European deregulation has significantly reduced customer bills, yet it has also led to a business environment that is increasingly overwhelmed by volatility, profit collapse and wholesale change.
North America, once a leader in the move toward utility competition, has now fallen behind. Only a few states and provinces are moving forward confidently into a competitive era. Most of the others are rescinding competitive initiatives and re-embracing a regulatory environment they believe will rebuild a faltering transmission infrastructure and better satisfy residential customers.
Only in Australia is utility deregulation proceeding at a steady, though not particularly rapid, pace. Modest competition is developing. There have been neither spectacular successes nor spectacular problems.
The question, then, is how to move forward in ways that ensure the value of the competitive environment for all classes of customer.
The billing dimension
The bill is the focus of communication between utilities and their customers. Yet unless a significant event occurs to make billing a utility management priority, the assumption is that all is well within the billing engine. Following the changes needed to ensure the transition from regulated to competitive billing, few utilities have continued to invest proactively in promoting improvements.
This is surprising. A robust billing capability delivers better cash flow control and a stronger overall commercial operation. It should thus be a major management focus, helping to ensure long-term customer satisfaction and retention as well as positive returns on investment.
Where billing fails
A number of problems can occur within the billing process:
Failing to issue accurate bills. Inaccurate bills frustrate customers, cause time-consuming and resource-intensive disputes, and delay revenue collection. Typically, problems result from systemic failures and business process inadequacies, such as incorrect estimation routines or deteriorating billing and customer data quality.
Neglecting to bill customers. Customers who switch supplier can sometimes get lost in the transfer process – a problem which could significantly increase if switching volumes escalate. And it has serious financial consequences. Experience shows that it is difficult to present customers with a retrospective bill for service without major collections difficulties.
Producing unexpected bills. Many customers prefer budget payment plans. The big, unexpected bill at year-end is one sure way of prematurely terminating these customer relationships. Bills can also differ significantly from estimates or quotations given at the time of registration, because the estimating, rating and billing applications use different rules for calculating charges, or because the data in use by each application varies. At best, the utility can expect a call demanding an explanation which customer service representatives (CSRs) may not be equipped to provide. At worst, the customer may switch supplier.
Correcting one error creates more. Issues like a faulty meter can generate a series of inaccurate bills. To correct such errors, utilities require a complete history of price adjustments. Yet many systems only store latest prices, so employees must retrieve the remaining data from paper archives. Then CSRs calculate the adjustment using a printed rate sheet. Unfortunately, such manual adjustments do not address any underlying data problems that may affect multiple customers. Such recurring, unresolved queries often lead to increased churn.
Producing unclear bills. Studies report that 15 to 25 per cent of customers examine their utility bills closely. These are the customers most likely to be affected by – and to complain about – a lack of simplicity and clarity that obscures the price they are paying for services.
The underlying causes
Billing problems in transitioning and competitive utilities markets tend to stem from a common set of causes:
Calculating rates, bills and offers is complex. The myriad utility products and offers available have led to an exponential increase in rating calculation complexity. To respond to increased market pressures and enhance competitive advantage, business analysts need to reflect upward or downward pressures on margins quickly. The reliance on legacy systems means that rate/standing charge changes must be carried out by highly skilled IT personnel, and these can take months to permeate throughout the customer care system. Without a customer care and billing engine that supports maximum rate flexibility and itemised products and charges, companies cannot deliver such sophisticated products in reliable ways. Nor can they achieve full visibility of their overall profitability.
Mergers create system incompatibilities. While the pace of industry consolidation has slowed, the challenge of realising cost savings and other efficiencies remains. Merger activity has created a complex web of incompatible systems and redundant data. Yet to realise potential synergies, companies must bill for services seamlessly. Without a business infrastructure to realise the benefits, the utility will struggle to maintain the market capitalisation it gained during the merger.
