Standardizing the Supply Chain After Enterprise Reorganization

Deregulation … mergers … spin-offs … The changes taking place in the energy
industry, including the reality that competition will increase to levels never
seen before, has prompted utilities to step up the search for cost reduction
while improving “operational excellence.” Though managing the supply chain traditionally
has been relegated to a secondary support function, many energy companies are
now trying to drive down costs and improve service levels through supply chain
excellence and through collaboration with suppliers and customers.

Why this sudden focus on supply chain? For the typical energy company, fuel
and non-fuel purchasing costs, along with internal supply chain costs, typically
account for more than a half of controllable costs — fertile ground for
cost reduction. And as the survivors gobble up weaker companies, the name of
the game becomes reducing cents per kilowatt hour to the ultimate customer.

Although many companies have embarked on the supply chain journey, the number
of false starts eclipses the number of success stories. Solutions are designed
before the problem is understood. Problems with intra-organizational cooperation,
strategic suppliers slow to get onboard, miss-starts with e-markets/exchanges,
millions of dollars spent on systems without improving management information,
strategic sourcing focused on lowest price rather than total cost to procure/own,
are among the most common sub-optimal outcomes. How can your organization avoid
the pitfalls and implement a program for sustained supply chain improvement
and have business unit leaders asking for more? For some organizations it may
be a long and challenging journey, but it begins with a single step.

Definitions

In the manufacturing sector, the supply chain is generally understood among
the manufacturers, its suppliers, and its solutions providers. However, supply
chain in the energy industry means different things to different people, with
lines being drawn more by tradition than by broadly accepted standards.

For the purposes of this discussion, we define the supply chain function as
the combination of people, processes, and technologies that complete the specification,
acquisition, distribution, and disposition of “direct” goods and “indirect”
goods.

Direct goods are primarily capital assets and the items/services used to maintain,
repair, or overhaul those assets. They may be highly engineered items, such
as power systems and transformers, or “lower-tech” items, such as utility poles.
Direct goods tend to be high-cost items and their availability has an enormous
impact on supply chain reliability and efficiency.

Indirect goods include office equipment, computers, etc. that support the overall
operation of the business, but are not directly tied to making the “product.”
Although availability of indirect goods is important, driving down the purchase
price and managing maverick buying are the primary focus as indirect goods have
a limited impact on supply chain effectiveness.

Work management is to the utilities industry what material requirements planning
is to the manufacturing industry. It is the primary “demand source” for direct
goods, and the level of integration and efficiency of a utility’s work management
function is a key factor to the overall success of supply chain improvement
initiatives.

The value chain is the extension of the internal supply chain outside of the
organization and into suppliers and customers. An integrated, end-to-end value
chain links the key supply chain processes between the organizations to drive
out additional costs and inefficiencies through collaboration, or collaborative
resource planning.

Current Forecast — The Perfect Storm

So why do most of even the most well-run utilities have significant opportunities
to improve efficiency and drive out costs of its supply chain operations? Several
factors have conspired to create a bigger “storm” than any one factor could
have on its own. There is a long list of factors, but four key factors are:

Divergent Approaches Without Standards

Energy companies have prided themselves on establishing top-notch engineering
organizations that are responsible for designing the best possible infrastructure
components. Over the years, engineers took into account regulatory, geographic,
and other factors as they designed leading-edge infrastructure components. In
the process, adjacent energy companies whose fundamental needs were similar
established standards for their own organizations, which varied enough that
even common infrastructure components were unique. As energy companies consolidate
through mergers and acquisitions, the combined organizations may have several
variants for what is fundamentally the same item. At the same time, regulatory
changes and technological innovation have reduced substantially the need for
variation, though few organizations have capitalized on these changes. Consequently,
opportunities for inventory sharing and for supplier efficiencies through standardization
have been marginal.

Dysfunctional/Disconnected Supply Chains

The creation of large energy companies, operating on a regional, national,
and even global scale, have created organizations and processes that are every
bit as complex as their counterparts in the consumer and industrial products
sectors. Over the past decade this sector invested billions of dollars to integrate
supply chain processes and to enable these processes with information technology
solutions, while most energy companies have focused on improving segments of
the supply chain without an emphasis on achieving end-to-end integration synergies.
The major enterprise resource planning (ERP) vendors raced to provide industry-specific
solutions for manufacturing firms, but few have provided utility-industry-specific
applications.

Organizational challenges have also hampered efforts to integrate supply chains.
For example, engineering, work management, and inventory management are almost
always the purview of operating companies or the individual business units,
while sourcing, procurement, logistics and others segments of the supply chain
are embedded in other parts of the operating company or in what is effectively
a shared-services organization. The lack of collaboration between the engineers,
the builders, the maintainers, the acquirers, and the movers, has resulted in
numerous inefficiencies and concomitant added costs.

Figure 1 – Energy Company Supply Chain Model

Although the emergence of electronic marketplaces or exchanges promised to
drive out many of these inefficiencies, the reality is that organizations must
be reasonably well-integrated before e-markets/ exchanges are even relevant
to integrating the internal supply chain with the inter-organizational value
chain.

Not only are there disconnects between the various participants of the supply
chain processes, there are variations in how to deal with the same supply chain
segment within the same organization. Many energy companies have several item
masters and inventory systems dedicated to legacy operations. Work management
practices vary from business unit to business unit and the majority of work
management systems are in place with little or no “enterprise view” of physical
materials inventory or human resources.

Lack of Motivation

Case Study

Confronted with many of the challenges presented here, a major energy
company (MEC) with global operations decided that it was time to take
the issues on and to determine the opportunity for achieving synergies
across its business operations. At the request of MEC executives, the
MEC completed an analysis of the broader operations and they identified
several major opportunities for reducing costs. One of the key opportunity
areas was strategic sourcing and supply chain integration.

The MEC faced many of the challenges discussed here, but the chief procurement
officer quickly bought in to the potential benefits. He set out to elevate
the procurement function to a strategic level, whose primary goals were
to facilitate collaboration across the supply chain and to optimize positions
with strategic suppliers.

The MEC engaged a professional services firm to complete a strategy for
supply chain collaboration and to work with the MEC to develop an enterprise
supply chain “footprint” that could be scaled to support large and small
business operations. The six-week intensive effort involved a core team
of six MEC staff and three consultants who focused on data collection
and facilitated workshops with executives, key operations management,
and key end-users.

A number of obstacles were encountered, including skepticism among the
business units about collaboration, concerns about the ability of a single
technology platform to fulfill diverse needs, and cultural bias against
a truly transformational effort. However, through executive leadership
and open communications, the organization agreed on a common enterprise
framework that met the needs of all key business units.

At the end of the six-week effort, the MEC had a solid agreement among
the business units to work together. The MEC has selected an implementation
partner and is now in the design stage of the effort. The payback for
the implementation begins within nine months of establishing the enterprise
supply chain “footprint.”

With a clear understanding of how the intra-organization supply chain
functions will work, the MEC is now focusing on incremental opportunities
to drive out additional value through optimizing tax liabilities in procurement
and inventory management restructuring. Candidates for external collaboration
are being short-listed and pilots for supplier or commercial/ industrial
customer integration are also being considered.
By the end of 2002, the MEC will be among the top supply chain operations
in the utilities industry and other industry sectors. Moreover, it will
have a foundation for continuous refinement and for expanded collaboration
that will well position it for navigating through any future challenges
that competition may bring about. The company definitely plans to be a
survivor that prospers through “tough” times.

Opponents of cost cutting argue that if you are successful in driving out cost,
you may force a rate case. Optimizing tax positions by changing procurement
and inventory management practices are two of the best ways because they may
only require policy, coding, and process changes to yield significant savings.
But some organizations are concerned that all of the spoils will simply be absorbed
by lower rates and lower budgets. In reality, many of the cost reductions could
be allocated to other initiatives that would improve the overall supply chain
processes while some of the reduced costs could be “given back,” this then enhances
the organization’s competitive position as a high-quality, low-cost provider
— a win-win scenario for the company and the customer.

Procurement and Inventory Management Practices with Limited Focus

Procurement operations within most energy companies have operated in a vacuum,
largely independent of engineering on the front end, and work management on
the front and back end. As a consequence, procurement professionals generally
set out to ensure that they did the best they could in the context of a largely
parochial view of how procurement should work. Beyond negotiating prices and
terms based on competitive bid scenarios, few procurement operations have elevated
their operations into truly strategic functions that regularly collaborate with
engineering, work management and operations, strategic suppliers, and customers
to optimize the supply/value chain process.

To improve their leverage in sourcing efforts, many procurement operations are
beginning to put into place process changes and technology enhancements that
will give them a better understanding of aggregated past spending. However,
few procurement operations have made measurable progress in aggregating demand
data, which is a critical factor in maximizing an organization’s leverage in
strategic sourcing activities. Collecting spend data is largely an administrative
or technical process focused on gathering information from a multitude of sources,
mostly automated. However, demand data may or may not be available in automated
form or in “systems” that are easily identifiable or accessible.

Items that may lend themselves to just-in-time acquisition and replenishment
are more often than not purchased and brought into inventory “just in case.”
Procurement personnel are often given the administrative burden of aggregating
demand manually or by accessing multiple systems, which takes time away from
their more critical strategic functions. Based on discussions with a number
of procurement professionals in the utilities industry, the concept of procurement
professionals acting as facilitators between engineering, suppliers, and operations
is a goal that most have but few have achieved.

Navigating to Safe Harbor

My position is in agreement with most participants working in the supply chain
of a major energy company. The “squalls” of increased competition and the issues
discussed here have combined to create a complex problem that will materially
impact an organization’s ability to compete if left unchanged. The solution
will require unparalleled levels of collaboration and openness to new ways of
thinking.

Get Top-Level Commitment First

Although most energy companies can achieve significant benefits, organizations
need to be realistic about what level of collaboration they can expect from
the supply-chain stakeholders. If there is a genuine openness on the part of
senior-level management, the first step is to agree on the rules of engagement,
or guiding principles, that will drive an enterprise approach to supply-chain
integration.

Facilitated workshops and other consensus-building techniques are powerful tools,
if the stakeholders can be relied on to engage in the process with an open mind.
These are not “pep rallies” intended to build excitement; they are focused sessions
intended to sell to highest levels of the operation the need for change and
to enlist their support in navigating through the myriad trade-offs that are
essential to world-class collaboration.

Engage Future “Owners”

Although you should start with the executive consensus, you must move quickly
to engage the people who will make or break the execution — mid-level managers,
who own the day-to-day operations. Building on the baseline established by executive
management, the focus should be on translating vision, guiding principles, and
key “get rights” into actions that will drive out inefficiencies and enhance
performance — specific actions that will be measured and ideally built
into the performance plans of those responsible for execution.

Recognize Trade-Offs, Be Realistic, and Manage Distractions

The most common pitfall that supply chain optimization efforts encounter is
setting a trajectory that is unrealistic. In securing executive-level commitment,
the end-state vision is often misinterpreted as “Release 1.” From the start,
a process that sequences initiatives in a rational, benefits-driven order is
critical to managing expectations and ensuring that the effort does not implode
once the totality of the effort is understood. Understanding the “earned value”
of discrete investments and then prioritizing based on earned value is a key
factor in managing expectations.

Resist the temptation of e-market and software providers who have the “secret
sauce” that gets you there without incrementally establishing solid internal
operations and intra-organizational collaboration. To be sure, there are opportunities
to maximize benefits through e-markets and software solutions that go beyond
the core processes, and attention must be dedicated to identifying additional
short-term benefits. However, these decisions need to be driven by a measurable
earned value, and efforts to consider added capabilities should not unduly distract
from the primary objective of integrating the supply chain.

Identify Opportunities for Leverage

Even with these problems, most organizations have made progress and have many
components of the “end-state” in place. The key is to identify these best practices
early and to showcase them. Most organizations will have process or technology
practices that can be leveraged to the enterprise. This can substantially decrease
the cost and the complexity of subsequent implementation and change management
efforts.

If a best practice happens to come from the parent company or one of the larger
business units, the value must be sold to the smaller business units to avoid
the perceptions that the “collaboration effort” is little more than an attempt
to force an unsuitable solution upon the smaller operations. The smaller business
units may also view some of the capabilities as “a hundred-dollar saddle on
a ten-dollar horse” — viewing the collaborative platform as overkill, which
in some cases may be legitimate. However, many of the smaller business units
are the fastest growing and most profitable operations.

For example, the “hundred-dollar saddle” scenario is a common position among
fledgling unregulated power generation business units. Given the rate of growth
and the level of competition, it is imperative that the decisions taken today
are mindful of the business operations and competitive landscape three to five
years from now. Otherwise, the threat of having integration and scalability
problems in the supply chain will be significant.

The Entry of New Retailers and Their Search for Customers

Background

The unbundling of the traditional energy company in the face of industry restructuring
has exposed to competition areas traditionally overlooked by utilities, namely
market share and customer satisfaction. As regulated utilities find themselves
threatened with separation from their ratepayers not only by a meter but also
by a third-party supplier, many are attempting to enter the retail market with
unregulated affiliate companies.

The retail energy customer is being pursued by two kinds of entrants. The first
are the unregulated affiliate companies of the incumbent utilities. The second
are “pure” retailers, many of them already selling products and services into
the mass-market home services space, now seeking to expand their business to
include energy commodities. The utility affiliates typically start with a large
installed customer base and an energy brand but without the prerequisite mass-market
retail experience required to protect, grow or make that business especially
profitable. The pure retailers come with a track record of retail success, but
little presence or experience in the energy sector.

While margins on the energy commodity may be attractive in the initial stages
of market deregulation, these soon fall to reflect the nature of the offering
and the liquidity of the underlying market. Energy retailers have therefore
striven to offer commodities (electricity, gas, fuel oil, telecom bandwidth,
etc.) in value-added ways. Practically, this has resulted in numerous attempts
to “bundle” services with the commodity, through sales of appliances, to engineering
and technical support, risk management and non- utility products (home security,
credit cards, etc.).

The Business Model

Although all energy retailers rely on their marketing and sales organizations,
they differ considerably in respect of their target customers. Some focus on
large industrial, commercial and aggregated customers, providing sophisticated
procurement and risk management with cross-jurisdictional and cross-commodity
capabilities. Other retailers focus on the mass market, seeking to exploit established
brands and relationships to sell a wide range of products and services to as
many customers as possible. This article explores the latter group only —
the mass-market retailers.

 

Figure 1 – Introducing Competition in the Traditional Utility Space

Mass-market
retailers, by definition, seek to maximize the size of their customer base and
then to craft both a broader and more profitable range of products to that customer
base (“cross-selling” of bundled goods and “up-selling” of higher margin goods
and services). Given their mass-market presence, they trade on brand and by
offering standardized offerings. Achieving that position is complex, however,
and requires sophistication in several key areas, including:

• Energy procurement, pricing, and risk management. Mismatched or poorly-priced
contracts can soon lead to huge financial losses.
• Customer contact and relationship management. Maintaining customer contact,
mining the data to increase sales campaign effectiveness and reducing customer
attrition rates are all key contributors to both cost control and revenue enhancement.
• Low unit cost of back-office support (administration, customer service,
billing, etc.)
• Strong business development capabilities, both in acquiring businesses
with large and well-placed customer bases, as well as in forging relationships
with suppliers of goods and services for sale to the customers by the retailer.

