Cost-to-serve Reporting: The Hidden Opportunity - Market Research Reports On Aarkstore Enterprise

Introduction

Introduction

Cost-to-serve is arguably the most important metric for utilities' retail operations. Calculation of cost-to-serve is often inefficient, inaccurate and infrequent. This report looks at the importance of cost-to-serve, the numerous benefits that utilities will gain from implementing a cost-to-serve reporting tool, and the potential opportunity for vendors.

Scope

*Cost-to-serve is part of the wider school of Activity-Based Management

*Cost-to-serve is increasingly important for utilities.

*Current cost-to-serve calculations are infrequent, inefficient and so provide an opportunity for vendors to offer cost-to-serve reporting tools.

Highlights

As cost-to-serve rises up the agenda for many utilities, Ovum believes that the industry (in particular utilities operating in the more competitive retail markets) will provide opportunities to vendors of ABM products and other business intelligence tools.

Ovum believes there will be ample opportunity for vendors to target the industry and gain a return on the development investment needed to take a utility-specific product to market.

Reasons to Purchase

*Better understand the rising importance of cost-to-serve

*See how utilities current calculation of cost-to-serve creates an opportunity for vendors to offer a cost-to-serve reporting tool

Table of Contents :

"SUMMARY 1

Impact 1

Ovum View 1

Key Messages 2

Cost-to-serve is a utilities-specific version of activity-based management 2

ABM is not easy to implement 2

IT plays a big part in the successful implementation of activity-based management 2

A utility's approach to cost-to-serve is very different for commercial and residential customers 2

Cost-to-serve analysis helps utilities to improve business processes and reduce costs 2

Segmenting customers into clusters of similar cost-to-serve can improve profitability 2

By analyzing interrelationships between costs, utilities can identify high costs in different processes and rectify inefficient processes to create a lean organization 3

Increased competition brought on by market liberalization makes cost-to-serve increasingly important for energy retailers 3

Demand response and energy efficiency initiatives reduce utilities' revenues 3

Smart metering will bring cost-to-serve into focus 3

Current cost-to-serve calculation is hampered by inconsistency and inefficiency 3

Most reporting tools that are currently available were designed for wider ABM applications 3

SAP is currently the only vendor offering a utility-specific cost-to-serve reporting tool - others will follow 4

MARKET ConTEXT: COST-TO-SERVE IS ONE OF THE MOST IMPORTANT METRICS FOR A UTILITY 5

Cost-to-serve is a utilities-specific version of activity-based management 5

Activity-based management has been most successful in manufacturing, although some utilities have shown some interest 5

ABM focuses on allocating costs to activities and processes 5

ABM is not easy to implement 6

IT plays a part in the successful implementation of activity-based management 7

Cost-to-serve allocates costs associated with activities and processes within a utility's retail business 7

Cost-to-serve calculations break down a utility's costs across approximately nine functional areas 7

A utility's approach to cost-to-serve is very different for commercial and residential customers 8

Cost-to-serve analysis helps utilities to improve business processes and reduce costs 9

Utilities can benchmark their costs relative to other organizations 9

Segmenting customers into clusters of similar cost-to-serve can improve profitability 9

By analyzing interrelationships between costs, utilities can identify high costs in different processes ... 10

... and rectify inefficient processes to create a lean organization 11

business Focus: COST-TO-SERVE IS RISING UP THE CORPORATE AGENDA 12

There has been an historical ambivalence towards cost-to-serve in regulated markets 12

Increased competition brought on by market liberalization makes cost-to-serve increasingly important for energy retailers 12

Forthcoming infrastructure investments will put pressure on utilities' profitability 13

The economic downturn increases utilities' customers' credit risk 13

Demand response and energy efficiency initiatives reduce utilities' revenues 14

Smart metering will bring cost-to-serve into focus 14

Technology FOCUS: THE CURRENT INTEREST IN COST-TO-SERVE CREATES AN OPPORTUNITY FOR VENDORS IN THE UTILITIES SPACE 15

Current cost-to-serve calculation is hampered by inconsistency and inefficiency 15

Most reporting tools that are currently available were designed for wider ABM applications 16

SAP is the industry leader in cost-to-serve reporting, but others will enter the space 17

SAP is currently the only vendor offering a utility-specific cost-to-serve reporting tool 17

SAS has also recognized there is an opportunity in the market 17

Cost-to-serve reporting tools can act as sales enablers 17

RECOMMENDATIONS 18

Recommendations for utilities 18

Recommendations for vendors 18

Alternative views 19

APPENDIX 19

Ask the analyst 19

Definitions 19

Further reading 19

Disclaimer 20

List of Figures

Figure 1: There are nine key functional areas that impact cost-to-serve 7

Figure 2: Aggregated total cost-to-serve of the UK energy retail market 8

Figure 3: Poor processes in one part of the business can cause increased costs in others 11

Figure 4: Sales and registration costs make up a considerable proportion of total cost-to-serve 13

Fixnetix's IaaS offering 15

For more information, please visit :

http://www.aarkstore.com/reports/Cost-to-Serve-Reporting-The-Hidden-Opportunity-45101.html

by: Aarkstore Enterprise

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