Utility demand for Customer Information Systems (CIS) is at one of the lowest levels ever. With only a few bright spots, the outlook for an improved market by year-end 2003 is dismal. The investor-owned utility (IOU) space has reflected minimal purchase activity for the past eight years with few exceptions. Declining revenue makes the purchase of a new system by public power difficult-to-nearly impossible. The past two years of significant activity by water utilities has tapered off to normal levels, while cooperatives are experiencing low-to-minimal activity levels. Worst of all, activity by retailers or energy companies operating within deregulated environments is minimal to non-existent.

Thousands Out Of Work
Hundreds of people remain unemployed. Frustrated with the utility industry and specifically the CIS market, some have decided to change careers, start their own business, or abandon the market and move to work in another industry. Software vendors and consulting firms take advantage of the situation by letting personnel go, replacing them with more experienced individuals who are frequently available at lower salaries. Utility staff is being asked to do more and more work, and while they realize it is not humanly possible to fit everything into the workday, many feel lucky to have a job and do what is asked of them.

Consultants Flood Market
Although the CIS market is depressed, many consultants continue to enter this already crowded market. Big consulting pushes are coming from engineering firms of all sizes, associations, small regional firms, local consulting entities, and unemployed individuals. The abundance of consultants is driving rates to extremely low levels, impacting fee structures and significantly reducing profits, which makes it tougher for firms to remain viable and stay in business.

However, the most significant impact is the “pretend” consultant who proclaims to be a CIS expert. Bad advice is influencing CIS initiatives, which remain one of the biggest and riskiest buy decisions a utility can make. Significant confusion surrounds replace-versus-upgrade decisions and hosting-versus-outsourcing platforms.

Integrators Target Installation
It is no secret that the big money is within the installation phase of a utility CIS effort and not front-end planning and selection work. Solution Integrators or SIs continue to find creative ways to influence planning and selection activities resulting in the award of installation work.

In general, SIs have moved from: offering CIS codeware based applications customized for each utility to becoming preferred providers for a number of CIS product solutions to Offering a solution bundled with a CIS product or focusing on being a preferred provider for one or possibly two CIS products. The SIs continue to Provide value by functioning either as a primary contractor during installation activities, or by providing managed services for the production solution or moving off, letting the utility work directly with vendors.

Vendors Expand Their Horizons
CIS software vendors continue to invest more time and money in identifying opportunities and working with utilities early in the system life-cycle in order to influence the CIS buy decision. Given the depressed nature of the North American market, vendors have shifted their primary focus to the European market and its significant CIS purchase activity.

The longevity and ongoing viability of CIS vendors depends in large part on their success in developing strategies and offerings for multiple market segments rather than restricting their view to a single target market.

Same Core CIS Products Available
The cost involved in developing a new CIS offering and successfully introducing it to the market remains a daunting obstacle. As a result, the same vendors and core CIS offerings remain with only a few exceptions and additions.

The following diagram identifies the components of a core CIS solution and those considered to be extended CIS offerings. Vendors are developing extended capabilities within their core CIS or continue to develop integration with extended CIS components. Vendors continue to improve out-of-the-box installation capabilities and ease of product upgrades.

Outsourcing Yet to Take Off
A TMG Consulting review of 20 active CIS initiatives reveals that 50 percent are currently engaged in a planning or selection process and have not determined the operational platform to be utilized. Another 20 percent are planning to implement or have implemented their CIS within an in-house data center, and 30 percent are using or planning to utilize a hosted facility.

The outsource or ASP-based CIS remains a tough sale. However, many vendors and third parties work to position CIS products to be offered within an outsource environment. Hosting is considered a step between in-house and outsourced. It is quickly becoming the preferred operational platform, however, it is also the most misunderstood and frequently confused with the mechanics of outsourcing.

Utilities Conduct Audits and Studies
Utilities are conducting numerous studies and audits regarding their legacy CIS, active CIS implementation efforts, or new CIS installations. Approximately half of all CIS initiatives are conducted internally by utility staff—yet these same resources are balancing multiple responsibilities and cannot adequately focus on completion of CIS project work. Due partially to limited project budgets, utilities are using consultants in specialized support roles and to facilitate specific project activities rather than full-blown consulting engagements.

Fear Remains Biggest CIS Driver
Historically, CIS initiatives have been driven by a movement to new technology and the realization of greater efficiencies. An aging technology, deregulation requirements, year 2000, and the retirement of senior architects are all based on fear and have been used to justify initiation of new CIS selection and implementation efforts.

The unanswered question in many minds is, What will be the next big CIS driver?

Selection Work Is Time Consuming
Utilities may engage in up to two years of initial “tire kicking” and planning before they begin a formal evaluation and selection process. The Information Technology (IT) department is playing a bigger role in planning and selection efforts. There have actually been a few instances where IT rather than the business unit has been responsible for a CIS study or replacement initiative.

Utilities continue to short-cut selection work. As a result many move into the installation phase with unrealistic scope, dollars, timeframes, and staffing requirements. Selection work which is typically scheduled for 7 months, frequently requires 9 to12 months to complete with a few projects taking 18 to24 months (as long as some implementations).

Cost Reduction Difficult
Make no mistake, CIS implementations are high dollar projects which are difficult to cost justify based only on cost reduction or hard dollar benefits. Projects rely on soft dollars and intangibles to generate a positive cost/benefit analysis.

Regardless of the discussion of the need for a positive Return-On-Investment (ROI) before a CIS project is approved, fear (discussed previously) remains a significant driver over ROI. The majority of utilities fail to realize identified benefits and ROI within the initial months of production operation. It may take a utility 1 to2 years to begin to realize identified benefits.

Contracts Need Time to develop
It is time for vendors to recognize it's a buyers market. They need to modify standard contracts to eliminate terms and conditions which border on ridiculous in some instances. Projects involve multiple vendors and large contract packages. Solution integrators work to consolidate and assume overall responsibility for many aspects of the solution. Contracts and Statements-Of-Work (SOW) have evolved to become more sophisticated and specialized to this market. A review of six recent negotiations revealed each one has taken three months to complete.

CIS Projects Are Expensive
For each customer service a utility can expect to spend: up to $30 for core CIS out-of-pocket vendor costs; up to $30 for core CIS utility payroll costs and expenditures; up to $30 for extended vendor services; and, up to $20 for extended CIS products. The total ranges from $50 to $110 per customer service to implement a new CIS solution. Unfortunately, the market continues to minimize installation costs. Vendors continue to push more and more installation work and responsibilities to the client side and expect to be successful. Vendors and Solution Integrators continue to stress short installation timeframes of 3 to12 months. In reality, installations are taking 14 to 18 months to complete.

Final Thoughts
As the 27th CIS Conference comes to an end, consider the following as we move through the remainder of 2003:

• All parties strive to set realistic installation/operational expectations.
• Vendors develop effective project management capabilities.
• Vendors continue to evolve product capabilities, e.g. workflow, portals, wizards.
• Vendors continue to fix core product problems and errors.
• Vendors discontinue pushing work to clients and expect success.
• Vendors work to bring contracts and operations together.
• All parties forget 3 to9 month installations as they are difficult to achieve.
• Vendors update contracts to reflect reasonable contract position.
• Utilities need to discontinue trying to achieve the impossible.
• Consultants discontinue telling utilities they can achieve the impossible.

Greg Galluzzi,UtiliPoint Director and president of TMG Consulting, has 24 years of utility, information technology, and customer system experience. Greg can be reached at GregG@tmgconsulting.com.