The value chain for mass-market energy retailers reflects this as well. As Figure
2 illustrates, the business model is not overly complex, but significant competitive
risks do arise at each stage. The pursuit of growth and profits requires that
the product offering is appealing, the commodity and back-office costs are controlled,
and that customer satisfaction is high.

Figure 2 – The Competitive Retail Value Chain

The core business of mass-market retailing can be summed up quite simply as
a function of customers multiplied by sales. Starting with a low-margin commodity
like energy, however, imposes on the retailer the requirement to either acquire
massive scale (millions of customers) or the need to add higher-margin products
and services to the sales mix very quickly.

One significant hurdle faced by utility affiliated retailers is the management
culture inherited from the utility. Risk-taking, rapid decision-making, the
management of diverse and complex external relationships, and intense customer
management require a different management skill set than that required to manage
a regulated asset base. Managing a mass-market retailer profitably requires
three different functions to be reconciled. These are a cost-controlled call
center, billing and administrative functions (the back office), highly-skilled
and sophisticated commodity risk management, complex business development efforts
(transactions, joint ventures, other external relationships), and most importantly
the revenue earners (sales and marketing).

Scale is critically important to minimizing average fixed costs, both at the
corporate and operating levels. Figure 3 suggests that important back-office
costs decline sharply as the size of the retail base is increased. This provides
significant entry barrier protection to incumbents but also imposes on them
the need to reach critical mass quickly if they are to remain competitive.

 

Figure 3 – The Cost Advantage of Scale

There are also diseconomies of scale, however. While the data on these may not
be as clear, the experience of Centrica, with more than 30 million customer/product
relationships, finds that as customer size exceeds the scale manageable by standard
IT systems, costs begin to rise as bespoke solutions are developed, each with
their own additional costs and complexities. In Centrica’s case, this has led
to the development of many parallel businesses with common product/ customer
attributes, rather than the development of
one wholly-integrated multi-product company. Centrica has recently reorganized
its business under its main brands (Figure 4).

The disadvantage of Centrica’s multi-divisional approach is that the use of
common brands, customer information and cross selling is made more difficult.
This is not only an internal constraint, however, but also one influenced by
energy regulators keen to avoid customer information being made available to
parties outside the utility/supplier relationship.

 

Figure 4 – Centrica’s Product Bundles

 

Customer Acquisition Paths

Growth in the number of customers served is achievable in one of several ways,
notably organic growth, acquisitions, or through joint ventures. In practice,
most retailers employ a variety of approaches, seeking to reduce the overall
customer acquisition and management costs in each instance.

Organic approaches include brand development and positioning, marketing and
sales, call center-based customer satisfaction management, product development
and placement and regulatory investment (ensuring that the right kind of retail
environment is created in a particular market).

In many markets, organic growth is hampered by the market structure itself in
which customers are given little incentive to abandon the default supply arrangements
provided by their distribution utility. This reflects both inadequate customer
education, the comp lexity of energy contracting and the provisions for rate
reductions and risk management built into default supply arrangements by politicians
fearful of public reaction to price rises and volatility associated with market
liberalization.

The patchwork nature of market reform, with different codes and requirements
in each state and province adds further costs and barriers to the development
of retailers with optimal breadth and scope. Investing in the development of
market rules, as Enron has done in many instances, is more difficult for a retailer
in that the number of retail competitors (and thus beneficiaries from retailer-friendly
market rules) is greater. The benefits of this investment are thus more difficult
for a single company to capture. In fact, the development of particularly supportive
regimes may only lead to the entry of new competitors in that market.

The second route to growth, acquisitions, requires access to capital and management
sophistication. One significant risk in pursuing acquisition growth is the distraction
it imposes on the executive and on the operating staff of the acquiring company.
This is particularly intense in cross-border deals or where the acquisition
includes businesses that are new to the acquirer. The acquirer must also have
a clear view on how the acquired business can be made profitable and how it
will be inte grated, both from a brand and customer perspective, as well as
in terms of administration and information systems.

The third route to growth, joint ventures, holds out the promise of rapid and
inexpensive growth but this impression is often misleading. Finding the right
partner, negotiating a suitable arrangement, managing it well, and knowing how
to exit are all subtle and complex challenges for management. Getting it wrong
may mean that much time, money and brand equity is spent for little return.

Future Trends

The fundamental model of the mass-market retailer is under pressure as the
full implications of e-business are beginning to become clearer. Although pure
e-business retailers such as Utility.com appear unable to succeed in the current
environment, the ease with which energy offerings can be added to existing e-business
relationships suggests that many new competitors will enter this sector in the
coming years.

If managed well, these companies would be able to offer gas and electricity
commodity contracts at little additional cost, rendering energy-only retailers
uncompetitive. Should they succeed in getting customers to use Internet-based
customer service, billing and payment plans, their costs will be reduced even
further.

The difficulties now faced by the New Power Company suggest, however, that success
is not guaranteed and that the pain of many Internet companies also can be felt
in this industry. Until most customers rely on Internet service providers for
a greater range of services, the “feet in the street” approach taken by most
retailers will remain a prerequisite for success.

At the other extreme, utility retail affiliates may yet prove to be more adept
at bundling high-value services, such as load management and home services,
with their commodity offerings. Wrapped in a familiar and accessible brand,
some of these entrants may yet prove to be very hard to displace. They may also
enjoy much lower rates of customer attrition than pure retailers, providing
them with a significant savings in terms of marketing and sales activities.

The Entry of New Retailers and Their Search for Customers

Background

The unbundling of the traditional energy company in the face of industry restructuring
has exposed to competition areas traditionally overlooked by utilities, namely
market share and customer satisfaction. As regulated utilities find themselves
threatened with separation from their ratepayers not only by a meter but also
by a third-party supplier, many are attempting to enter the retail market with
unregulated affiliate companies.

The retail energy customer is being pursued by two kinds of entrants. The first
are the unregulated affiliate companies of the incumbent utilities. The second
are “pure” retailers, many of them already selling products and services into
the mass-market home services space, now seeking to expand their business to
include energy commodities. The utility affiliates typically start with a large
installed customer base and an energy brand but without the prerequisite mass-market
retail experience required to protect, grow or make that business especially
profitable. The pure retailers come with a track record of retail success, but
little presence or experience in the energy sector.

While margins on the energy commodity may be attractive in the initial stages
of market deregulation, these soon fall to reflect the nature of the offering
and the liquidity of the underlying market. Energy retailers have therefore
striven to offer commodities (electricity, gas, fuel oil, telecom bandwidth,
etc.) in value-added ways. Practically, this has resulted in numerous attempts
to “bundle” services with the commodity, through sales of appliances, to engineering
and technical support, risk management and non- utility products (home security,
credit cards, etc.).

The Business Model

Although all energy retailers rely on their marketing and sales organizations,
they differ considerably in respect of their target customers. Some focus on
large industrial, commercial and aggregated customers, providing sophisticated
procurement and risk management with cross-jurisdictional and cross-commodity
capabilities. Other retailers focus on the mass market, seeking to exploit established
brands and relationships to sell a wide range of products and services to as
many customers as possible. This article explores the latter group only —
the mass-market retailers.

 

Figure 1 – Introducing Competition in the Traditional Utility Space

Mass-market
retailers, by definition, seek to maximize the size of their customer base and
then to craft both a broader and more profitable range of products to that customer
base (“cross-selling” of bundled goods and “up-selling” of higher margin goods
and services). Given their mass-market presence, they trade on brand and by
offering standardized offerings. Achieving that position is complex, however,
and requires sophistication in several key areas, including:

• Energy procurement, pricing, and risk management. Mismatched or poorly-priced
contracts can soon lead to huge financial losses.
• Customer contact and relationship management. Maintaining customer contact,
mining the data to increase sales campaign effectiveness and reducing customer
attrition rates are all key contributors to both cost control and revenue enhancement.
• Low unit cost of back-office support (administration, customer service,
billing, etc.)
• Strong business development capabilities, both in acquiring businesses
with large and well-placed customer bases, as well as in forging relationships
with suppliers of goods and services for sale to the customers by the retailer.

The value chain for mass-market energy retailers reflects this as well. As Figure
2 illustrates, the business model is not overly complex, but significant competitive
risks do arise at each stage. The pursuit of growth and profits requires that
the product offering is appealing, the commodity and back-office costs are controlled,
and that customer satisfaction is high.

Figure 2 – The Competitive Retail Value Chain

The core business of mass-market retailing can be summed up quite simply as
a function of customers multiplied by sales. Starting with a low-margin commodity
like energy, however, imposes on the retailer the requirement to either acquire
massive scale (millions of customers) or the need to add higher-margin products
and services to the sales mix very quickly.

One significant hurdle faced by utility affiliated retailers is the management
culture inherited from the utility. Risk-taking, rapid decision-making, the
management of diverse and complex external relationships, and intense customer
management require a different management skill set than that required to manage
a regulated asset base. Managing a mass-market retailer profitably requires
three different functions to be reconciled. These are a cost-controlled call
center, billing and administrative functions (the back office), highly-skilled
and sophisticated commodity risk management, complex business development efforts
(transactions, joint ventures, other external relationships), and most importantly
the revenue earners (sales and marketing).

Scale is critically important to minimizing average fixed costs, both at the
corporate and operating levels. Figure 3 suggests that important back-office
costs decline sharply as the size of the retail base is increased. This provides
significant entry barrier protection to incumbents but also imposes on them
the need to reach critical mass quickly if they are to remain competitive.

 

Figure 3 – The Cost Advantage of Scale

There are also diseconomies of scale, however. While the data on these may not
be as clear, the experience of Centrica, with more than 30 million customer/product
relationships, finds that as customer size exceeds the scale manageable by standard
IT systems, costs begin to rise as bespoke solutions are developed, each with
their own additional costs and complexities. In Centrica’s case, this has led
to the development of many parallel businesses with common product/ customer
attributes, rather than the development of
one wholly-integrated multi-product company. Centrica has recently reorganized
its business under its main brands (Figure 4).

The disadvantage of Centrica’s multi-divisional approach is that the use of
common brands, customer information and cross selling is made more difficult.
This is not only an internal constraint, however, but also one influenced by
energy regulators keen to avoid customer information being made available to
parties outside the utility/supplier relationship.

 

Figure 4 – Centrica’s Product Bundles

 

Customer Acquisition Paths

Growth in the number of customers served is achievable in one of several ways,
notably organic growth, acquisitions, or through joint ventures. In practice,
most retailers employ a variety of approaches, seeking to reduce the overall
customer acquisition and management costs in each instance.

Organic approaches include brand development and positioning, marketing and
sales, call center-based customer satisfaction management, product development
and placement and regulatory investment (ensuring that the right kind of retail
environment is created in a particular market).

In many markets, organic growth is hampered by the market structure itself in
which customers are given little incentive to abandon the default supply arrangements
provided by their distribution utility. This reflects both inadequate customer
education, the comp lexity of energy contracting and the provisions for rate
reductions and risk management built into default supply arrangements by politicians
fearful of public reaction to price rises and volatility associated with market
liberalization.

The patchwork nature of market reform, with different codes and requirements
in each state and province adds further costs and barriers to the development
of retailers with optimal breadth and scope. Investing in the development of
market rules, as Enron has done in many instances, is more difficult for a retailer
in that the number of retail competitors (and thus beneficiaries from retailer-friendly
market rules) is greater. The benefits of this investment are thus more difficult
for a single company to capture. In fact, the development of particularly supportive
regimes may only lead to the entry of new competitors in that market.

The second route to growth, acquisitions, requires access to capital and management
sophistication. One significant risk in pursuing acquisition growth is the distraction
it imposes on the executive and on the operating staff of the acquiring company.
This is particularly intense in cross-border deals or where the acquisition
includes businesses that are new to the acquirer. The acquirer must also have
a clear view on how the acquired business can be made profitable and how it
will be inte grated, both from a brand and customer perspective, as well as
in terms of administration and information systems.

The third route to growth, joint ventures, holds out the promise of rapid and
inexpensive growth but this impression is often misleading. Finding the right
partner, negotiating a suitable arrangement, managing it well, and knowing how
to exit are all subtle and complex challenges for management. Getting it wrong
may mean that much time, money and brand equity is spent for little return.

Future Trends

The fundamental model of the mass-market retailer is under pressure as the
full implications of e-business are beginning to become clearer. Although pure
e-business retailers such as Utility.com appear unable to succeed in the current
environment, the ease with which energy offerings can be added to existing e-business
relationships suggests that many new competitors will enter this sector in the
coming years.

If managed well, these companies would be able to offer gas and electricity
commodity contracts at little additional cost, rendering energy-only retailers
uncompetitive. Should they succeed in getting customers to use Internet-based
customer service, billing and payment plans, their costs will be reduced even
further.

The difficulties now faced by the New Power Company suggest, however, that success
is not guaranteed and that the pain of many Internet companies also can be felt
in this industry. Until most customers rely on Internet service providers for
a greater range of services, the “feet in the street” approach taken by most
retailers will remain a prerequisite for success.

At the other extreme, utility retail affiliates may yet prove to be more adept
at bundling high-value services, such as load management and home services,
with their commodity offerings. Wrapped in a familiar and accessible brand,
some of these entrants may yet prove to be very hard to displace. They may also
enjoy much lower rates of customer attrition than pure retailers, providing
them with a significant savings in terms of marketing and sales activities.

Establishing a Competitive High-Performance Contact Center

The Many Opportunities to Improve Call Center Effectiveness and Efficiency

The American Customer Satisfaction Index is a cross-industry national indicator
that links customer satisfaction to financial returns. In the first quarter
2001, the utility industry satisfaction index fell to 69 percent, an 8 percent
drop from the performance a year before, placing the utility industry below
the national average (Figure 1).

Figure 1 – American Customer Satisfaction Index, First Quarter 2001

While some of the drop was fueled by the deep plunge in customer satisfaction
with the Pacific Gas and Electric Company, there were many other companies that
also registered lower quality indices in the last year.

The ACSI is not the only index that chronicles a sad tale of dissatisfaction
for energy industry customers. The Purdue University Center for Customer Driven
Quality, with its bellweather call center benchmarking database, has found that
caller satisfaction in the utility industry is at 56 percent, higher than only
one of eight other industries, as shown in Figure 2. Based on the findings from
these two studies, it seems clear that the “voice of the customer” is crying
out for change.

Figure 2 – Industry Segment vs. Performance Metrics
Source: BenchmarkPortal.com

There are many opportunities to improve utility call center performance. In
our studies of call centers within and outside the utility industry, we found
that there are significant opportunities for performance improvement —
often exceeding a 20 percent cost reduction and a 10 percent improvement in
customer satisfaction. These opportunities can be realized in a number of ways.
Based on our experiences with scores of customers, these improvements are quite
realistic. Let’s look at some examples, drawn from actual customer experience,
which confirm the opportunities realized.

