EXHIBIT 99.517
SCE RP&A CORPORATE INFORMATION MANAGEMENT
STATEMENT OF QUALIFICATIONS
TO ASSIST
SOUTHERN CALIFORNIA EDISON
IN
PROFITABLE GROWTH IN A COMPETITIVE ENVIRONMENT
THROUGH
CORPORATE INFORMATION MANAGEMENT
JANUARY 24, 1997
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CONTENTS
<Table>
<Caption>
ITEM PAGE
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Background 3
Data Warehouses and Data Mining 3
PSC Capabilities 7
Lessons Learned from Deregulation 18
PSC Perspectives on the Restructuring of the Electric Utility Industry 21
Project Proposal 24
</Table>
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BACKGROUND
The California Electric Industry is undergoing a period of pre-competition
turmoil. Adoption of legislation mandating a restructured electric industry (AB
1890) and the provision of key enablers including an independent system
operator, regional power exchange, competitive transition charge for the
recovery of stranded investments provide the spring board for more extensive
transformation needs as widespread competition for electricity draws near.
IT IS THE CUSTOMER THAT IS BEING DEREGULATED. Southern California Edison's
("SCE") most valuable asset, its customer base must be leveraged and expanded if
industry leadership, quality, reputation and shareholder requirements are to be
met and value creation continued. Profitable growth and competitive advantage in
a post-deregulation environment is achieved through strategic and operational
use of customer information. Customer information defines the business SCE is
in, the design and delivery of that business, the profitability of that business
as well as what changes and when changes to that business are required.
CUSTOMER INFORMATION IS THE FOUNDATION FOR STRATEGIC DECISION MAKING AND
MANAGING TRADEOFFS IN A COMPETITIVE ENVIRONMENT. Customer Information is the
foundation for revenue retention and growth -- be it through pricing, new
products and services, alliances, acquisitions or other means. SCE is
considering establishment of a Data Warehouse to store and manage corporate
information though execution of a three phase Corporate Information Management
(CIM) project. CIM requires the integration of numerous SCE databases including
CSS, CIS, Special Billing, OAT, CRCRS, among others, and numerous SCE reports.
It is anticipated that CIM will create an environment from which SCE can quickly
make critical business decisions based on knowledge gathered from consistent,
integrated, internal and external information and data. SCE has proposed a
scoping and analysis process to provide a high level architecture for SCE CIM,
and a project plan that shows how the architecture can be applied to evolve
SCE's CRCRS system into a modern Data Warehouse/Data Mining platform.
THE BALANCE OF THIS STATEMENT DESCRIBES PEROT SYSTEMS CORPORATION'S ("PSC")
CREDENTIALS FOR ASSISTING SCE IN THE (1) SCOPING AND ANALYSIS REQUIRED TO
PROVIDE A HIGH LEVEL ARCHITECTURE FOR SCE CIM, AND (2) A PROJECT PLAN THAT SHOWS
HOW THE ARCHITECTURE CAN BE APPLIED TO EVOLVE SCE'S CRCRS SYSTEM INTO A MODERN
DATA WAREHOUSE/DATA MINING PLATFORM. INCLUDED THROUGHOUT IS THE VISION OF HOW
CIM CAN BE USED TO DRIVE SCE'S PROFITABLE GROWTH IN A COMPETITIVE DEREGULATED
ENVIRONMENT.
DATA WAREHOUSES AND DATA MINING
DATA WAREHOUSES
DEFINITION
Data Warehouses are subject oriented information stores. Data from numerous
operational sources is cleansed, transformed and integrated into a consistent
database. An important difference between Data Warehouses and other operational
databases is format. Data Warehouses are designed to store historical data in a
format that is conducive to the use of data analysis and Data Mining tools. They
should be built on an open-ended data architecture that is low cost, provides
fast turnaround, and is expandable. Common ingredients in producing a warehouse
include data collection, data standardization, and quality assurance. These
ingredients are then integrated and aligned to provide live production data in a
centrally managed database which enables programmer-free delivery of timely,
meaningful, correct, consistent information to business analysts and to
corporate and line management.
BUSINESS APPLICATIONS
Data Warehouses support critical decision making by addressing the growing need
for timely, accessible, consistently accurate information, sourced from the
complex and growing systems environment. Data Warehousing can be applied to any
industry where organizations face an increasingly competitive business arena.
Data Warehouses address the corporate-wide need for data and consider each
functional view of the data as a part of the whole, rather than as an
application by itself Data Warehouses allow the business to transform data into
information. Matching Data Warehousing with Data Mining techniques can fully
exploit the business insights hidden in historical data stored in the Data
Warehouse. Matching Data Warehousing with Data Mining techniques can fully
exploit the business insights hidden in historical data stored in the Data
Warehouse which in turn provides the foundation for strategic and operational
decisions from which competitive advantage in deregulating industries can be
attained and maintained.
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Data Warehouse implementation typically includes the traditional MIS application
deliverables of security, on-line data access, fast response time, prespecified
data retrieval and ad hoc data retrieval. In addition, they should include:
o Incremental, yet full integration elements which deliver
business results within guaranteed short timeframes;
o Open ended design architecture, allowing the integration of
each incremental project and enabling fast, low cost future
expansion to match the growth and changes of the business;
o Centrally controlled, reconciled and high quality data and
spanning applications integrated at a corporate-wide level to
dramatically reduce data discrepancies;
o One central, definitive database servicing either all or a
specified subset of MIS applications. The database must be
maintained and quality-assured by a dedicated systems
application resulting in high quality and low MIS maintenance
cost (when compared to other strategies);
o Programmer-free data access and reporting application
development, resulting in reduced turnaround times as well as
reduced pressures on operational systems for MIS features; and
o High efficiency on large data volumes enabling. the
cost-effective, on-line storage and access of both history and
detail information, resulting in improved ad-hoc capabilities
in support of business analysis requirements.
DATA MINING
DEFINITION
Data Mining is the process of discovering meaningful new correlations, patterns
and trends by sifting through large amounts of data stored in repositories (Data
Warehouses), using pattern recognition technologies as well as statistical and
mathematical techniques. In the above definition the key word is "discovering"
(also referred to as exploration). Another important word is "meaningful," which
comprises issues such as validity (degree of certainty), innovation (the
patterns should be new) and understandability (the patterns should be explicit,
in behavior or in expression). It is important that the Data Mining result
provide business users with insights not available through traditional
techniques or predefined relationships (e.g. relational tables). It is important
to recognize that innovative data analysis techniques come in addition to, and
not in replacement of, traditional statistical techniques that have been used
successfully for some time.
Data Mining is a horizontal application, not specific to any industry. The
common ingredients are a number of structured data sets and the willingness to
explore the possibility of hidden knowledge that resides in this data.
Consequently, any sector of the industry, regardless of the precise nature of
its data sets, can take advantage of advanced, intelligent technologies to
tackle Data Mining problems. Among such industry sectors are retail, financial,
medical, manufacturing, environmental, utilities, security, transportation,
chemical, insurance and aerospace. The gain on discovered data is
time-sensitive. That is, organizations that can exploit the data first will gain
an upper hand in serving and attracting customers. Consequently, the benefits
derived from the Data Mining process provide the early-adopters of the
technology with a timely competitive advantage.
