Using CRM to Enhance Customer Relationships in a Deregulated Environment

James Ray | Mar 07, 2003

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INTRODUCTION

A recent Gartner Group report on the energy services industry observes that “a history of regulation allowed most companies to focus on product delivery, with a secondary regard for customers and costs of service delivery.

The wide and changing array of regulated and deregulated environments during the past five years makes it difficult to make any general statements about customer-centricity, except that the industry as a whole is highly inefficient at delivering good customer service and support.”1

The transition to a deregulated market continues to transform the energy services industry. The central consistency in this transition is the fast pace of change and the associated risks for energy companies and their shareholders. Customer choice enabled by deregulation creates a serious threat to utilities companies, jeopardizing their once ‘safe’ customers and revenues who can now easily switch providers.

In the newly competitive market, energy companies must promote loyalty among their customer base to counteract the impact of lower “switching costs,” a force that has traditionally offered protection against customer churn. Improving customer service is an imperative and a commitment to Customer Relationship Management initiatives is essential to improving the competitive advantage of energy services companies.

THE CUSTOMER CARE IMPERATIVE

Energy services companies are behind other sectors in adopting CRM as a driver of corporate value. Traditional Customer Information Systems (CIS) have been premise centric as opposed to customer centric. In other words, in the past the focus has been on customers’ financial transactions (from customer setup and meter reading through billing and collections) versus the development of profitable customer relationships.

Yet customers are becoming increasingly sophisticated as they continually experience the benefits of enhanced customer care in other areas of their lives. As a result, they are beginning to demand enhanced customer service and more channels of interaction from their energy providers. To successfully address customer demand and prosper in the competitive environment, energy services companies must implement holistic customer relationship management (CRM) solutions that support a well-rounded CRM strategy and address process and organizational issues.

Strong CRM capabilities enable energy services companies to enhance their bottom line by:

  • Developing deep customer loyalty and enhanced brand equity through better, multi-channel customer support. This also helps energy services companies protect their revenue base by limiting customer churn. Failing to protect the existing customer base increases pressure to recover costs from a reduced customer base and further erodes competitive positioning. Building or regaining consumer trust and confidence is also prerequisite to successfully offering a broader range of products and services in an effort to increase “share of wallet.”

  • Improving marketing effectiveness through optimized customer segmentation, plus targeting and attracting new customers. Recognizing the unique value proposition that will appeal to well-defined customer segments will help to ensure sustained profitability. Offering premium services at commodity prices is not a sustainable business model, but offering a variety of service levels at profitable prices can be.
  • Improving sales performance through effective tools. Without the protection of customers and revenue within their defined service territories, energy companies must strengthen their sales capabilities to preserve and grow revenue. Giving sales representatives comprehensive customer profiles and competitive intelligence yields a higher rate of success for sales efforts.
  • Providing flexibility to support new products and services. To increase shareholder value, energy companies need to grow revenue through innovative products and services. For historically regulated utilities, this will require a complete transformation to a culture that encourages and nourishes innovation and must be complemented by an ability to cross sell/up sell and support a dynamic mix of solution offerings.
  • Enhancing the productivity of Customer Care operations through streamlined processes, enabled by sophisticated workflow and an intuitive user interface. Customer self-service can also reduce demands on staff, resulting in cost savings that can enhance competitive position and margins while increasing customer satisfaction.
  • SHIFTING BUSINESS MODELS FROM OPERATIONAL-CENTRIC TO CUSTOMER-CENTRIC

    Energy services companies must develop enhanced customer relationship capabilities in an environment of intensifying cost pressures, exacerbated by the current economic environment. Being selective about CRM investments, and accelerating the return on these investments, presents the executive team with a formidable challenge.

    According to a recent Gartner Group report, regulated utilities have adopted an operational-centric model in which the most important element is to improve operations to reduce costs, benefiting the bottom line. CRM proposes as one of its tenets to have a customer-centric enterprise — which has been proven effective for most other enterprises at reaching the goals proposed by CRM: improved customer satisfaction, higher revenue and lower costs.2

    Said another way, energy services companies must undergo a shift from an exclusive focus on operational efficiency to include efforts that yield improved customer effectiveness. Previous investments in Customer Information Systems (CIS) were intended to improve operational efficiencies. New investments in CRM solutions must leverage the customer information available from legacy enterprise CIS platforms. Companies that recognize the interdependence of these systems are better positioned to migrate from the operational-centric to customer-centric business model.

    One of the distinct benefits of shifting to a more customer-centric business model is that improved understanding of customers and their behavior may actually yield opportunities to better align business operations with anticipated customer requirements.