• Self service: A large East Coast utility felt that their IVR processes
were optimized. After a review of their IVR menu and scripting, they improved
self-service utilization by 10 percent (to more than 30 percent) while improving
customer satisfaction 10 percent.
• Quality Improvements: A recently merged company changed the number of
CSR quality reviews from one per month to 10 per month, resulting in a five
percent improvement in customer satisfaction and cost reductions.
• Setting the right productivity goal: An East Coast utility recently improved
productivity 14 percent by establishing a competitive occupancy goal.
• Process changes: A large Midwest utility found their CSRs were using
very different approaches to solving common customer problems, resulting in
inconsistent answers and 20 percent longer call times.
• Organization: A large East- Coast utility consolidated five back-office
organizations into a single center, resulting in 10 percent savings.

Each of the examples resulted from the utility deciding to take action. For
these companies it was no longer acceptable to perform the same way they had
in the past. Instead, these companies recognized there were opportunities and
acted in a disciplined way to realize them. The starting point for each was
that they wanted to be more competitive, they wanted to be a high-performance
contact center.

What Is a High-Performance Contact Center?

Companies often claim that they want to provide “world-class service,” but
they seldom support the effort with the strategy, metrics, processes, organization,
and technology needed to be world class. The benchmark for “world-class” performance
is somewhat vague and perhaps inappropriate, since it may be difficult to identify
a comparable benchmark company. It is perhaps easier and more effective to define
a high-performance contact center by striving for the following goals (Figure
3):

Figure 3 – Typical cost savings from a diagnostic review

• Improve your performance to levels achieved by the leading companies
within the industry. As an example, reach the customer satisfaction index levels
achieved by Duke, Pennsylvania Power & Light, or Southern, each of which has
an ASCI index close to 80 percent. One definition of high performance is to
achieve performance in the top 10 percent of peers.

• Improve your performance to levels achieved by leading companies outside
the industry. There are companies outside the energy industry that consistently
perform better than their utility brethren, including H.J. Heinz (90 percent),
Maytag (87 percent), GM Cadillac (88 percent) and Coca Cola (86 percent). While
their products and services differ from those within the utility industry, they
have many customer situations that are parallel. Lessons can be learned, as
long as we understand their limitations.

• Improve your performance relative to your current situation. While this
approach seems to be insulated from the lessons learned by others, it nonetheless
allows an apples-to-apples comparison. High-performance initiatives can take
on a different tone, achieving a higher level than previously reached (for example,
20 percent improvements).

An appropriate mixture of goals and perspectives is needed to ensure that a
company’s eyes are open to opportunities achieved by benchmark companies (inside
and outside their industry) while still remaining focused on its specific business
realities.

The concept of high performance has changed in other ways, as well. Until recently,
most companies had three or fewer channels of customer contact: in-bound phone
calls, fax and mail. For many companies outside the utility industry (and for
some within the industry), the use of email and the Internet has materially
changed the mix of work received. Due to these increases in customer contact
points, we will refer to “contact centers” rather than “call centers.” A diagnostic
approach that we have found to be successful has four key steps (Figure 4).

Figure 4 – Question and results from Forrester Research, 2000

Establishing High-Performance Metrics

Typically, utilities have fewer performance metrics than companies outside
the industry. There are several reasons why this is so. For many utilities,
the strategy is to provide average levels of service at reasonably low cost.
These companies do not have sales goals for the contact center, since they do
not see its impact on revenue. Their customer satisfaction goals are often defined
by the public service commission and their employee satisfaction goals are frequently
defined by union contract.

Accordingly, utilities often fall into a customer service quagmire, believing
that there is no reason to provide improved service when there is little regulatory
incentive to do so. Thus, utilities are often far behind in adopting performance-improving
process changes or technology implementations.

Yet, some of the aforementioned high-performing utilities have established metrics
that promote good customer service and employee satisfaction, since they recognize
the cost-cutting and revenue-enhancing potential of these actions. Let’s list
ways in which changes in metrics can lead to a metamorphosis for the utility
contact center:

• Establish what quartile of performance you want to achieve, and establish
your benchmark group. Define whether you want to be a top-quartile or bottom-quartile
performer, and whether you even want to compare your performance with peers.
Once that decision and commitment has been made, ensure that the peer group
and measurement standards are well-defined and accurate. A second-quartile performer
trying to be a top-quartile performer will have made a decision that will likely
transform the organization, creating a rallying cry for organization-wide improvements.

• Understand the value of one-stop (once and done) customer service. The
Purdue benchmark data recently revealed that the metric most highly correlated
with customer satisfaction was the percentage of one-stop service provided.
This metric is seldom emphasized by utilities and, with only 75 percent of calls
answered one-stop, there is considerable room for improvement that can be realized
with relatively little investment. Improvements in this area can increase customer
satisfaction while simultaneously reducing costs.

• Elevate the importance of quality service. Ask the average utility contact
center manager how many times they review a CSR’s work in the course of a month.
Usually, the answer is “once” That equates to 12 reviews per year — less
than one-tenth of one percent of the calls answered by a CSR each year. Next,
ask the manager what part of the CSR’s (or manager’s) compensation is based
on meeting quality targets. Very likely, none of their compensation is based
on reaching quality goals. This lack of emphasis results in increased costs
(due to repeat calls and decreased customer satisfaction), because CSRs aren’t
doing the job correctly. To deliver quality service, it is important to establish
metrics to elevate the importance of quality.

• Recognize productivity opportunities. There are two frequently overlooked
opportunities for productivity improvement that can be realized by setting the
right objectives. First, establish the “occupancy” goal for the organization.
Occupancy is a measure of the productive time a CSR spends during the day, including
time on the phone answering calls, answering emails, etc. Most utilities have
less than 50 percent occupancy — far less than the 70-80 percent levels
achieved by high-performing companies. The second opportunity is to reduce the
percentage of time employees are absent from work. While some long-term illnesses
are to be expected, many companies are too loose in their administration of
this part of the productivity pie.

• Define what levels of self-service you want to achieve. One study from
several years ago suggested that 19 percent of all utility company contacts
were self-serviced. While this figure may not have the precision we want for
an industry perspective, it is not difficult to measure the level of self-service
within your own company. But what level of self-service do we want to provide
— 20 percent, 30 percent, or even more? Our recommendation is to survey
your customers about their self-service likes and dislikes, and balance their
preferences with business needs. Many leading companies can achieve up to 40
percent self-service and also achieve high customer satisfaction when the self-service
program is implemented well. Define the self-service goal, measure it, and reassess
the goal periodically to ensure it meets business needs optimally.

• Identify other objectives that lead to high performance. Too often, the
list of metrics for a contact center manager is very short — perhaps only
“average speed of answer” and “customer satisfaction during emergency calls,”
To achieve high performance, other goals are needed, including measurement of
cost per contact, employee satisfaction, and perhaps even the impact on revenue
— which is potentially important.

We believe that rate-making is an opportunity to improve revenue, particularly
if you are working with an enlightened public service commission. If the PSC
will approve incentives for customer service improvements, then a new return
on investment (ROI) figure has been established for future investments and business
decisions. It is wise to have a representative from the utility’s rate-making
organization as part of the team that defines contact center metrics (the team
should also include representation from field operations, marketing, and HR).

Having defined the metrics, ensure that they are well communicated, and consider
their role in incentive-based compensation.

The Second Most Important Step:
Energize Key Business Processes

There are several reasons the review and change of key business processes is
usually the second-step to business transformation. We often find that process
reviews identify “low-hanging fruit.” Let’s look at the steps we would typically
review in a process analysis. Usually when we perform a diagnostic review of
an organization, our approach follows this sequence of actions:

• Identify the number of contacts received in each contact center by contact
type.
• Determine if the number of calls from one contact type is excessive,
either for one or all contact centers. For example, too many meter-reading complaints.
• Determine if contact should be self-serviced.
• Analyze the components of each contact, and apply best practices to reduce
processing time and improve quality. Evaluate each process by our enriched metrics.
• Review reports to determine if data is accurate and actionable.
• Assess whether outsourcing should be used or not used.

Figure 5 – The Four Keys to Creating a High-Performance Contact
Center

There are many small (and some large) actions that can be taken. Actions that
promote consistency usually inspire productivity and customer satisfaction.
Some common areas where improvements can be realized are with high bill complaints,
level billing inquiries and gas emergency processing (to improve safety and
avoid legal repercussions). If you wonder whether you need help in this area,
listen to 20 calls or read 20 letters prepared by CSRs to find out what customers
are experiencing.

We are not recommending a total re-engineering of processes. Instead, we suggest
that you focus on the top 20 percent of transactions that impact 80 percent
of costs and satisfaction. This triage approach remedies the most critical problems
and gains the greatest efficiencies. The improvements can be significant, and
the net result is beneficial to customer, company and employee.
Let’s examine the impact of small changes. An average utility call requires
three or four minutes to complete, including the greeting, accessing the customer
account, listening to the problem, identifying and communicating the solution,
and finishing the call. Let’s assume that the call is received in a medium-sized
contact center that receives approximately 500 calls per half-hour, and that
each call currently requires four minutes. As the result of our diagnostic analysis,
we can reduce by 15 seconds the average call- handling time through small changes,
such as developing a standard greeting, facilitating faster account look-up,
and guiding a smoother closing. That 15-second savings will result in a savings
of six CSRs — likely more than $250,000 of avoided cost — or the opportunity
to improve average response time.

Installing High-Value Technology

The next step in our sequence is to identify the return on investment for
various technological alternatives. This usually entails a two-pronged attack:
increase the percentage of self-service (with considerations for customer satisfaction)
and apply technology to contacts serviced by CSRs.

Self-service implementations often result in the highest return on investment,
if we measure ROI solely by cost reductions. The first action is to get maximum
benefits from your current IVR investment. To do so, the utility executive needs
to understand the total potential value of the IVR, including:
• Squeezing out more benefits by establishing better IVR menus and scripts

• Reducing the call length for calls that get routed to the CSRs
• Its role as a hub that can be used by other contact center technologies

• Adding voice recognition technology

Various analysts suggest voice recognition is a blossoming technology that will
provide cost reductions and improved customer satisfaction. In the past, the
cost of voice recognition has been high, but it is decreasing.

Web transactions have been less successful in the utility industry. In a recent
study, it was found that fewer than three percent of utility transactions were
being self-serviced through the Web. The potential, however, is that Web-based
transactions will be used more frequently. In another study, it was estimated
that more than 30 percent of contact center contacts will be either Web-based
or email in just a few years. This places a new emphasis on this form of self-service
and raises the questions of how to best service customers who use these channels.

Technology has also had a great influence on how CSRs do their work, particularly
outside the utility industry. Several desktop GUI vendors claim their clients
have realized cost reductions of 20 percent, concurrent with customer satisfaction
increases of more than 10 percent. While these findings may not apply to all
potential customers (particularly within the energy industry), they do reveal
a potential to improve performance in a significant way.

Almost all utilities have made multimillion-dollar investments in their customer
information systems (CIS). These systems usually perform three very different
tasks. On the one hand, they support billing processes and on the other, they
support customer interactions — both in the front and back offices. The
strength of these systems often lies in their ability to generate high volumes
of bills per day. They are often, however, less capable in their role as customer
relationship management and back-office support systems.

Figure 6 – High-Value Technologies Allow Functional Integration Across Departments

Accordingly, a utility executive preparing a technology investment plan must
assess how well each of the major subsystems fills its role, and whether one
or all of the subsystems should be upgraded with CRM technology.

As with any investment decision, it is important to determine how the investment
will be assessed i.e., with traditional ROI measurements, from a strategic perspective,
or using a different set of expanded metrics. Since the projects can require
the investment of millions of dollars, it is important to have a thorough diagnostic
completed beforehand, to truly understand and quantify the range of available
benefits.

The internal customer service team often has a limited view of potential changes.
In some cases, this is the result of their limited span of control (i.e., knowing
only one aspect of the total). In other cases, it is because they are unaware
of best practices outside their industry. And regrettably, in some instances,
they are hesitant to identify savings that they are aware of because they do
not want to see change.

Figure 7 – Estimates are based on a 200-person contact center, using Boyd
Consulting data for cost by locale.

Many analysts have noted that the penetration of CRM technology in the utility
industry is less advanced than in other industries. As an example, the leading
CRM vendors (Siebel, Oracle, SAP, Peoplesoft) have made limited headway so far
with utilities, although they have substantial penetration in other industries.
Perhaps this is understandable in light of the different business imperatives
within different industries, but even though the ROI model may be different
and more challenging within a utility company, that does not suggest that CRM
benefits are not significant enough to warrant consideration.

Let’s look at computer telephone integration (CTI). For many industries, this
is a key part of call routing and handling. The anticipated and actual savings
have justified the investment for most industries, but the adoption of CTI has
not been as pronounced within the utility industry.

It was anticipated that the introduction of deregulation would place competitive
pressures on utilities, inducing them to pursue technology solutions already
proven to be valuable in other industries. Due to the slowdown of deregulation
these external competitive pressures have attenuated. Yet, there remains a need
to be competitive, to satisfy customer, stockholder, and PSC expectations, as
well as to establish a culture of competition within the utility workforce.

The opportunity to become more productive and to deliver better services through
technology has been demonstrated by many utilities. For example:
• Several utilities already have 40 percent of their calls serviced through
an IVR, and others are soon to install voice recognition — with the potential
to further improve performance.
• CTI implementations for utilities have consistently resulted in 15-second
savings, but at least one company has reached a one-minute average savings per
call with its CTI implementation.
• Call routing software has helped some companies to save 10 percent and
to deliver better service to their most important customer segments. These benefits
can also be extended to other contact channels, including email and Web-based
transactions.
• Voice and screen recording systems can increase the level of quality
by more than 10 percent and bring about associated cost reductions.

Becoming A Lean, Integrated Organization

All of these initiatives can result in material staffing reductions, and they
can also prompt new thinking about the way other processes operate. New thinking
can lead to revising operational goals, such as how many contact centers to
operate, how to integrate existing contact centers, and the role of CSRs and
staff. Many utility companies have more than one site from which they contact
customers. Some companies have always maintained separate regional call centers,
some separate their front- and back-office teams, and others have gained new
call centers due to mergers and acquisitions.

There are opportunities to achieve savings through either physical or “virtual”
consolidation. Figure 6 shows an example where virtual consolidation can lead
to an eight percent savings while physical consolidation to a low-cost site
could yield a 13 percent savings.
There are two different areas of opportunity that frequently result in savings.
The first is to look at layers of management and span of control. The ratio
of CSRs to a supervisor can vary based on many factors, but if the ration is
less than twelve to one, a review should be completed to determine if this is
optimal. Sometimes, the problem arises when companies have three levels of reporting
under the contact center manager: supervisors, team leads, and CSRs. It is also
important to determine what is preventing the supervisor from assuming a larger
span of control, including analysis of time spent per day and administrative
tasks being completed.