BUSINESS APPLICATIONS
The ultimate goal of the Data Mining process is to support decisions. Currently,
the majority of decision-support tools focus on providing executives and other
decision-makers with the ability to view and share data in various formats, and
at various levels of detail, to help enhance the decision process. Systems that
can make recommendations based on an automated analysis of the situation and, if
appropriate, act on that decision without user input provide the next level of
support. These capabilities have been available for many years in the form of
knowledge-based technologies. New capabilities center around the automated
discovery and explanation of correlations in large amounts of data as well as
intelligent agents (i.e. proactive, autonomous programs that act on behalf of a
specific user or respond to a specific situation). Data Mining and 0 intelligent
agents will continue to be the major force behind the evolution of decision
support in the coming years.
From raw data to decisions, the process engaged using Data Mining techniques
aims at enriching information and then reasoning upon it to produce knowledge.
The use of this knowledge brings
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decisions. Most Data Warehouses today provide a high level of information by
linking different data from different sources. The Data Mining step provides
tools and techniques on top of these Data Warehouses, not only to report on the
information and its evolution but also to create new links and new correlations
enhancing the reporting capabilities and fueling the decision tools.
Key to achieving value from Data Mining is establishment of a business goal from
the start. This goal must be enforced all along the process and will help guide
the different decisions that have to be made at each stage of the Data Mining
process. Regardless of the nature of the goal, once established this goal should
be maintained until the end of the Data Mining process. Depending on the
industry and the different business units initiating a Data Mining effort, goals
will vary. Also critical to the success of Data Mining are (1) identification of
data, information and knowledge needed to run the business, (2) Database
identification, and (3) Data preparation including filling of missing values,
removal of errors, other integrity checks.
DEREGULATING BUSINESS APPLICATIONS - OPERATIONAL
Companies in deregulating industries have used Data Mining to define the
business they are in and grow profitably by delivering superior value as
perceived by the customer, at a cost that allows the Company adequate returns.
In running their every day business, companies in deregulating and competitive
environments have used Data Mining to identify valuable customers, create market
segments and selective customer portfolios, rationalize unprofitable customers,
design and manage sales channels, identify and correct complaints or "service
failures", search for asset productivity or failure, proactively analyze
consumer trends leading to the identification, development and pricing of new
products or services, optimize load, analyze communications with customers and
manage or balance supply/demand.
DEREGULATING BUSINESS APPLICATIONS - STRATEGIC
Data Mining has influenced strategic decision making in the following
situations: (1) Company wishes to achieve differentiation in a commodity market
(decommoditizing), (2) Company innovation redefines industry norms, (3)
Deregulation, (4) Successful consolidation, or change in maturing inefficient
markets, (5) Competitive advantage can be achieved through strong customer
bonding or partnerships. Competitive environment Data Mining success stories
include commodity and deregulating businesses such as Federal Express, L.L.
Bean, Schlumberger, AT&T, Conoco, Hewlett Packard and Purdue Chicken.
DATA WAREHOUSE/DATA MINING IMPACT ON A DEREGULATING BUSINESS - A SAMPLE
The benefits of Data Mining when focused on key business issues can greatly
enhance operational effectiveness and directly effect the bottom line. For
example, a U.S. provider of Natural Gas had 1/3 of its raw material gas locked
up in long term, high priced contracts signed before the price bubble burst.
Contracts were expiring in one year and the Company needed to develop a long
term strategy. The Company had significant amounts of unorganized data on its
customers, the market and competitors. Creation of a Data Warehouse and
subsequent Data Mining led the Company to alter its long term strategy by
targeting and reorganizing around nine market segments, create new operational
processes to deliver products and services to eight of the new segments. As a
result, Company margins were increased 40% over margins of the expiring
contracts.
In a monopoly to competitive market situation, Data Mining was used to achieve
premium pricing in a commodity market. A provider of specialty chemicals to oil
production and refinery had lost effectiveness in a competitive market to the
point where it was borrowing to pay dividends. Compilation and integration of
all Company data, combined with Data Mining focused on specific operational
areas as well as business analysis based on Company strategy, operations and
information databases concluded that the Company was (1) focused on technical
effectiveness, (2) Customers didn't want the technical expertise offered by the
Company, (3) the Company was attempting to service all customers with all 2000
products the Company made, (4) Customers were confused by the excessive number
of products and services, (5) the Company's market had three segments (of which
one was commodity), each of which the Company owned 1/3, (6) environmental
compliance was important and valued by customers and their end users.
Consequently the Company decided to focus on the premium segments identified,
redirect sales channels and reallocate the sales force, leverage the Company's
environmental record in a 5-10% price increase and consolidate its product line
to 500 items. As a result, the Company achieved a $44MM increase in earnings
(15%) and a $40MM annual increase in cash flow.
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DATA WAREHOUSE AND DATA MINING IMPACT ON SCE BUSINESS
Construction of an integrated Data Warehouse set for Data Mining on select
strategic and operational business issues would assist SCE with operational or
strategic decisions. Immediate impact would be felt in the following activities:
MARKETING
Customer Profiling
Market Segmentation
Customer Portfolio Management
Service Design
Value Proposition Development
Market Development, Advertising ROI
New Product/Service Identification
Customer Loyalty
Customer Retention and Loyalty Programs
Customer Defections
Sales Channel Development
Sales Channel Management
Account Identification, Development and Management
REGULATORY
Pricing, Rates, Tariff Structures
New Product and Service Pricing and Positioning
Strategic Innovation
DISTRIBUTION
Service Delivery Process Design and Execution
Value Proposition Execution
Performance Based Programs and Metrics
Asset Optimization
Work Management
CUSTOMER SERVICE
Billing
Cash Flow Cycle Time
Complaint Handling and Service Failures
GENERAL BUSINESS
Knowledge Feedback Loops
Capital Allocation Analysis
Development of Labor and People (e.g. reskilling) programs
Strategic Planning
Alignment and Integration of Processes for Increased Productivity
Data and Information Consistency
Key Business Driver Identification and Metric Analysis
Integrated Accounting/Activity Based Management
PEROT SYSTEMS CORPORATION CAPABILITIES
OVERVIEW
PSC is an international information technology firm specializing in solutions.
Along every rung of the IT services ladder, PSC is dedicated to be the best at
service design and delivery. PSC operates as a single, cohesive firm. That means
that the PSC experts from every phase of the service design and delivery process
work side-by-side to design, compile, test, and implement the kind of solutions
only a truly integrated team can achieve.
PSC's business consulting experts assist clients with developing and
implementing business strategies and processes to propel their organizations
well beyond its current state. These forward-thinking PSC business
professionals know the industry, understand present and emerging market
conditions, and relate to the client's concerns and vision.
PSC functional outsourcing capabilities provide clients with valuable business
and support services beyond their core competencies. Benefit to the client is
multiplied by the application of innovative technology to the business process.
Distributed systems technology, business
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modeling, virtual prototyping, object-oriented design, and wireless
communications are examples of technologies that allow clients to move beyond
their current business-specific boundaries. Technology recommendations are based
on firsthand experience through internal use and proven, documented
methodologies.
By exploiting its strengths in information technology, PSC assists its clients
in transforming their business processes, organizational architecture, people,
and strategy to effect a fundamental change in their business. PSC maintains top
industry expertise in:
o Business Engineering
o Technology Consulting
o Executive Information Systems
o Data warehousing and Data Mining
o Systems Integration
o Software Development and Maintenance
o Imaging
o Performance Tuning
o Operational Audits
o Office Automation
o Object-Oriented Analysis and Design
o Telecommunication Engineering and Operations
o Virtual Prototyping and Simulation
PSC's success has been influenced by attracting, developing, and retaining
outstanding talent. It tailors its services to fit the specific needs of its
clients and works to become their technology partner. The company strives for
long term relationships and lives, operates by, and is committed to a strong
system of values.
