cost of a new CIS, are consulting fees relating to data conversion, integration with other systems, training and system testing. These consulting fees relate not just to the initial installation but also to each future upgrade.
One reason these implementation consulting costs have not decreased is that utilities now require much more sophisticated integration between the CIS and other IT systems to achieve the expected levels of automation. It’s not uncommon for utilities to have 50 or even 100 other systems interfaced to the CIS. In addition, implementation consulting productivity gains have simply not matched the price reductions and performance gains achieved by hardware and software vendors because there is still a high level of manual work involved with integration.
With these disproportionately high implementation costs, utilities could demand cheaper CIS products and platforms from vendors, even to the point where they were free, and the installation would still be too expensive.
Perhaps the problem lies not with the utility or the CIS product, but with the traditional in-house implementation model itself.
The Business Process Outsourcing alternative
Some utilities have turned to Business Process Outsourcing to find cost savings for their billing and customer service operations. With BPO, the utility divests its existing legacy systems and operations to another party to own and operate, in the belief that the BPO provider can identify efficiencies that the utility itself could not find. However, these cost savings can mask underlying issues and business risks that may not be acceptable to many utilities.
While BPO has been successful for many companies in areas such as human resources and other back-office functions, there are questions about how appropriate the BPO model is for core customer-facing business processes. Another key issue is that the BPO provider must extract cost savings from the very same aging systems the utility found expensive and inflexible in the first place. The BPO provider is faced with all the same functional and technological limitations of those legacy systems, and few BPO providers find room in their budgets to implement newer CIS technology.
Even if a BPO vendor does in fact offer to upgrade the utility’s customer data to a new CIS platform, it’s likely to be from a third-party software vendor, bringing with it all the implications of cost, time and risk associated with a traditional CIS implementation. In addition, many of the other functions, such as bill printing and payment processing, will also be sourced from third parties, further complicating implementation. BPO providers may well be able to complete implementations at a lower cost than a utility could achieve in-house, but with the issue of the high cost of traditional CIS implementation remaining unresolved, dramatic cost savings are unlikely to be achieved. Furthermore, the business risk associated with relying on multiple vendors is not addressed.
The benefits of meter-to-cash transaction outsourcing
Meter-to-cash outsourcing enables a utility to achieve savings through outsourcing and take advantage of the latest CIS technology.The utility outsources the automated customer service systems to an integrated standard platform that is continually updated.
There are many benefits to meter-to-cash outsourcing. With this approach, the software, services and business processes that provide transaction automation and IT systems for users are developed to improve efficiency and reduce cost, and the utility maintains its own call center, maintaining direct control of its customer relationships.
In meter-to-cash outsourcing, the CIS is owned by the outsourcer, pre-integrated with the related functions such as bill printing and payment processing, and is installed and operational rather than requiring expensive in-house CIS installation and integration. Accordingly, the implementation cost, risk and complexity is dramatically reduced.
Meter-to-cash outsourcing helps utilities remove the in-house implementation cost barrier without the loss of control and business risk experienced with the BPO approach.
With the advent of meter-to-cash transaction outsourcing, when considering installation of a new CIS, perhaps the best option for utilities is not to install one at all.
Paul Grey is chief market strategist of First Data Utilities, a global outsourcer of meter-to-cash outsource services, with 20 years of experience building and deploying utility billing software in regulated and competitive energy markets worldwide. He has had articles and white papers published on a wide variety of energy industry and technology topics and regularly speaks at energy industry forums and conferences.