CIS Industry Can Improve
The US Utility CIS market is plagued by questionable growth and excessive competition. These challenges result from the last decade’s development path of the CIS industry. To overcome these challenges, CIS sales and marketing teams need to move beyond features and functionality claims, and express the value of their solution to the utility. Creating value claims would shift industry dynamics for CIS vendors from RFP Responders to Demand Creators.
CIS systems are Customer Information Systems for Utilities. Their core function is billing and customer management for utilities. They are the primary system used by utilities to manage customer calls. The price range for typical CIS deployment is wide, starting above $100,000 for specific strategic deployments, and ranging from $350,000 for small utilities to tens of millions of dollars for large investor owned utilities.
In managing customers, CIS systems are often compared to CRM solutions, but utilities rarely require the scripting, product catalogue, marketing, and analytical functions associated with enterprise CRM solutions. As a billing solution, CIS systems are sometimes likened to accounting systems. However, CIS systems focus on accounting functions only as they relate to customer accounts. In this regard, they manage much more detail on specific customer accounts than standard enterprise accounting packages. Because of the unique requirements of utilities in billing and customer management, CIS solutions have been and will continue to be an independent product category.
In support of the core requirements in billing and customer management, CIS systems also have a number of ancillary modules and interfaces. A highly significant module is Credit & Collections, a suite of automated business rules for managing utility customers with poor payment histories. Typically, 13% to 18% of a utility’s residential customer base falls in this category, therefore better management of these payment challenged customers represents significant value. Mandatory interfaces of the CIS system include the general ledger for accounting purposes, the meter reading system for measuring consumption, and the bill print system for mailing statements. Other typical interfaces and partial functionality include service orders for new customers and service cutoff, outage management for alerting dispatchers of unfulfilled service, load profiling for energy demand management, and customer web interfaces for electronic bill payment and presentment (EBP&P).
Purchasers of CIS products are the concentrated and powerful investor owned utilities and the fragmented smaller municipal and cooperative water, gas, and electric utilities. In electricity alone, 179 investor owned utilities provide over 80% of US power while the remaining 2,500 municipal and cooperative utilities supply the rest of the market. The utility market has a few large buyers and many small buyers.
Plagues of the Industry
There are four issues depressing demand and challenging the CIS industry. These are: (1) legacy custom solutions; (2) new entrants; (3) uncertain major business drivers; (4) questionable value to replacing the core CIS system.
Prior to the major launch of CIS product solutions in 1998, many utilities had custom CIS systems created to best fit their business peculiarities. These custom CIS systems were made by a number of major consulting firms such as IBM and Andersen. In terms of functionality, the successful solutions accurately perform the requirements of billing and customer care, often taking a clumsy service point orientation toward billing. Success, however, was a challenge for consulting firms and the custom solution approach. Their failure rate contributed to the industry shift away from custom solutions towards product solutions.
Today, economics are against custom solutions and they are rarely created. Consider that a typical CIS product represents over 200 years of technology and business worker effort. Today, a custom CIS solution can only be economically produced by using developing nation labor. Even with advances in offshore system development, utilities pursuing custom offshore development still leave themselves open to the failure rate of their predecessors. Given the costs and risks of creating a custom solution, most utilities resign themselves to purchasing a cost competitive product solution. This includes developed nations in North America, Europe, and Pacific Rim and also developing nations in South America, South Africa, Eastern Europe, and Asia.
While custom solutions may not be capturing many new customers, these legacy custom CIS systems are still in use. Utilities see little reason to replace these systems as long as they perform their requirements.
An ancillary challenge created by the high number of custom solutions is the rate of new entrants into the CIS product market. Once a utility has a working custom solution, there is little preventing them from licensing a vendor to resell it. The high number of working custom solutions licensable for resale creates an artificially low barrier to entry into the competitive landscape.
Because of the high costs of creating and updating a CIS product, the small number of large customers, and the infrequency of replacement, the US CIS market can function efficiently with only 5 to 10 players. However, the current list of CIS vendors is over 25 members long if you take every company’s claim. Given the industry dynamics, this market needs a shake out.
Some may argue that the value of new entrants is that they keep prices down and spur innovation, but competition performs that function well and the new entrants are not bringing new ideas to the market, simply recycling existing ideas. New entrants also threaten the industry by decreasing existing vendor revenues and discouraging continued investment in product development. Several CIS vendors have shown a willingness to overcome these challenges and continue to invest heavily in updating their product and expanding their functionality, but a few have withdrawn product investments.
Major Business Drivers Have Been Removed
During the past decade, CIS purchases were spurred by two major events: Y2K and utility deregulation. Today, Y2K is a footnote in history and utility deregulation is caught in a quagmire. With the removal of these two demand drivers, sales and marketing teams must clarify a new impetus for purchasing or accept a demand function tied to the timing of legacy system replacements.
Utility deregulation strongly drove CIS purchases because it forced utilities to change their business rules and prepare for more changes in the future. To manage uncertain business rule changes, CIS product vendors designed flexibility into their system. For example, modern CIS solutions enable business managers to create new products and change pricing rates without writing new code. With many legacy systems, changing a residential electricity bill rate factor from $0.082 per kWh to $0.079 per kWh requires new software code.
While business flexibility creates significant value, uncertainty in deregulation leaves managers with little impetus to change their business rules, thus there is little demand for new CIS systems. Derailed deregulation has had a larger effect on the enterprise CIS market segment than on commercial and industrial or settlement CIS market segment.
Vendors Fail to Quantify Their Value
The sales and marketing message for selling new CIS systems has three major components: features and functions, company strength, and price. A major deficit of this list is the absence of value quantification.
CIS vendors have historically chosen to leave cost justifications to utilities to work out. This approach may have sufficed when the market was growing, but it is insufficient today.
To prepare for this article, we created a sample value calculator for replacing a legacy CIS system with a new product. The value calculation demonstrated significant value related to four specific business functions: credit & collections, commercial and industrial customer management, call center operations, and business flexibility. The fact that improving specific business functions provides value may be the drive behind the recent demand by utilities for CIS extensions, enhancements, and specific modules rather than whole solution replacements. In this scenario, utilities are satisfied with their core billing and customer care system but dissatisfied with the peripheral functionality. Rather than replace their core system, they elect to improve their system at a lower cost and delay new purchases.
CIS vendors could use a value calculator in their sales approach. The value calculator sales tool would work as follows: (1) The salesperson asks a structured set of questions concerning operations. (2) The customer answers are put into the value calculator as inputs. (3) The value calculator calculates the value of the system based upon the customer’s situation. (4) The salesperson returns to the customer with an explanation of the value of the system given that specific customer’s situation. Providing the value is sufficiently greater than the cost, a purchase should result.
Vendors with a highly componentized solution could use such a value calculator to open a sales call with a few questions and close the sales call with a claim that their solution can provide value in excess of the cost. One area in particular, complex billing and customer care, can create value in excess of 10 times the cost of a popular componentized complex billing solution.
Quantifying the value of a CIS system would accomplish two goals for CIS vendors. One, it would enable them to identify qualified customers according to the business and financial value of their solution for that specific customers. And two, it would move CIS vendors from the catcher’s base in responding to RFP’s to the pitcher’s mound in driving demand.
The CIS Industry is challenged by functional legacy custom systems, excessive new entrants from artificially low barriers to entry, and uncertain strategic business drivers. Instead of waiting for the retirement of aging systems, CIS vendors could quantify their value to utilities to drive demand. Will they?
If you would like to learn more about our CIS value calculator, contact us.