Investment decisions demand redefinition of CIS

By David Price, Logica

The first waves of restructuring are pounding our shores, and further serried ranks are making their way toward us. With the advent of a new year, it may be useful to spend a few moments considering the impact that they have had on the heretofore monolithic, unchanging IT structures that have underpinned the customer and revenue operations of our business up until now.

For a number of years, the term customer information system (CIS) was useful in describing the major suite of functionality required by a utility company to enroll, bill, service and track payment from customers for services rendered. In fact, such was the basic stability of the requirements in this area that a range of large scale, tightly coupled systems emerged as the accepted solution for managing the majority of customers. Two words have ended the usefulness of the term: customer choice. Let us dissect the term CIS more closely to explore why.

Defining CIS

The first word is “customer.” This no longer means the same thing to everyone, depending on what sort of business a company has or intends to become. For distribution companies in Texas, for example, it might be a more appropriate term for the retail electric providers who will have total ownership of the end use customer.

The word “information” is now meaningless unless you know the definition of the customer and what services are being provided.

And finally, “system” no longer accurately describes the type of solution companies now need. No single system possesses the range of capabilities tuned for each emerging type of business.

The most pressing issue is, therefore, the future. How do we define the requirements for and select a solution to the company’s customer information needs when many are still choosing their core competencies and focus, making the accurate definition of requirements problematic at best?

Of course, technology has come up with a whole new range of tools to support this effort. The quality and robustness of enterprise level integration technologies continues to grow, and these are becoming critical infrastructure weapons for the future. Their implementation will allow companies to prepare their own blueprint for providing the business with application solutions they need through flexible integration frameworks rather than the single dimensional point to point interfacing of the past. However, these technologies can only provide flexibility within certain parameters, and those parameters still need to be defined.

The right fit

Equally of use has been the growing adoption of alternative contractual mechanisms such as outsourcing and application service provision as a means to provide customer information solutions. The businesses of overflow call centers and bill printing and payments processing services are well established. This has been particularly useful to startup companies lacking the capital to invest in a large scale IT infrastructure.

However, something has happened to our industry that makes the whole process more complex than ever before, particularly for those who support businesses that still operate in the regulated and unregulated sectors. There is no single way to look at the value of a given business function (and, therefore, its technical solutions) any longer. Let us examine some examples.

The process of enrolling customers was, heretofore, a straightforward one. The customer called the local company and, assuming they passed that company’s credit checks had their service initiated.

We now operate in a world where at least two companies will be involved in this process. For one of them, the local distribution company, the process of enrollment is to activate the service so that energy can flow to the customer. However, the energy is provided by another entity.

Due to their role as operator of the delivery infrastructure, the regulated distribution company has been assigned (through regulation) the responsibility of tracking each and every service provider against each and every service point and their associated customer. In some cases, they do not even bill the customer any longer. Their role has been made one of company of record on behalf of the market.

For the competitive retailer, there is now a costly process of marketing and acquiring customers for their services. Furthermore, their ability to develop a competitive offer for service while still making a profit is intimately bound up in their ability to integrate their load forecasting and profiling capabilities with their billing to ensure they have not taken this customer at unacceptable levels of risk.

Learning to adapt

Ideally, the competitive company needs to provide this capability as near to the front line sales force as possible to maximize the possibility of a sale. These requirements make new demands on a set of system solutions that were not traditionally integrated for real-time business use.

This implies that, in the case of the distribution company, the value of operating a set of systems for enrolling a customer and tracking service providers is minimal whereas the ability to integrate enrollment of customers into the risk management processes of an unregulated competitive business is critical. This would imply different approaches to the solution to the (nominally) same requirement.

Another example follows on from the previous one. In the area of billing capabilities, the two protagonists have increasingly divergent needs.

The process of billing for distribution services is set on a course of further simplification, perhaps even the advent of flat rate charges for services. Additionally, their role as the actual bill provider also seems set to diminish as the competitive companies grow their own billing capabilities and increasingly look to provide this service.

However, while this may be the case, the need for the distribution company to support a large-scale volume billing capability may not disappear. They may be faced with the need to produce 20 bills with half a million items on them rather than half a million bills with 20 items on them.

Additionally, given the current and future level of regulatory control over their approach to billing the customer (coupled with increasing simplicity of the bill calculation itself), the ability for the function of billing to contribute to increasing the performance (profitability) of the business may become questionable. Much more likely will be a concentration on their response to outages and services calls in line with agreed performance levels.

On the other hand the ability to create, test, assess the risk of and implement new billing calculations quickly will be a critical element in competitive service providers’ increasing the profitability of their customer base while increasing market share. This will become increasingly apparent as new forms of integrated commodity selling emerge.

Thus the lessening importance of billing as a determinant of the success of a distribution business vs. its critical role for a competitive one imply different approaches to the delivery of this function may be called for.

In one case, outsourcing the billing function may be an appropriate course of action whereas, in a competitive business where the intellectual property rights (IPR) supporting innovative methods of billing for services could provide a critical edge over the competition, it may be prudent to invest in developing internal skills and solutions.

Advantage vs. compliance

The same exercise can be performed on each and every business function in a utility today. In each and every case, the nature of that function changes in requirements and importance to the business depending on what type of company you use as your vantage point.

So it could be said that the crux of the matter lies in our ability to redefine a suite of business functions using a new frame of reference. There may be a method of distinction that can help. It comprises two ways of viewing a business function: competitive advantage vs. compliance.

Competitive advantage functions can be defined as capabilities that can be used to increase the profitability of the business and, therefore, can be seen as strategically important assets. As a result, they may warrant direct ownership and control.

Compliance functions can be defined as capabilities that a company must perform to satisfy a rule or regulation in order to operate their business. They secure no additional advantage from performing these functions above the standard expected of them. These functions may be good candidates for an outsourcing or ASP model.

Not every function in the company falls into these categories. Many business functions exist to maintain the status quo (such as payroll or accounting systems). This classification method would be used in those areas; particularly the customer related ones, where a level of confusion exists as to future investment and sourcing plans.

As an exercise, if one were to assess each traditional CIS function against these criterions based on being a regulated distribution company vs. a competitive retailer, the resulting assessments would look radically different.

For those companies still pondering their future, this exercise can be valuable in providing senior leadership with an understanding of the demands being placed upon the existing infrastructure. Multiple approaches may need to be taken to future developments to allow for the necessary flexibility.

The principle is to ensure that ongoing investment decisions are made with an understanding that currently integrated companies will have very different CIS needs as they unbundle their businesses in the future and steps are taken early to prepare the IT infrastructure to align with these new, divergent requirements.

And for those companies not currently encumbered by any legacy systems, the evaluation of their needs against these criterions may assist in providing clarity on the type of solution approach to their business requirements.


David Price, vice president of solutions and consulting for Logica, may be contacted via phone at 713-954-7044 or e-mail at priced@logica.com.
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