Growth or stabilization?

Editor’s note: Christopher Perdue is the senior director of market research at UtiliPoint International Inc., an Albuquerque, N.M., energy consulting firm.

Recently my company, UtiliPoint International Inc., has been asked by several different utility industry participants about the state of the customer information system (CIS) market in North America. Some believe it to be growing while some feel that it has stabilized or even slowed in recent months. To address this issue and the underlying reasons for selecting a new CIS, we turned to our annual survey of utilities in North America.

Focusing on the subject of customer service, the survey involves interviews with managers or directors of billing and customer care at North American utilities and it examines results from all utility types (investor-owned utilities, cooperatives, municipals, etc.) and all commodity types (electric, gas, water, etc.). Our preliminary findings are based on 94 completed surveys.

For background, the CIS market is comprised of vendors selling core enterprise systems focused primarily on customer-facing operations functions including enrollment, account maintenance, order processing, product/service management, billing, credit and collections, and accounts receivable. Sophisticated and extensible CIS systems provide base data to other utility and energy company enterprise systems including work and field service management (WMS), outage management (OMS), energy management (EMS) and asset management systems. 

The results provide a number of interesting findings regarding the current CIS market. For example, respondents were asked which feature of their current customer information system they would change, if given the chance (Figure 1). Flexibility was the most common attribute cited (18.2 percent of respondents). Only 14.8 percent of the respondents indicated that they would not change a thing. This is the first time in the survey’s history that doing nothing was selected by fewer than 18 percent. This would suggest that utilities are growing less enamored of their current systems.

There appears to be a number of drivers for the demand for flexibility. First, there is an acknowledgment that there is a need to close the traditional separation between business user and programmer, to make it possible for individuals who understand the utility business to have direct influence over the CIS.

Secondly, utilities want a more flexible architecture that allows them to adopt modules or components as needed. Increasingly, utilities today aren’t buying complete replacement systems. Instead, they want to maximize their current information technology investments and buy in bits and pieces what will bring in an immediate return on investment. Utilities are also looking for CIS vendors to create application program interfaces (APIs) and Web services that provide the information links required for systems to coexist and maximize efficiencies as a whole.

Additionally, the importance that utilities place on flexibility can be attributed to a maturing CIS market where existing systems are having new requirements placed on them for integrating into other applications such as meter data management (MDM). MDM is needed where factors such as new advanced metering infrastructures (AMI) are coming into play.

Market continued to grow

Since 2002 the number of utilities that are in the market for a new CIS has continued to grow. In 2007 19.6 percent of respondents indicated that they are in the market for a new CIS, up from 2006’s 17.3 percent (Figure 2).

Looking at the information by company type reveals that much of the growth is coming from investor-owned (IOU) and municipal utilities.

With regard to the service providers offering CIS solutions in the utility market, there have been a number of major acquisitions in the last several months, but one must be careful in classifying them as consolidations. Of note, Oracle has acquired SPL WorldGroup, MinCom has acquired Conversant, First Data has acquired Peace Software, and MDSI and Indus have merged. None of those transactions are CIS companies buying CIS companies. To the contrary, they are existing software companies acquiring or merging with CIS companies in an attempt to fill a gap in their service and/or product offering. The only tier-one CIS vendor not to have a change of ownership in the last year is SAP (and it would be difficult to acquire SAP).

Additionally, Harris Computer Systems has been performing a consolidation play for years with the addition of Cayenta, Classic CIS from Innoprise, AUS, and Systems and Software. This true consolidation signals a reduction in company offerings to the municipal utility market, but may not necessarily signal a reduction in product offerings. The CIS companies that have been acquired or merged in the last several months still have offerings in the market and actually now have additional offerings (like ERP, asset management, mobile work force management, bill print and remit/payments) to cross-sell to existing customer bases.

Functionality important

For the respondents who indicated that they were in the market for a new CIS, functionality was the factor most rated as very important. It was cited by over 77 percent of those utilities in the market for a new CIS as being very important (Figure 3).

Other factors often cited as very important included ease of use (71 percent), ability to integrate (65 percent) and being Web-enabled (61 percent). The factor that was least cited as being very important was regulatory requirements, at 44 percent.

Of all the factors, functionality is the only one to be cited by over 60 percent of the respondents for all six years of the survey’s existence. The factor of regulatory requirements was the only one to be cited by less than 45 percent of the respondents for all five years.

As shown in Figure 4, when considering replacing a CIS, on a scale of 1 to 5, where 5 is very important and 1 is not important at all, the determining factors with the highest average scores from the respondents that are in the market for a new CIS were for functionality (4.72) and ease of use (4.71). The lowest average score was for regulatory requirements (3.61).

Cost-to-serve metric

When evaluating what metrics should be considered for the CIS, one key area of interest in the European utility market that seems to be gaining priority in the North American market is the cost-to-serve metric. For the meter-to-cash function in the utility, this can be difficult to measure at first. Those who have outsourced meter-to-cash have a better handle on the cost-to-serve because it is captured in bill detail from a service provider. Outsourced operations also have contracted service level agreements in place where specific metrics are measured monthly if not more frequent. Many new outsourced service contracts also have benchmarking language in them that necessitates the service be benchmarked with the market periodically to ensure that the utility is not overpaying for the service.

Commissions are starting to perform benchmarks of the cost-to-serve or what is sometimes referred to as the fair market value of the service being delivered. This has utilities that do not outsource participating in cost-to-serve benchmarks in addition to the utilities that outsource. The cost-to-serve metric has varied over the past few years. In Europe, where European Union unbundling requires new infrastructures, some (but not all) have increased. In North America, some have decreased via outsourcing or the better use of customer self-service technologies (driving more customers to the Internet as opposed to the call center). The bottom line is that, as it gets measured, cost-to-serve comes down.

Continues to improve

While spending on technology for utility customer service has slowed since 2000, the research indicates that the utility market for CIS continues to improve in North America. While this year represents the largest percentage of utilities in the market for a new CIS, the 19.6 percent likely represents a ceiling for the true saturation that will occur over the next year. There are several reasons for this. First, the timetable for the decision-making process is quite lengthy. For most utilities the time frame for the decision-making process associated with a new CIS takes over nine months. Secondly, while a utility may be in the market for a CIS today, developments such as new budgetary constraints and executive changes can easily put a halt to these plans.

Additionally, 2006 was the first year in North America where legacy/in-house applications for customer service did not hold the top spot in market share, and 2007’s results indicate an even lower saturation (less than 19 percent). Taking into account the license providers and the outsourced service providers, market share is now held by product offerings and outsourced solutions. This means that the customer service market is moving from a “new license” market to a license renewal and outsourced opportunity market. This is likely to bring additional acquisitions as utility suppliers look to expand their current offerings outside of customer service.

The existing vendors and service providers are also beginning to bring their service-oriented architectures (SOA) to market. Many have had the technology for some time but the utility market appears to be warming to the idea and as the demand grows, so should the offerings. Therein may lie the integration requirement for which the utilities are asking.