The CIS Market in Transformation

Customer information systems (CIS) is a hub for customer-facing and revenue cycle
processing activity with functional footprint covering operational and a segment
of collaborative customer relationship management. CIS is a mission-critical
enterprise application considered a core investment component of an energy
company’s IT portfolio. It is also the most expensive item in a CIO application
portfolio, taking up to 30 percent of an energy company’s application
budget.

The CIS market has reached its third maturity level. The first stage included
internally built custom solutions and remained a dominant CIS implementation
model until the mid-1980s. It was replaced by proliferation of one-off solutions
leveraged by system integrators (SI), for example: Customer 1, Service 2000,
and IBM’s (Nipsco) CIS for MVS. Then, in the mid-1990s, SIs began exiting
the CIS product market.

That created an opportunity for the independent software vendors (ISV).
Companies like SPL WorldGroup, SCT, Peace Software, Lodestar, Excelergy, Soluziona,
and
Open C entered the CIS product market
and started to build configurable CIS products aimed at meeting new requirements
of the transitioning energy markets and increased customer-centric focus required
for retail competition.

Although the total market is estimated below $1 billion worldwide, the significant
growth potential was estimated at up to 11 percent growth during the active
retail market restructuring. The growth rate attracted customer care and billing
providers from other deregulated verticals such as Kenan Systems, Custima,
and Convergys in
the telecom area, plus enterprise solution providers such as SAP, PeopleSoft,
and Oracle in the enterprise resource planning, and
Siebel in the customer relationship management field. They adapted their offerings
to meet energy markets’ need.

Concerned with functional complexity and lack of domain expertise, and sensing
overall lack of demand due to retail restructuring slowdown – market
growth turned out to be less than half the initial estimate – many of
them, in particular telecom vendors, have exited energy CIS market.

The Impact of Deregulation

The CIS function in the traditional integrated energy utility was centered
on revenue management while extending into the customer relationship management,
commodity management, and asset management areas just enough to support its
primary meter-to-cash business process focus (see Figure 1).

Energy retail deregulation created unbundling and bifurcation
of the distribution utility value chain, forcing companies to pursue either
energy retail or distribution
businesses.
Two distinct sets of business drivers forced the CIS footprint to diverge,
resulting in products with “CRM full” and “CRM light” functionality
that met the needs of retail and network companies, respectively.

Leveraging deregulation as the main catalyst for legacy CIS
replacement and addressing immediate market needs, vendors extended the functional
footprint
into the CRM space and created
a new set of customer-centric CIS products. To address commodity
risk exposure introduced by vertical unbundling, CIS vendors also extended
the product footprint into the commodity management space. Network companies
with no requirements to retain existing or acquire new customers mostly opted
to stay within the perimeter of the traditional premises-centric CIS systems,
eventually retrofitting them
to support required retail market interfaces.

The virtual standstill of retail market restructuring and the
consequent trend toward re-bundling the retail and distribution businesses
have created a misalignment
between the current
CIS footprint and the requirements of most integrated
distribution companies.

This misalignment is the real culprit for the low product demand
among energy companies in North America. Without deregulation as the main driver
for customer
centricity and improved energy product and service time to market, CIS products
offered on the market provide regulated energy companies with only incremental
performance improvements and cost reduction in customer care and billing – not
enough to justify costly replacement.

Integrated energy distribution companies require CIS products with functionality
that will extensively expand into the asset management area, which will enable
them to achieve significant performance improvement by optimizing complex business
processes, such as service order management/scheduling and optimization.

To achieve optimal utilization of the distribution asset (including
loss minimization), energy usage information should be included in the asset
optimization process
(e.g., transformer load management). However, these functionalities should
not be integrated into current products by inclusion on the data model level
and create an even larger monolithic CIS footprint. Driven by financial adversity,
energy companies are reluctant to invest in large enterprise systems and are
considering reaching operational excellence by leveraging legacy IT investment.

The Current State

Recently, we’ve witnessed a record-low demand for CIS
products among tier 1 energy companies in North America following the virtual
standstill of
retail deregulation and the disappearance of unregulated retail market demand
for customer care and billing during 2001-2002. Burdened by untenable debt
load and, in many cases, failed unregulated business ventures, energy companies
have signed only three significant CIS contracts during the past 24 months.
With legacy
CIS replacement costs averaging $50 per customer, energy companies facing low
credit ratings and reduced access to capital cannot make the ROI equation work.
This is placing extreme pressure on vendors and forcing them to seek new opportunities
by offering aggressive discounts or pursuing prospects in smaller mid-tier
and municipal utilities markets.

The 2003 CIS Conference held in Nashville, Tenn., reconfirmed the following
trends in the market:

Scaling Down
With North American Tier 1 markets virtually at a standstill, vendors
(of both products and solutions) are starting to scale down and pursue municipal
and non-energy utility opportunities. Although both markets have similar functional
requirements (e.g., revenue, customer, and order management), significant differences
in business drivers, technical infrastructures, and product implementation
models – combined with complex governance in the mid-tier and public
power markets – will force vendors to reassess their current go-to-market
strategies.

In addition to extending preconfigured products to address specific
CRM public-power market needs and multiservice billing requirements, vendors
must focus on lowering
total cost of ownership by providing delivery/implementation templates, hiding
architectural complexity, and simplifying product maintenance support and operation
requirements. An increased number of vendors in mid-tier markets will exert
additional pressure on incumbent vendors, forcing consolidation and raising
vendor viability concerns.