Cost Category
Contact Center A
Urban
Contact Center B Suburban
Total Centers A + B
Virtual
A + B
One Physical
Low Cost Center Suburban
Labor Cost – CSR
$ 7,430,320
$ 6,630,040
$ 14,060,360
$ 12,273,684
$ 11,575,097
Electric Power Costs
$ 44,071
$ 44,071
$ 88,142
$ 88,142
$ 88,142
Office Rent Costs
$ 474,375
$ 295,625
$ 770,000
$ 770,000
$ 516,119
Equipment Amortization
$ 960,000
$ 960,000
$ 1,920,000
$ 1,920,000
$ 1,676,022
Heating and AC Costs
$ 26,977
$ 28,669
$ 55,646
$ 55,646
$ 50,052
Telecommunication Costs
$ 2,349,243
$ 2,439,243
$ 4,788,486
$ 4,878,486
$ 4,878,486
Total Costs
$ 11,284,986
$ 10,397,648
$ 21,682,634
$ 19,985,958
$ 18,783,918
87%
Table 1 – Virtual consolidation can lead to a 8% savings while physical consolidation
to a low cost site could yield a 13% savings (estimates are based on a 200 person
contact center, using Boyd Consulting data for cost by locale).

Not all organizational changes will be made solely to extract savings. In some
instances, it is to provide improved and uniform quality. As an example, many
utilities have the supervisor perform quality reviews, which can be inconsistent.
An alternative is to have a dedicated quality control staff. Another problem
we sometimes see is that the supervisor is a traffic cop, trying to balance
the workload as call and email volumes change. These tasks are better left to
automated systems that optimize work distribution.

It is also important to to see how the CSRs are working and to determine their
satisfaction. If CSR turnover is very high, it can have a significant impact
on the contact center’s cost and quality. In light of the significant costs
of high turnover, determine the root cause of the problem and assess corrective
action. Some companies have also found it beneficial to have a human resources
profile of each CSR — a balanced scorecard that reviews the employee’s
productivity, quality, attendance, adherence to schedule etc. The tool identifies
those employees who need remediation and helps focus your corrective actions.

Figure 8 – Prepare gap analysis and submit results sample deliverable.
See Larger Image

What next?

There are several possible steps to implement a High-Performance Contact Center.
The first step is to determine the gap between “as is” performance and the newly
defined target level of performance. Once the gap is identified by using experiences
drawn from other industries and other diagnostic reviews, the utility executive
needs to establish the target plan, including short- and long-term actions.
The plan should consider risks, including the capability of the organization
to implement changes with or without consulting support, and the “change management”
plans required to implement the performance-inducing actions.

The decision to become a competitive contact center is one that can transform
the organization, helping to better meet the needs of customers, employees and
stockholders.

Increasing Market Share and Profitability in Energy Services

Numerous challenges and opportunities face companies that offer energy-related
services to commercial customers and end consumers. The marketplace is large,
competitive and frag mented. Traditional players have an embedded infrastructure,
but do not have a long history of operating freely and unencumbered from regulatory
bodies. If those in your organization dealing in this environment don’t have
their heads spinning already, just add technology into the mix, such as wireless,
Internet, and customer relationship management software. At the end of the day,
we must confront the basic questions:
• How can we improve the productivity of the people performing the service
work at our customers’ sites?
• Where can we streamline the organizations and processes that support
them?
• How can we significantly build and maintain customer loyalty?

It seems that “turning up the dial” in response to any one of these questions,
without “turning down the dial” in another area, could have adverse effects
on our ability to improve the overall profitability of our operations on a long-term
basis.
There is good news. By focusing on customer needs and prudently improving infra
structure, organizations can simultaneously:

• Increase revenue from existing customers
• Secure new customers and new channels
• Reduce the administrative time spent by service technicians
• Reduce support costs for service technicians

Imagining that we are packaging a few key requirements for a Request for Information,
as a precursor to a Request for Proposal or an Invitation to Tender, we might
ask for the following:

• Ability for customers to enter service requests over the channel of their
choice, including call center, interactive voice response, and Internet
• Capability to generate service requests automatically from remote-sensing
devices attached directly to equipment
• Route service requests to the appropriate dispatching department, affiliated
third-party service provider, or directly to the technician, based on customer
characteristics
• Provide self-service features to allow customers to readily access the
status of their work as well as the service technicians assigned to the work
• Facilitate immediate service authorization based on standard practices
and fee parameter
• Eliminate paperwork for customers and technicians at the point of service
by providing a secure environment for electronic author ization
• Provide enhanced communication capabilities for service technicians that
does not hinder or encumber a technician’s autonomy

Responding to these requirements demands a balanced approach to change management,
software deployment and field service technology.

Begin with workflow, processes, and metrics. Collect your “as-is” information
and fill in the gaps. We may be eager to change and adopt best practices. Sometimes
we can do this without dwelling too much on the past, but the best way to make
this journey is to understand precisely where you are today.

Focus on the flow of work conducted by your field service technicians. If you
don’t have a preferred documentation technique or want to restate what you have
today in a fresh format, try using a “swimming lane” approach (Figure 1).

Figure 1 – Workflow sample
See Larger Image

Next you will want to review your processes for “opportunity windows” (with
efforts over recent years to promote effectiveness and efficiency, we are hesitant
to use phrases like “non-productive time” and “non-value-added activities” in
this context). Companies with sound structures should have an easier time in
identifying “open windows” where significant amounts of “energy” may be escaping.
The opportunity windows should have the perspective of direct interaction with
the customer, service technician, and those supporting customers and technicians.
These are the items you will want to baseline and measure on an ongoing basis.
Figure 2 provides one way to organize the information.

Figure 2 – Sample model for organizing process

The
technical building blocks of the solution are illustrated in Figure 3 and embody
the following key concepts:
• Deploy channel- neutral CRM software
• Provide all stakeholders with multiple channels of communication to address
individual preferences and serve as backup
• Offer self-service options
• Use various wireless devices concurrently
• Leverage the Internet and wireless networks
• Allow the solution to coexist with existing processes, systems and devices.

 

 

Figure 3 – Multi-channel access

Requesting Service

There will be a decrease in call volume through self-service.
Wireless sensing devices can further decrease call volume through direct connection
of assets, where cost effective, to the CRM software system. While the cost
of a single call may increase as routine calls are moved to other channels,
this is actually desirable, as you want to spend “quality time” with customers
that have special needs or potential cross-sell/up-sell opportunities.

Optimizing Preventive Maintenance and Short-Term Scheduled Requests

When it is necessary to visit a customer site on an emergency basis, the service
technician will be more efficient if a scheduled service can be performed during
the same visit.

Assigning to Appropriate Technician(s)

The common data repository can be modeled to link technicians to customers,
unique customer sites, and even specific assets. Technicians can also be linked
as teams within a service organization, be it internal or a third-party affiliate.
As a result, the number of calls and talk time will be reduced for CSRs and
dispatching personnel. Notifications are sent in real time to the service team
leaders, the service technicians and other personnel via wireless devices.

 

Updating Status

There will be a substantial reduction in time for those requesting status as
well as for those making changes. Service technicians can punch a new time into
their wireless devices, eliminating calls to team leaders, dispatchers, and
customers. An ETA status change will be immediately reflected in the Web site,
allowing customers to serve themselves. CSRs have the same information and updating capabilities to support users that are out of the cellular footprint and/or
are not Internet-enabled.

Arriving on Site

A service technician will save time by scrolling to his or her job on the wireless
device and indicating arrival on site. The actual time of arrival is now populated
on the Web site, again reducing the time related to status updates.

 

Work Estimates and Approving Performance

Service technicians can choose from a list of standard repair, PM, or other
scheduled jobs. PM and scheduled jobs are verified, while repair jobs originating
from service requests, are checked for spending authorization levels. For example,
if a technician assesses a cooling problem as compressor-related and a standard
job exists for repairing that particular asset, the manual estimating process
is bypassed. If the repair costs fall beneath the established limit for that
particular customer, then the technician receives immediate authorization to
proceed. The time savings are magnified when the technician is actually working
on the asset.

Signing Off on Completed Work

The service technician, having completed work, has the client sign off by entering
a personal identification number into the technician’s wireless device. This
engages the customer and technician in a “customer satisfaction interaction,”
and provides an electronic approval for the work performed. Paperwork is drastically
reduced in this process.

Billing and Invoice Processing

The sign-off by the customer on the service technician’s wireless device,
coupled with a simple link between the CRM software and the back-office systems,
significantly reduces invoicing and payment cycle time. The process is almost
entirely automated unless a dispute is registered within a predefined window
that can be established with each customer.

Measuring Performance: The compilation of reports and the tracking
of metrics requires less labor with the crucial benefit of more accurate and
timely information for improving a variety of areas. A sample of these includes
measuring third-party relationships, customer satisfaction, planned vs. actual
arrival times, and actual vs. standard time to repair.

Managing Assets: Notwithstanding its inherent value in traditional
maintenance and repair arrangements, this aspect of performance addresses the
key to many facility management deals. Trend data extracted from the common
repository of asset will help manage such items as spare parts, retirements,
substitutions, and location optimization.

Working the Queues: The common repository maintained by the CRM
software and established workflow allow active queues to be maintained, bubbling
the highest priority situations to the top of the list. This applies to such
things as service requests entered but not assigned, technicians en route behind
schedule, quotes outstanding, and aging of receivables. Workflow rules can be
punctuated with audible alarms of various tones to alert service technicians,
supervisors and other management personnel that input and/or action is required
to keep the information and statuses up to date.

Numerous studies have documented the relationship of customer satisfaction
and loyalty to profitability. Our experience from both practical application
as well as modeling various business scenarios suggests the following improvements
are achievable:
• Reducing the average time spent on repairs by 5-10 percent
• Reducing time from service request to technician dispatch by 15-25 percent
• Reducing the time to quote and approve jobs by 25-50 percent
• Speeding billing, invoicing, and collections by 25-50 percent
• Eliminating paperwork and status phone calls by 50-75 percent.

Establishing a streamlined pricing and servicing model, along with improving
the infrastructure for stakeholder communications and self-service, will increase
customer satisfaction, save the customer time, and free up organizational capacity.
Your business strategy should direct the use of this excess capacity that will
be created from closing on the opportunity windows. Profitability will be improved
by some combination of eliminating unwanted capacity, capturing more traditional
business share from your customers, offering additional services to your existing
base, attacking competitors and opening up new markets.

 

The Connected Home: The Open Services Gateway is Fulfilling the Promise of the Internet Lifestyle

Wouldn’t it be wonderful to automate some of your household chores, and leave
home knowing that everything is safe and secure? With the delivery of network-based
smart services through the home gateway, you could:
• Get a discount from your utility for letting it manage appliance use
during peak periods, or schedule your dishwasher to start automatically during
discounted rate periods.
• Subscribe to a security service (on demand) to watch your home or let
in a relative when you’re away.
• Set up home monitoring and other home-based services for your elderly
or infirm relatives to help them comfortably maintain their independence while
other family members travel.
• Take photographs on your trip to Yosemite, view and print them with your
TV, send them to friends and relatives with a screen phone, and incorporate
them into a home video.

These services and more are coming. At the 2001 JavaOneSM
Conference, a booth called the Connected Den featured Java™ technologies powering
the next-generation smart homes. Using residential gateway devices and set-top
boxes as the nerve center for the connected home, Sun and its technology partners
demonstrated exciting new services for home control and automation, interactive
television, entertainment on demand, and advanced telephony.

The Home Gateway

The home gateway — a small, dedicated device that links networked devices
— is the key to the connected home. The home gateway requires minimal or
no upkeep by the homeowner, and is the platform for the delivery of new value-added
services on demand. For example, using the home gateway would make ordering
a home security service for a two-week vacation as easy as ordering a pay-per-view
movie from TV today.

Adding an embedded server transforms any broadband termination device into a
home gateway. For more than two years, Sun has offered the Java Embedded Server™
(JES), designed to comply with the Open Services Gateway Initiative (OSGi) specification,
for accessing services through the home gateway. The idea is to bring a technologically
enhanced lifestyle to consumers who buy these products and services, and, in
turn, bring new revenue to the companies that sell these new technologies.

In the case of utilities, the smart meter deployed for automated meter reading
build-outs could include the Java Embedded Server. Several leading AMR vendors
are now incorporating Java Embedded Server into their latest products.This means
that a utility could justify the investment in AMR infrastructure by not only
the immediate productivity gains, but also the new revenue streams from the
Connected Home service offerings.

Most importantly to the consumer, all the services of the home gateway can be
managed by external service providers. Just like cable or phone services, home
gateway services are there when they are needed — the consumer doesn’t
need to understand anything about how or why they work, just that they do.

Delivering Services Through the Home Gateway

Deregulation of telephone, cable, and utility industries has blurred their
roles. Now, cable operators are moving to offer Internet access and phone services
in addition to basic cable services. Phone companies are offering high-speed
Internet access, and eventually will add video-on-demand services. Utilities
are exploring energy management as well as potentially becoming Internet service
providers.

In this competitive environment, service providers must not only protect existing
revenue streams, but also find ways to generate new revenue. Increasingly, they’re
looking at the Internet to offer new value-added services to networked home
customers. Some new services under development for this market include communication,
entertainment, home control, and information services.

Figure 1- Home Gateway Usage Scenario

Insight of the Future

The opportunity for service providers is to enhance home gateways by hosting
and running value-added, subscription-based smart services — in other words,
to become service gateways. Broadband providers will aggregate and personalize
smart services on behalf of the consumer, providing high-margin value compared
to today’s low-margin, broadband offerings. Traditional retail distribution
will sell network-based products as part of an aggregated solution set. In fact,
any vendor that touches the consumer — including telecommunication companies,
multiple system operators, ISPs, utilities, application service providers, and
device manufacturers — could provide individual smart services (service
creators) or aggregate and personalize a suite of smart services (service providers).

Demand Side Management Becomes a Reality

Echelon Corporation, a leader in auto mating home devices through the Internet,
is already taking advantage of this opportunity. “We’re bringing our customers
significant cost savings and increased conveniences by linking the various everyday
devices in the home to the Internet via LonWorks,” explains Jeff Lund, Vice
President, Business Development and Corporate Marketing at Echelon. “For example,
our smart LonWorks devices can automatically reduce energy consumption in response
to real-time power availability signals from a utility company. That means the
utilities don’t have to shut down large portions of their distribution grid
to avoid a total power outage, as is happening today in California.”

OSGi — Service Delivery Standard

How can service providers efficiently and economically aggregate, manage, provision,
and deliver a host of diverse services? A service delivery standard is the missing
link in the networked delivery of multiple managed services over wide-area networks
to local networks and devices in the home. To fully develop the market for residential
gateways, a broadly embraced open standard is critical.

The Open Services Gateway Initiative was formed in 1999 to define a framework
for provisioning and remote management of managed services on service gateways.
Today, more than 70 companies have committed to support its full incorporation
and charter. A founding member of OSGi, Sun Microsystems is also a major contributor
to its technical foundation.

The initial OSGi specification is a layered framework application based on Java
technology, which provides the flexibility to support the wide range of phone
line, power line, and wireless network standards. It gives service providers,
network operators, device makers, and appliance manufacturers the vendor- neutral
application and device-layer application programming interfaces and functions
they need. A set of core and optional APIs define a service gateway.

The OSGi standard will help ensure that service providers, like Utilities, will
have access to a large variety of content/ services and service gateway devices
from independent vendors that can be used for their service offerings.

