The CIS Market in Transformation by Chris Trayhorn, Publisher of mThink Blue Book, March 11, 2004 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. Filed under: White Papers Tagged under: Utilities About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.