PSC is one of the largest privately held companies in the information technology
industry, with the largest group of shareholders being company employees and
management.
ACCOMPLISHMENTS
PSC' reputation as one of the most qualified business solutions firms has
produced exceptional growth in revenue and resources. We are executing many
notable assignments that will make our clients more competitive, such as:
- Performing a process reengineering study, implementing an
image-based workflow, and integrating several legacy systems
for a large telecommunications carrier. Results included
reducing turnaround time from 16 to 2 days, reducing unit
costs by 39 percent, and increasing customer retention
- Being selected by a global telecommunication company to
develop a competitive network management product and improved
billing system
- Performing a process reengineering study and implementing
improved workflow and expert systems technology for a large
assigned-risk auto insurance service bureau. Results included
increasing uptime to 98.5 percent and increasing overall
productivity by 49 percent
- Redesigning key processes and integrating these changes into
the cultural, organizational, job, and system changes for a
major utility supplier. Results included identification of
greater than $60 million in savings, increasing the unit
productivity of core business operations, improving customer
service, streamlining the interaction between the head office
and district offices, and becoming a leader and innovator
among utility suppliers
- Executing one of the largest systems integration contracts
ever signed by a European-based company to revolutionize its
operations in 79 countries
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- Being awarded an industry-first, long-term business process
improvement contract to assist in the enterprise
transformation of the largest plastic distributor in North
America
- Assuming total responsibility for data centers through
outsourcing agreements that are the largest in the banking,
health care, and automotive manufacturing industries
APPROACH
Competition within the Information Services industry has intensified during the
last decade. Our competitors include large firms with economies of scale,
substantial capital, and proprietary technology. Size often precludes rapid
response to changing market conditions. We can succeed against competition by
combining our expertise in information technology services with our ability to
(1) innovate, (2) rapidly adapt to market needs, and (3) provide superior
execution to meet the needs of our customers.
We will continue to exploit our strength in information technology services. Our
core competence today resides in our command of information technology and our
ability to deliver results. Over time, we have and will continue to ally with,
or acquire, necessary skills and capabilities to support the industries and
markets we serve. We have and will continue to develop in-depth knowledge of
selected industries and offer selected customers a superior ability to integrate
technology, processes, and people in support of a company strategy. We focus on
those worldwide markets with mature economies. We evolve the capability to
provide an integrated offering through increasing our own internal resources,
and through alliances and acquisitions appropriate to the industries and
markets.
PSC transforms an enterprise's information systems, business processes,
organizational architecture, people, and strategy to effect a fundamental change
in the enterprise's business through an integrated offering including but not
limited to:
- INFORMATION TECHNOLOGY: PSC improves the quality and value of
information systems for clients through services such as IT
strategy, data processing, voice and data communications,
programming, and systems development and integration;
- ORGANIZATION AND PROCESS: Information technology impacts the
customer's processes and organization at many levels.
Selective business process reengineering is often necessary to
harness this technology and to improve the quality and
responsiveness of service as well as productivity of the
employees. Through partnerships with others, our offering may
include front-end diagnostics, business process evaluation and
redesign, operations improvement, organizational architecture,
and quality measurement and control;
- PEOPLE: PSC will design and implement programs for our
client's employees. This offering may include establishing
values, goals, and objectives; assisting with cultural change;
compensation studies and the alignment of H.R. systems; and
- STRATEGY: PSC endeavors to tie its services to the customer's
strategy at the highest levels by identifying market niches
and new business opportunities. This requires PSC to
understand and at times assist in shaping corporate strategy
and product/market strategy.
DATA WAREHOUSING EXPERIENCE
PSC has constructed or assisted in the construction of several very significant
Data Warehouses and operational data stores for businesses. In these projects,
PSC has assumed responsibilities well beyond that of a pure systems integrator,
by performing in roles including:
o Project Management
o Business Solution Development and Requirements Definition
o Management Consulting & Cultural Transformation
o Process Consulting - Business and Technical
o Technology Architecture and Standards
o Data Archeology and Transformation
o Database Modeling, Design and Implementation
o Information Delivery and Data Mining Strategy and Tools
o Platform Operational Support
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DATA WAREHOUSE PROJECTS
The following are some representative projects that PSC has participated in.
EUROPCAR
In early 1992, PSC signed a 10-year contract with Europcar, the largest rental
car company in Europe with operations in 79 countries. PSC was selected to
execute a major systems integration, development and operations solution in what
is the single largest UNIX-based on-line transaction processing (OLTP) system
ever developed. The new system, Greenway, allows Europcar to link all of its
geographically-diverse operations into a single database, adapt more quickly to
changes in business climate, track and capitalize on marketplace opportunities
and fluctuations, and implement process changes that will significantly lower
overall operating costs. The system produces a single "look and feel" for
international travelers regardless of country, language or office site. PSC
developed the Greenway system in 13 months, providing a whole set of
applications for reservation and for management of the operations for car
rentals. This development represented 165 man-years for the conversion of the
data and 55 for the management with Oracle Financials and 72 for the functions
of the technical support. PSC deployed Greenway in 30 months.
A major component of the Greenway system is an integrated Data Warehouse. This
Data Warehouse takes advantage of the data used in transaction processing, but
also stores strategic data needed for management insight. This strategic data
includes yield management information, information about competition, market
trends, and other valuable data for query. Greenway is one of the first systems
in the client/server world to implement the best of both the transactional and
Data Warehouse worlds in a single integrated system.
Now in its third year, the PSC/Europcar partnership is stronger than ever.
Greenway has currently been expanded to several Europcar franchises in Austria,
Spain, Sweden, Denmark, Norway and Luxembourg, with possible expansions to the
remaining 1,000 franchises. PSC operates Greenway on a percentage of revenue
basis, which provides mutually beneficial incentives to perform. We are actively
pursuing initiatives and system enhancements that will increase revenues,
including:
o 24-hour automated checkout;
o Station management automation for inventory and fueling;
o Integrated credit card operations to position Europcar for
Europe-wide credit card clearing and payment operation; and
o Theft control devices.
Greenway, the most advanced management information system in the vehicle rental
industry, will help sustain Europcar's leadership position in the marketplace.
BRITISH TELECOM
British Telecom awarded PSC a contract to integrate their customer information
program. As the UK market for Telecommunications heats up, British Telecom,
supplier of telecommunication services equipment in the UK with sales of $20.3
billion dollars last year, has responded with an aggressive effort to pull
together and enhance several major customer-facing programs to improve customer
handling capability. Following a competitive tendering exercise, British Telecom
selected PSC as its preferred external partner to assist in this new and
far-reaching initiative spanning the next three years to be called the
Integrated Customer Information Program. The program integrates information
surrounding marketing, sales, service, and billing functions to enhance the
quality of the interfaces between British Telecom and its customers. As such, it
will provide a migration path toward an integrated solution for projects that
can improve the availability and use of customer-related information.
PSC' role will be to combine its system integration and business improvement
skills with British Telecom's Network & Systems group enabling British Telecom
to realize the significant benefits available from the program. PSC is
coordinating the activity of a series of existing projects as well as initiating
work on new development to meet crucial information and business process
requirements. Program Management will be undertaken by PSC, operating under a
new, innovative risk-reward contract.
THOMAS COOK
Thomas Cook is a worldwide travel company with 11,000 employees, 20 million
customers and more than 2,000 locations around the globe. Thomas Cook was faced
with major network expansion, vertical integration, substantial price
competition, high back-office processing costs, major technology-based changes
in services, and inadequate management information. Thomas
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Cook initiated an alliance with PSC to create a low cost processing and
information infrastructure that can efficiently support current and future
needs. PSC designed, developed and implemented the system within the projected
15-month time frame using an incremental approach and Systems Engineer as the
CASE tool.
