Changing the business case for customer systems

The utility Customer Information System (CIS) is the software system central to a utility’s customer-facing operations, including billing, receivables, collections, service orders and customer service. Modern CIS software products offer dramatic advantages over previous generations of software technology so the benefits of updating are significant.

The financial imperative:
According to consulting firm Navigant, almost 30 percent of a utility’s customer service costs are determined by customer service and revenue management; areas largely driven by the CIS. Improvements in customer service, bad debt management and back office operations can yield significant savings, yet many utilities are unable to gain efficiencies due to limitations of an inflexible CIS. This legacy system can stand in the way of process improvements and cost savings, while CIS software and hardware maintenance costs increase as software and hardware technology becomes obsolete.

However, many utilities discover the cost pressures that make a new CIS so desirable can also be the major barrier to a new CIS implementation. Faced with the need to business case this expenditure, the cost of implementing a new CIS in-house, even when amortized over many years, can challenge any savings in the business case.

Twenty years ago, when utilities set about developing billing systems in-house, or modifying existing software to suit their requirements, CIS software was very expensive. Each utility undertook its own software development and faced both initial plus ongoing development costs to enhance the custom software as business requirements evolved. To address the enormous cost of in-house development, CIS vendors, led by Peace Software in the late 1990s, introduced the off-the-shelf software product to the utility CIS sector. This allowed utilities to convert to more packaged software products which are maintained and upgraded as software technology and product functionality advance, translating to dramatic savings.

While both hardware and CIS software costs have been brought down dramatically, Gartner Group analysts confirm that CIS implementation costs have not reduced, and if anything have increased. The single biggest element of the implementation costs, which can represent up to 70% of the total cost of a new CIS, is consulting fees relating to data conversion, integration with other systems, training, and system testing.

Such consulting fees relate not just to initial installation but also to each subsequent upgrade. One reason why implementation consulting costs have not reduced is utilities now require much more sophisticated integration between the CIS and other IT systems to achieve expected levels of automation; it's not uncommon for utilities to have 50 or even 100 other systems interfaced to the CIS. Also, as CIS systems become increasingly configurable, they become increasingly more complex to configure, leading utilities to feel dependent on consulting services for their business experience.

With these disproportionately high implementation costs, utilities could continue to demand cheaper CIS products and platforms, however even if the product was free, the installation would still be very expensive.

The BPO option:
Some utilities have chosen Business Process Outsourcing (BPO) as an alternate route to in-house software implementations. Unfortunately, BPO for utility customer service brings with it a new set of issues and risks that many utilities will find unacceptable.

A key issue with BPO arrangements 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 perhaps less control over customer service and other service level expectations. Few BPO providers find the room in their budgets to implement newer CIS technology. If not careful, the utility adopting BPO customer service operations may become even more locked-in to the old methods, and find themselves unable to adapt as their business environment changes.

Even when a BPO vendor does upgrade the utility to a new CIS platform, this is likely to be from a third-party software vendor, bringing with it all the implications of cost, time and risk associated with a CIS implementation. Furthermore, the business risk associated with relying on multiple supplies and third party vendors is not addressed.

The business risk equation:

Competing capital requirements, security concerns, an aging workforce, technology complexity, desire to improve customer service, and changing regulatory requirements are just some of the issues facing the utility industry. As market, regulatory and business requirements change, utilities find themselves struggling to change core customer systems and functional processes.

Current trends toward Smart Metering and Smart Grids represent even further pressure on the utilities’ capital investment dollar. As utilities prioritize capital spending initiatives, the inflexible yet not-broken customer systems often lose out in favor of delivery and generation initiatives.

However, the business risk of these legacy systems increases with time, as technology ages, and the cost of maintaining significant customization and legacy code increases. Furthermore, retirement of specialist programming and support employees for legacy applications places increased pressure on the utility to manage these complex systems.

IT complexity doesn’t end at the software itself. Managing performance and integration of the application can prove difficult, especially as integrated applications change and the custom interconnections need updating. Complex hardware requirements can also prove an IT headache, not to mention the capital cost of in-house hosting. Moving components to outsourcing can significantly reduce the capital requirements and complexity of customer-systems, leaving the utility IT team to focus on user support for other business applications.

