Next Generation Electric Utilities Gear up Using Cloud Based Services

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1 A Point of View Next Generation Electric Utilities Gear up Using Cloud Based Services Abstract Globally, liberalization of the electricity sector has driven a paradigm shift in the ownership structure, and the corporate governance model of utility companies. To protect and increase market share, large service players leverage capital intensive technology and process oriented architecture to provide improved services to their customers. However, this has made it difficult for small suppliers and new entrants to compete with such large electric utilities. The challenge related to the high cost of technology and process oriented infrastructure investments can be effectively addressed by adopting a cloud-based model with usage-based pricing options. Introduction Privatization of the electric utilities industry has intensified competition in the market leading to a rapid growth of individual service providers, a spate of mergers and acquisitions, significant reduction in prices, and increased investment in technology and process-oriented infrastructure. Since electricity suppliers (or retailers) sell electricity to end customers, they are responsible for providing customer service and collecting dues from them. These companies have been increasingly shifting their current business models to align with the varying market model structures in order to achieve the most efficient pricing. To achieve a larger market share, retail electricity supply companies need to provide electricity to their customers at competitive prices and increase efficiency in operations and improve organizational agility. One of the key enablers that many suppliers leverage to capture a larger share in the market is the deployment of technology. Post liberalization, many independent electricity companies increased their market share and hence customer base by adopting specific technology strategies in order to improve existing processes and provide better customer engagement. Customer satisfaction for such electricity companies soared, as they leveraged technology to provide automated services for bill presentment and payment, relocation services, and usage monitoring. This helped increase customer satisfaction and loyalty, and reduce customer attrition. At the same time, electricity suppliers were able to improve their business by cross-selling products to a large group of existing customers. However, the big electricity companies with a relatively large customer base continue to hold a dominant position, even in the deregulated market environment. Smaller companies and new entrants have not yet been able to fully exploit the benefits of deregulation. The new entrants and the smaller firms are independent energy suppliers looking to capitalize on renewables and sustainable energy for electricity generation. This helps them drive an ecologically conscious message and provide innovative tariff structures and differentiated service quality as their unique value proposition. For these firms, reducing capital cost is an important criterion to remain competitive. They cannot afford to invest heavily in technology infrastructure. Challenges Faced by Small Electric Utilities and New Entrants The profit margins of small and new energy suppliers is constantly under pressure due to lack of a loyal customer base. Hence, it is important for these suppliers to make their presence felt by engaging their customers and introducing innovative tariffs, which suit the needs of existing and prospective customers.

2 Some of the challenges faced by new and small utility companies are: Evolving customer expectations: In order to retain their existing customer base and attract new customers, smaller suppliers and new entrants have to remain in sync with consumer expectations and effectively cater to them at par with industry leaders. This requires them to design and launch new products and services, provide customer support, and maintain infrastructure with the same degree of reliability and safety as the large suppliers. Their challenge lies in offering these services at competitive prices. Heavy capital investment: Suppliers need to invest in technology and analytics to perpetually monitor their operating and capital costs, achieve minimal loss from customer default, and observe a good rate of return. There is relatively more pressure on new entrants and smaller suppliers to survive successfully in today's challenging economic climate when volatile prices are pressurizing margins and profitability. Environmental and regulatory pressure: Government and regulatory authorities exert pressure on electricity providers to move toward low-carbon, environment friendly modes of operation. There is also increasing regulatory pressure to reduce prices and help customers reduce consumption during recessionary times. Market leaders introduce 'green' products and services at competitive prices to attract customers and build loyalty, and also leverage emerging technologies such as smart meters to control consumption and devise low-pricing options. New entrants and smaller companies face difficulties in complying with regulatory or government policies due to the high costs associated with such exercises. Lack of scale: Due to the nature of the business, the customer base is geography-dependent, which leads to a limited customer base and hampers their scale of operation. To serve a large customer base across a wider geography, electric utilities must have efficient technology and process-oriented infrastructure. Such investments are extremely capital-intensive. Installation, maintenance and upgradation of technology and process-oriented infrastructure at regular intervals is a huge drain on the supplier's balance sheet. Without scale, these suppliers have relatively fewer resources to invest in infrastructure and technology deployments compared to industry leaders. For instance, the emerging trend is the use of smart meters to ensure optimal consumption and offer customers greater usage control. This is a huge exercise in capacity planning and capital investment for the suppliers. ERP Cloud Computing and As-a-Service Framework: Enhanced Scale at Lower Cost The smaller electric utilities can overcome some of their challenges by leveraging the billing and CRM platform based on the pay-as-yougrow model, Platform-as-a-Service (PaaS), on cloud. With this model, they are no longer required to own either the infrastructure or the related activities of maintaining and upgrading it. Using cloud computing, all relevant applications and processes can be hosted, configured and managed remotely. This ensures that the scale and location of the business are no longer a deterrent. Since the application can be hosted on cloud, suppliers can manage their business operations online, across the board. The Business process-as-a-service (BPaaS) framework allows the smaller utilities greater opportunities to reduce costs on people, process and technology. For example, when serving a large customer base, the customer data needs to be maintained and bills generated as per the billing cycle for each customer. This requires maintenance of a large database that can process and exchange data in real-time with other technology and process-oriented applications. In such cases, service providers offer cloud-based ERP services on a multi-tenant basis for the smaller suppliers with standard core business processes. This is one instance of a BPaaS offering. It can be applied across the utility's process infrastructure as basic business processes are identical across utilities. For maximum business impact, a typical business process as a service (BPaaS) framework can be implemented in three distinct stages: Build: A core customer-agnostic platform solution is made available along with enabling tools, processes and workflows using the enterprise application suite Transform: To facilitate smooth transition to the platform, a participative approach has to be adopted for process harmonization and organization change management Deliver: The transition, execution and management of the transactional business processes is taken over by the vendor for efficient and effective service delivery 2