The Thomas Cook solution encompasses the introduction of a joint business
improvement unit to oversee the reengineering effort. This project involves
restructuring back-office processes, implementing an integrated point-of-sale
system, and performing profitability analysis through information discovery. We
are developing associated front office systems, back-office systems and an
overall Data Warehouse, the first of its kind in the travel and leisure
business.
The Data Warehouse receives details of all sales transactions overnight from
Point-of-Sale systems in Thomas Cook Travel Shops and Bureaux de Change, as well
as additional data from the new Back-office system, General Ledger and
Personnel. This will provide information to user departments within Thomas Cook,
including marketing and customer service. Summarized Business Performance data
is also updated each night and made available via a custom-made EIS (Executive
Information System) front-end. EIS will enable managers to dial in from remote
locations to monitor business performance up to close of business the previous
night. The new Data Warehouse / BIS system provides Thomas Cook with information
that is more accurate and more up-to-date than ever before.
NATIONSBANK
The bank selected the PSC Information Architecture (PSIA) methodology for
constructing and managing the corporate information resource and rendering it
accessible at a corporate-wide level. PSC and the bank jointly constructed an
overall Data Warehouse system by consolidating data from 75 different
applications into a centralized relational database. This involved extracting
data from UNIX, IBM and Burroughs platforms. This data was placed into a common
application program interface and then loaded to the Data Warehouse located on a
Teradata DBC 1012 platform. The key concept in this cross-platform portability
effort was to create a data dictionary defining both source and target data
attributes including the existing business rules. Reporting applications are
being built to take advantage of information available for the first time in an
integrated database. Upon full completion, the project will provide the bank
with direct expense reductions and efficiency improvements and will improve the
bank's ability to manage business risk and explore new business opportunities at
a corporate-wide level.
The Data Warehouse system was built to provide a central, standardized,
quality-assured database that meets management information and decision support
needs in a cost-effective manner. It is a fast, flexible, and high quality
process. The information is accessed by a flexible, Presentation subsystem, KBMS
Intellect, that allows the retrieval of information through natural language
requests.
ASPEN SKIING COMPANY
As a first step toward establishing a Closed Economic System, Aspen Skiing
Company awarded PSC a contract to construct an overall Data Warehouse and Ski
School Reservation System. The Ski School Reservation System is used by 55 Ski
School Customer Service Representatives. The Customer Service Representatives
run PowerBuilder-developed applications on Windows client workstations to access
the Oracle database on a Sun Solaris 2.3 server. Since implementation, PSC has
developed a MAPI interface with e-mail, and an interface with the financial
systems application on an AS/400.
The new Data Warehouse system will be the foundation for all future
client/server application development efforts across Aspen's four mountains
(Aspen Highlands, Aspen Mountain, Buttermilk, and Snowmass). Future integrated
applications will include Ticketing, Lift Access, Credit/Debit, and Marketing
systems.
PSC's Energy Practice extends across the entire value chain
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PSC Energy Practice: Application to Value Chain
<Table>
<Caption>
Bulk Retail
Power Customer Marketing
Generation Marketing Transmission Distribution Service & Sales
- ---------- --------- ------------ ------------ -------- ---------
o Asset Sales o Bulk power o Separation of o Crew o Customer o Marketing
o Power Plant alliances and assets, marketing management call center and pricing
competitiveness entry strategy & operations o Labor integration strategy
o Profit & Loss o Bulk power o Construction & relations o Credit and o Branding
responsibility marketing maintenance strategy collection strategy
o Fuels Strategy strategy o Engineering o Supply chain strategy o Profitability
o Gas supply & outsourcing and management o Meter analysis
convergence alliances o Fleet reading o Telecommunications
management technology gas, water, and
sewer alliances
</Table>
<Table>
o Corporate Strategy o Reorganization
o Growth Strategy o Alliance Creation
o M&A Integration o Management Development
</Table>
PSC has helped many firms meet the challenges and succeed in
newly-deregulated industries
DEREGULATED INDUSTRY
We have helped many clients succeed in profitably meeting the challenges in
newly-deregulating industries.
<Table>
<Caption>
Telecommunications Financial Services
- ------------------ ------------------
o AT&T o SBC
o MCI o NationsBank
o British Telecom o Barclays
</Table>
<Table>
<Caption>
Health Care Energy
- ----------- ------
o Tenet Healthcare o Large British Utility
o LADWP
</Table>
DEREGULATED INDUSTRY EXPERIENCE
- -------------------------------
AT&T
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BillingEdge is a PC-based product that provides AT&T's commercial customers
with their invoice detail in machine readable format. The system and all of the
invoice data, including call detail, is delivered to the customers on a monthly
basis. The system provides some standard reports which will match the paper
invoice and some additional analytical reports. The system also provides the
user with the ability to create custom reports and/or export data to
spreadsheets or databases. These features allow users to better manage and
audit their phone usage.
After an unsuccessful release in October, PSC was called in to provide
programming support with a staff of six programmers in December. It was quickly
recognized that the demand for significantly more functionality and expanding
the product base would further stress the already fragile product. PSC was
requested to assist in the effort and presented a proposal to assume
responsibility for major portions of the project team for the May release. Work
began immediately by PSC to bring in the necessary staff to accomplish the work.
The work assigned to PSC included:
o Project management
o PC application design, development and string testing
o Systems testing
o Regression testing
o Environment management
Each of these teams were blended teams with personnel from both AT&T and PSC,
with PSC having overall management responsibility for the quality and
timeliness of the work. In addition to the actual project deliverables, PSC was
responsible for building and implementing the necessary processes, procedures
and infrastructure necessary to operate a smooth running development
environment where the quality of the end user product met AT&T standards.
The May Release was implemented successfully. The quality was far above
previous releases. This was documented from several sources in statements like,
"This was unquestionably the best BillingEdge release we have ever had."
Following the May Release, PSC provided support for the August Release. In this
release, PSC personnel worked as part of AT&T lead teams. Many of the processes
and procedures used by PSC were followed and the quality of the August Release
exceeded the May Release.
BRITISH TELECOM
As the UK market for telecommunications heats up, British Telecom (BT) has
responded with an aggressive effort to pull together and enhance several major
customer facing programs to achieve a step-change in customer handling
capability.
Following a competitive tendering exercise BT appointed PSC as its preferred
external partner to assist in this new and far-reaching initiative to be called
the Integrated Customer Information Program (ICIP).
The program integrates information surrounding marketing, sales, service and
billing functions in a unique way to enhance the quality of the interfaces
between BT and its customers. As such, it will provide a migration path towards
an integrated solution for projects looking to improve the availability and
use of customer related information.
PSC' role will be to combine its `world best' system integration and business
improvement skills with BT's Network & Systems group to enable BT to realize
the significant benefits available from the program. PSC will coordinate the
activity of a series of existing projects as well as initiating work on new
development to meet crucial information and business process requirements.
Program Management will be undertaken by PSC operating under a new, innovative
risk reward contract.
The program aims to deliver benefits to BT in several phases to both the
National Business Communications and Personal Communications divisions.
MCI
PSC Corporation began its relationship with MCI in December 1988. PSC's
greatest value to MCI continues to be in strategic and mission-critical systems
where the business risk is substantial
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if quality or timeliness of solutions suffer. The key strengths PSC brings to
MCI includes business and operations knowledge, a demonstrated ability to
mobilize quickly with total solutions, the ability to deliver high-quality
products for achieving user satisfaction, and the flexibility to offer effective
project management for major development efforts. These capabilities are being
offered through PSC's Project Delivery, Business Reengineering and Systems
Architecture services.
