IDC MarketScape: Customer Care and Billing in Competitive Unbundled Energy Markets, 2012 Vendor Assessment

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1 IDC MarketScape: Customer Care and Billing in Competitive Unbundled Energy Markets, 2012 Vendor Assessment IDC Energy Insights: Europe, Middle East and Africa Utility IT Strategies IDC Energy Insights: Asia/Pacific Utility IT Strategies IDC Energy Insights: Utility IT Strategies Global Headquarters: 5 Speen Street Framingham, MA USA P F EXCERPT Roberta Bigliani Gaia Gallotti #EIOS03U_EXCERPT The content for this excerpt was taken directly from the IDC MarketScape document: Customer Care and Billing in Competitive Unbundled Energy Markets, 2012 Vendor Assessment (IDC EI #EIOS03U). All or parts of the following sections are included in this excerpt: IDC Opinion, In This Study, Situation Overview, Future Outlook, Essential Guidance, and Synopsis. Figure 2 is also included. IDC ENERGY INSIGHTS OPINION This IDC Energy Insights study uses the IDC MarketScape vendor assessment model to evaluate vendors supplying customer care and billing (CC&B) applications for competitive unbundled energy markets around the world, specifically Europe, Australia, New Zealand, and some areas of the U.S., including the ERCOT (Electric Reliability Council of Texas) region of the state of Texas. IDC Energy Insights defines "customer care and billing applications" as applications that automate the customer-facing business processes and collectively serve to manage the entire life cycle of a customer. They include customer self-service channels, automated customer access channels for sales, initiation of service orders, credit and collections, billing and payment management including prepayment customer sales and switching, and contact center management. In addition, capabilities to support demand response, energy management services, and plug-in electric vehicle billing are considered. IDC Energy Insights estimates that the global market for customer care and billing for 2012 is $913.9 million, with a combined annual growth rate (CAGR) of 7.9% between 2011 and This IDC MarketScape for CC&B applications for competitive unbundled energy markets shows that (in alphabetical order) Ferranti Computer Systems, Oracle, and SAP are the Leaders; Convergys, Gruppo Engineering, Hansen Technologies, Indra, Logica, LogNet Systems, and Tieto are the Major Players; and Junifer Systems, SmartGridCIS, and TailorMade are the Contenders. May 2012, IDC Energy Insights #EIOS03U_Excerpt IDC Energy Insights: Europe, Middle East and Africa Utility IT Strategies: Vendor Assessment

2 IN THIS STUDY This IDC Energy Insights study uses the IDC MarketScape vendor assessment model to evaluate vendors supplying customer care and billing (CC&B) applications for competitive unbundled energy markets around the world, specifically Europe, Australia, New Zealand, and some areas of the U.S., including the ERCOT (Electric Reliability Council of Texas) region of the state of Texas. This research presents an analysis of quantitative and qualitative characteristics to provide metrics and context for utilities evaluating solutions in this area, and to help analyze vendors' current comparative success in the marketplace and anticipate vendors' offering evolution. The evaluation is based on a comprehensive and rigorous framework that assesses vendors relative to the criteria and highlights the factors expected to be the most influential for success in the market in both the short and long term. This study comprises four key sections. The first is a Situation Overview of the market factors driving and challenging CC&B adoption in competitive unbundled energy markets. It provides a definition of CC&B, as well as a description of major business processes impacted by the solution. The second section provides the criteria considered and their respective weighting, which IDC Energy Insights analysts believe enable CC&B to respond to user needs and future demands in competitive unbundled energy markets. These characteristics are based on buyer and vendor surveys and analyst observations of the evolving market and industry practices. The third section, the Future Outlook, is a visual representation of the resulting vendor analysis in a single bubble chart. This shows the quantified scores of the 13 reviewed vendors along two axes strategy and current capabilities which determine if a vendor is a leader, a major player, a contender, or a participant. The fourth and final section provides additional vendor summaries that discuss IDC Energy Insights' positioning of each vendor in the market, along with commentary on strengths reflected in the scoring and opportunities for improvement. The document concludes with IDC Energy Insights' Essential Guidance, providing support for users in setting evaluation criteria with the perspective of their needs and organizational maturity. It also includes directions for CC&B project planning and execution. Methodology The IDC MarketScape selection criteria, respective weighting, and vendor scores reflect IDC Energy Insights' assessment of the CC&B competitive unbundled energy market and specific vendors. IDC Energy Insights analysts tailored the range of standard characteristics 2012 IDC Energy Insights #EIOS03U_Excerpt Page 1

