The Customer System Dilemma
By Gary Weseloh, Vice President, Five Point Partners | February, 2006

A former colleague of mine had a habit of sitting at his desk muttering “what to do, what to do, what to do.” I believe that if he were still working with customer systems at a utility or municipality today, he might still be muttering those words. It is the essence of what we are hearing a lot of today as utilities and municipalities attempt to get a handle on what they must to do to remain effective, efficient organizations in today’s uncertain and very challenging environment.

The uncertainties that are now confronting utilities and municipalities are ever-present. Utilities are merging. Municipalities are selling off or out-sourcing all or portions of their utility operations. Both are striving to be more efficient and effective. While deregulation and competition has always been somewhat of an unknown, now many utilities are not even sure if they are ever going to have to compete in a deregulated environment and those that are in that environment cannot be sure if that will continue. And, because of all of this, future growth is very often uncertain. But, one sure thing continues to exist and is a prominent driver forcing changes in all the utility environments today. That one certainty is increased customer demand for superior service.

The fundamental system for serving customers at all utilities is the customer information system (CIS). This may be a single system, or it may consist of several applications such as a billing system, a customer relationship management system, and perhaps a stand-alone meter inventory system. But, in any case, it is the heart of the utility. The following diagram shows a fairly typical relationship between a CIS and other utility systems.

This illustration depicts the centrality of a CIS to other utility systems. It also highlights that while your CIS may be your primary focus for meeting your customer’s demands, it could be other related systems that must be improved or replaced in order to provide superior customer service. In fact, in those organizations where there are many systems linked, interfaced or otherwise integrated together, there is more of a likelihood that a dilemma exists.

The best way to address the “what to do, what to do” dilemma of your customer system(s) is to put together a comprehensive Application Plan. This includes a detailed, inclusive analysis of the current environment, an assessment of the current system(s), and a review of the target environment or where the utility wants to be and meticulous assessments of the alternatives that could drive the utility to that goal. The results from the many assessments will reveal the most advantageous alternative and allow the utility to prepare a business case as a blueprint for success. The following diagram depicts a high level view of this methodology.

Once the target environment is defined and the gaps are understood, the next step of the Application Planning process is to arrive at, define and document a list of all of the possible alternatives that should be considered.

The alternatives should cover all aspects of the customer solution matrix shown here, including maintaining the existing system, enhancing the existing system, migrating the existing system or replacing the existing system. Each of these major categories has one or more alternatives.

Maintaining the existing system is pretty straight forward. The option always remains to do nothing. And, the costs and benefits of maintaining the status quo are always a good baseline to use as a starting point to evaluate all of the other alternatives. This requires a complete understanding of the existing system and, what is many times more difficult to obtain, knowledge of what it currently is costing the utility to own and operate the current system. In addition, many times the evaluation around maintaining the existing system usually uncovers some actions that have to be undertaken to really make it a feasible solution. In other words, maintaining the status quo may include some improvements or enhancements to the existing system to make the possibility of keeping it a feasible option.

Enhancing the current system includes alternatives associated with making major improvements to the system itself, to the environment, and possibly adding new components. Alternatives in the “enhancing” area include a project for extensive upgrades to the existing system, re-fronting the system with a graphical or browser user interface or perhaps developing a common front-end to bring multiple systems into a single user interface, or adding a data warehouse to allow for new access paths from the desktop to the customer data. This could include a data warehouse, a data mart, and web-based system access.

There are two alternatives associated with migrating the current system. The first is to re-host the system, or migrate the functionality from the existing system and environment to a new computing environment. The second is to re-engineer the system using the existing system as the functional baseline for the new system.

The last grouping of alternatives fall into the replace the current system category. There can be many variations of what is meant by a replacement system, but typically the choices include doing custom development, obtaining a product solution and the considerations associated with hosting, co-sourcing or out-sourcing. Custom developing a replacement system usually means an in-house project to plan, design and implement a system which would be customized to the needs of the utility. Replacing the current system with a product solution on the other hand, entails the selection and implementation of a commercial off-the-shelf solution and having the vendor make enhancements or modifications where necessary but hopefully only make configuration changes. And, there are alternatives associated with whether or not the system should be located in and operated by the utility, whether it should be hosted by the vendor or another third-party, co-sourced with another entity or if the utility should out-source the entire system.

The most difficult aspect of the Application Planning process is then assessing each of the alternatives in terms of 1) installation costs 2) operational costs 3) installation timeframe 4) solution risk and viability 5) resource utilization 6) business strategic fit 7) technology direction fit 8) benefits and improvement 9) ROI and 10) buy-in and support.