Making It Happen

Already, service providers are poised to begin technical trials, service creators
are readying smart service products, and service gateways are entering the market.
However, a key challenge remains — integrating these services and the required
underlying infrastructure into a cohesive offering.

Sun is working to provide an end-to-end services solution through its alliances,
products, technologies, and services.
Working with a range of technology partners such as those in JavaOne’s Connected
Den demonstration, Sun will create an environ ment where service providers can
verify the interoperability and stability of their smart services with those
of other companies, as well as showcase their OSGi services to service providers.
This environment will also enable service gateway manufacturers to demonstrate
and market their products to potential service provider partners.

Through these partnerships, Sun is committed to making available end-to-end
solutions based on open standards that will make consumers’ lives more productive
and more enjoyable.

 

Establishing a Competitive High-Performance Contact Center

The Many Opportunities to Improve Call Center Effectiveness and Efficiency

The American Customer Satisfaction Index is a cross-industry national indicator
that links customer satisfaction to financial returns. In the first quarter
2001, the utility industry satisfaction index fell to 69 percent, an 8 percent
drop from the performance a year before, placing the utility industry below
the national average (Figure 1).

Figure 1 – American Customer Satisfaction Index, First Quarter 2001

While some of the drop was fueled by the deep plunge in customer satisfaction
with the Pacific Gas and Electric Company, there were many other companies that
also registered lower quality indices in the last year.

The ACSI is not the only index that chronicles a sad tale of dissatisfaction
for energy industry customers. The Purdue University Center for Customer Driven
Quality, with its bellweather call center benchmarking database, has found that
caller satisfaction in the utility industry is at 56 percent, higher than only
one of eight other industries, as shown in Figure 2. Based on the findings from
these two studies, it seems clear that the “voice of the customer” is crying
out for change.

Figure 2 – Industry Segment vs. Performance Metrics
Source: BenchmarkPortal.com

There are many opportunities to improve utility call center performance. In
our studies of call centers within and outside the utility industry, we found
that there are significant opportunities for performance improvement —
often exceeding a 20 percent cost reduction and a 10 percent improvement in
customer satisfaction. These opportunities can be realized in a number of ways.
Based on our experiences with scores of customers, these improvements are quite
realistic. Let’s look at some examples, drawn from actual customer experience,
which confirm the opportunities realized.

• Self service: A large East Coast utility felt that their IVR processes
were optimized. After a review of their IVR menu and scripting, they improved
self-service utilization by 10 percent (to more than 30 percent) while improving
customer satisfaction 10 percent.
• Quality Improvements: A recently merged company changed the number of
CSR quality reviews from one per month to 10 per month, resulting in a five
percent improvement in customer satisfaction and cost reductions.
• Setting the right productivity goal: An East Coast utility recently improved
productivity 14 percent by establishing a competitive occupancy goal.
• Process changes: A large Midwest utility found their CSRs were using
very different approaches to solving common customer problems, resulting in
inconsistent answers and 20 percent longer call times.
• Organization: A large East- Coast utility consolidated five back-office
organizations into a single center, resulting in 10 percent savings.

Each of the examples resulted from the utility deciding to take action. For
these companies it was no longer acceptable to perform the same way they had
in the past. Instead, these companies recognized there were opportunities and
acted in a disciplined way to realize them. The starting point for each was
that they wanted to be more competitive, they wanted to be a high-performance
contact center.

What Is a High-Performance Contact Center?

Companies often claim that they want to provide “world-class service,” but
they seldom support the effort with the strategy, metrics, processes, organization,
and technology needed to be world class. The benchmark for “world-class” performance
is somewhat vague and perhaps inappropriate, since it may be difficult to identify
a comparable benchmark company. It is perhaps easier and more effective to define
a high-performance contact center by striving for the following goals (Figure
3):

Figure 3 – Typical cost savings from a diagnostic review

• Improve your performance to levels achieved by the leading companies
within the industry. As an example, reach the customer satisfaction index levels
achieved by Duke, Pennsylvania Power & Light, or Southern, each of which has
an ASCI index close to 80 percent. One definition of high performance is to
achieve performance in the top 10 percent of peers.

• Improve your performance to levels achieved by leading companies outside
the industry. There are companies outside the energy industry that consistently
perform better than their utility brethren, including H.J. Heinz (90 percent),
Maytag (87 percent), GM Cadillac (88 percent) and Coca Cola (86 percent). While
their products and services differ from those within the utility industry, they
have many customer situations that are parallel. Lessons can be learned, as
long as we understand their limitations.

• Improve your performance relative to your current situation. While this
approach seems to be insulated from the lessons learned by others, it nonetheless
allows an apples-to-apples comparison. High-performance initiatives can take
on a different tone, achieving a higher level than previously reached (for example,
20 percent improvements).

An appropriate mixture of goals and perspectives is needed to ensure that a
company’s eyes are open to opportunities achieved by benchmark companies (inside
and outside their industry) while still remaining focused on its specific business
realities.

The concept of high performance has changed in other ways, as well. Until recently,
most companies had three or fewer channels of customer contact: in-bound phone
calls, fax and mail. For many companies outside the utility industry (and for
some within the industry), the use of email and the Internet has materially
changed the mix of work received. Due to these increases in customer contact
points, we will refer to “contact centers” rather than “call centers.” A diagnostic
approach that we have found to be successful has four key steps (Figure 4).

Figure 4 – Question and results from Forrester Research, 2000

Establishing High-Performance Metrics

Typically, utilities have fewer performance metrics than companies outside
the industry. There are several reasons why this is so. For many utilities,
the strategy is to provide average levels of service at reasonably low cost.
These companies do not have sales goals for the contact center, since they do
not see its impact on revenue. Their customer satisfaction goals are often defined
by the public service commission and their employee satisfaction goals are frequently
defined by union contract.

Accordingly, utilities often fall into a customer service quagmire, believing
that there is no reason to provide improved service when there is little regulatory
incentive to do so. Thus, utilities are often far behind in adopting performance-improving
process changes or technology implementations.

Yet, some of the aforementioned high-performing utilities have established metrics
that promote good customer service and employee satisfaction, since they recognize
the cost-cutting and revenue-enhancing potential of these actions. Let’s list
ways in which changes in metrics can lead to a metamorphosis for the utility
contact center:

• Establish what quartile of performance you want to achieve, and establish
your benchmark group. Define whether you want to be a top-quartile or bottom-quartile
performer, and whether you even want to compare your performance with peers.
Once that decision and commitment has been made, ensure that the peer group
and measurement standards are well-defined and accurate. A second-quartile performer
trying to be a top-quartile performer will have made a decision that will likely
transform the organization, creating a rallying cry for organization-wide improvements.

• Understand the value of one-stop (once and done) customer service. The
Purdue benchmark data recently revealed that the metric most highly correlated
with customer satisfaction was the percentage of one-stop service provided.
This metric is seldom emphasized by utilities and, with only 75 percent of calls
answered one-stop, there is considerable room for improvement that can be realized
with relatively little investment. Improvements in this area can increase customer
satisfaction while simultaneously reducing costs.

• Elevate the importance of quality service. Ask the average utility contact
center manager how many times they review a CSR’s work in the course of a month.
Usually, the answer is “once” That equates to 12 reviews per year — less
than one-tenth of one percent of the calls answered by a CSR each year. Next,
ask the manager what part of the CSR’s (or manager’s) compensation is based
on meeting quality targets. Very likely, none of their compensation is based
on reaching quality goals. This lack of emphasis results in increased costs
(due to repeat calls and decreased customer satisfaction), because CSRs aren’t
doing the job correctly. To deliver quality service, it is important to establish
metrics to elevate the importance of quality.

• Recognize productivity opportunities. There are two frequently overlooked
opportunities for productivity improvement that can be realized by setting the
right objectives. First, establish the “occupancy” goal for the organization.
Occupancy is a measure of the productive time a CSR spends during the day, including
time on the phone answering calls, answering emails, etc. Most utilities have
less than 50 percent occupancy — far less than the 70-80 percent levels
achieved by high-performing companies. The second opportunity is to reduce the
percentage of time employees are absent from work. While some long-term illnesses
are to be expected, many companies are too loose in their administration of
this part of the productivity pie.

• Define what levels of self-service you want to achieve. One study from
several years ago suggested that 19 percent of all utility company contacts
were self-serviced. While this figure may not have the precision we want for
an industry perspective, it is not difficult to measure the level of self-service
within your own company. But what level of self-service do we want to provide
— 20 percent, 30 percent, or even more? Our recommendation is to survey
your customers about their self-service likes and dislikes, and balance their
preferences with business needs. Many leading companies can achieve up to 40
percent self-service and also achieve high customer satisfaction when the self-service
program is implemented well. Define the self-service goal, measure it, and reassess
the goal periodically to ensure it meets business needs optimally.

• Identify other objectives that lead to high performance. Too often, the
list of metrics for a contact center manager is very short — perhaps only
“average speed of answer” and “customer satisfaction during emergency calls,”
To achieve high performance, other goals are needed, including measurement of
cost per contact, employee satisfaction, and perhaps even the impact on revenue
— which is potentially important.

We believe that rate-making is an opportunity to improve revenue, particularly
if you are working with an enlightened public service commission. If the PSC
will approve incentives for customer service improvements, then a new return
on investment (ROI) figure has been established for future investments and business
decisions. It is wise to have a representative from the utility’s rate-making
organization as part of the team that defines contact center metrics (the team
should also include representation from field operations, marketing, and HR).

Having defined the metrics, ensure that they are well communicated, and consider
their role in incentive-based compensation.

The Second Most Important Step:
Energize Key Business Processes

There are several reasons the review and change of key business processes is
usually the second-step to business transformation. We often find that process
reviews identify “low-hanging fruit.” Let’s look at the steps we would typically
review in a process analysis. Usually when we perform a diagnostic review of
an organization, our approach follows this sequence of actions:

• Identify the number of contacts received in each contact center by contact
type.
• Determine if the number of calls from one contact type is excessive,
either for one or all contact centers. For example, too many meter-reading complaints.
• Determine if contact should be self-serviced.
• Analyze the components of each contact, and apply best practices to reduce
processing time and improve quality. Evaluate each process by our enriched metrics.
• Review reports to determine if data is accurate and actionable.
• Assess whether outsourcing should be used or not used.

Figure 5 – The Four Keys to Creating a High-Performance Contact
Center

There are many small (and some large) actions that can be taken. Actions that
promote consistency usually inspire productivity and customer satisfaction.
Some common areas where improvements can be realized are with high bill complaints,
level billing inquiries and gas emergency processing (to improve safety and
avoid legal repercussions). If you wonder whether you need help in this area,
listen to 20 calls or read 20 letters prepared by CSRs to find out what customers
are experiencing.

We are not recommending a total re-engineering of processes. Instead, we suggest
that you focus on the top 20 percent of transactions that impact 80 percent
of costs and satisfaction. This triage approach remedies the most critical problems
and gains the greatest efficiencies. The improvements can be significant, and
the net result is beneficial to customer, company and employee.
Let’s examine the impact of small changes. An average utility call requires
three or four minutes to complete, including the greeting, accessing the customer
account, listening to the problem, identifying and communicating the solution,
and finishing the call. Let’s assume that the call is received in a medium-sized
contact center that receives approximately 500 calls per half-hour, and that
each call currently requires four minutes. As the result of our diagnostic analysis,
we can reduce by 15 seconds the average call- handling time through small changes,
such as developing a standard greeting, facilitating faster account look-up,
and guiding a smoother closing. That 15-second savings will result in a savings
of six CSRs — likely more than $250,000 of avoided cost — or the opportunity
to improve average response time.

Installing High-Value Technology

The next step in our sequence is to identify the return on investment for
various technological alternatives. This usually entails a two-pronged attack:
increase the percentage of self-service (with considerations for customer satisfaction)
and apply technology to contacts serviced by CSRs.

Self-service implementations often result in the highest return on investment,
if we measure ROI solely by cost reductions. The first action is to get maximum
benefits from your current IVR investment. To do so, the utility executive needs
to understand the total potential value of the IVR, including:
• Squeezing out more benefits by establishing better IVR menus and scripts

• Reducing the call length for calls that get routed to the CSRs
• Its role as a hub that can be used by other contact center technologies

• Adding voice recognition technology

Various analysts suggest voice recognition is a blossoming technology that will
provide cost reductions and improved customer satisfaction. In the past, the
cost of voice recognition has been high, but it is decreasing.

Web transactions have been less successful in the utility industry. In a recent
study, it was found that fewer than three percent of utility transactions were
being self-serviced through the Web. The potential, however, is that Web-based
transactions will be used more frequently. In another study, it was estimated
that more than 30 percent of contact center contacts will be either Web-based
or email in just a few years. This places a new emphasis on this form of self-service
and raises the questions of how to best service customers who use these channels.

Technology has also had a great influence on how CSRs do their work, particularly
outside the utility industry. Several desktop GUI vendors claim their clients
have realized cost reductions of 20 percent, concurrent with customer satisfaction
increases of more than 10 percent. While these findings may not apply to all
potential customers (particularly within the energy industry), they do reveal
a potential to improve performance in a significant way.

Almost all utilities have made multimillion-dollar investments in their customer
information systems (CIS). These systems usually perform three very different
tasks. On the one hand, they support billing processes and on the other, they
support customer interactions — both in the front and back offices. The
strength of these systems often lies in their ability to generate high volumes
of bills per day. They are often, however, less capable in their role as customer
relationship management and back-office support systems.

Figure 6 – High-Value Technologies Allow Functional Integration Across Departments

Accordingly, a utility executive preparing a technology investment plan must
assess how well each of the major subsystems fills its role, and whether one
or all of the subsystems should be upgraded with CRM technology.

As with any investment decision, it is important to determine how the investment
will be assessed i.e., with traditional ROI measurements, from a strategic perspective,
or using a different set of expanded metrics. Since the projects can require
the investment of millions of dollars, it is important to have a thorough diagnostic
completed beforehand, to truly understand and quantify the range of available
benefits.

The internal customer service team often has a limited view of potential changes.
In some cases, this is the result of their limited span of control (i.e., knowing
only one aspect of the total). In other cases, it is because they are unaware
of best practices outside their industry. And regrettably, in some instances,
they are hesitant to identify savings that they are aware of because they do
not want to see change.

Figure 7 – Estimates are based on a 200-person contact center, using Boyd
Consulting data for cost by locale.

Many analysts have noted that the penetration of CRM technology in the utility
industry is less advanced than in other industries. As an example, the leading
CRM vendors (Siebel, Oracle, SAP, Peoplesoft) have made limited headway so far
with utilities, although they have substantial penetration in other industries.
Perhaps this is understandable in light of the different business imperatives
within different industries, but even though the ROI model may be different
and more challenging within a utility company, that does not suggest that CRM
benefits are not significant enough to warrant consideration.

Let’s look at computer telephone integration (CTI). For many industries, this
is a key part of call routing and handling. The anticipated and actual savings
have justified the investment for most industries, but the adoption of CTI has
not been as pronounced within the utility industry.