    The result? Operational efficiencies are more easily achieved when the provider is able to effectively interpret demand signals and align business operations to meet anticipated demand. Flexible staffing models that respond to variable customer demand (for sales and service) are one example of improved operational efficiencies. Varying the level and timing of investments in sales and marketing activities to stimulate and manage demand is an even more sophisticated approach.

    Companies that make the commitment to this organizational transformation must also be vigilant in managing their investments in CRM solutions. They may accelerate organizational results from their investments in the following ways:

    • Align investments in Information Technology with CRM Strategy/Customer Value Propositions

    Before committing to IT investments, companies must establish the strategic objectives related to customer strategy. Understanding the various customer segments served by the company, and the unique value proposition that is appropriate to each segment, will provide much-needed guidance to executives making choices about IT investments.

  • Improve the alignment of business processes and organizational structure with organizational strategy and technology solution(s)
  • When value propositions for the customer segments to be served are well-defined, the business transformation team can better align business processes and organizational structures to deliver these value propositions. Information Technology may enable new organizational forms and business processes that deliver greater value at lower costs.

  • Accelerate the adoption of CRM solutions by organizations (and the people within them)
  • Through carefully planned communication, education and involvement opportuntities, companies can gain the commitment of affected individuals to planned organizational changes. With this commitment, individuals more readily adopt new business processes and enabling technology and thus more quickly deliver the anticipated benefits.

  • Utilize effective program management for concurrent projects to manage risks and identify and resolve issues that threaten to delay realization of benefits
  • Because of the complexity of business transformation, it is critical to establish a program management or project governance process and structure to ensure all investments are appropriately aligned with the CRM Strategy and with one another. Proactively managing risks, identifying and resolving issues, and appropriately allocating resources are the primary responsibilities of this function; failure to do so may yield confusion, anxiety and missed deadlines which delay or derail project success.

    TAKING ACTION

    Given the importance of becoming customer centric, it is not sufficient to merely undertake a CRM initiative. Companies across many industries have attempted this and failed badly. The viability of energy services and utility companies in the new market depends in large part on their successful transformation to a customer-centric organization.

    Energy companies should address seven critical success factors to ensure their journey is successful:

    • Define success
      In order to measure the success or failure of a CRM program, energy services companies should define what a successful CRM program means for their organization. It is essential to clearly identify the business objectives and associated metrics that will ensure an objective assessment of the program’s impact.

  • Assess current health
    Once metrics have been defined, companies should measure their current levels of customer service and establish a baseline set of metrics from which to measure improved performance.
  • Employ a phased approach
    Energy services companies beginning a new CRM program should start with a series of small, manageable projects that allow them to experience early success, build momentum and enthusiasm, and instill confidence that the long-term goal can be attained.
  • Build a well-rounded program
    Strategy, process, technology and organizational change should all be dimensions of a comprehensive CRM program. Deployment may be achieved in a phased fashion (e.g. strategy project first), but ultimately each dimension must be addressed and they must all be aligned with each other so that the end result is a comprehensive solution.
  • Solicit input and obtain support for CRM initiatives from all stakeholders
    Lack of executive sponsorship can kill a CRM initiative, as can lack of user acceptance. Solutions that do not result in an enhanced customer experience will not improve positioning in the marketplace nor improve profitability.
  • Treat CRM as a program, not a project
    It is important to think of CRM not as an event that ends when a technology solution is deployed, but as an ongoing, ever-changing business program that is integral to the overall corporate, customer-centric business strategy. The success of a CRM program should be continually monitored and measured long after it is initially rolled out.
  • Make a commitment to change
    To achieve business transformation, energy services companies must embrace a customer-centric culture and take the steps necessary to execute effectively. Only then can they truly realize significant and measurable gains from their new CRM program.
  • CONCLUSION
    The energy industry’s current environment is daunting, as the constant change and competitive threats introduced by deregulation present many risks for energy companies. To survive and prosper in this new world, companies must focus on becoming customer centric as a means to protecting and expanding revenue.

    Through steadfast commitment and by attending to critical success factors, energy companies can transform themselves to truly customer centric organizations and capitalize on the opportunities available within the competitive energy marketplace.

    1 Gartner Research Note COM-18-1360, M. Maoz, 7 October 2002 Utilities Won't Find a Complete Customer Service Solution

    2 Gartner Research Note COM-18-0518, E. Kolsky, 7 October 2002 CRM in the Utility Industry: Impact of Deregulation

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