Riding the wave of industry consolidation
by: Ian Plover
Ian Plover, consultant at Serco, analyses how water companies can maintain customer service levels while preparing for further industry consolidation.
|The next five years will see testing times for the water industry. As pressure to cut costs increases, so will the level of consolidation. Aligned with this is the ongoing quest to develop and maintain innovative ways to provide high levels of customer service as well as compliance with an ever-stringent regulatory framework.
Excellent customer service and the provision of accurate, real-time billing and payment facilities, remains vital to the success of the water industry. Combined with this is the fact that water companies also face pressures from regulators and competition to balance long term growth with efficiency savings. Throw into the pot the prospect of further consolidation and it’s easy to see how stress levels can escalate and best practice diminish.
Many efficiency savings have already been made through the introduction of new technologies and more efficient business processes. But achieving the holy-grail of efficiency and customer service is no mean feat. In fact survival in the emerging landscape of regulatory pressure, cost cutting and consolidation involves a shift in the way water companies have traditionally operated.
Those companies that are leading best practice are already in consultation with partners, stakeholders and users in order to deliver necessary change with minimum disruption and develop innovative customer service strategies and efficiencies.
So faced with the prospect of a merger, what can water companies be doing in order to prepare?
Build the business case
Before getting into detailed planning, the first step must be to prepare and build a business case that justifies the rationale for the merger and outlines the vision of the consolidated company. The business case must link the synergies of the merger with the long term aims and the strategy going forward. If this is done clearly, it will win the support of the stakeholders.
The business case must also outline how people, processes and systems will be brought together and developed for the benefit of the new company. It also provides an opportunity to look at how the businesses are being run and where best practice can be established for the new company going forward. In particular, the business case should outline how it will also create more innovative practices that add value to customers and reduce bottom line costs.
Clearly a merger cannot afford to jeopardise service level agreements in any way, therefore the merging of billing and customer services processes and systems must be a priority. In order to ensure minimum disruption to service levels, water companies must map and evaluate how the business processes can be integrated effectively at the outset.
But with limited resources and pressure to cut costs, achieving this can be problematic. However there are ways to achieve best practice cost effectively.
One solution favoured by the innovators in the sector is to adopt a collaborative outsourcing model. This approach can provide the focus, flexibility and cost effective resource needed for water companies to manage the many challenges they face. Through outsourcing certain processes to a specialist, the water company can maintain focus on its core business while having complete confidence that the merging of processes and systems is being managed by experts.
So if outsourcing can achieve the holy grail of cutting costs while maintaining customer service levels why isn’t everyone doing it?
Some companies within the water industry still have concerns over outsourcing processes to third parties. These concerns primarily relate to a perceived loss of control. Also outsourcing requires a cultural shift which can be viewed as yet another pressure and some companies will shy away on this basis alone.
But these perceived barriers can be overcome through learning lessons from industry peers in order to ensure that the right outsourcing partner is selected.
One of the most important factors to take into consideration is the track record of the outsourcer within the water industry. An outsourcing company could claim to know the intricacies of the water industry, but this could be in theory only. The realities of working in such a challenging, competitive and changing market mean that outsourcing companies need practical rather than theoretical experience. There must be clear evidence of experience and competence in delivering business change projects to companies of a similar size and scale.
Another common pitfall is to overlook the importance of consultation and planning involved in consolidation. Outsourcing is output-driven, and improved performance is almost certainly key to justifying the decision to outsource. Outputs should be carefully scoped, monitored and measured to ensure the customer derives the benefits they want. Both parties must be thorough and meticulous in planning business process integration.
To ensure a smooth process and the delivery of service level agreements in any process that is outsourced, suppliers and utility companies must understand each others’ aims, pressures and requirements.
Address the concerns
A key concern for water organisations is how they ensure that the vendor is providing value for money, and that customer service is keeping up with best practice. The solution is a process of benchmarking. This guarantees a continuous review of the processes and the performance of the contract. Stringent performance measures can be built into delivering services, which means that detailed procedures need to be appraised and documented to create the baseline for a process improvement plan.
For example, a pilot period of a customer service operation must demonstrate that targets can be met and customer correspondence processed within a set number of days to ensure that customer service targets are met. Service level agreements can then move up a gear so that service is continually improved.
The relationship will be more successful if both parties share a common vision and work together to achieve this collectively.
Another effective way to avoid the pitfalls associated with the outsourcing process is to address the legal considerations that underpin the partnership. The terms of transfering the assets in outsourcing processes from customer to supplier will be complex especially in the context of consolidation. The terms should be clearly set out to ensure that each party knows what it needs and expects to do.
For example, there may be a transfer of assets from the customer to the supplier, such as hardware, software or databases. When third party-owned assets are transferred, consent of that third party should be obtained. This can be a hidden cost and pitfall of outsourcing that can emerge further down the line and cause unforeseen problems.
Look to the future
There is a demand for excellent customer service and business awareness skills right across the water industry that is being driven by growing customer expectations and competition. In the future, as utilities companies change their business models new types of skills such as asset management, supply chain management, and contractor management will also become more important.
For example, one of Serco’s customers is the largest independent water supplier in the UK. One of its objectives is to develop innovative customer service methodologies and new types of skills. The challenge is to do this without compromising its high ranking for water quality.
A key factor has been the ability to use technology-enabled innovation and create a business model to incorporate new practices of managing processes. Improvement projects are being implemented to align the system closely to the business, people and processes. Further initiatives have included completion of a management study to document the environment and identify future changes.
Sustaining high levels of customer service, managing the regulatory landscape and preparing for inevitable consolidation presents a major challenge for the water industry. With cost cutting very much at the top of the agenda, companies must consider how third party specialists can help them to achieve their aims and objectives. Through the development of a mutually beneficial partnership that encompasses both parties’ goals, ambitions and expectations can be met.