3 by which vendors are measured through structured discussions, surveys, and interviews with market leaders, participants, and end users. IDC MarketScape weighting is based on user interviews, buyer surveys, and input from an internal review board of IDC Energy Insights experts. IDC Energy Insights analysts base individual vendor scores, and ultimately vendor positions, on the IDC MarketScape, on detailed surveys and interviews with the vendors, publicly available information, and end-user experiences (gathered via ad hoc interviews) in an effort to provide an accurate and consistent assessment of each vendor's characteristics, behavior, and capabilities and strategies. Defining Customer Care and Billing This IDC Energy Insights IDC MarketScape evaluates software vendors supplying "customer care and billing applications" to energy markets that are competitive and unbundled. By competitive, IDC Energy Insights means customers (including residential and not only industrial and commercial customers) are free to choose their preferred suppliers in the market. By unbundled, as also defined for instance by European regulation, IDC Energy Insights means markets where network activities and customer-facing activities are performed by separate legal entities, distribution companies, and competitive energy suppliers respectively. IDC Energy Insights defines "customer care and billing applications" (CC&B) as applications that automate the customer-facing business processes and collectively serve to manage the entire life cycle of a customer. They include customer self-service channels, automated customer access channels for sales, initiation of service orders, credit and collections, billing and payment management including prepayment customer sales and switching, and contact center management. In addition, capabilities to support and manage demand response, energy management services, plug-in electric vehicle settlement and billing are considered. Customer care and billing may also be referred to as customer relationship management (CRM) and customer information systems (CIS). Criteria for Inclusion or Exclusion of Vendors In order to be considered in this report, IDC Energy Insights analysts stipulated that vendors meet the following minimum criteria: Product availability. The software product needs to be commercially available for the energy and eventually water industry. Product suitability. The software product needs to be suitable for competitive unbundled energy markets (Europe, Australia, New Zealand, and the U.S., including the Texas ERCOT region). Product implementation. The software product needs to have at least one live implementation in energy unbundled competitive markets. Geography. Must be available and supported in the following regions or countries: Europe, Australia, New Zealand, and Texas. Page 2 #EIOS03U_Excerpt 2012 IDC Energy Insights

4 SITUATION OVERVIEW Competing for New Customers The introduction of competition in the supply of energy commodities to any category of customers together with the unbundling of the value chain significantly reshaped the energy sector and profoundly impacted how utilities interact with their customers. More recently the implementation of smart metering for residential customers, demand response and customer engagement programs, electric vehicles and other innovations are increasing the functionalities, scalability, and flexibility requested of customer care and billing systems. Energy retailers in competitive markets are looking for solutions to help them reduce their cost-to-serve, manage multichannel go-tomarket, protect their revenue also by choosing the right customers to serve, effectively handle demand management, and more broadly energy efficiency and customer engagement, while at the same time improve customer satisfaction and comply with regulation. Some of these requirements are also present in non-competitive vertically integrated markets, but the need to target and acquire new customers or the need to predict and reduce customer churn are distinctive elements of competitive markets. Additionally, unbundling has broken the traditional meter-to-cash process: retailers need to receive metering data (enabled or not by smart metering) by an external entity, being the distribution company, the metering company, or a new organization, such as the DCC in the U.K. For energy retailers this macro-process could be redefined as "contract-to-cash." IDC Energy Insights believes that customer care and billing applications to best serve unbundled competitive energy markets need to provide the following keys core capabilities: Support customer targeting and acquisition. In competitive energy markets, retailers need to understand what types of customers to target to maximize company profitability. Multichannel integrated campaigns need to be smoothly executed and new offerings designed and marketed. Provide rating and billing flexibility. CC&B systems need to be flexible enough to rapidly accommodate new and more complex pricing arrangements. Retailers need to accelerate the capability to respond to changes and opportunities on the market and be faster in their go-to-market with new bundling of products and services or discount campaigns. They also need to keep track of any new offerings they are marketing; in other terms be able to manage a "product catalogue" to reduce errors and reconciliation. Provide quick and comprehensive analytics throughout the entire contract-to-cash process. The role and importance of analytics in customer acquisition and management is evident: for instance, with analytics utilities can combine smart meter (when available), bill payment, and demographics data to improve more 2012 IDC Energy Insights #EIOS03U_Excerpt Page 3

