 Jamie Biddle, ORCOM |
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According to some utility industry analysts, the current atmosphere in the utility industry has created a number of increased demands on utilities. In the case of the investor-owned utility, there is the strong need to increase shareholder value. Municipal service providers worry about the risks of customer response, inaccurate or untimely billing, and outages. Today, all utilities are weighed down with the pressures of migrating to e-business, recent heightened focus on customer development and retention, and a need to improve marketplace speed and agility.
Customer choice and the accelerating pace of mergers and acquisitions specifically challenge utilities. This is something entirely new to an industry previously known for its somewhat staid approach to business. These pressures can't help but impact one of the utility's most business-critical systems: its customer information system (CIS).
Utilities may find that their CIS solutions—systems that they have invested millions of dollars and countless of hours to develop—grow obsolete. Performance-based rate making creates a need for cost improvement. Customer expectations stimulate a quest for personalized service. Re-regulation and competition propel utilities toward crafting flexible business processes that enable the addition of new products and services. Mergers and acquisitions force the consolidation of disparate solutions across operational entities. Past demands fueled past solutions. Today's demands are increasingly more complex. Most legacy CIS systems simply can't keep up.
In-house verse outsourcing
Utilities have two broad CIS replacement alternatives: They can opt for a license-based solution where they operate and maintain the system internally, or they can outsource the CIS to a full-service vendor that hosts the application, provides and maintains IT infrastructure and possibly supplies business process management services. Either way, the CIS should measure up in a few key areas. They are:
- quick and easy implementation;
- effective management of customer base and additional products and services to meet current and future industry demands;
- minimal customization to handle unique requirements;
- accurate, timely operational data for efficiencies and quality service;
- integration capabilities to enable seamless flow of information and process control.
In-house CIS systems grant a utility control over their CC&B environment, but this control may come at a hefty price. While a number of solutions meet the criteria for a good CIS system the business model under which they are offered doesn't always measure up. Over the long term (5-7 years) in-house solutions generally have a higher total cost of ownership (TCO) than do outsourced alternatives. They may also have a near-term (e.g., during implementation) drawback as they pose a greater degree of risk. This can be partially explained by the fact that the vendors' (both the software vendor and its implementation partner) goal is to recognize as much up-front revenue as possible. A good way to augment revenues is to expand an implementation's scope and thus project management and consulting revenues, component/peripheral sales, and so on. This fact is worth considering in an environment where well over one-third of software implementations fail. Many utilities are also facing aging or inadequate infrastructures, requiring millions of dollars for repair or upgrades.
However the major argument for keeping CIS in-house despite sometimes additional cost is that many utilities refuse to give up full control of customer service initiatives or even elements of the customer chain of interaction.
Outsourcing the CC&B solution
IT and business process management outsourcing has long been popular in a number of industries (e.g., cable, telecommunications, financial). Though slow to embrace it, today's utilities are now taking a second look. Outsourcing eliminates the need for large capital expenditures. Instead, most service providers charge a modest implementation fee and recognize their remaining revenues only after a successful system "go-live." The difference in business models may be why outsourced CC&B providers tend to deliver systems more quickly, with fewer modifications and less "scope creep."
A faster implementation is only one advantage of outsourcing. It can also reduce operational costs by upwards of 20 percent—provided the utility truly compares "apples to apples." Technology refreshes are a major savings area. Most utility-focused outsourced CIS providers offer service level agreements (SLAs) that address areas such as application and network availability and response times, business process accuracy, batch windows, and so on. The outsourcer is contractually responsible to meet these commitments. More established service providers maintain SLA performance by upgrading, on an ongoing basis and at no cost to the client, the IT infrastructure, CIS application, and business processes. Technology refresh—a cost often-overlooked when comparing outsourcing to in-sourcing—adds up over time. Utilities would do well to consider it as the accelerating pace of IT change often drives the need for such upgrades.
Cost and service represent two sides of the same coin. Improved service levels generally come with a price tag attached; an outsourcer's extensive expertise, combined with its mastery of industry best practices, often mitigate the increased cost. Outsourcers apply proven methods to streamline, monitor and measure a customer's interaction with the utility. These best practices, backed by SLAs—an outsourced CIS staple—usually boost service quality into the upper quartile of performance. Regulatory responsiveness can also improve when SLAs are crafted to address the vendor's reaction to state and federal statutory requirements.
The future of CIS
The CIS industry is in a state of flux. The market remains unsettled due to re-regulation activity, and accelerating cost and quality pressures. The current economy sees key players struggling to remain afloat in an environment that demands fresh sales every quarter. What lies in store in the coming years: 2003-2005?
Analysts see divergence in the needs of regulated utilities and their unregulated brethren. The more uncharted the waters, the greater the demands placed a CIS. New technologies deployed in other industries hold promise. CIS vendors and outsourcers alike are trying to solve the utility industry's more intricate problems by applying these next generation tools.
So what does the CIS of tomorrow look like? In the future, we can expect CIS systems to incorporate a number of features and functionality including:
- workflow tools to automate and streamline business processes;
- thin client technology to simplify updates for CSRs and processors, and to reduce overall operational costs;
- sophisticated datamart/business intelligence capabilities to improve operational, accounting and statistical reporting and analysis;
- enhanced C&I capabilities to handle the utility's most critical client base.
In the process of taking long strides toward an improved CIS solution, utilities must ponder the role of technology in the evolving CIS. Does moving away from an antiquated legacy system mean moving toward a different, but no less expensive, in-house solution that is, itself, doomed to become equally archaic over time? Or should utilities consider a different, more flexible approach: outsourcing? Some analysts predict that in the next decade, up to 50 percent of utilities will be choosing outsource to manage their CIS business process, allowing them to focus on their core business processes. But, utilities continue to seek both in-house and outsourced CIS options.
Despite the choice, it is essential, more than ever, that executives benchmark their practices. Those who are managing CIS in-house must evaluate its efficiency against outsourcing and vice versa. Overall, in today's market, utilities must seek the ultimate in flexibility and security. They must evaluate maintenance and labor costs, and emphasize core business functions over IT solutions and determine how best to ensure long-term customer loyalty and immediate ROI.
Jaime Biddle is CEO of ORCOM.
