Growing up the hard way
The age of improved customer services and CRM have hit utility companies heavily of late, and few more so than the water companies. They have been slapped with heavy fines because of their lack of high-quality, readily available usage data. David Hughes examines the challenges facing water companies, and the technical, political and cultural minefields they must now negotiate to overcome them.
What these fines do not do is solve the problems that these companies are facing - in fact, if anything, they compound them, putting further strain on an already heavily tested system.
The message Ofwat has sent out - with more than six million pounds of fines over the past three months - is clear. Water companies must have robust processes in place to ensure that the data they capture is accurate, and that they are able to use it to improve the level of service they provide to their customers.
They are, after all, monopolies - abusing this position is never in the interest of customers.
One thing becomes clear in all this. The process of utilities privatisation that began in the 1980s is still settling down, and the knock-on effects are still being felt, albeit on a lesser scale. None of the utilities had ever known life as a private entity with all its associated responsibilities, and none of them - least of all the water companies - were ready to take this on.
We have obviously come quite a long way since then, and now reached a stage at which many companies are learning the hard way what retailers and manufacturers have known since the industrial revolution - customers must come first.
This may seem like an obvious statement, but it becomes all too clear when we look at over-billing, for example.
A few months ago, I walked into a well-known high street supermarket and was overcharged for an item. When I noticed this and pointed it out, the item was removed from my bill, and I received it for free.
When was the last time I was let off a utilities bill because I was overcharged? This highlights the gap utility companies need to cross before they approach the level of service offered elsewhere.
For water companies, this is further exacerbated by historical legacies that seem to take precedence over customer service. The non-competitive nature of water companies effectively means the only real customer they have to satisfy is Ofwat.
End users cannot go out and check uSwitch to find a better water supplier - they are stuck with what they have got. The competition laws of private business do not count here, so until Ofwat began putting its foot down about quality of customer service, there was no need, and no drive, to improve these processes.
It is accepted by all industry stakeholders that, in the past, other elements of water management, such as improving drinking water and reducing pollution, have been higher priorities for investment. In the face of this, customer service has come a poor second.
In many ways, the Ofwat focus on leakage lies at the heart of the need to improve services, in particular customer service. In the UK in particular we have leakage problems due to the age of many mains and their poor condition.
More than half the mains below London are estimated to be more than 100 years old, and one third of them are more than 150 years old. The picture is similar in many other major cities in the UK.
With more than 325,000km of mains and millions of joints vulnerable to ground conditions and traffic pressure, it will never be possible to reduce UK leakage to zero. But leakage needs to be maintained at the point where the environmental, economic, and social cost of water saved is equal to the cost of new resources.
It is not that bleak a picture. Overall, the industry in England and Wales has succeeded in cutting leakage by 30% since 1995. European Environment Agency (EEA) figures show we do well by European standards.
But any relaxation in meeting this complex challenge would be a mistake. Most companies are meeting their leakage targets, set by Ofwat, and those that are not are working vigorously to achieve them.
So, thanks to Ofwat and a decade of hard work by the industry, customer service has become a reality within water companies. But the story does not stop there. Ofwat's recent fines also further highlight the increasing significance being placed on capturing service performance.
Today, the use of Customer Relationship Management (CRM) methodologies enables companies to do more than simply record customer interactions, or failings. Acting as a foundation, information gathered within CRM applications can then support operational effectiveness - be it responding to a particular customer's needs, or providing a more proactive approach to meeting its customer expectations.
The introduction of CRM into the mix takes customer service to a whole new level. This may seem to present a level of change that the businesses are not ready for, but it should not be avoided just because of this. In fact, the introduction of CRM systems is simply an extension of the work water companies have already begun in zeroing in on leakages.
The regulatory data that Ofwat needs from all water suppliers, to ensure that the Guaranteed Standards Scheme (GSS) is being fulfilled, is heavily reliant on just such data. As we have seen, failure to comply with these requests can be extremely expensive. CRM is a more formalised and accurate way of collecting this data.
The idea of constant and direct communication with customers is relatively novel for water companies. But, as with any change within business, there are clear guidelines to follow. Simply possessing a CRM system and a robust governance process will be worthless, though, without appropriately aligning it with employees that will use it.
In such a situation, there needs to be an appropriate level of change readiness within the business. The initiative must be led by senior executives, and must engage all individuals within the chain.
If any part of this chain is omitted, or any part not completed fully, it automatically creates a weakest-link situation - a set-up for project failure.
Communication must also go up the chain as well as down. The effect of change that is generated and led at board level can easily escalate as it works its way down a chain to individuals at the end, such as those whose job it is to deal with customers on a daily basis.
This is almost an organisational version of the butterfly effect. Implementation of a CRM system, as decided by the board, may have little more effect than that of any financial- and performance-related decision, yet for a field worker, it could mean a complete restructuring of the way he or she works. Unless this effect is understood by all parts of the business - and there is 360 degrees of communication - it is likely that such change could have further unforeseen cultural, technical and political effects.
Ofwat's 2006/07 Levels of Service for the Water Industry report outlines some very clear areas that need development. There is much to be said about continuing performance improvements, but direct customer communication seems to be an outstanding area of focus.
The report says: "During the year, there were also particular problems relating to customer contact and billing systems. The service provided to some customers who tried to contact their company in writing or by telephone was not good enough."
Change is clearly needed if this barrier to improving Ofwat performance reports is going to be overcome. In particular, Ofwat's response to Thames Water's failings should motivate other companies.
These companies should undertake internal reviews of their processes to ensure similar failures do not arise in the way information is collected and reported.
David Hughes is utilities practice director at ABeam Consulting. W: www.abeam.com