5 basic customer service functions, formulate new offerings, and improve marketing communication. Analytics also play a key role in utilities' revenue protection, for instance helping to prevent fraud and theft, or assessing customer credit risks (see Table 3). Additional distinctive analytics capabilities are related to the speed of the analysis, for instance providing immediate answers to customer or sales representatives while they are interacting with clients, or allowing them to integrate external data to predict customer churn or insolvency. Integration of social influence into customer profiling is a further evolution into customer insights. Provide converged billing. In order to increase revenues from clients in a very low margin business like electricity retail, suppliers have combined multiple products. Dual fuel (electricity and gas) is the norm, but some suppliers (especially new entrants or operators in more competitive markets) are also including in their offering other products and services, such as telecommunication or Internet services, or post meter services related to energy efficiency. Moreover, energy retailers are preparing themselves for the future, for instance integrating the offering of electric vehicle recharging (at both private and public charging spots). Be "smart meter ready." The rollout of smart meters is still far from being completed and even mandated in some countries, but any new implementation of customer care and billing needs to be ready to deal with real meter data and a different logic in billing cycles. CC&B solutions need to prove scalability, especially in enabling time-based billing and even more if utilities need to introduce real-time metering and billing (for prepayment, electric vehicles, etc.). Enable customer self-service. Utilities need to provide portals allowing customers to have information about their energy usage, compare their usage with their peers, simulate bills for different contract options, and get suggestions on how to better manage their energy usage and costs. However, most importantly, they should enable customers to perform actions online, like enrolling for a different pricing option, signing into a new contract (or cancelling an old one), or scheduling onsite visits. Moving customer contacts to less expensive channels, reducing the number of incoming calls from clients, reducing the cost of handling customer churn, and proactively managing revenue, particularly but not only during the current economic downturn, are a few examples of the key imperatives that utilities are trying to address. Provide EDI-standard compliant templates for market messages. Standards to transfer data among operators in unbundled competitive markets are different in each country or region. The availability of specific modules integrated with the CC&B core which are compliant with regional or national specifications is an interesting feature to significantly reduce implementation costs. Page 4 #EIOS03U_Excerpt 2012 IDC Energy Insights

6 Customer Care and Billing Market and Deal Sizing IDC Energy Insights estimates that the global market for customer care and billing for 2012 is $913.9 million, with a CAGR of 7.9% between 2011 and Customer care and billing systems take a significant share of utilities' IT spending and budget, second only to enterprise resource planning (ERP). For competitive retailers the customer care and billing system is one of the most complex and business-critical solutions. It is in effect "the production system" of energy retailers. A company's ability to provide valuable services to customers, as well as its cost-to-serve, is strongly connected to the CC&B IT infrastructure. Customer care and billing solution deal sizes vary too much to provide a meaningful average: vendors might have deals varying from a few hundred thousand euros up to several million euros. The licensesbased pricing logic is mainly based on the number of users. Implementation time typically ranges from 18 to 30 months. Projects with a more limited scope, which require lower levels of customization, or for smaller utilities, might have a shorter timeframe. IT SUPPLIERS Vendors Reviewed After reviewing a long list of vendors offering customer care and billing applications for competitive unbundled energy markets, IDC Energy Insights selected applications provided by the following vendors for further evaluation in this report: Convergys Ferranti Computer Systems Gruppo Engineering Hansen Technologies Indra Junifer Systems Logica LogNet Systems Oracle SAP SmartGridCIS 2012 IDC Energy Insights #EIOS03U_Excerpt Page 5

