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Marketing and Competing

Fortnightly Magazine - July 1 1997

is clear what cost reduction will do for shareholders. It is less clear what effect research in new technologies (em that may not be salable (em will have on our investors."

Shifting the Focus

Utilities have chosen to focus on a handful of strengths deemed competencies. Most of the time they discover these are not true competencies. Among the most often selected areas of competency are: customer service; generation asset management; transmission or distribution system management, or both; billing and collection; and commodity fuel purchasing.

Examples abound of companies displaying core competencies that utilities wish to imitate. But if utilities look closely, then they will realize they need to work a lot harder (em and allocate investment dollars (em to develop these as true core competencies. Federal Express is a model of customer service, using information systems expertly to track, dispatch and fulfill customer orders. AT&T's credit card operation shows how to handle efficiently high-volume, high-quality billing and collection, managing 16 million card holders with only 250 employees.

The question is, how do these skills affect the performance and strategic value and cost of a company's real products and services? FedEx truly has a competency in customer service, because it scores relatively high in both the cost-reduction and value criteria for determining a core competency (see Chart 1). For FedEx, customer service has a high value rating because it contributes performance, quality or strategic value to the core product: getting a package to a customer in a timely manner.

While the value of the activity is important, its impact on the product's cost is also a significant determinate of a core competency. Once again as shown by its high cost-reduction score, FedEx's customer service is viewed as significantly lowering the cost of delivering the package. If a package is delivered properly it will not only keep the customer happy, but also will keep the costs down by not having to redeliver the package. The cost criterion can determine which company has the stronger competency in billing and collection (see Chart 2). Both AT&T and NYNEX score high on value by viewing customer billing and collection as key to their core business of providing telecommunications to consumers. However, AT&T scores higher on the cost reduction criterion and therefore would be considered more competent at lowering its cost of providing telecommunications to its customers. TCG, a telecommunications firm, matches MCI and Amex in cost reduction, but scores higher on value.

Arguably, power generation marks the one area that many utilities can claim as a clear core competency, yet it is the very area they are allowing to disappear. Many utilities are choosing to exit the generation arena, yielding the development of new generation technologies to other players.

"Over the last couple of years," says Krieg of Pacific Gas & Electric, "we have lost technical experts in areas where we are no long doing research. For example, we are no longer looking at wind or solar. ... Those people are no longer with us."

A rational, structured analysis, not shoot-from-the-hip decision making, is the most