Throughout its long-standing relationship with MCI, PSC has acquired in-depth
knowledge of MCI's billing, order entry, customer care and management
information systems. PSC is best known for its billing expertise, serving as the
major provider with 1,500 person-months of billing services delivered in 1995.
As a result of its industry and MCI-specific business expertise, PSC is
assisting MCI in achieving elements of its network MCI vision in advanced
technologies.
In 1994, MCI reorganized into strategic business units to focus on consumer
markets and business markets. MCI's critical customer acquisition and management
system, which had served both markets, was recreated for the Business Markets
organization. Based on a six-year relationship, PSC was again awarded the
opportunity to succeed by assisting MCI in attaining its vision and delivering
it on-time and within budget.
BARCLAYS HOME FINANCE
Barclays Bank, the parent company of Barclays Home Finance (BHF), is one of the
UK's "Big Four" domestic clearing banks. It has 2,000 branches in the UK and
operates in 95 other countries. BHF provides and administers residential
mortgages that are marketed through its parent's branch network. BHF and PSC
entered a partnership in 1994 to implement a program of change tied to BHF's
strategic imperatives to drive them forward in a highly competitive marketplace.
This partnership marked the launch of our shared risk/reward model where PSC'
revenues are tied directly to the business results of the client.
In the initial stage, a joint BHF/PSC team created an "industrial strength" back
office for which PSE redesigned the mortgage process, applied a workflow
solution for the Mortgage Underwriting area and, most importantly, implemented a
targeted People Program. October 1995 saw the roll-out of the solution to 200
people and a 50 percent improvement in productivity that allowed additional
services to be brought in-house with no extra staff cost. In line with the
technology implementation, a flatter organization was introduced with increased
service ownership at individual and team levels.
To improve BHF's quality, content and processing time of all outgoing
correspondence, PSC implemented a solution in April 1996 that moved the print
mechanism from the legacy AS/400 system to a bespoke printing, UNIX solution
system built on Applixware. This print solution improved the production cycle
times by more than 40 percent and dramatically improved the quality of customer
correspondence.
Throughout 1994 and 1995, there was a tremendous rise in the number of borrowers
who were re-mortgaging property. BHF launched a re-mortgage service, but was
unable to cope with the initial swell in customer demand. This was an ideal
opportunity for BHF and PSC to further demonstrate their ability to get things
done together. The pilot solution has resulted in a reduction in unit cost and
cycle time and increase in volumes processed. This effort resulted in a 32
percent reduction in unit costs, a 29 percent increase in volumes processed and
a 40 percent increase in productivity. The team is currently concentrating on
increasing in-house processing, further reducing unit costs and facilitating the
launch of a new "fast-track" re-mortgage product.
The major new development for 1996 is the Chrysalis program. This includes a
change management effort to introduce a new core accounting and product
management system that will allow Barclays to develop, market and process
modern, flexible mortgage products. The project will also mark another step in
moving BHF to a full open systems, client/server architecture. The first stage
of Project Chrysalis' functionality is due to go "live" at BHF in the late
summer of 1997. This project represents a 10 million pound investment by
Barclays.
NATIONSBANK
NationsBank is one of the largest banking companies in the United States with
more than 1,900 offices in nine states. Because of intensified competition on
pricing and asset values and an uncertain/hostile regulatory climate,
NationsBank instituted a strategy of consolidating and
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expanding operations through acquisitions while maintaining a focus on superior
customer service. PSC was hired to assist NationsBank in the implementation
of this strategy.
PSC's relationship with NationsBank began in 1989 when PSC was asked to perform
a data center consulting study. This study resulted in a consolidation effort
in which NationsBank and PSC teamed to construct a new data center and migrate
NationsBank's original three data centers into the new facility. This
consolidation resulted in substantial savings and has enabled NationsBank
locations to access information more efficiently. PSC signed a 6 1/2 year
contract in 1991 to manage this central facility and help NationsBank achieve
operational flexibility, cost containment and service level improvement.
To better respond to NationsBank's strategic needs, the relationship evolved
from a data center operations and outsourcing contract to a more flexible and
expandable man-time consulting partnership. One of the main objectives of this
partnership is for NationsBank and PSC to work in a blended team environment in
which PSC' technology and financial industry specialists provide project
assistance and technical consulting support on a variety of projects. Current
initiatives include:
o Development of an "ideal" environment or technology infrastructure
that will support future growth and continuous availability. This
"ideal" environment includes the development and construction of a
centralized command and control center for all support groups.
o Implementation of a corporate contingency initiative -- one of the
bank's most important technology initiatives to date.
o Integration and consolidation of the SNA data network.
o Implementation of electronic messaging.
This new relationship demonstrates our commitment and responsiveness to
NationsBank's long-term needs and allows us to be active contributors to its
growth. Specifically, PSC has helped NationsBank with achieving the following
milestones:
o $20 million in annual operating savings
o Complete data center construction in 162 days from groundbreaking to
occupancy
o Consolidated the IT departments of three major regional banking
organizations
o Increased productivity from 170 people and 550 MIPS to 155 people and
1800 MIPS via automation, best practices and enhanced change/problem
management
TENET HEALTHCARE CORPORATION
Tenet, now the second largest investor-owned hospital chain, operates 84 acute
care hospitals and related healthcare businesses in the United States and
overseas, generating revenues in excess of $5 billion.
Under this contract, the largest outsourcing deal in the hospital industry, PSC
functions as the IS department for Tenet. All applications, data center,
network and in-hospital consulting is provided by PSC staff, who are based in
Dallas, Los Angeles and Houston. This contract will provide Tenet with $12.6
million in annual IS savings, while offering an enhanced IS environment. The
overall benefit of the PSC contract provides Tenet with increased financial
flexibility.
A LARGE UK UTILITY COMPANY
PSC's client is one of 13 Regional Electric Companies (RECs) in the United
Kingdom and serves 2.1 million customers, which makes it the third largest
regional power company in the U.K. Major business divisions represented are:
the core business of the purchase and distribution of electricity; electricity
generation; electrical installation involving industrial - commercial -
residential electrical/mechanical engineering and wiring; Energy Services,
involving security services and energy management; and Retail, involving the
sale and servicing of electrical heating appliances and goods -- now a joint
venture (Homepower) with Yorkshire Electric.
The Utility has signed a 12-year contract with PSC Corporation for a
partnership in transformation of the business enterprise. The business alliance
calls for PSC to provide consultation and
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implementation for all aspects of our client's information services, and for
focused efforts in such areas as:
o Business process redesign
o Cultural/organizational rearchitecture
o Assistance in review of the industry's business market
o Research of core technology advances
The Utility's core business has recently completed the Regulators Supply
(purchase of electricity) review. This has had two positive effects on the
account operations. First, the current regulatory process that offers incentives
for distribution of increased unit volumes of electricity will be replaced by a
cost cap benchmark against which the Regulator will expect improvement. This
suggests that the company will be able to make whatever level of profits are
possible if costs to the consumers are reduced. Facets such as increased asset
utilization and reduced operation costs/reduction of overheads then become areas
for strong focus.
Secondly, in the core business a future could be forecast, where alliances
(mergers) between a number of RECs, or consolidation of non-core functions and
operations centers with other utilities (e.g. gas, water, and rail) in the
franchise area, become much more probable to balance regulatory, customer and
shareholder interests.
