Robert E. Welch, vice president
& Jon Chang, senior manager
Cap Gemini Ernst & Young
Deregulation patterns keep resurfacing. Shortly after controls are lifted, prices fluctuate wildly while earnings visibility clouds over. Then the price of commodity products and services drops until razor-thin margins are reached. In the process, some companies remain viable by instituting super-efficient operations. But the winners pull ahead by combining efficiency and superior customer management, and by building new suites of differentiated, profitable, customer-focused services. It’s a predictable paradigm with a predictable message: Leaders in deregulated industries-most industries, in fact-are distinguished more and more by the service they provide and the relationships they establish with customers. This reality is the basis of customer relationship management (CRM): technologies, processes and culture changes working together to maximize the value of a company’s customer portfolio through more effective marketing, sales, and customer service.
CRM, however, can be pretty old news to utilities that, in at least one sense, have been applying customer-management principals longer and more intensely than anyone. After all, what other industry has systems and processes designed to connect with every customer all the time? Perhaps this is why many utilities perceive their customer information systems (CIS) as customer relationship management tools. Unfortunately, CISs really aren’t the right tool for CRM because they support a fiscal relationship between the utility company and the premises that the customer just happens to occupy. Nevertheless, utilities are hardly new to the subject of customer management.
To get a handle on just how savvy utilities and other industries are about customer relationship management, Cap Gemini Ernst & Young US LLC recently completed an extensive CRM survey. Insights from that initiative show that utilities are significantly more likely than the average respondent to collect and store customer-specific information. And of all respondent categories (which also included Financial Services, Telecommunications, Entertainment/Hospitality, High-tech and Consumer Products/Retail), utilities were the most likely to have assigned explicit customer relationship management responsibilities to a senior executive. Utilities also were among the most likely to have activity-based costing approaches in place.
But given their obvious customer relationship management mindset, just what are utilities doing with that head start? The answer, unfortunately, is: not enough. At an esoteric level, only 17 percent of utility respondents even think CRM is a critical means of improving the business. Compare that to the veterans of the deregulation wars, where nearly half of all financial services and telecom respondents think CRM is critical. Utility respondents also were 50 percent more likely than the survey average to forecast a decrease in CRM budgets, 40 percent less likely to have put a CRM strategy into action, and 30 percent more likely to perceive CRM investment returns of 10 percent or less.
What’s more, just 10 percent of utilities currently pull data from a single repository. Which means that an overwhelming majority simply doesn’t bother to pull data, or must download disparate customer data from multiple sources. In a similar vein, nearly two thirds don’t have access to current data through the front office. The bottom line here is that few utilities can neither conjure up a single view of the customer, nor do they have the up-to-date information needed for quality customer contacts in the front office. And without a coordinated, single view of customer information, it’s impossible to determine cost to serve, or to adroitly manage customer expectations. Survey results also show that less than half of all responding utilities “touch” a customer more than once per quarter, and that only three percent have identified and coordinated all potential customer touch points.
What it means
To get a handle on the real-world implications of these results, Cap Gemini Ernst & Young (CGEY) used respondents’ input to create the CRM Index, basically a barometer of CRM capabilities. The Index plots each company or industry’s degree of customer involvement along two dimensions: mindset and connectivity. The more mindset-focused a company is, the more it orients its business toward one-on-one relationships. The other dimension, connectivity, measures the inclusiveness or reach of a company’s process model and infrastructure.
As shown in the figure, the great bulk of responses follow an upward diagonal path, which implies that most companies’ investments are reasonably consistent with their intentions. Thus, the lower left quadrant (Basic transactors) is populated by organizations whose business focus is relatively provincial (market- rather than customer- or relationship-focused) and largely unintegrated internally or externally. In the middle (Customer satisfiers) are companies that demonstrate some real-time recognition of customer status across touch points. The upper right (Relationship optimizers) is inhabited by companies that use calculations about customer-lifetime-value to drive decision-making, and have in place a formal and fairly automated CRM infrastructure integrated across the enterprise.
The Index demonstrates that utilities consistently trail other industries in CRM sophistication. Looking solely at the three best-represented quadrants, we determined that utilities are 50 percent more likely than the general survey population to be Basic transactors, 30 percent less likely to be Customer satisfiers, and 50 percent less likely to be Relationship optimizers.
The logical conclusion, of course, is that-compared to other industries-utilities are less sophisticated about the establishment and enhancement of customer relationships. To be fair, however, it also is likely that in times previous, the same could have been said about telecommunications, transportation, and, more recently, financial services, all of which are now more attuned to the value of customers.
The point, once again, is that history is exceptionally clear on the subject of deregulation: With virtually no exceptions, successful companies in post-regulated industries will be those that emphasize customer value and successfully monetize customer relationships. History also states that newly deregulated companies must seek new profits in differentiated products and services that, in turn, require new processes and enabling technologies. For utility companies, the added burden of a radical cultural shift in going from a cost-plus regulated monopoly model to a free market competitive business model also must be addressed. In CRM terms, that means making the shift from processing millions of customer transactions each month to managing millions of unique individual customer relationships. Based on the survey results, it is clear that significant opportunities exist for virtually all retail-oriented utilities to increase market share, wallet share, profitability and even longevity by deepening customer relationships, acquiring and leveraging customer information, determining customer lifetime value, and accurately segmenting their customer base to maximize each individual relationship.
Cap Gemini Ernst & Young is one of the largest management and IT consulting firms in the world. Through their MarketEdge centers of excellence, CGE&Y offers a full breadth of services and solutions customized specifically for the utility industry. CGE&Y’s Utility Market Ready/CRM Practice offers expertise in deregulation business strategy, market operations, and Customer Relationship Management. For more information about CGE&Y’s energy and utility practice visit: www.us.cgey.com/energy.