3 Business Benefits of a Platform-based Solution on Cloud The most important benefit of a platform-based solution on cloud is that electric utilities do not need to make any capital expenditure on technology. Cloud computing turns capital expenditure into operational expenditure with a lower TCO. The vendor owns the process, the underlying platform and applications, as the people and infrastructure necessary to deliver high quality services to the utility companies. Providers can leverage economies of scale and deliver significant cost and efficiency benefits to the utilities. Electricity suppliers can avail PaaS where the pricing models are fixed based on the usage. Cloud computing has the required scalability and flexibility to provide service on demand to electricity suppliers. It also provides easier change management to keep up with emerging technologies without additional effort, training costs or transition requirements. Conclusion With ongoing developments in the competitive landscape of electricity supply, there is a clear requirement for technology and process oriented solutions that enable smaller suppliers to enjoy the advantages of robust, cutting edge infrastructure like the larger suppliers. As outlined in this paper, cloud computing based customer service solutions can provide smaller electricity suppliers with a valuable edge to compete in the market. It allows them to take their focus off routine activities such as metering and billing whilst they concentrate more on growing their business through innovative campaigns, tariff and services. Electricity suppliers must sift carefully through the various services offered by third party providers and choose to partner with those that can provide a flexible and scalable solution that leverages the best of emerging technologies in the most secure and reliable manner possible. 3

4 About the Author Saumabha Barua Saumabha Barua is a Practice Consultant with Tata Consultancy Services (TCS) and leads the Transformation team for the Energy, Resource and Utilities domain. He is responsible for identifying and implementing projects that bring about a disruptive change in the client business performance through projects involving IT automation as well as through non-it interventions. He has over 17 years of experience providing technology and process consulting across a wide range of functions for performance optimization and business metrics improvements. Saumabha is a post-graduate in management from the Indian Institute of Management, Calcutta with a graduate degree in Chemical Engineering. 4

5 About TCS' Business Process Services Unit Enterprises seek to drive business growth and agility through innovation in an increasingly regulated, competitive, and global market. TCS helps clients achieve these goals by managing and executing their business operations effectively and efficiently. TCS' Business Process Services (BPS) include core industry-specific processes, analytics and insights, and enterprise services such as finance and accounting, HR, and supply chain management. TCS creates value through its FORE simplification and transformation methodology, backed by its deep domain expertise, extensive technology experience, and TRAPEZE suite of solution accelerators and governance enablers. TCS complements its experience and expertise with innovative delivery models such as using robotic automation and providing Business Processes as a Service (BPaaS). TCS' BPS unit has been positioned in the leaders' quadrant for various service lines by many leading analyst firms. With over four decades of global experience and a delivery footprint spanning six continents, TCS is one of the largest BPS providers today. Contact For more information about TCS' Business Process Services Unit, visit: ( bps.connect@tcs.com About Tata Consultancy Services Ltd (TCS) Tata Consultancy Services is an IT services, consulting and business solutions organization that delivers real results to global business, ensuring a level of certainty no other firm can match. TCS offers a consulting-led, integrated portfolio of IT and IT-enabled infrastructure, engineering and assurance services. This is delivered through its unique Global Network Delivery Model, recognized as the benchmark of excellence in software development. A part of the Tata Group, India s largest industrial conglomerate, TCS has a global footprint and is listed on the National Stock Exchange and Bombay Stock Exchange in India. For more information, visit us at IT Services Business Solutions Consulting All content / information present here is the exclusive property of Tata Consultancy Services Limited (TCS). The content / information contained here is correct at the time of publishing. No material from here may be copied, modified, reproduced, republished, uploaded, transmitted, posted or distributed in any form without prior written permission from TCS. Unauthorized use of the content / information appearing here may violate copyright, trademark and other applicable laws, and could result in criminal or civil penalties. Copyright 2015 Tata Consultancy Services Limited TCS Design Services I M I 08 I 15