If the reliable, efficient generation and delivery of energy wasn’t enough to focus on, customer service is also a significant business objective for many utilities. There are five major ways to improve customer service. First, by focusing on core business processes, utilities can ensure the most efficient, customer friendly processes are employed. Second, ensuring the systems in place support those business processes, support new products and services, and are flexible and usable will improve delivery against key customer service performance indicators. Third, providing customers with the options they want requires services that support delivery of multi-channel customized bills, multiple payment options, and automated communications channels such as inbound IVR, outbound messaging, and web communications. Fourth, ensuring the customer service representatives in place are well versed in using the business systems, and are familiar with your customer base itself is key. 

This fifth customer service consideration is all the more important as the vendor landscape for CIS changes through acquisition and consolidation. The trend toward ERP vendors supplying CIS often comes with integration benefits, however, it can also come with more rigid processes and procedures as the finance governance imperative outweighs the customer service one. Utilities should consider the business benefits of a ‘best-of-breed’ applications strategy with standardized, optimized integration and processes. Careful selection of a vendor model with broad options in customer-facing IT such as CIS, bill creation, communications, payments and analytics will pull all these factors together to deliver top customer service.

The impact of change:
Perhaps the most prominent of all business risks related to customer systems, is the impact of change. Despite commonplace remarks about the slow pace of the utilities industry, change is both common and constant. Changing socioeconomic trends impact customer demands – the demand for new services, new products, payment options, pricing options and more.

Despite its lack of widespread adoption, deregulation of US energy markets has heightened consumer awareness of competitive practices, prices and service. Meeting these changing expectations is something energy retailers need to keep abreast of. In addition to changing market forces, regulatory change can have significant impact on the operations of a utility, both in terms of business process change and systems change. Compliance with regulations such as Sarbanes-Oxley (SOX) can be difficult, particularly when dealing with multiple systems. The net result of these change pressures is that many utilities reach a tipping point where business risk is intensified yet the capital is not available to update the underlying CIS applications which address these risks.

Some utilities address these changes by commissioning yet more customizations to their existing systems, however this leads back into a custom solution with all the difficulties of maintenance and upgrade. Other strategies include adding bolt-on products which address the need but add to integration complexity, or upgrading the system which can prove as costly, risky, and time consuming as a whole new implementation.

‘Service-with-software’ ­– making the business case:

“Standardizing business processes using template-driven software is quicker and easier to test and implement, and it saves capital investment money for other projects.  Additionally, future software releases can take advantage of best practice exchanges as utility and vendor user groups collaborate.” Karen Blackmore, Program Director, Energy Insights

As this paper discusses, the business case challenge lies not with the utility, the CIS or ERP products, but with the vendor engagement model given the cost, complexity, and cyclical nature of in-house implementations. In addition, the inability for traditional BPO engagements to affect change whilst still not addressing the system replacement cyclical trap is another reason to reconsider the customer-system deployment model.

First Data Utilities has committed to change the vendor engagement model and help utilities escape the CIS replacement and upgrade trap, as well as addressing several of the industry’s key business issues. Our solution is Service-with-software.

Service-with-software simplifies the engagement model by delivering true business process optimized, customer-facing software from our ‘always current’ Peace CIS.  Individually, business process standardization, service-oriented architecture and outsourcing can help address some of the issues facing utilities, but deployed together this powerful combination allows utilities to re-address the business case for core customer-facing services.

Across every industry, companies believe their own approach to business is unique. There is an element of truth here, yet many of the processes undertaken across companies are fundamentally the same. In reality, it is a fraction of what a business does that truly differentiates in the eyes of its stakeholders. This reality presents a significant opportunity for utilities to reduce cost, risk and duration of software implementation and operation – by standardizing common processes and investing only in those that truly differentiate. Such standardized and repeatable business processes will start to drive down the implementation cost curve dramatically. 