7 TailorMade Tieto FUTURE OUTLOOK IDC MarketScape: IDC Energy Insights' Customer Care and Billing Competitive Unbundled Energy Markets Vendor Assessment This vendor assessment of customer care and billing applications for competitive unbundled energy markets represents IDC Energy Insights' opinions on which vendors are well positioned today with current capabilities, and which vendors are best positioned to gain market share over the next few years. For this discussion, IDC Energy Insights divided key measures for potential success into two primary categories: strategies and capabilities. Positioning on the y-axis reflects the vendor's current capabilities, menu of services, and how well the vendor is aligned to its customer needs. The capabilities category focuses on the capabilities of the company and its product today, here and now. For this category, IDC Energy Insights analysts looked at how well a vendor is building/delivering capabilities that enable it to execute its chosen strategy in the market. Positioning on the x-axis, or strategy axis, indicates how well the vendors' future strategy aligns with what IDC Energy Insights believes customers will require of their providers in three to five years. The strategy category focuses on high-level strategic decisions and underlying assumptions about offerings, customer segments, business, and go-to-market plans for the future, in this case defined as the next three to five years. For this category, analysts look at whether or not a supplier's strategies for various areas are aligned with customer requirements (and spending) over a defined future timeframe. Positioning on the grid is broken down into various groupings that reflect the combined view of a vendor with respect to both strategy (xaxis) and capabilities (y-axis). The groupings are generally defined as follows: Leaders are companies that have led, and continue to lead, the market in both breadth of offering and strategic intent. These companies have made investments in offering portfolios, go-tomarket enablement, and delivery capabilities that set them apart from other vendors. Major players are companies that have established and proven their offerings in the market, and have demonstrable success in delivering to customers. These companies are "shadowing" the leaders, and are exerting competitive pressures with new Page 6 #EIOS03U_Excerpt 2012 IDC Energy Insights

8 capabilities, channel initiatives, and other differentiable capabilities that raise the bar for all vendors in this market. Contenders are companies that have a focused offering, which is also very country/region focused. As contenders, they are investing to meet the product demands to enlarge their customer base. Participants are companies that have initiated limited CC&B releases and are still not very well organized in capabilities and strategies. Figure 2 shows each vendor's position in the IDC MarketScape vendor assessment chart. The relative presence, depicted by the size of the bubble, is not based on software market shares, but rather in terms of the vendor's customer base (measured in terms of number of installations) in energy markets for customer care and billing applications, while the (+), (-), or (=) icons indicate whether the vendor is growing faster or slower than or at the same level as overall market growth. The vendors evaluated in this IDC MarketScape, on customer care and billing applications for competitive unbundled energy markets, are very diverse in nature and belong to different market categories. The vendors evaluated range from global software players providing utilities applications which span the entire industry value chain (such as SAP and Oracle), to international solution providers (such as Hansen Technologies and Convergys), to multiregional or regional (Ferranti Computer Systems, Tieto, Indra). Some of the players considered also operate in very niche markets (such as SmartGridCIS with prepayment). After careful analysis, Figure 2 emerged with three "Leaders" of customer care and billing solutions for competitive unbundled energy markets SAP, Oracle, and Ferranti Computer Systems. These three software vendors differ in their current capabilities and future strategies, but mostly in their past presence in the market at hand. The largest bubble in Figure 2 is SAP, which dominates the global customer care and billing market with more utility customers and installations (more than 650) than any other vendor. SAP is also the only solution deployed in all existing unbundled competitive energy markets. Oracle, another "Leader," scored highest for future strategies as it demonstrates strong commitment to the utilities industry, with strong sales and distribution-structure capabilities, and its product roadmap is well developed and in step with current energy market needs and future evolution. Ferranti Computer Systems' MECOMS also scored very highly in "strategies" for its forward-looking delivery model roadmap, including leveraging Microsoft Azure for delivery via the public cloud (expected by 2013). MECOMS is currently being offered on-premises and already via the private cloud. Following the "Leaders," seven software vendors evaluated are identified in the chart as "Major Players" Tieto, Convergys, Hansen Technologies, Logica, Indra, LogNet Systems, and Gruppo Engineering. The "Major Players" in this IDC MarketScape for 2012 IDC Energy Insights #EIOS03U_Excerpt Page 7

