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Pinpointing that Center of Value in AMR

March 2004 Energy & Utilities

Several speakers at The Metering Billing CRM/CIS Americas 2004 Conference had thoughts about the origin of the value in this industry, but the fun of it was that each speaker had a slightly different take on the subject.

Consider the following quotes. Ross Malme, President of PLMA, stated the “product isn’t the meter, the product is the data.” Bob Warden, at a session the day prior, stated the “real value is in learning how to use the information to improve operations.” Then, James Bales, Solution Executive at IBM stated “connectivity is not an option” to point to the communication network as the center of value.

For the business processes surrounding metering, billing, and customer management, where is the center of value? In the network that enables the communication, in the data that is being communicated, or in the decisions that are made based upon the communicated data?

Analogies

The answer to this question can be found by looking that of the modern developed country’s highways. Throughout the US and Europe, a modern highway system allows the transport of goods across thousands of kilometers in a manner of days. Developing countries in both Latin America and Central Europe have recognized that this infrastructure development is crucial for the development of their nation’s industry. In Slovakia and Mexico, governments are debating not if the infrastructure is required but rather how quickly their nations highways should be developed and to which key cities. These discussions indicate the value is in the infrastructure. Analogously, the value for utilities is in the communication networks associated with modern metering, billing, and customer management systems

Although this is a nice pat answer, it can be contradicted by looking within a different industry. Consider the modern insurance industry. Insurers have significantly improved profits by mining customer data to identify those most profitable and taking action to improve customer retention within this segment. Customer lifetime valuation, championed in the insurance industry, currently forms a standard Harvard Business Case taught in many MBA curricula. From this perspective, the value is in the information and the use of that information to inform decisions and guide actions.

Both of these analogies are useful, but neither is completely satisfactory. Consider the recent build-out of fiber optic telecommunication systems. The telecommunications bubble burst in 2001 more dramatically than either the silicon or software market.
Currently, there is a glut of capacity and an insufficient quantity of data to consume the bandwidth across the network. In this industry, value is proportional to the data throughput across the network.

Elusive

As these analogies indicate, the value is in the network that communicates the data, it is in the data itself, and it is in the decisions made based upon the information gleaned from the data. Pinpointing the center of the value is an elusive challenge largely because it is the conjunction of these technologies that enables the value to be created.

Co-opetition, a concept developed by Brandenberger & Nalebuff, is a condition wherein the value of being an industry player increases with the participation of other industry players. In the metering, billing, and customer care market, co-opetition has been the name of the game. Developments by AMR vendors enabled the creation of a network to collect and communicate the data. Developments by CIS and software vendors improved the use of that data for billing customers. Concurrently, developments in transforming data into useful information have affected business processes towards potentially more profitable operations.

As an economic rule, decisions are made on the margin. Pinpointing the value can then be described as determining which investment will produce the larger marginal return. For each utility, this point will change over time. It is an elusive game to pinpoint the center of the value, but it is clear that the value proposition in metering, billing, and customer care is not on the sidelines.



About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

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