To assist utilities take advantage of the opportunities common business processes present, First Data Utilities has invested in the identification, modeling, configuration, testing, maintenance, and continuous evolution of well over 100 common business processes used by utilities to meet their customer obligations. These pre-configured optimized processes were built using a top down design focusing on business outcomes with a customer focus, as opposed to a bottom up functional design based upon the CIS. The benefits for utilities using these pre-configured processes can span the lifecycle of the CIS. Benefits start with the ability to reduce initial cost, risk and time of implementation.  Future benefits can also include fewer CIS based enhancements and extensions, as well as an easier path to future system upgrades.

Originally driven by the desire to reuse functionality of existing software, SOA has widened to become an architectural style that delivers universally functional, reusable components which are concatenated on delivery to meet the changing demands of business services. SOA simplifies integration and improves the flexibility of the platform, as services can be de-coupled and new components added without replacing the CIS.

However, it is only now with a combined approach to business process standardization, SOA, and service-with-software outsourcing that the business case for customer systems replacement is truly starting to shift. Karen Blackmore, Program Director, Energy Insights, defines the emerging service-with-software model “as a process or subprocess provided by an external vendor or service provider in which the main functions are automated through standardized software that the service provider hosts and maintains. This eliminates large capital investments but allows the utility flexibility in operating and managing the template-driven process. In addition, some functions or subprocesses can be done through a BPO arrangement with the same service provider.” Karen goes on to say that “Service-with-software is different from most BPO deals, where the outsourcer takes over the running and maintenance of whatever software is in place at the utility. This type of service is also different from application service provisioning (ASP), where a major application of the software used within a utility process is hosted, usually on a transaction basis, but all interfaces and process work is handled by the utility.”

Another key difference of the service-with-software model is platform focus. While some   ERP, ASP, BPO and CIS product vendors support multiple platforms, First Data Utilities’ service-with-software model is optimized around a single CIS platform, Peace. This enables us to drive efficiencies into the platform, leverage development and cross-client economies which would otherwise be unachievable in a multi-platform environment.

Delivering the results:
Benefits of software-with-service outsourcing to First Data Utilities are manifold. The Peace CIS is hosted, managed and maintained, with regular enhancements delivered directly into the platform three to four times a year. This is how utilities escape the CIS replacement treadmill, as their business solution is always kept current. In addition, utilities can select additional meter-to-cash services including bill print, IVR, payments and analytics, with the integration and performance of these applications managed by First Data Utilities.

By shifting this operational complexity onto the FDU, without giving up control of their business or their customers, utilities are able to:

• Keep current with changing regulatory requirements and escape the CIS replacement treadmill
• Get modern customer systems with minimal capital outlay
• Simplify complex hardware and software operation
• Add additional meter-to-cash services that we integrate and manage
• Predict their annual customer service costs

First Data Utilities’ service-with-software outsourcing, allows utilities to achieve their business objectives such as reduced capital requirements, reduced technology complexity, overcoming aging workforce concerns, reduced business risk associated with keeping customer systems current, cost certainty, and performance certainty. In addition, by outsourcing these process-based services, utilities have more time to focus on other business objectives such as improving call centre customer service, improved generation and delivery, and keeping abreast of trends such as Smart Metering and Smart Grids.

For more information please contact First Data Utilities or visit www.firstdatautilities.com

About the Authors:

Fiona Taylor, SVP Product Strategy at First Data Utilities has 20 years experience in the Utilities sector. Currently responsible for First Data Utilities’ product strategies to enable our service-with-software outsourcing model, Ms.Taylor previously headed up the sales and professional services groups. Prior to joining First Data Utilities, she was Director of Customer Services at BC Gas, responsible for call centers, billing, collections, and customer systems. After completing an MBA, Ms. Taylor worked with Accenture consulting in utility distribution and customer projects.

James Braatvedt is Marketing Manager at First Data Utilities, and has had articles and whitepapers published on a variety of utility customer lifecycle topics. After completing a Bachelor’s degree in Management, James worked in the Government Sector, before joining First Data Utilities.

For more information email information@peace.com or visit www.firstdatautilities.com.