Stephen PrinceVice President

Strategy, Innovation & Product Development

Alliance Data Systems, Inc.

 

Building an Effective Outsourcing Relationship

                                                               

Building an Effective Outsource Relationship: 1 – Kinder Morgan2 – Optimizing the Customer Relationship3 - Regulators, Rate Cases & The Customer

Discussion Topics

Leading provider of transaction, billing, and business process services to Fortune 500 utilities, petroleum, retail, and financial service providers.

7000 employees in more than 27 locations. Serving over 300 clients and 50 utilities through:• 5 Data centers• 15 US call centers• 3 Billing statement facilities

Alliance Data Systems

Dallas, TX

Westminster, CODenver, CO

Lenexa, KS

Columbus, OH

Voorhees, NJ

San Antonio, TX

Montreal, Quebec

Toronto, Ontario

Johnson City, TN

Buffalo Grove, IL

Kennesaw, GA

Cincinnati, OH

Calgary, Alberta

Seattle, WA

Bend, OR

Philadelphia, PAScottsbluff, NE

Atlanta, GA

Gahanna, OH

Tulsa, OK

Building An EffectiveOutsourcing Relationship: 1

Kinder Morgan

Kinder Morgan

Kinder Morgan: One of the largest

midstream energy companies in America

Provides retail natural gas

services to 240,000 customers in Colorado, Nebraska, & Wyoming

Market cap of $20 billion

Kinder Morgan outsources customer care including:

CIS management Billing Bill distribution Call center Remittance processing Collections

Customer Lifecycle

In outsourcing billing and customer Care, Kinder Morgan has a partner that understands its customer

relationships,resulting in:

Streamlining and automating of business processes, making customer service easier & more cost effective.

Analytical tools that leverage business intelligence for competitive advantage.

Lifecycle management expertise that often results in more satisfied customers.

Kinder Morgan: Process Notification

60% reduction of open service orders (after interval date)

90% reduction in order errors

75% reduction in service disconnect costs

50% improvement indebt recovery

Annual savings of $700,000 (on a cost of $42K per year)

Through re-engineering process notification activities in

the collections process, Kinder Morgan captured:

NPR Service Order Errors

0

10

20

30

40

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60

70

80

Jun-01

Jul-01

Aug-01

Sep-01

Oct-01

Nov-01

Dec-01

Jan-02

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Apr-02

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Jun-02

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Dec-02

Nu

mb

er o

f N

PR

SO

Err

ors

Observed Value X bar Upper Natural Process Limit Low er Natural Process Limit

Kinder Morgan: Bill Tech Productivity

KM Bill Tech Productivity

200

220

240

260

280

300

320

340

360

380

400

Bill

s p

er T

ech

Observed Value Average Upper Process Limit Low er Process Limit TargetThrough automating bill set up and rate validation processes, Kinder Morgan’s billing productivity increased 15% while it reduced labor costs by one FTE.

Kinder Morgan: Automated Enrollment

An automated gas choice enrollment program allows Kinder Morgan to

offer gas supply via the web or through an automated phone system.

KM’s web-based customer care allows customers to service their account online which: Significantly lowers KM’s bill print

and mailing costs. Speeds business processing by

lowering the amount of calls into Kinder Morgan’s call center

Helps eliminate errors and improve customer satisfaction

Online Customer Care

Building An EffectiveOutsourcing Relationship: 2

Optimizing the Customer Relationship

Optimizing the Customer Relationship

1. Customer Lifecycle: Definition: Each function in the revenue cycle from meter read to collections.

Customer Lifecycle Management: Streamlining and automating of business processes through best practices, methodologies, and project management.

Each lifecycle component is interdependent and many are human capital intensive.

2. Enterprise Performance Management:

• QA Models: Using multiple quality models allows the provider to manage billing & customer care to a comprehensive set of performance metrics.

• Demand & Variance Management: Managing work volume and variation ensures consistent and ever-improving performance.

• Continuous Improvement: Continuous re-evaluation ensures enhancements in the effectiveness and efficiency of business processes.

Optimizing the Customer Relationship

Optimizing the Customer Relationship

1. Customer Analytics – Know: - Who are my “best” customers?

- What do they value? - What is my ROI?2. Frequency Marketing – Communicate with or change

customer behavior through personalized statements

3. Loyalty Programs – Reward customer behavior

with compelling incentives

3. Customer Equity Tools:

Optimizing the Customer Relationship

4. Return on Equity:

Managing the customer lifecycle, continuously improving business processes, and incenting loyalty may result in:

• Higher Customer Satisfaction

• Regulator & Wall St. Influence

• Shareholder Equity

Building An EffectiveOutsourcing Relationship: 3

Regulators, Rate Cases, & Customers

PerformanceBasedRates

HighFuelCosts

CapitalConstraints

ReliabilityNeeds

SunkCIS

Costs

RateCases

OutsourcingConstraints

The Outsourcing Myth:

“Utilities can’t

outsource billing and

customer

care because

of…”

What Really Matters: The Customer

When outsourcing billing and customer care, all solutions are not created equal.

You’re not solving for lower cost; you’re solving for revenue, earnings, analyst perception, and shareholder value.

This changes the way you serve customers.

Yet for many utilities, customers aren’t in this equation (really).

Utilities have little control over the commodity. The control is in the customer relationship.

Flip it! Put your

customers first!

Customers as a Strategic Asset

Satisfied customers are an asset that utilities don’t effectively leverage for increased revenue or margins – beyond the commodity service.

Yet, utilities are often a customer’s most trusted

provider.

Being highly rated in customer satisfaction, against all other utilities, plays well with regulators.

Regulators may allow rate cases for infrastructure

needs if utilities demonstrate higher customer satisfaction scores.

Effective Outsourcing Relationships as a

Strategic Tool

1. Learn what your customers perceive to be “fair or reasonable” service levels – and will pay more for – then provide them.

2. Partner with a outsource provider that understands the utility / customer relationships and has the tools and experience to increase customer satisfaction.

3. Proactively use your customer performance to influence:

Rate cases Wall Street analysts Shareholders Public opinion Your customers

Source: Energy Markets: EEI Strategic Issues 2004

Take Aways: Four Simple Ideas aboutCustomer Satisfaction

1. Customer satisfaction is driven by delivered value.

2. Business processes create delivered value.

3. Sustaining success requires the utility to continuously improve the value it delivers.

4. To achieve this, many utilities are enlisting the help of competent billing and customer care providers to:

• Define business process needs• Measure the processes• Analyzing the results• Implement the improvements

Define

Analyze

Implement Measure