(September 2008) Shareholder value remains strong as the Big Build begins. Our fourth annual ranking shows healthy growth in earnings and share prices. But as capital spending grows,...
CIS: The new Profit Machine
in products with "CRM full" and "CRM light" functionality that met the needs of retail and network companies, respectively.
Leveraging deregulation as the main catalyst for legacy CIS replacement and addressing immediate market needs, vendors extended the functional footprint into the CRM space and created a new set of customer-centric CIS products. To address commodity risk exposure introduced by vertical unbundling, CIS vendors also extended the product footprint into the commodity management space. Network companies with no requirements to retain existing customers or acquire new customers mostly opted to stay within the perimeter of the traditional premises-centric CIS systems, eventually retrofitting them to support required retail market interfaces.
The virtual standstill of retail market restructuring and the consequent trend toward rebundling the retail and distribution businesses has created a misalignment between the current commerical off-the-shelf (COTS) CIS functional footprint and the requirements of most North American (integrated) distribution companies. This misalignment is the real culprit for the low CIS product demand among North American energy companies. Without deregulation as the main driver for customer centricity and improved energy product and service time to market, CIS products, currently offered on the market, provide regulated energy companies with only incremental performance improvements and cost reduction in customer care and billing-not enough to justify costly CIS replacement.
Integrated energy distribution companies require CIS products with functionality that will extensively expand into the asset management area (e.g., EAM, WMS, OMS, mobile field service), which will enable them to achieve significant performance improvement by optimizing complex business processes (e.g., service order management/scheduling and optimization). To achieve optimal utilization of the distribution asset (including loss minimization), energy usage information should be included in the asset optimization process (e.g., transformer load management). However, these functionalities should not be integrated into current COTS CIS products by inclusion on the data model level; that would create an even larger monolithic CIS footprint.
Driven by financial adversity, companies are reluctant to invest in large enterprise systems and are considering how to reach excellence by leveraging legacy IT investment.
In 2003 we witnessed a record-low demand for CIS products among Tier 1 energy companies in North America following the virtual standstill of retail deregulation and the disappearance of unregulated retail market demand for customer care and billing during 2001-2002. Burdened by untenable debt load and, in many cases, failed unregulated business ventures, energy companies have signed only three significant CIS contracts during the past 24 months. With high legacy CIS replacement costs (averaging $50 per customer), energy companies facing low credit ratings and reduced access to capital cannot make the return on investment (ROI) equation work. This is placing extreme pressure on vendors and forcing them to seek new opportunities by offering aggressive discounts or pursuing prospects in smaller mid-tier and municipal utilities markets.
Market dynamics and industry trade shows in 2003 reconfirmed following major trends in NA CIS market:
Scaling down: With North American Tier 1 markets virtually at a standstill, vendors (of both products and solutions) are starting to scale down and pursue municipal and non-energy utility opportunities. Although both markets