9 customer care and billing for competitive unbundled energy markets are extremely different in nature: some are very complete in their offering, but are more limited in their geographic reach (Tieto, Indra, Hansen Technologies, Gruppo Engineering, and Logica), while others are new entrants (identified by the smaller bubble sizes) in the energy and utilities industry, but with a long-standing history in the telecommunications customer care and billing industry (Convergys and LogNet Systems) and which are emerging as alternatives, in some case as less expensive alternatives. Additionally, three software vendors evaluated in this IDC MarketScape for customer care and billing solutions for the competitive unbundled energy market were scored as "Contenders" Junifer Systems, TailorMade, and SmartGridCIS. The "Contenders" are each unique in nature, diverse from the Leaders and Market Players as they emerged as new entrants or niche players to fill a "gap" in their specific markets. TailorMade, for instance, launched one of the first commercial prepaid systems and real-time billing solutions for the utilities industry, with the advent of smart metering in Sweden in Since then, TailorMade has grown in Sweden and extended into Norway with its specifically targeted capabilities. Often these solutions are deployed as a complementary solutions to an already in place customer care and billing solution to fulfill specific functionalities, for instance prepayment. Contender SmartGridCIS is one such example, a niche player offering prepaid and time-based billing, especially strong in the competitive Texas ERCOT region. Contenders' solutions are sometimes deployed on top of existing solutions because this is faster and less expensive than carrying out enhancements to existing solutions. The Contenders are strong competitors in their main markets, and due to their extremely lean structures are able to be extremely cost competitive. Cost competitiveness, along with a multiservice approach and extreme flexibility, is making new entrant Junifer Systems a solid option in its home market, the extremely competitive U.K. energy market. Page 8 #EIOS03U_Excerpt 2012 IDC Energy Insights

10 FIGURE 2 IDC MarketScape Customer Care and Billing for Competitive Unbundled Energy Markets Source: IDC Energy Insights, 2012 Vendor Summary Analysis Tieto Headquartered in Helsinki, Finland, Tieto is a leading IT service company in northern Europe providing IT services and specialized solutions. The Tieto suite for customer care and billing comprises Tieto Customer and Billing (CAB), Tieto Unified Desktop for Customer Care, and Tieto Online for self-service. The suite is complemented by 2012 IDC Energy Insights #EIOS03U_Excerpt Page 9

11 a workflow management system, and is integratable with Tieto's own meter data management solution as well as any third-party MDM applications. Tieto CAB is the core solution and was originally designed to specifically support utilities' business processes for customer administration and billing. The solution encompasses product development; sales and marketing for small and large customers; customer and contract administration including change of supplier message handling; delivery site and meter administration; billing; accounts receivable, analyses, and business reports. One of Tieto CAB's key capabilities, specifically considering competitive markets, is its flexibility in the configuration of energy products and contracts, combined with a powerful online customer self-service portal. Main markets served with the solution are Norway, Sweden, Finland, and the Baltic region. The company is evaluating further expansion to selected countries (especially in Central Eastern Europe). Tieto's solution is widely adopted in Nordic countries, a region with a long history of competitive energy markets. Tieto's solution is also suitable for vertically integrated markets. All Nordic industry standards within the utility space are supported, specifically for market messages. Typical Tieto clients are small and midsize utilities, with a number of clients with 100,000 to 1.5 million customers. The solution is also adopted by smaller utilities. A high percentage of Tieto's customers are on the latest version of the software. Tieto has a utility customer strategic council to discuss and guide future product portfolio strategy. Its product roadmap is well articulated both in terms of functionalities and technical features (for instance the improvement of the user interface) and is also actively phasing the preparation for the Common Nordic Retail Market. The company has a well developed roadmap going forward. In addition to on-premises installation executed by Tieto itself, the company offers clients the option of hosting the solution and executing specific business processes as a service (managed services). Highlights of IDC MarketScape Scoring IDC Energy Insights considers Tieto to be a Major Player in this IDC MarketScape. Looking at internal individual company scoring, Tieto's best scores in the Current Capabilities criteria are for portfolio benefits delivered, delivery model appropriateness and execution, and integration. Within the Future Strategies criteria the company scored well for functionalities and offering roadmap, cost management strategy, and innovation and R&D. Page 10 #EIOS03U_Excerpt 2012 IDC Energy Insights