Installation Costs should include both vendor and utility costs. These may be capital or expense costs and includes costs for new hardware, software, database management systems, desktops, LANs, WANs and other environmental costs. The costs should include all conversion and installation services and vendor expenses. In addition, all other installation costs such as other outside contractors or consultants, facility costs, supplies, new PCs if needed, printers, copiers, costs for newsletters, the utility team’s fully-loaded labor costs and costs for team training and possible travel should be included. And, the costs associated with the backfilling the normal work positions of dedicated team members should be included.

Operational Costs are the ongoing operating and maintenance for each alternative. This can be viewed in terms of cost per customer per month or in straight dollar amounts. Operational costs include new or reallocated labor that is associated with each alternative, costs of annual hardware and software maintenance, depreciation or other IT allocations. Monthly or “per click” operational charges from the vendor or third-party for the hosted, co-sourced and out-sourced alternatives should also be included.

Installation Timeframe is a key factor as well. Obviously, how long it will take to get each of the alternatives installed, operational and providing benefits back to the utility is important. Exactly how important this is will depend on the specific circumstances within the utility. There can be huge costs associated with lost opportunities. Likewise, if there are issues around unsupported applications or platforms, disaster recovery and redundancy, long time frames associated with implementing a cure may be unacceptable.

Each alternative must be evaluated from the aspect of Overall Risk and Viability. Some alternatives may have manageable or acceptable risk while others may have such extreme risk that the alternative is no longer practical. And, there may be other factors that would make an alternative more or less viable than another alternative.

Alternatives should also be compared and ranked in terms of Resource Utilization. This, too, can vary widely from one utility to another depending on the utility’s staffing level and its ability to take on different sized projects. Some of the alternative projects may be easy to staff with qualified resources, while other alternatives may be more difficult but the staffing can be resolved, and others simply cannot be staffed properly by utility at all.

Each alternative must also be assessed in terms of its Business Strategic Fit. Obviously, to do this the business strategy must first be defined and agreed on by the business organization and upper management. Customer service plans and goals, marketing campaigns and strategies, and operational strategies must be considered as each alternative is assessed in terms of its fit with the overall strategy.

Likewise, each alternative must be assessed in terms of its Technology Direction Fit. Where is the utility in terms of its technology curve, and how does each of the alternatives fall within that curve? This includes hardware, software, operating systems, and most importantly, integration to all of the systems, both now and in the future.

The Benefits and Improvements that will result from each of the alternatives should also be defined and each alternative assessed in order of magnitude by what they will bring to the organization - how well each will fill the gaps and bring the utility to the desired target environment. This assessment brings those sometimes intangible benefits to light and provides a way to compare them from one alternative to the other.

A Return on Investment (ROI) analysis can also be performed on each of the alternatives. This assessment pulls in the costs used in the above assessments, and then looks at the tangible benefits that will be achieved from each alternative. These tangible benefits could include actual cost savings, labor, equipment and supplies. Benefits may include time saving efficiencies, resource savings, cost avoidance, deferred costs and increased revenue from new opportunities.

The final assessment category is Buy-in and Support. This assessment includes the probability that each group, from internal user, to management, executives and even the customers, will embrace or reject the alternative. While this may have a lower weight than some of the other categories, we have all seen cases where one or more key groups have not accepted a situation, making it unworkable or unbearable.

When each of the alternatives has been assessed against these ten categories, a matrix can be prepared which can help lead the utility to the optimum solution. Then, a comprehensive business case and plan can be built around that most favorable solution. This then becomes the foundation upon which the utility can begin to develop a strategy to solve its business system dilemma. However, there may be further conditions or complications that prevent the utility from going with the highest ranked solution. Once those have been determined, it is easy to go to the highest ranked unrestricted alternative and build the business case.

This methodology works, and it works well. But it requires extensive analysis, broad industry knowledge including utility best practices and emerging technology, and an objective approach to development of an appropriate Application Plan for your utility. The results of the application planning effort will provide a foundation for a successful plan or strategy to answer the “what to do, what to do” customer system dilemma.

Gary Weseloh is a Vice President of Five Point Partners with over 30 years of experience with CIS solutions for the utility industry. He has over 30 years of utility experience, including the management of customer systems (CIS, meter reading, remittance processing, complex billing) at a large combination utility, consulting on mobile computing/field work automation, and extensive selection, evaluation and installation oversight projects.