It was anticipated that the introduction of deregulation would place competitive
pressures on utilities, inducing them to pursue technology solutions already
proven to be valuable in other industries. Due to the slowdown of deregulation
these external competitive pressures have attenuated. Yet, there remains a need
to be competitive, to satisfy customer, stockholder, and PSC expectations, as
well as to establish a culture of competition within the utility workforce.

The opportunity to become more productive and to deliver better services through
technology has been demonstrated by many utilities. For example:
• Several utilities already have 40 percent of their calls serviced through
an IVR, and others are soon to install voice recognition — with the potential
to further improve performance.
• CTI implementations for utilities have consistently resulted in 15-second
savings, but at least one company has reached a one-minute average savings per
call with its CTI implementation.
• Call routing software has helped some companies to save 10 percent and
to deliver better service to their most important customer segments. These benefits
can also be extended to other contact channels, including email and Web-based
transactions.
• Voice and screen recording systems can increase the level of quality
by more than 10 percent and bring about associated cost reductions.

Becoming A Lean, Integrated Organization

All of these initiatives can result in material staffing reductions, and they
can also prompt new thinking about the way other processes operate. New thinking
can lead to revising operational goals, such as how many contact centers to
operate, how to integrate existing contact centers, and the role of CSRs and
staff. Many utility companies have more than one site from which they contact
customers. Some companies have always maintained separate regional call centers,
some separate their front- and back-office teams, and others have gained new
call centers due to mergers and acquisitions.

There are opportunities to achieve savings through either physical or “virtual”
consolidation. Figure 6 shows an example where virtual consolidation can lead
to an eight percent savings while physical consolidation to a low-cost site
could yield a 13 percent savings.
There are two different areas of opportunity that frequently result in savings.
The first is to look at layers of management and span of control. The ratio
of CSRs to a supervisor can vary based on many factors, but if the ration is
less than twelve to one, a review should be completed to determine if this is
optimal. Sometimes, the problem arises when companies have three levels of reporting
under the contact center manager: supervisors, team leads, and CSRs. It is also
important to determine what is preventing the supervisor from assuming a larger
span of control, including analysis of time spent per day and administrative
tasks being completed.

Cost Category
Contact Center A
Urban
Contact Center B Suburban
Total Centers A + B
Virtual
A + B
One Physical
Low Cost Center Suburban
Labor Cost – CSR
$ 7,430,320
$ 6,630,040
$ 14,060,360
$ 12,273,684
$ 11,575,097
Electric Power Costs
$ 44,071
$ 44,071
$ 88,142
$ 88,142
$ 88,142
Office Rent Costs
$ 474,375
$ 295,625
$ 770,000
$ 770,000
$ 516,119
Equipment Amortization
$ 960,000
$ 960,000
$ 1,920,000
$ 1,920,000
$ 1,676,022
Heating and AC Costs
$ 26,977
$ 28,669
$ 55,646
$ 55,646
$ 50,052
Telecommunication Costs
$ 2,349,243
$ 2,439,243
$ 4,788,486
$ 4,878,486
$ 4,878,486
Total Costs
$ 11,284,986
$ 10,397,648
$ 21,682,634
$ 19,985,958
$ 18,783,918
87%
Table 1 – Virtual consolidation can lead to a 8% savings while physical consolidation
to a low cost site could yield a 13% savings (estimates are based on a 200 person
contact center, using Boyd Consulting data for cost by locale).

Not all organizational changes will be made solely to extract savings. In some
instances, it is to provide improved and uniform quality. As an example, many
utilities have the supervisor perform quality reviews, which can be inconsistent.
An alternative is to have a dedicated quality control staff. Another problem
we sometimes see is that the supervisor is a traffic cop, trying to balance
the workload as call and email volumes change. These tasks are better left to
automated systems that optimize work distribution.

It is also important to to see how the CSRs are working and to determine their
satisfaction. If CSR turnover is very high, it can have a significant impact
on the contact center’s cost and quality. In light of the significant costs
of high turnover, determine the root cause of the problem and assess corrective
action. Some companies have also found it beneficial to have a human resources
profile of each CSR — a balanced scorecard that reviews the employee’s
productivity, quality, attendance, adherence to schedule etc. The tool identifies
those employees who need remediation and helps focus your corrective actions.

Figure 8 – Prepare gap analysis and submit results sample deliverable.
See Larger Image

What next?

There are several possible steps to implement a High-Performance Contact Center.
The first step is to determine the gap between “as is” performance and the newly
defined target level of performance. Once the gap is identified by using experiences
drawn from other industries and other diagnostic reviews, the utility executive
needs to establish the target plan, including short- and long-term actions.
The plan should consider risks, including the capability of the organization
to implement changes with or without consulting support, and the “change management”
plans required to implement the performance-inducing actions.

The decision to become a competitive contact center is one that can transform
the organization, helping to better meet the needs of customers, employees and
stockholders.

Choice!

There are many disturbing practices and beliefs prevalent in the traditional electric
and gas energy industry, but few more disturbing than the struggle between energy
providers and energy consumers over choice. Even discussing the topic of choice
is hazardous, but since I’ve titled this paper with that very nominalization,
defining choice seems to be a rational and appropriate beginning. Choice is defined
in Webster’s dictionary as “the power or opportunity of choosing.”

The struggle over the opportunity of choosing has a history that begins with the
initial formation of societies. We’ll track a bit of that history in a moment,
but, for now, let’s appreciate that energy companies, called “utilities” when
they are regulated monopolies, have had the historical advantage of choosing “for”
their consumers. This is an enviable advantage for almost any enterprise. As a
matter of fact, most companies in competitive markets utilize every available
strategy (e.g., product differentiation, branding, packaging, marketing, etc.)
to achieve the position of being able to choose “for” their target markets. Once
attained, there is some evidence that the advantage of choosing “for” your customers
is very difficult to give up. Historically, monarchies did not easily relinquish
the right to choose for their subjects; nor did religious institutions, most forms
of government, a variety of social orders (particularly cults), and so on.

As choice is introduced to energy consumers, energy companies are no more prepared
and anxious to relinquish the power or opportunity of choosing for their customers
than any of these historical institutions. The most coveted relationship of the
new energy companies (ex-utilities) is the customer relationship. There is a supreme
struggle over who maintains this relationship as the energy companies vertically
disintegrate into generation, transmission, distribution, retail marketing and
energy services companies (or some combination of these segments). Distribution
companies and retail marketing companies, for example, both want (and need) customer
contact and customer data. But the sharing is less than open and willing, and
mightily contested. The disintegrating utility wants to determine where the customer
data remains and minimize how much of it is to be shared. There is a clear belief
that there is an advantage in owning and managing this data — in spite of
the reality that no one seems to be able to clearly define what this advantage
is and how to exploit it. Real or imagined, customer information is presumed to
be where the value of these companies really resides.
In energy markets that are most advanced in de-regulation or liberalization, a
new breed of energy company is emerging whose only value is in the customer relationship.
These new enterprises eschew the ownership of pipes, wires, generators, transmission
lines — the mainstay of returns in a rate regulated environment — and
look to “owning the customer.”

Owning the customer is a direct and irresoluble contradiction to relinquishing
the “power or opportunity of choosing.” The concept of “owning the customer” is
an invalid objective and, with the changes occurring across society in our increasing
complex world, a strategy that is impossible to achieve and doomed to failure.
Our hypothesis is that the customer can not be owned, but must be cultivated,
catered to, respected, nurtured — in fact, loved — or they’ll go somewhere
else to buy.

Institutional Deconstruction

Social institutions (educational, political, religious, economic, etc.) have
the root goal of providing the rules of behavior that serve (or pretend to serve)
the interests of individuals forming societies. The institutional rules prescribe
what individuals give up to gain the benefit of the institution. As an institution,
the utility monopoly described forfeiting the freedom of choice as the price
the individual paid to gain access to cheap and reliable gas, electricity, water,
and so on.

Trust in social institutions follows a pattern of erosion as institutions fail
to provide solutions that are socially viable. New institutions more responsive
to the requirement of individuals grow to replace eroded institutions. Thus
religious institutions of today are hardly shaped as they were in the Middle
Ages and political institutions are moving generally in the direction of democracies.
There is a considerable loss of confidence in contemporary institutions —
leading to the formation of new solutions — a trend typically described
as institutional deconstruction. An example of institutional deconstruction
is the eroding dominance of educational institutions in the definition of what
is correct and true information. The often very restrictive control over the
dissemination of new (often controversial) information to general society (individuals)
by educational institutions has been replaced by the virtually unrestricted
dissemination of information, regardless of accuracy, via the Internet. Chat
rooms are more powerful influencers than the library or the academic forum.
Investor chat sites are more powerful than the 10-K corporate SEC filings in
influencing how investors form their beliefs about the potential value of their
investments.

Institutional deconstruction is being driven by several strong global trends,
but one dominant trend is acceleration in mass communication and the universal
availability of affordable information technology, both of these providing vast
quantities of real-time information (or misinformation). For example, trust
in the political institutions of the electorate were seriously eroded in the
United States in its recent presidential election when misinformation was communicated
about the polling results on the East Coast, which impacted the vote in crucial
locations on the West Coast. In addition, the polling institutions themselves
proved to be woefully locked into obsolete technologies, which ultimately prevented
an accurate count of the vote itself. The country remains uncertain of the real
outcome of the election.

The institutions surrounding energy are vulnerable to the identical crisis.
Trust in energy institutions is at a low point, making the provision of accurate
information subject to distrust as misinformation. Utilities seeking to communicate
with energy consumers in the California markets this summer suffered ridicule
and accusations of misrepresentation at the hands of their own customers. It
is also possible that utilities themselves, sustaining technological solutions
that can not keep pace with the rapidly changing energy markets, could suffer
the same loss of confidence as the Florida polling institutions — doing
too little too late to preserve their credibility with constituents. Internet
sites and chat rooms that feature dialogue and opinion about the future of the
energy markets, new energy initiatives, available energy options and market
opportunities will all have a powerful influence over how energy consumers ultimately
exercise their power or opportunity of choosing. Thus information freely available,
some totally untested, about the appropriateness of the structure of new energy
institutions can, and probably will, influence the future shape of the energy
industry.

This has powerful meaning for how new energy companies define their customer
and how they prepare to service this customer. The notion of “owning the customer”
is dangerously close to the paradigm of the monopoly market structure —
regaining, by some device, the territorial “franchise to serve.” The traditional
utility paradigm allowed the utility to assume, for their customer, the power
and opportunity to choose. After all, the comp lexity of producing, transmitting,
and distributing electrons or therms is beyond the grasp of the typical energy
consumer and choosing for them makes real sense. How can the consumer be expected
to make a choice that represents the proper system safety or the quality of
the commodity delivered?

True, the energy consumer is probably the last person qualified to determine
system safety or the quality/reliability of the electrons and therms. But this
is not what they want to choose — this is not why they want the power or
opportunity of choosing.

Over the past 75 years, few institutions have deconstructed more rapidly than
the institution of the utility. Regulated utilities and their regulators around
the globe have systematically eroded energy consumer trust in the ability of
a monopoly enterprise to deliver least cost service to their captive society
(the franchise). Utilities have been the focal point for abuse by capitalists
whose sole objective is to achieve monopoly market status. Operating utilities
have been combined into abusive holding companies with cash and resources drained
off until they were forced into bankruptcy. Reconstituted and re-organized utilities
have demonstrated an inability to achieve available operating efficiencies and
minimize costs. Utilities have become, at the hands of regulators, instruments
of social policy with rates designed to administer the distribution of the cost
of service in ways dissociated with real costs, angering various groups of energy
consumers. Egregious mistakes committed by the utilities have invariably been
put to the regulators for cost recovery and honored, leading the public to distrust
virtually any basis for a rate increase put forward in today’s regulatory environment.
One might ask, what is left to trust?

The Opportunity of Choosing

There is no more profound result of the general availability of information
through technology than the shift of power from institutions to individuals.
This impact is more profound than simply the availability of information to
the masses, or the ability to derive intelligence by processing this information.
What the individual has at his fingertips is the complete picture of the market
and the options presented to him by the market. Regardless of whether this picture
is today available to energy consumers matters little. The fact is it will be
available to them soon enough. They will act on their complete picture of their
energy options. And they will react to this picture in relation to every other
market picture available to them.

The energy markets of the future will be designed by the energy consumers and
must be responsive to their preferences regardless of what the new emerging
energy institutions might prefer. Any attempt to usurp the “power or opportunity
of choosing” by any segment of the energy markets will fail miserably.

The ultimate shape of the global energy markets and the business processes that
come to dominate this market cannot be foretold. There is no “seer” whose vision
of this energy future is so systematically thought through that it presents
a blueprint for success to the aspiring new energy institutions (e.g., wholesale
moguls, retail giants, distribution network magnates). But this does not mean
that these institutions will not emerge.

Creating the Innovation Engine

The greatest danger for energy companies, regulated or deregulated, emerging
or traditional, is their inability to innovate in response to emerging consumer
trends. Energy companies need to listen to signals provided by their commercial,
industrial and residential consumers and have the ability to respond.

The ability to respond has been a serious deficiency for the energy industry
throughout its history. The ability to listen and lead in the delivery of new
solutions has been largely absent. This is the point of the concept of the innovation
engine. To survive and prosper in the face of the rapidly changing rules (and
institutions) in today’s globalizing energy markets requires an unprecedented
ability to assimilate and analyze consumer wants, the ability to change rapidly
in response to consumer preferences and market signals, and the ability to develop
new solutions that are defined and preferred by energy consumers.

Leaders in the energy industry must adhere to the principle of ib4e™, innovation
before excellence. The traditional paradigm of pursuing excellence in existing
business processes may lead to failure in a market where business processes
are changing at rates that render the focal point of such a strategy obsolete
— that is, the business processes superannuate before excellence is possible,
making the adoption of new emerged business processes far more important than
rendering them perfect.

Building the organization that innovates — that continually re-invents
itself in response to changed consumer-driven market models — is the worthy
paradigm in today’s energy markets. And building this innovation engine requires
a redefinition of the people, processes and technology that are employed within
the energy company (utility) to define and deliver service to customers.

The Pursuit of Monopoly

It is a truism that every competitor seeks a monopoly. When we speak of moving
the energy industry toward competition we mean, in classical economics, six
things. We mean to create an energy market that has:
• A standardized product
• Many sellers and many buyers
• No government intervention
• No barriers to entry or exit (e.g., franchises, geographic restrictions)
• Free and equal access to information

Given these conditions, we have a market that, as though guided by an invisible
hand, will allow the self-interest of the market participants to force a market
price equal to marginal cost — the lowest price to entice sellers to make
the commodity available to buyers.

Sellers don’t like this market structure. By definition they are put in a market
where the minimum necessary profits to survive are provided. Every one of these
sellers is going to spend considerable time and energy seeking a market structure
(e.g., monopolistic competition, oligopoly or monopoly) where better profits
can be earned.

