By Kirill Rechter
April 28, 2016
Okay, so you have your new business strategy in place. Your plan involves attracting customers away from incumbent energy suppliers with improved customer service, service delivery and billing.
The next step in your process is likely to transform your business support systems and the operations they are intended to maintain. At the moment, you are probably using a variety of legacy systems that were originally deployed a number of years ago to address the specific functional requirements at the start of your operations.
If your legacy systems cannot support your new business strategy and the market opportunities you intend to pursue, you are not alone. This is a common scenario challenging many new entrant energy service providers in competitive markets, especially those in Europe.
The importance for a new entrant energy service provider to deploy efficient business processes cannot be underestimated. Quality customer service, automated service delivery and transparent billing will help a new entrant take advantage of the high churn rates of dissatisfied customers of the large, incumbent energy suppliers and build a loyal customer base.
But, how can an independent gas or electricity provider transform its business operations to support its new business strategy, while at the same time, position itself to meet unknown, future requirements?
The answer to this question is having a holistic approach to business processes and the flexibility to efficiently deploy new workflows at any time.
This might sound overly simplistic, although it is certainly an accurate statement.
We see many new entrant energy service providers who think that they are going through an important transformation project. However, what they are really doing is just replacing one set of functionalities with another set of functionalities. And the outcome is often that the new business processes are still being defined according to the limitations of the deployed systems.
This actually is an issue that is not limited to the utilities sector. It is a problem facing service providers in many vertical markets, including the telecommunications sector.
The same new support systems and business process mechanisms that enable an energy service provider to improve its customer facing activities will also enable it to better manage its business operations.
With this in mind, there are three important dynamics – business, regulations and economic – that should be considered in order for a new entrant energy supplier to make its transformation project a success and ensure that its business processes support the company’s long term goals.
In general terms, energy suppliers are commodity traders. High volumes along with dynamic buy and sell pricing can compensate for very low margins.
In terms of business processes, an energy service provider’s purchasing and inventory management mechanisms must be fully integrated with the business’ pricing and product offering processes. This will improve the way an energy service provider maintains optimal inventory levels and profitably prices its services. Alternative methods require manual processes to connect disparate systems, which will lead to inaccurate estimates and lower profits.
At the same time, business partnerships can help a retail energy service provider access more business opportunities and enter into complex revenue sharing agreements. By completely integrating and automating the processes involved in these partnerships, an energy service provider can ensure that profit margins and revenue generating opportunities are optimized. The alternative, like the connection between inventory management and service pricing, of using manual processes to connect moving parts will lead to inaccurate and cumbersome outcomes.
Many countries in Europe are enacting regulations that will require retail energy service providers to discontinue existing practices involving billing customers based on estimations of past usage and performing a reconciliation of actual consumption on an annual basis. Regulators want retail energy service providers to bill customers for actual usage on an ongoing basis.
Retail energy suppliers are concerned that massive investments will be required to comply with these new regulatory requirements. Given the common use of overlapping systems and manual processes, retail energy service providers certainly have good reason to be concerned.
However, at the end of the day, regulatory requirements are just business processes that need to be defined and automated.
The point here is that during a transformation project, an energy service provider must have efficient control over its business process definition and management.
This will position a retail energy service provider to efficiently adjust its operations to comply with any changes to regulatory requirements with minimal efforts.
Even if a retail energy service provider properly executes its plan and delivers on its strategy, every market has its limitations in terms of size. Eventually a retail energy service provider will need to look for additional revenue generating opportunities and diversify its service offerings.
This process has already happened many years ago in the communications sector. As voice-based service became commoditized, communications service providers began offering a range of mobile, data, video and other value added services. Today, these types of service providers are often referred to as multiple play providers.
There is a definite possibility that retail energy service providers in the near future will begin offering various communications and other value added services.
In order for this to be successful, these new service offerings will also need to be fully integrated with the existing processes of the business’ core offerings. This will allow a retail energy service provider to offer attractive packages with a range of multi-service discounts.
At the initial stages of a transformation project, the requirements of future services need to be considered and these requirements should be incorporated in the planned support systems that are deployed.
There are attractive market opportunities for new entrant retail energy service providers. Those new entrants that are considering a transformation project for its support systems or even those that have already started the process should remember that they need to position themselves to meet both existing and future market needs and operation requirements. Modern support systems must serve as a business enabler and contribute to meeting the company’s strategic objectives.