The core business initiated a project called Business Breakthrough. Begun in
April 1994, the three major elements of the project are:
o Consolidation of the 13 operating districts into 7 and an evolution of
these from cost centers to profit centers, now completed.
o Transference of the head office business (overhead) functions into the
newly created profit centers, and appointment of general managers to
run these centers.
o Reengineering of the core business under a BPR-(process) driven
approach and consolidation of all initiatives arising, plus
integration of all existing initiatives under a single program. As an
adjunct to this effort, a core business information rearchitecture and
technology migration plan is being developed to be implemented in
parallel.
To date, PSC's successful transformation activities is considered a benchmark
against which utility transformation initiatives around the world are measured.
In addition to being recognized as the least cost per customer, least cost per
unit electricity distributor in the U.K. The Utility, in partnership with PSC,
has introduced one of the most aggressive customer service programs in the
world, while concurrently reducing operating expenses. Our client has recently
been rated by the regulatory authority as one of the premier companies in the
U.K.
PSC operates in total partnership with this client, assuming responsibility for:
the core business information rearchitecture and technology migration plan; the
information and technology strategy; the business process reengineering; and the
cultural transformation program. Several joint venture efforts are under
consideration to explore possible new market opportunities.
LOS ANGELES DEPARTMENT OF WATER AND POWER
The City of Los Angeles retained PSC to prepare the Los Angeles Department of
Water and Power ("LADWP") for competition in a deregulated environment via a
Business Transformation effort spanning a variety of business areas including
generation, transmission, distribution, central services, corporate culture,
finance and accounting, sales and marketing, customer service, information
technology. The project involved PSC competencies in strategy, business process
reengineering, people programs, information technology. Core team members held
significant industry and functional expertise.
Data Warehousing or Data Mining related technologies were used in two areas of
the project, Customer Service and Customer Partnership.
At the onset of the project, DWP's Customer Information System ("CIS") consisted
of customer data on a mainframe. No relational technology was in place.
Therefore, access to data on a transactional basis or for ad-hoc reporting
required specialized programs as extensions to the mainframe systems.
Additionally hundreds of small specialized systems interfaced with mainframe CIS
data to provide additional functions (e.g. work management, trouble, etc.).
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For Customer Service, PSC developed and implemented a transaction based
framework for accessing customer related data from multiple (mainframe and
local) sources. Data was dynamically combined on DWP's PC based system.
Graphical user interface to the data was designed to provide access to data from
numerous different disparate sources using a common graphical front end as well
as provide DWP the capability of extending business functions on the PC without
requiring much effort of maintenance at the mainframe host. The revised system
provided LADWP with the graphical front-end to navigate around selected data
seamlessly, encapsulate business rules away from the data and allow the
integration of Data Warehouse/Data Mining type capabilities into the traditional
transactional processing in a seamless manner. Results are on line real time.
The Customer Partnership initiative concentrated on market focused segmentation,
sales channel development and account management and planning. Key drivers for
each activity are customer information and customer profitability. Working with
PSC the LADWP developed an Oracle based relational database comprised of
customer information required to make customer segmentation, customer
rationalization and value proposition decisions. Information was pulled from
numerous internal and external systems (e.g. Magnum, CIS, Dunn & Bradstreet,
Compuserve) containing customer, market or competitive intelligence. A front end
4th generation sales automation system was selected and attached to the
relational database. Simultaneously, a Customer Profitability model for LADWP's
top 200 customers was developed for attachment to the sales automation system.
The profitability model forecasts and tracks individual customer revenues,
loads, and costs (currently based on marginal cost data). The combined system
provides LADWP with the ability to segment markets, target customers for new
products and services, identify new products and services, respond to
competitive bids for targeted customers as well as manage and track customer
opportunities. The combined system also provides metrics on Market Sector and
internal LADWP customer, operational and financial key performance indicators.
LESSONS LEARNED FROM DEREGULATION
Deregulation of the Telecommunications, electricity, natural gas, air, rail and
trucking industries provide no magic formula for becoming and staying
competitive. Additionally, re-regulation of the Health Care and Financial
Services industries offer no sure-fire methodologies or models. However, review
of each offers a number of lessons learned.
1) IT IS NOT ENOUGH TO KNOW THAT COMPETITION IS COMING, YOU HAVE TO DO
SOMETHING ABOUT IT!
2) COST REDUCTION IS AN ONGOING MODE OF OPERATION, NOT A ONE TIME EVENT.
3 BEING COST COMPETITIVE IS ONLY PART OF THE BATTLE, MARKETING AND SALES
BECOME INCREASINGLY IMPORTANT TO ATTRACT AND RETAIN CUSTOMERS.
4) INDUSTRY SERVICE STANDARDS WILL RISE. HIGHER QUALITY PRODUCTS AND SERVICES
ARE NECESSARY TO COMPETE AND IMPROVE POSITIONING.
5) IT IS IMPORTANT TO HAVE A DETAILED UNDERSTANDING OF CUSTOMER ECONOMICS TO
DETERMINE WHERE TO COMPETE. STRATEGIC THINKING SHOULD TAKE ON A MARKET
SEGMENTATION ORIENTATION.
6) UNDERSTANDING COMPETITOR ECONOMICS AND CAPABILITIES HELP DETERMINE
HOW TO COMPETE. SPECIALIST FIRMS WILL EMERGE. KNOW WHERE TO FIGHT OR
LEVERAGE THEM.
7) SEARCH FOR GROWTH OPPORTUNITIES SINCE IT IS TOUGH TO SHRINK TO GREATNESS.
SINCE SHARE LOSS IS INEVITABLE, CONTINUED REVENUE GROWTH REQUIRES
REDEFINING THE MARKET MORE BROADLY. INCREASINGLY DIFFERENTIATE PRODUCTS AND
SERVICES TO ATTRACT CUSTOMERS.
8) ENSURE EVERY PART OF THE COMPANY ACHIEVES WORLD CLASS PERFORMANCE.
9) DO NOT TRY TO BE ALL THINGS TO ALL PEOPLE!
10 TECHNOLOGY ENABLED CUSTOMER AND CORPORATE INFORMATION ARE NECESSARY IF
COMPETITIVE ADVANTAGE IS TO BE ACHIEVED
11) THE INFORMATION TECHNOLOGY INFRASTRUCTURE MUST EVOLVE IF COMPETITIVE
ADVANTAGE IS TO BE ACHIEVED.
LESSON 1
IT IS NOT ENOUGH TO KNOW THAT COMPETITION IS COMING, YOU HAVE TO DO SOMETHING
ABOUT IT. AT&T became competitive by aggressively cutting headcount (26% for
1984-1991); taking restructuring charges of $8B since 1984). AT&T upgraded
network technologies and wrote off $14B of old plant assets. Sales capabilities
were built through creation of a direct sales force and recruited third-party
channels. Additionally, AT&T bought McCaw as a way to provide local services by
avoiding access costs and improving "customer ownership". Key to success was
AT&T's aggressive recruiting of outside hires, especially in the marketing area.
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LESSON 2
COST REDUCTION IS AN ONGOING MODE OF OPERATION, NOT A ONE TIME EVENT.
Initially, price becomes the early basis for competition, companies focus on
reducing costs and productivity rises dramatically. However, cost reduction must
be vigorously and thoroughly pursued through set real cost reduction targets
each year. Multiple management levers must be pulled. All resource and cost
types must be reviewed and improved. Examples of cost reduction initiatives.