A good example of an industry sector seeking monopoly status is the enterprise
resource planning suppliers to the energy industry. The trend in the current
market is for ERP and CRM suppliers to converge. Each of the ERP vendors is
either developing their own CRM solution or acquiring one in the effort to provide
a full (and fully integrated) back- and front-office suite of solutions to their
clients. Unfortunately these come with either a proprietary technology, or toolset,
or both. Furthermore, in an attempt to reduce competition, these suppliers promote
a single company solution as superior to a best-of-breed strategy, virtually
ignoring the rapidly improving enterprise application integration technologies.

The strategy of the ERP vendors is relatively simple: eliminate competition
from the CRM vendors by acquiring them (fewer sellers, more market influence),
promote proprietary technologies and toolsets (create barriers to entry and
exit), and further eliminate competition by creating fear, uncertainty and doubt
around alternative EAI and best-of-breed solutions (which differentiate their
product by becoming unique and non-standardized). Three of the six requirements
of a competitive market are the target of this strategy, and the result is,
at best, a monopolistically competitive market, and, at worst, an oligopolistic
or a monopolistic market. To see the potential destructive power of an oligopoly,
study the gaming of the California markets over this past year by wholesale
energy suppliers.

The issue isn’t that this is wrong. It is a natural strategy of competitors
in a competitive market. And it is a strategy that will occupy the attention
of the new energy institutions. Let me iterate that there is some evidence that
the advantage of choosing for your customers is very difficult to give up.

Respecting Choice

This essay calls for new energy institutions to discard the objective of ‘owning
the customer’ and adopt the strategy of serving the customer — respecting
their power and opportunity to choose. After all, it is not as though the energy
institution can usurp this power. Individuals in the new society, with their
technology and access to information, will demand choice and they will have
it. The issue is how quickly and effectively can the energy institutions of
the new millennium respect this transition of power to the individual.

Respecting the customer will not be an easy task. It will require a redefinition
of most, if not all, of the business processes surrounding the management of
the interests of the energy customer. It will require a new agility and a new
sensitivity to customer preferences. It will require a whole new set of practices
aimed at anticipating the direction of energy customer preferences and offering
options, in advance of clearly defined requirements, that move customers more
quickly in directions of their choice. Such is the stuff of competitive advantage
— innovative solutions to which consumers flock. Consumers respond not
because their choice has been eliminated, but because the option is so compelling
that the majority of them exercise their power to choose.

We sell customer management products and services directly into the energy market.
We have the opportunity to touch and feel many customer management strategies.
Our research painfully reveals that the energy industry has taken only a very
small step from the monopoly paradigm of old to the “own the customer” paradigm
of today. Certainly the confusion around deregulation — the insanity of
the false markets determined by political and regulatory experiments with the
economics of competition — make evolution to customer centricity more difficult.
When the markets are truly competitive, consumers, as they do in a competitive
market, will greatly accelerate market evolution towards their preferences.

But there is an opportunity today for energy market leaders to respect the customer’s
right to choose. This very simple principle, and the strategies that evolve
from its application, may be the most telling determinant of long-term success
in the global energy markets.

The IBPP Revolution Meets – and Exceeds – Expectations

Introduction

In an industry promising revolutionary advances nearly every day, one application
has gone well beyond vision-speak: Internet bill presentment and payment(IBPP).
By implementing an IBPP system, businesses can allow customers to view, store,
and pay recurring bills using a Web browser, email, or personal financial management
software. IBPP customers may also access and authorize payment via cellular
or PDA wireless devices. Sophisticated IBPP systems will soon enable customers,
particularly business customers, to analyze, dispute, and recalculate their
bills prior to payment.

The most obvious benefit to businesses is cost savings. “The most measurable
savings will likely come through enhanced cash flow,” according to BancAmerica
Robertson Stephens & Company, because the billing-cycle float is reduced. That
involves not only mailing time, but also processing time and funds availability.
Considering the additional savings in paper, handling, and postage (anywhere
from $.50 to $1.50 per bill), and the overall improved efficiencies are reasons
enough for any large business to implement IBPP. However, there are benefits
that are even greater than cost-savings when businesses choose the most appropriate
IBPP solution for their customers.

More than half of the approximately 18 billion bills sent annually will be available
online by 2002, according to some market research. Some analysts have even gone
so far as to predict the outright failure of businesses that don’t implement
IBPP. That’s why many corporations are currently evaluating or implementing
IBPP solutions, including hundreds of firms in the financial services, telecommunications,
and utility sectors — where bills can number from hundreds of thousands
to multiple millions each month. Solution models are still evolving, but any
successful model must be completely flexible to accommodate the rapidly evolving
needs of customers.

IBPP Benefit Overview

The traditional approach to billing a customer involved very little interaction
with the customer. Viewed as a non-strategic cost center, the billing department
was often isolated from the customer service area of the company and devoted
only to payment collection.
However, in today’s Web–driven business environment — where delivering
the highest levels of customer care is essential to long-term success —
this approach has proven inadequate. By actively engaging the customer in the
billing process, IBPP can facilitate world-class customer care and transform
billing into a competitive edge for the billing company. The benefits are vital
for companies taking their business to the Web:

Customer Care and Relationship Management

IBPP brings greater efficiency to the billing process and generates stronger
customer loyalty by providing better service. Today’s most robust IBPP solutions
not only provide a new vehicle for viewing and paying bills, but also a better
way to submit bill disputes and commonly asked questions. This helps free the
customer service staff from time-consuming and costly telephone-based support.
Customers can receive email responses to their questions, while the customer
care staff uses its time more efficiently by handling more urgent and complex
issues.

IBPP can strengthen the relationships that a large biller has with its small
and medium-sized business customers by streamlining business processes and building
customer loyalty. This can be achieved without requiring the installation and
maintenance of expensive Electronic Data Interchange systems. Large companies
have traditionally employed proprietary EDI invoicing and payment systems to
manage online purchasing and invoicing with large business customers. These
EDI solutions have required expensive customized software and additional hardware
to be installed, maintained, and upgraded at each user’s site. The expense of
these EDI systems has been too great for most smaller customers, leaving them
to grapple with more cumbersome processes. With Web access to IBPP, the high
level of service that large customers have enjoyed from EDI solutions can be
extended to smaller business customers at a lower cost. Even large customers
can take advantage of additional services offered through IBPP without modification
to their current EDI systems.

Highly Targeted Marketing

While serving customers more efficiently, IBPP also offers a biller the opportunity
to gather market intelligence about customers in real-time. Based on customer
profiles, companies can deliver graphically rich “enclosures” and other dynamically
generated promotional content for their customers. Marketing programs can be
tailored to an individual’s preference. Innovative companies are initiating
or extending their e-commerce offerings by using IBPP to enable customers to
establish new services and order products online.
A tremendous advantage of IBPP is the demographic type of customer that it attracts.
In the consumer market, early IBPP adopters are likely to be well-educated and
have high disposable incomes. These ideal prospects also have a high probability
of becoming early adopters of other new products and services the biller might
offer, whether directly or in conjunction with a business partner.

Enhanced Revenue Generation

In addition to new marketing opportunities, IBPP offers new opportunities for
revenue generation. For example, large billers eager to attract customers to
their sites are hosting other companies’ bills in order to offer customers convenient,
one-stop bill payment. They see value in increased usage and receive a larger
audience for their own services. Banks that maintain their own online banking
services are in a particularly strong position to offer IBPP services to other
companies. Telecommunications companies are also in various stages of evaluating
this opportunity. Business models for consolidation based on presentment and
transaction fees promise a significant source of new revenue. As IBPP becomes
established, there will be opportunities for well-branded bill payment sites
to sell advertising space as well.

Implementation Options

Simply put, IBPP means using the Internet to deliver recurring bills —
and options for paying them — through a Web browser interface. But there
are other methods of implementing IBPP, and different types of partners that
can help businesses integrate IBPP by taking on critical functions in an outsourcing
capacity.

Direct Model

In the direct model, a biller uses its corporate Web site to present bills
to customers and/or send bill summary notices via email. Payers must visit the
Web site to review bill summaries and details. They may then pay the bill, often
through a third-party payment provider. Unlike a retail bank or originating
depository financial institution, the TPPP simply processes bill payment and
collects a transaction fee. Figure 1 illustrates the interaction between the
biller, customer, and TPPP. After the customer enrolls for electronic billing
(Step 1), the biller emails a notification to the customer (Step 2), which might
contain bill summary information. The customer can then view bill details at
the biller’s Web site (Step 3), as well as authorize payments (Step 4). Once
authorized, a payment is processed by the TPPP, who debits the customer’s account
and sends a remittance to the biller (Step 5).

 

Figure 1 – In the direct IBPP model, the biller establishes a one-on-one relationship
with the customer.

The direct model enables a biller to maintain full control of the display of
bills, additional services, and marketing content. It also allows the biller
to preserve in-house control of important customer profiles and billing data.
Strategically, the direct model of IBPP can also serve as a test case for advanced
customer relationship management solutions. As businesses recognize the strategic
importance of CRM services such as customer self-care, they’re looking for extensible,
customer-centered applications that attract and retain customers. With IBPP
as a foundation, businesses can implement scalable billing systems to provide
the best in 21st Century customer care.

Many consumers have already experienced some form of direct billing, usually
from credit card companies or telecommunications providers. While the eventual
dominance of consolidated models (discussed below) seems assured, the strength
of such models will rest on a direct-billing infrastructure. For example, many
customers will continue to want to contact a biller directly to obtain customer
care or to take advantage of targeted marketing initiatives. And business customers
— who typically require bill analysis and invoice negotiation — will
appreciate a direct relationship with their major suppliers. Only a flexible
IBPP system will allow the simultaneous implementation of the direct model with
other models for a full range of customer benefits.

Consolidation Model

True market momentum lies with the consolidation model of IBPP. In this model,
the biller sends billing data to a third party, known as a bill consolidator.
The consolidator aggregates data from multiple billers and prepares bills for
presentment through its third-party arrangements with financial institutions
or Internet portals. Customers can then access their bills from the bill consolidation
site and enjoy the convenience of one-stop bill presentment. Within the framework
of this model, two distinct types of bill consolidators are emerging: “thick”
and “thin” consolidators.

Thick consolidation — In the thick consolidator model, the biller sends
all of its billing data, including transaction details, to the third-party bill
consolidator. All customer interaction is managed by the consolidator, which
acts as a single point of contact for the customer to manage multiple bills.
Figure 2 illustrates the interaction between the biller, consolidator, customer,
and TPPP in the thick consolidator model.

Figure 2 – Thick consolidators offer customers a one-stop shopping experience
for reviewing and authorizing bills from multiple billers.

When the customer enrolls with the bill consolidator (Step 1), the bill consolidator
registers that customer with each biller for whom the customer has requested
electronic billing (Step 2). The biller then forwards billing data to the consolidator
at regular intervals (Step 3) where it is consolidated into a single billing
database. Customers are notified by the bill consolidator whenever they have
bills to review from any biller (Step 4). The customer can view bill details
and authorize payments (Steps 5 and 6) at the bill consolidator’s Web site.
Payment processing transactions between the bill consolidator and the TPPP (Step
7) result in a remittance to the biller (Step 8).
Thick consolidators offer customers a one-stop shopping experience for reviewing
and authorizing bills from multiple billers. However, because traditional thick
consolidators do not provide direct interaction with the customer, the biller
has limited control over customer relationship management and targeted marketing.

Thin consolidation — Thin consolidators combine the strengths of the direct
billing model and thick consolidation model by collecting and preparing only
bill summary information. Customers that request billing details are linked
from the consolidation site directly to the specific biller’s Web site, enabling
the biller to directly provide extended customer care and targeted marketing.
This hybrid approach allows billers to achieve the broad reach of consolidation
while retaining direct interaction with the customer for control over strategic
marketing initiatives and customer relationship management. Figure 3 illustrates
the interaction between the various parties in a thin consolidator model.

 

Figure 3 – Thin consolidators combine the strengths of both direct billing
and thick consolidators.

Here, enrollment (Steps 1 and 2) is handled by the thin consolidator, who transparently
enrolls the customer with each biller they’ve selected. Unlike the thick consolidator
model, where the biller sends full billing details to the consolidator (and
also defers the opportunity for a one-to-one electronic connection with its
customer), here the biller sends only bill summary information to the consolidator
(Step 3). Email notification alerts the customer (Step 4) that bill summary
information is available for viewing on the consolidator’s Web site (Step 5).
If the customer would like to view full billing details, they are routed securely
to the biller’s Web site without having to log on again. At the biller’s site,
the customer can view bill details (Step 6) and see any other information the
biller chooses to make available, such as targeted marketing and customer care
information. The customer returns to the bill consolidator’s site to authorize
payment (Step 7). Payment processing and remittance to the biller (Steps 8 and
9) are then handled by a TPPP or through the biller’s financial institution
relationship.

Like the thick consolidator model, this approach has the requirement of a highly
reliable and scalable solution that can handle large transaction volumes at
the consolidator. However, this model also requires that the biller’s Web site
support the detailed transactions of IBPP as well as all of the components of
customer care and marketing.

Biller and Consumer Service Providers

Businesses that implement IBPP solutions may look to other vendors to outsource
critical functions of the overall solution. To help with specific IBPP requirements,
two key players have emerged: Biller Service Providers and Consumer Service
Providers. BSPs offer outsourcing of IBPP services to billers such as local
telephone companies and utilities. They manage the information technology systems,
the billing data, and the electronic payment transactions on a service basis.
BSPs may implement the direct billing model or be part of a consolidation solution.
In either case, they serve multiple billers, thus generating economies of scale.

CSPs focus on the consumer, presenting bill summary information from multiple
billers to the customer. Since customers often have relationships with geographically
dispersed billers, the convenience of the CSP’s one-stop Web site, where they
can authorize multiple bill payments, is compelling. The CSP model is particularly
compelling for retail banks and enterprises in certain vertical industries.

Conclusion

The combination of leading-edge IBPP with state-of-the-art online customer
care is recasting customer relationships and increasing customer loyalty. IBPP
transforms billing into a strategic marketing vehicle, tailored to a customer’s
unique profile and allowing the cross-selling of a company’s services and products.
Industries experiencing intense competition with their products and services,
such as financial institutions, telecommunications companies, and utilities,
can differentiate themselves with IBPP services and are aggressively pursuing
IBPP solutions. Banks in particular are in a unique position to become direct
billers and bill presenters for other companies, as well as key electronic payment
players.

Ultimately, IBPP will transform the bill presentment and payment process even
further. Features such as bill reporting, search and analysis capability and
bill history all promise to simplify the billing process. As IBPP evolves, today’s
batch-mode process will be replaced with real-time billing that is truly customer-driven.
For example, user-defined direct debit — the authorization of automatic
payments based on predetermined criteria — could eliminate the need for
customers to track and individually pay bills that fit their specifications.
Customers will be able to see their account status at any time and control how
and when they receive and pay their bills.

For More Information

iPlanet E-Commerce Solutions delivers a comprehensive IBPP solution tailored
to the needs of billers. Built on the scalable foundation of the iPlanet™ Application
Server, iPlanet BillerXpert and iPlanet BillerXpert, Consolidator Edition applications
support large-scale, transaction-intensive Web sites. Whether a company presents
bills directly or via consolidators or Internet portals, the iPlanet commitment
to open standards helps ensure that its IBPP solution will link to all the key
constituencies in the presentment and payment infrastructure, and reach customers
via every Internet-ready device.