12 ESSENTIAL GUIDANCE In this IDC MarketScape for customer care and billing solutions for unbundled competitive energy markets, IDC Energy Insights assesses and compares various vendors' offerings. Utilities should use it to support their CC&B solution evaluation process to: Get a first independent assessment of CC&B solution capabilities for unbundled competitive energy markets Integrate the list of companies they might request proposals from Leverage criteria in their own individual software evaluation process Utilities start from different levels of maturity and priorities, so they should consider reweighting the criteria that are most important to their specific company needs or local market context. Utilities' individual decisions must be taken in the context of their specific organizational and process maturity, and in consideration of the IT enterprise architecture and application strategy. Actions to Consider A customer care and billing implementation is a very complex and sometimes risky project to undertake. IT departments need to work in teams with the line of business to carefully evaluate future business needs and company strategies in order to make the best decision on how to replace or enhance existing solutions. Business sometimes complains of the lack of flexibility about customer care and billing solutions. Utilities need to separate intrinsic product issues from organizational and process-related issues. It is possible to introduce agile development methodologies with any product. Selection of the customer care and billing solution needs to be based on both short- and long-term total cost of ownership (TCO), and take into consideration the overall IT enterprise architecture and application strategy. TCO has to be considered while framing the implementation approach (replacement or major upgrade, functionalities built on, application life extension through serviceoriented architecture, consolidation, new systems for new programs or new market segments). Utilities should distinguish feature/functionality availability from good implementation and usability. Industry peers indicated that checking through a feature box for product specifications is very different to a quality or effective implementation. When vendors say they will deliver a future feature/function, utilities need to ensure there is clarity on how it will get implemented and that it meets their specific needs IDC Energy Insights #EIOS03U_Excerpt Page 11

13 Utilities should evaluate the possibility of adopting the softwareas-a-service/cloud option as a valid alternative to on-premises installations. LEARN MORE Related Research To learn more please refer to the following IDC Energy Insights documents: IDC MarketScape: Meter Data Management in the EMEA Utilities Industry, 2011, Vendor Assessment (IDC Energy Insights #EIOS02T, March 2011) Business Strategy: The New Customer Care and Billing Big Bang or Bits (IDC Energy Insight #EI228911, June 2011) Vendor Assessment: Customer Care and Billing Industry Short List Customer Care in the New Energy Economy (IDC Energy Insights #EI220574, October 2009) Utilities and Cloud Computing: A View From Western Europe (IDC Energy Insights #EIOS02U, March 2012) Business Strategy: CIOs Priorities IT Solutions Western European Utilities Survey 2011 (IDC Energy Insights #EIOS07T, November 2011) Vendor Assessment: 2010 Competitive Analysis of the Top 15 IT Vendors in the EMEA Utilities Industry (IDC Energy Insights #EIOS06S, November 2010) Copyright Notice Copyright 2012 IDC Energy Insights. Reproduction without written permission is completely forbidden. External Publication of IDC Energy Insights Information and Data: Any IDC Energy Insights information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Energy Insights Vice President. A draft of the proposed document should accompany any such request. IDC Energy Insights reserves the right to deny approval of external usage for any reason. Page 12 #EIOS03U_Excerpt 2012 IDC Energy Insights