Bill volumes can escalate more rapidly than anticipated. When all those marketing efforts pay off and a utility’s customer base increases, it is likely that an organisation’s current customer care and billing engine could not cope if its customer base went from 100,000 to 5,000,000 service points.
CSRs don’t always ‘speak the customer’s language’. Utility contact centres once measured CSRs by how long they took to deal with an initial customer call. Shorter was better. Yet today, customer questions tend to be far more complex. All too often, CSRs lack the necessary tools, data and applications to address customer problems quickly. And delayed problem resolution is a major cause of customer frustration and loss.
It may be difficult to achieve the single customer view. To maximise profitability, utilities require access to the complete customer transaction and communications across all product lines. This requirement for consolidated information might arise from a focus on dual-fuel billing or after a strategic acquisition. In either case, having a full appreciation of the customer enables utilities to deliver better service, favourable discounts and personalised products.
Billing and marketing have not melded. The bill is the only regular communication that customers read. Yet only a few utilities use the bill as a way of delivering effective, targeted marketing messages into the hands of consumers.
Underlying all these problems is a root cause: inflexibility in the billing engine. Without business infrastructure and processes that support the management of millions of customers efficiently and cost-effectively, utilities will continue to experience churn and rising costs.
The better billing challenge
It costs many times more to acquire new customers than to hold on to existing ones. So increasing customer retention should become a key priority.
Utilities require three key components to bill more effectively.
- Infrastructure that can evolve with changing market conditions and regulatory drivers.
- Processes that develop in accordance with change.
- People that focus on serving the customer and on delivering the all-important accurate and timely bills.
A phased approach to billing excellence
Phase 1: Evaluate infrastructure and identify potential weaknesses
Are particular components of the infrastructure presenting barriers to the implementation of smarter business, marketing or operational strategies? Does the current infrastructure place the company at risk every time market conditions change considerably? Could specific bolt-on solutions reduce these risks, or might a full system replacement be in order?
Phase 2: Define the target market before making any critical decisions
Companies must define their different audiences and ideal customers before making any key business process, human resource or technology decisions. This way, organisations can create a range of attractive products to maximise their potential markets.
Phase 3: Develop and review business processes
After segmenting the market, utilities can review the efficiency and effectiveness of core processes. Companies should avoid building their future product requirements based on matching the features and functions of existing applications. Typically, utilities customise their existing applications heavily to suit internal processes. The limitations of development teams and technologies often restrict the features of applications.
Phase 4: Select a technology that will support the new processes
In a constantly changing market, there are key requirements for any utility customer care and billing solution, regardless of the market in which they operate:
An adaptable architecture supports product flexibilty as well as different business products and models. These might include multiple companies, multiple products, and differentiated service to customers. Scalability A customer care and billing solution must be able to cope with rising demand from thousands to millions of customers. Ease of Integration Any new system or component must integrate with existing infrastructure. Also fundamental is the integration of data, processes and internal and external systems. Open Architecture To future-proof the customer care and billing environment, choose an architecture that facilitates communication with trading partners and customers. Ease of Customisation Systems must respond to a utility’s particular requirements, no matter how often the change. Those that handle customisation through definitions and selections are far easier to change and upgrade than are those that require hard coding. Modularity Many utilites find the ‘big bang’ approach to business transformation too big a risk. Modular applications can address the more urgent requirements. Other components can follow if and when required.
Focusing on fundamentals
To succeed in a competitive environment, utilities must keep a close watch on cost and efficiency. Doing so within the core billing competency can result in increased customer retention – the most cost-effective route to prosperity.
Better billing means better customer service, which will attract new customers in the future. Companies that reinvent their billing operations can also decrease their operational costs across the board. Whether it is in the areas of collections, maintenance, query resolution or the contact centre, utility companies can increase their margins.
But perhaps the most influential argument is also the simplest: a better approach to billing means a shorter time to revenue. This assures organisations of a far better chance of future survival – and a much healthier balance sheet in the interim.