Compensation
To alleviate customers’ buying reluctance and make their solutions more
affordable, vendors continue to tout CIS product componentization, which can
enable phased implementation or offer an ability to extend the lifetime of
legacy systems by addressing main deficiencies (e.g., complex billing, credit
collection, call center productivity). Marketed by vendors as the new modular
approach, componentization is achieved
by partially configuring and packaging a portion of the existing product, rather
than re-architecting/modularizing products by breaking them into pieces that
can collaborate in a composite application environment using service-oriented
architecture.

When considering current offerings, users need to be aware of the shortcomings
of pseudo-componentized solutions, such as complex integration issues, the
difficulty of disabling legacy products’ functionality, and increased
product lifecycle costs.

Outsourcing
High costs and complex IT infrastructure continue to make customer care and
billing frequent outsourcing candidates by energy companies focused on operational
excellence. Despite the existence of numerous external service providers, low
product maturity and tenuous financial models continue to be key reasons for
low acceptance of externally sourced CIS solutions.

Alliance Data Systems, the largest outsourcing provider in the customer care
and billing space in energy, has reached leadership status via acquisitions
rather than organic growth, and subsequently has numerous CIS platforms (Indus
Banner, Excelergy, ConsumerLinx, Peace, Soluziona). The new business transformation
outsourcing (BTO) model touted by major IT service providers introduces a new
value proposition by taking a holistic view of the entire business process,
including process improvement.

However, its complexity, high risk, and long-term proposition
make BTO applicable only to energy organizations that are relatively mature
from
the perspectives of business process, IT, and operating models, making companies
that need it the most the least-viable candidates. Wipro is a leading outsourcing
and offshore development vendor that has infused its energy domain expertise
by acquiring the AMS energy practice. Wipro offers a wide spectrum of outsourcing
options for customer care and billing, ranging from operation of the sunset
product to full BTO.

Process Integration
To achieve operational efficacy after harvesting the low-hanging fruit of cost
reduction in customer care and billing, CIS products will need to integrate
the complex business processes that cross the borders of several enterprise
applications. Depending on the market, vendors are focusing on business process
integration that requires incorporation of the functions within the enterprise
CRM systems and commodity management environments.

In a regulated segment, to support the needs of energy companies
that manage both customers and distribution assets, the focus is
on integration with EAM. To support energy companies’ quests for operational
excellence, CIS products will need to go beyond current integration strategies
and create an integration infrastructure that will support composite application
environments capable of integrating business processes by using a combination
of native and external functions invoked as Web services. Examples include
SAP NetWeaver and Siebel Universal Application Network.

The Integration Challenge
Extension of the CIS footprint from traditional revenue management into the
CRM and commodity management spaces, which occurred during the past decade,
took place on the current generation of
CIS architecture mostly as three-tiered products. This functional extension
was achieved by expanding the CIS data model to include new objects from the
customer and commodity management spaces, creating a tight functional integration
by data model inclusion and creating CIS products with several hundred (up
to a thousand) entities in its database.

The new push for CIS footprint extension, driven by energy companies’ quests
for operational excellence, must be achieved by going beyond current integration
strategies (e.g., inclusion at the data model level, user exits, APIs, enterprise
application integration). To support the desire of energy companies to leverage
business processes embedded in legacy IT systems, integration infrastructure
must support a composite application paradigm. This will be achieved by integrating
business processes in a service-oriented architecture that is capable of orchestrating
native and external functions invoked as Web services.

Business Process Management
Current CIS applications, developed to support the need of unbundled retail/network
companies, cannot adequately support an operational excellence pursuit. To
achieve operational efficiency, after harvesting
the low-hanging fruit of cost reduction and process automation, integrated
distribution companies need applications that can be orchestrated beyond automated
workflow into cross-departmental process optimization. Ideally the goal of
complex process optimization should be achieved by leveraging existing applications
rather then creating the next generation of monolithic ERP-like environments
(which energy companies, driven by the sector’s
low credit rating and access to capital problems, are not likely
to pursue).
To achieve operational excellence through cross-departmental process optimization,
energy companies must explore business process management (BPM) technologies
as a vehicle that will transform current application portfolios into a service-oriented
architecture. Consequently, a CIS product’s ability to facilitate integration
into a BPM suite and a CIS vendor’s process optimization strategy must
be regarded highly during the evaluation phase.

Energy companies, enabled by recent developments and projected trends in enterprise
application integration, Web services, business process management, business
performance management, business intelligence, and next generation analytics
architecture that supports real-time analysis of key performance indicators,
will start transformation into real-time enterprises.

Through 2005, business process management will play the key role among technologies
enabling energy companies’ sense-and-respond transformation. In this
phase, leading CIS vendors will facilitate BPM use to orchestrate and optimize
complex cross-departmental processes by “beefing up” analytical
architectures and exposing KPIs for process optimization. For example, the
length and frequency of system interruptions could be used in scheduling crews
for restoration work.

Following the emergence of mature retail restructuring models,
and maturation of the Web services technology we expect leading vendors
to disaggregate monolithic CIS applications into services and rebundle them
into composite application environments using a combination of native functions
and external services – for example, Web services across enterprise and
business partner environments. New generation CIS business process management
capability within the composite architecture environment will be one of the
key requirements for energy companies focused on operational excellence.