LESSON 3
BEING COST COMPETITIVE IS ONLY PART OF THE BATTLE, MARKETING AND SALES BECOME
INCREASINGLY IMPORTANT TO ATTRACT AND RETAIN CUSTOMERS. Be prepared to spend
more. Customers will churn. Also it takes money to acquire customers. Telco
churn rates are 29-35% a year. Telco customer acquisition costs range from
$400-800 per customer. Marketing activities must be aggressively managed. Yield
must be managed to maximize revenue from assets. Brand managers must be
introduced to oversee product lines and ensure consistency. Industry managers
must develop specialized knowledge of key targeted customer types. Airline Cost
Index shows advertising and promotion cost per revenue ton mile increased from
$1.20 in 1978 to $2.50 in 1984 before leveling off at $1.90 in 1993. Similarly,
FCC Statistics of Communications Common Carriers show AT&T long distance
marketing expenditures gradually increased from $1.8B in 1998 to $3.5B in 1993.
LESSON 4
INDUSTRY SERVICE STANDARDS WILL RISE. HIGHER QUALITY PRODUCTS AND SERVICES ARE
NECESSARY TO COMPETE AND IMPROVE POSITIONING. Service levels increasingly become
a basis for competition. Comparative quality performance becomes well known to
customers. Air Travel Consumer Report statistics reveal revenue passenger miles
(MM) per consumer complaint increased from 9MM in 1978 to 24MM in 1986 to 100MM
in 1993.
LESSON 5
IT IS IMPORTANT TO HAVE A DETAILED UNDERSTANDING OF CUSTOMER ECONOMICS TO
DETERMINE WHERE TO COMPETE. STRATEGIC THINKING SHOULD TAKE ON A MARKET
SEGMENTATION ORIENTATION. Determination if 100% of market share is desirable is
necessary. Winners fight to retain certain target segments and are happy to give
up other segments. Telecommunications Firms typically receive 99% of their
profits from 36% of their customers (approximately 3 segments at 10%, 10% and
16%). Over 60% of customers fall in unprofitable segments. Service and products
are adjusted accordingly. Successful competitors focus analytics in two areas:
(1) segment cost and profitability replace "average cost" thinking, and (2) the
search for segment innovation and definition. Customer equity is built in
segments with high profitability and low opportunity for the customer to switch.
Segments with high profitability and high switching opportunities receive
focused retention or attraction programs. Costs are reduced or customers are
dropped from segments with low profitability and high switching opportunities.
Likewise, customers are rationalized or squeezed if they provide low
profitability and their opportunity to switch is low.
LESSON 6
UNDERSTANDING COMPETITOR ECONOMICS AND CAPABILITIES HELP DETERMINE HOW TO
COMPETE. SPECIALIST FIRMS WILL EMERGE. KNOW WHERE TO FIGHT OR LEVERAGE THEM. New
entrants tend to "cherry pick" in at least one of the following four ways; (1
customers targeted, (2) products services offered, (3) configuration or value
chain, and (4) regions served. Winners understand where "cherry picking" is a
threat by learning the total cost to serve a customer (customer profitability)
and by developing revenue retention programs. Shadow suppliers spring up to
handle specific value chain steps that new entrants can not handle themselves or
that incumbents may not be able to perform affordably. Winners look for
opportunities to integrate horizontally and offer these services (e.g. Natural
gas independent marketers, Airline scheduling/reservation specialists). A study
of Long Distance competition shows AT&T originally thought it could beat MCI on
price. Between 1980 and 1989 AT&T reduced prices by over 40% and MCI matched
each cut. In late 1989, AT&T determined that MCI would never allow AT&T to match
its price. Prices have remained flat to increasing since 1989, improving
industry margins. MCI introduced its "Friends and Family" program after a new
billing system was installed in 1989. The program provides discounts to call
within a "calling circle". Customers perceive up to a 20% discount although it
averages less than 5%.
LESSON 7
SEARCH FOR GROWTH OPPORTUNITIES SINCE IT IS TOUGH TO SHRINK TO GREATNESS. SINCE
SHARE LOSS IS INEVITABLE, CONTINUED REVENUE GROWTH REQUIRES REDEFINING THE
MARKET MORE BROADLY, INCREASINGLY DIFFERENTIATE PRODUCTS AND SERVICES TO ATTRACT
CUSTOMERS. Valueline analysis (CAGR
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1998-1993) concludes that the Market values companies with growth-based
strategies more than those with cost-cutting strategies. Profitable Growth
companies achieve Absolute Market Value Growth of 19% or higher. Cost Cutting
companies achieve 12%, Unprofitable Growth companies 8% and a Shrinking company
absolute market value growth is 0 to 5%. Well managed information is the key to
delivering competitive advantage. Large new business can be created from
informationalized products and services (e.g. Natural Gas electronic bulletin
boards, Airline computerized reservations systems SABRE).
LESSON 8
ENSURE EVERY PART OF THE COMPANY ACHIEVE WORLD CLASS PERFORMANCE. Structures for
several telephone companies (e.g. Ameritech Corp.) emphasize sink or swim
independence of different value added functions. Functions that "sink" are
divested or outsourced.
LESSON 9
DO NOT TRY TO BE ALL THINGS TO ALL PEOPLE. The scope of services and products
offered changes. Scope increases in the industry as more niche offerings are
developed and decreases for companies who exit niches where they can not
compete. Winners focus and achieve profitable growth by determining served
market boundaries and sticking to them. Winners avoid doing a little of
everything. For example, Southwest Airlines focuses on discount service within a
regional market by grouping activities (a) Autoticketing, (b) coach seating, (c)
serving in-flight snacks, and (d) offering no special services all on (e)
regional routes.
LESSON 10
TECHNOLOGY ENABLED CUSTOMER AND CORPORATE INFORMATION ARE NECESSARY IF
COMPETITIVE ADVANTAGE IS TO BE ACHIEVED. Top grade, leading edge systems for
trading, risk management, rate & tariff arbitrage, and customer segmentation &
analysis & modeling are an absolute requirement.
LESSON 11
THE INFORMATION TECHNOLOGY INFRASTRUCTURE MUST EVOLVE IF COMPETITIVE ADVANTAGE
IS TO BE ACHIEVED. Companies going through deregulation typically have a lot of
historical data related to customers and customer usage. If historical data is
archived in a low level of detail, it can be leveraged and transformed to
provide powerful customer insights. Industries such as Utilities have an
advantage over other businesses when collecting customer information; they know
where the customer lives, and they can easily relate a customer with that
customer's revenue and usage. Data and information needs will change during
deregulation and in the subsequent competitive environment. Some data that had
value in a regulated environment will provide less value in a competitive
environment. Similarly, types of data not collected in a regulated environment
is indispensable in a competitive environment. The integration of new and old
internal data (billing records, load, usage records) with new and old external
data (demographics, market research) becomes critical to achieving competitive
advantage. Additionally, it is critical to keep the data and data components
evergreen.
SUMMARY
Unpredictability does not deter winners from taking bold actions. Gradual change
will not produce winners. Start planning and acting now. costs must be reduced
aggressively. Cost reduction may be painful, but the alternative of not doing it
is fatal. Innovation and investment in service quality improvements, new
products and services, customer knowledge and technology drive success. Strategy
must be focused on customer segments and markets to compete for as well as
sources of unique competitive advantage. Targeted growth opportunities must be
sought out. No one has ever shrunk to greatness. Implementation of programs as a
way of doing business is as important as a sound strategy.
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PSC PERSPECTIVES ON THE RESTRUCTURING OF THE ELECTRIC UTILITY INDUSTRY
While numerous changes are taking place in the industry, two in particular will
drive and reshape the industry's future. They are the creation of strategic
alliances or mergers and the transformation of Utility customer service.