To learn more about the iPlanet IBPP solution, please visit the Billerxpert
product pages at www.iplanet.com.
Sales contact information can be obtained by contacting iPlanet headquarters
in Santa Clara, California at 888.786.8111.
Related reading materials can also be found at: www.sun.com/sp/suntone and www.sun.com/sp/sunconnect

Talk to Me: Outsourcing to Make Big Gains with Small Businesses

Talk is cheap, but meaningful dialogue is valuable. For utilities, speaking
to each segment of the market in its own language can be satisfying and profitable.
Don’t make the mistake of talking to each segment in the same way. Tailor your
conversation and you’ll see an up-tick in customer satisfaction and your bottom
line. And remember to speak to a largely underserved segment of the market —
small businesses. There’s something in it for them and something in it for you.

Events in California and elsewhere have illustrated the need to broaden your
strategic approach. It is wise to hedge your portfolio so that your business
model does not become too narrow. You know that the current volatility of the
market can rapidly undo any gains you may have made. What worked yesterday may
not work today or tomorrow. Holding onto current gains by holding onto current
customers is a good strategy. And utilities can do a better job of pleasing
current customers. Not convinced? Look to the most recent American Customer
Satisfaction Index, a poll conducted by the University of Michigan Business
School. Satisfaction ratings for utilities for the first quarter of 2001 are
at a seven-year low. Coming in at a dismal 68.4 percent for the first quarter
of this year, utilities ratings are down 3.1 percent from last year and 9.4
percent from 1994, the first year the poll was taken.

Focusing on your small business customers pays off. Utilities traditionally
concentrate on residential and large industrial accounts for a number of reasons:
regulatory and political pressures, sheer numbers of accounts, and impact on
the system. They were the biggest slices of the pie. But, commercial customers
spend over $70 billion per year on energy, and nearly 70 percent of that —
or about $50 billion per year — is spent by small businesses. Overlooking
this segment of the market is a mistake.

Small and mid-sized commercial accounts can play a pivotal strategic role because
their electric load is often coincident with your peak. Reducing peak demand
can be an effective way to hedge against price volatility in your supply mix.
With peak MWh costing 20 to 100 times more than average MWh, achieving peak
reduction can pay big dividends. Small and mid-sized businesses create about
155 GW peak demand nationally. A very achievable 5-percent peak reduction across
this customer group — about 7.7 GW — would save costs to utilities
ranging from about $9 million per hour at the high wholesale rates experienced
in parts of New York state to $23 million per hour at the highest western wholesale
power rates.

Furthermore, your local small and mid-sized business customers are loyal; they
are far less likely to defect than large, multi-regional indust rials. Finally,
remember that every giant customer you serve today was once small. Concentrate
on increasing your standing with this segment of your customers and continue
to serve the residential segments with value-added programs to balance the impact
of the big industrials. You can do this by using tried and true customer relationship
management tools.

Renewed Emphasis on Customer Service

Customer relationship management is more than just a catchphrase when applied
to small businesses. It is the process by which you predict, assess, and meet
your customers’ needs. Far more than providing energy to your customers, CRM
is your key to giving them power. Empowering your customers may mean offering
incentives, and providing reliable billing and easy payment options. It may
also mean educating them with cost-saving tips and information on the telephone
and the Web. These jobs are as important to your business as supplying energy.

Case Study: Silicon Valley Power and
Mondo Burrito

Background

Silicon Valley Power (SVP) is the municipal utility for the city of
Santa Clara, California, home of some of America’s largest corporations
and — like all communities — thousands of small businesses.
A number of small companies in the Santa Clara region have implemented
load-reducing, energy-saving, business-building projects under the OPUSsm
program that SVP outsources through Aspen Systems Corporation.

Mondo Burrito Upgrades Facilities

Food service establishments are among the most sensitive to any changes
in refrigeration and lighting. It is particularly difficult to get the
independent restaurant owner to see the advantage to investing in upgraded
utilities. Owners want to focus on presentation, quality, service, delivery,
and maintenance without disruption to the bottom line — customers.

Frequently restaurants are housed in older structures, often built to
outdated standards. Capital, when available, is more likely devoted to
cooking productivity and services enhancement than energy efficiency.
The maitre d’ lives on the ambiance of the interior, and shudders at changes
in either lighting or HVAC systems. The chefs can’t abide anyone touching
the food preparation equipment, and the insurance broker is nervous about
any changes to refrigeration, freezers, and food preparation facilities.

SVP found a way to work with local Santa Clara restaurants to upgrade
energy efficiency without interfering in a proprietor’s tending to his
core business, and both SVP and Mondo Burrito met with success.

Steven Dutra, owner of the popular Mondo Burrito restaurant, was skeptical
when his Silicon Valley Power energy audit recommended he save on his
monthly energy bill by changing the light bulbs. “When SVP told me that
moving from incandescent bulbs to compact fluorescents would produce a
notable difference in my monthly bill, I couldn’t believe anything that
simple would be enough,” said Dutra. “I’d increased my building size by
10 percent and sales were skyrocketing-I was skeptical that the bill could
go down. But then SVP introduced a double rebate program, which allowed
me to buy the new bulbs for the same price as the old ones. I had nothing
to lose.” Dutra purchased 60 compact fluorescent bulbs, which normally
retail for $9 each. The SVP double rebate reduced that to just about what
he was paying for incandescent bulbs.

The unexpected bonus was in the wattage — while he normally used
60W bulbs, he found that 15W fluorescents generated the same amount of
light. “Another thing I didn’t know was that fluorescents last more than
four times longer than incandescents (NOTE: Fluorescents typically last
7 to 10 times as long as incandescents do),” Dutra added. “Even without
the rebates, the cost is actually the same due to the difference in lifespan,
and I don’t have to change them as often. The fact that the fluorescents
use 75 percent less power, combined with our other conservation measures,
caused my monthly bill to go down 20 percent a month at a time when my
sales and square footage were climbing. I was skeptical, but now I’m a
believer!”

While these are key customer service obligations, your main focus remains the
very real challenge of keeping the power on and moving it down the line to end-users.
That’s why so many companies look to the experts to handle portions of their
customer care. By outsourcing call center operations, billing, shipping and
receiving, and other functions, utilities can provide better service to their
customers. Seamless integration of these services can be achieved by partnering
with vendors that have raised customer service to an art form.

It is worthwhile to outsource customer service functions when you find a company
that can deliver in a way that works for you. Outsourcing to consultants who
have defined best practices in key areas of customer care makes sense for utilities
because they can help you focus more attention on your core energy production
and distribution businesses. Standout small business CRM providers offer you
cost effective, profitable options for increasing the effectiveness of your
small business interaction. Investigate vendors that can help you sharpen your
focus on these customers. It can pay off for you and for them.

Energy Service Solutions for Small Business

Let’s get back to that underserved customer, the small business. It will pay
to stimulate that portion of your business. But how do you go about doing that?
It may not be as difficult as you think. Strike up a conversation and spend
a little time with business owners, both in your service area and elsewhere.

Impress upon them that you value them as customers. Recognize that they, like
the big guys, might be able to go elsewhere. While deregulation has slowed in
some regions, it is not going to vanish. Under restructuring in the United Kingdom,
Scottish Power lost 25 percent of the customers in its franchise area. Today,
small businesses may not have as much political clout as large industrials,
but they will soon have choices in service providers. It pays to lock in their
loyalty now. Moreover, if your business model includes unregulated affiliates,
the business-friendly status will pay off in off-franchise market capture. Again,
while Scottish Power reported customer loss in the franchise territory, it gained
a million customers off-franchise, in part by offering energy service solutions
for business.

Show your small business customers how to get the best value for their energy
dollar. Counsel them on how they can lower bills by increasing their energy
efficiency. Help them find and implement efficiency solutions that are easy,
cost effective, and good fits for their business.

The standard for customer service has been significantly elevated. Giving small
businesses a break can have a direct effect on your bottom line. If you introduce
programs that reduce their total utility costs, be sure you choose programs
that help you with demand reduction. Customer service programs exist that do
both very effectively.

Energy Efficiency and the
Small Business — Problems

Courting the small business customer is more than a mannerly thing to do. It
can help you realize your load reduction goals. If you help reduce their usage
at peak hours, you will be taking steps in the right direction to reduce demand
and reduce your headaches. You can’t count on the fact that you might be able
to pass price spikes and other costs associated with peak power production or
acquisition on to customers, large or small. You need another solution. Helping
them increase efficiency and reduce load will help you in the long run.

And remember, load reduction is not generally a concern for small businesses.
Half of the small business customers in the United States are billed on an energy
basis only. They don’t see load reduction as their job at all. And it really
isn’t their job. It’s yours. But here’s where your newly revived relationship
with your small business customer begins to work for you. You create service
offerings that will encourage them to use less energy at peak times, and you
don’t have to lift a finger. Turning them on to load-reducing, energy-efficient
programs is easier than turning on a switch.

Can It Be That Easy?

Do such easy solutions really exist? Can you develop a symbiotic relationship
with your existing small business customers without breaking a sweat? The traditional
wisdom has been that they are a very hard segment to reach due to transaction
costs, low bills, and modest savings potential. For example, ESCOs largely ignore
them. Aspen believes, however, they can be served effectively and profitably.
There are turnkey solutions in the market to which your small business customers
will gravitate because they are easy, affordable, and effective. We know that
in order for any solutions to be attractive to your small business customers,
they can’t jeopardize cash flow. Therefore, favorable financing options should
be included. And — most importantly — implementing these solutions
cannot interfere with regular business.

Case Study: Silicon Valley Power and
Goble Properties

Goble Properties Adds Value and
Saves on Costs

Property management firms have long shied away from adopting energy
efficiency incentives because of competing views of such investments by
property owners, management agents, and tenants. Management agents focus
first on rental values and second on high occupancy. When the utility
bill is included in rents, tenants are unaware of the energy cost consequences
of using energy inefficient appliances, or keeping lights on unnecessarily.

Goble Properties manages 50,000 square feet of space in seven buildings
in Santa Clara. Tenant companies range in scope from computers to an environmental
testing lab. Goble Properties Manager Robin Jewell noted, “We knew our
tenants could benefit from improvements in HVAC and lighting in our buildings,
and that their productivity would increase as a result. We guessed that,
in the long haul, we would see our utility costs drop if we upgraded.
What we didn’t know — how could we undertake an upgrade without costing
us an arm-and-a-leg?”

SVP offered a double-rebate incentive, prompting Goble to agree to retrofit
its existing T12 fluorescent tube lighting to the energy saving T8 type.
By upgrading its lighting, Goble achieved long-term energy reductions,
without negatively impacting its tenants, the quality of life, or the
quality of light. In this same time period, SVP had tripled rebates to
motivate Santa Clara companies to upgrade their air-conditioning. Goble
opted-in here as well, replacing five rooftop HVAC units totaling 23 tons
of cooling with new units that featured twice the efficiency of the old
equipment.

Goble completed its air-conditioning and lighting upgrades in just over
3 months, from inception of its OPUS agreement to final installation.
Goble’s net cost for the upgrades was about $32,000, which was financed
internally. Goble now saves nearly $10,000 per year in power costs. “The
changes have saved us money without costing us business,” Jewell noted.

Investing in the Community

Santa Clara-area contractors implemented Goble’s HVAC and lighting upgrade
installations. Their net gain was about $60,000 in new business, with
minimal marketing cost. The OPUS team delivered a qualified sales prospect,
helped close the sale, and then dealt with all the utility paperwork to
ensure best value for the customer. The OPUS team took care of all technical
assistance, contractor interaction, and utility paperwork filing to gain
customer rebates — the customer suffered no interference with its
main business.

Such benefits are replicable in many settings outside Santa Clara. Typically,
in a region where distributors are purchasing wholesale peak energy at
$1,000/MWh, the 30 MWh delivered to a customer like Goble is worth as
much as $30,000/hr to the utility. The added incentives for contractors
and trades allies are enormous.

Making your solution work best requires your entire trade ally team —
from banks to contractors. Energy efficiency projects must be attractive to
lenders who work with small businesses. A small business will reject a project
out-of-hand unless flexible financial options are available; and your local
financial institutions will not touch a project that does not satisfy their
financial criteria.

Contractors have to buy into the value of these programs, too. Traditionally,
contractors shy away from small business projects because they are too —
well, um, small. Even when utility incentives are available, contractors frequently
avoid such projects due to the paperwork burden. If projects are grouped, sales
cycles are shortened, dispute resolution is streamlined, and commissioning is
simplified — and then contractors are more likely to work with them.

Sound like a daunting task? Can you implement customer service solutions that
deliver energy efficiency benefits to your customers without excessive transaction
costs, and without intrusion into their businesses? Can such programs offer
flexible financing options that are attractive to customers and local lenders?
Can these programs be made profitable for your local trade ally community, even
though they focus on the small business sector? And, most importantly, can these
programs make business sense for your utility in this new era? The featured
case studies describe proven, turnkey solutions offered in the market today.
They allow you to sign up for as much or as little of your own staff involvement
as you desire, with suppliers doing the rest. The programs are broadly replicable
and can lead you to success in an underserved market niche.

Driving Down Load While Driving Sales to
Your Customers

Let’s look at another large-scale energy efficiency success story. Consider
New York’s Keep Cool program. This program was responsible for replacing about
40,000 old window air-conditioning units in summer 2001 alone. Through Keep
Cool, residents were urged to turn in inefficient air conditioners, and received
a $75 turn-in bounty if the old unit was replaced by a new ENERGY STAR® rated
air conditioner. The program did more than give relief to sweltering New Yorkers.
By their very nature, air-conditioner efficiency programs give relief to those
who need it most — you, your small business customer, and your residential
customer — a “win” all around. Keep Cool had a significant impact on load
reduction. Under reasonable assumptions, New York saved nearly 7 MWh —
enough power to meet the peak power needs of about 8,500 homes in the state.
By the same token, appliance dealers (small business customers) saw their sales
increase. The turn-in bounty drove a measure of early replacement sales to the
dealers that were in addition to normal replacement sales. Finally — depending
on wholesale prices — utilities may have experienced up to $2 million per
year in cost avoidance from the program.

Programs like OPUS and Keep Cool have been shown to be highly effective. The
key is to find and implement a program for small businesses that offers a complete,
worry-free solution that benefits utilities, small business customers and your
trade allies. For energy companies, the program should increase profits by increasing
customer loyalty and enhancing brand positioning, which helps retain existing
customers and attract new ones. For businesses, the program should be specifically
designed to maximize profits by identifying and implementing optimal energy
use solutions at each facility.

Success stories like those in California and New York are within reach for you.
But these successes would not be possible without outsourcing programs that
provide services such as surveying, reporting, project specifications, vendor
proposal evaluation assistance, project contract negotiation assistance, financing
assistance, and post-installation inspections. Find an outsourcing program that
guarantees these services and you will be looking at a win-win situation for
you and your small business customers. Programs like these are not just talk.
They provide real benefits to you and to your customers. Your small business
customers are waiting to hear from you.