Collection and management of customer and corporate information are
instrumental to each.
ALLIANCES
Utility alliances, especially with telecommunications companies are
proliferating. Examples include Southern Company/Motorola, Union Electric/
CellNet, Entergy/Sprint, Wisconsin Public Service/Johnson Controls, Public
Service of Colorado/IBM, and Glasgow/First Pacific/MCI. Alliances and joint
ventures are potential means of acquiring capabilities faster in a less costly
manner than either developing the capabilities internally or merging and making
acquisitions. Alliances take many shapes from limited informal relationships to
managed vendor relationships to licensing to outsourcing to supplier alliance
relationships to joint equity investments to joint ventures to merger or
acquisition. However, alliances are not without risk and require an
understanding of both the upscale and downscale potential.
Successful establishment and maintenance of alliances are guided by five
principles:
1. The potential for significant mutual benefit
- Level of opportunity and benefits, investment, duration and
strategic fit
2. A common goal and a plan to achieve it
- What exactly is the shared goal and how will it be achieved?
3. Shared risks and rewards
- What is the operating structure and what kind of performance
incentives are there?
4. Management commitment
- What level of management is reviewing the alliance and what
management resources from each partner will be dedicated to
the alliance?
5. Effective organizational approach
- How are decisions made and disagreements resolved? How is mutual
trust built?
Information plays a key role in the process for developing and implementing
alliances and joint ventures. Customer, competitive, market and corporate Data
Warehouse information can be mined to (1) screen for potential partners, (2)
assess capabilities, (3) define opportunities for alliances (the expected
impact, value and risk), (4) identify integration requirements or redundancies,
(5) define sensitivity analysis parameters for negotiation, and (6) initialize
and manage implementation.
TRANSFORMATION OF UTILITY CUSTOMER SERVICE
Some decisions about how the electric industry will be structured appear clear:
generation will be competitive, transmission will continue to be FERC-
regulated, and distribution ("wires") will continue to be a State-regulated
monopoly. Retail marketing and sales will have both regulated and unregulated
components. Key is whether and how customer service will be unbundled. Currently
California is leading the debate on whether or not "revenue cycle services"
should be unbundled. Included in the scope are meter reading, call center
operation, billing, payment processing and credit/collections. Arguments for
unbundling include (1) Competitive pressure required to achieve cost savings,
(2) The need to open up both commodity (bulk power) and service parts of the
business to competition, and that (3) Customer service is not a natural
monopoly. Arguments against center around (1) Utility wide deployment of
real-time metering and communications required to achieve cost savings, (2)
"Cherry Picking" will result, and (3) That unbundling will lead to chaos while
direct access is taking place.
Technology and scale will drive how customer service is delivered in the future.
Meter reading is moving from meter books, hand helds, automated meter reading,
bundled utility services and bundled home and business services to more advanced
and integrated solutions. AT&T's Integrated Broadband Utility Solution provides
a 2-way customer communications system which offers automated meter reading,
distribution automation, automatic service connects and disconnects combined
with energy management. A customer choice and control marketing solution is
offered by an alliance headed by CSW Communications. The alliance provides AMR,
outage reporting, distribution automation and tamper detection.
Technology is also driving combined billing services. The move from one bill to
joint pricing and billing of bundled products in separate industries to bundled
products across industries to interlinked products with interlinked pricing and
billing is driven by customer information.
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Southern Development, a subsidiary of Southern Company now offers one bill for
various services in a residential pilot program. The bill encompasses
electricity, water, Cable TV, Long Distance Telephone, Internet and security
monitoring. Bundled discounts and the addition of other bills including rent are
expected in the next iteration. Network MCI One offers billing services targeted
to businesses. Customers receive a single bill for call center services, data
services, conferencing, toll free services, and international long distance.
Also incorporated are dedicated access, remote access, call cards, fax and
e-mail. Discounts increase as more products and services are added.
The pricing of customer services in the future will be linked to the market
structure adopted. Cost of service pricing will be replaced with such
alternatives as price caps, revenue caps, benchmarking-based rates,
performance-based rates or rate-of-return bandwidths. In any event, the most
fundamental principles about serving customers are being challenged. The
definition of a customer is changing. With the advent of national accounts,
aggregators, and customer alliances, the definition of a customer is much more
complex and as a result, customer service will have to undergo a significant
transformation. What customers need and want is changing also. The demand is
growing for bundled utility services and for combined billing of utility and
not-utility services. These changes in customer preference will not only
challenge utility marketing organizations, but call center, metering and billing
operations as well. Customers and suppliers are placing their bets now.
Customers are signing up in anticipation of retail access. Companies such as
Enron and Utilicorp are moving quickly to establish themselves on a national
level. In addition, the creation of alliances between utilities and
telecommunications, information systems, and electric equipment firms has
exploded over the past few years. Information technology will be a prerequisite
for competing. Information networks will have to perform automated meter
reading, do joint billing, provide real-time data, and support a host of
residential and business services in order to meet customer needs. Technology
alliances will be a critical factor for success. Customer service will be
delivered in a competitive market. While customer service monopolies may
continue during the transition phase, regulators are inclined to introduce
competition. From a market perspective, barriers to entry are low and many
suppliers have the capabilities and technologies to meet customer needs
efficiently. Utilities may be quickly depositioned from their customers. One of
the biggest threats facing utilities is that new suppliers will gain access to
customers. The access may be direct or regulators may deem that all suppliers
have unfettered access to utility customer information databases. The future
"playing field" will not be level. The low-income, energy efficiency and other
social programs that utilities administer will continue in the competitive
world. While regulators talk about the transition to market driven solutions,
utilities will be competing against companies that do not have the same social
obligations. However, the opportunities have never been greater. In future,
customer service organizations will be able to compete across the country and
offer a broader range of products and services.
UTILITY DEREGULATION -- EMERGING THEMES
THEME I
AMASSING MARKET SHARE EARLY ON IS CRITICAL. A prospective power marketer should
act immediately. In the early stages of market development, market share is
critical. The customer attains its largest savings in the first transition from
regulated rates to market-based rates. After the first cost reduction, small
increments of additional savings may be available due to intensifying
competition and reduced margins, but the gross dollar savings will not be
compelling enough for customers to switch suppliers. It will be much more
difficult to obtain market share after the initial stages of competition.
THEME 2
INCUMBENCY IS AN ADVANTAGE. The incumbent supplier will be able to attain higher
prices than new challengers, as customers will not bear the transaction costs of
changing suppliers for small incremental savings. Pilot retail programs
initiated by outsiders have been responded to by local utilities which form a
deregulated operation, and immediately dominate the market.
THEME 3
BRANDING IS CRITICAL. The smaller companies with unrecognizable names and
without the resources to create a brand name are not taking any noticeable
market share. Retail pilot participants are proving reluctant to entrust their
supply of energy to unknown companies. A Brand Name can both dramatically cut
the cost of sales and improve the chances of completing a sale; the development
of the brand name must be adequately budgeted for as part of the Marketing and
Sales cost. In the gas market, brand loyalty was partially established within
the first year of operation, with a customer unwilling to change its supplier
for a cent or two. It would appear from trials to date, that long term brand
loyalty can be established with a large segment of the
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marketplace within a three year period. In retail residential pilot programs,
the brand name power of the incumbent has proven very powerful. Although
constraints may be imposed, the local utility subsidiary has a number of major
advantages in its home market. It is usually staffed with the utility's
Customer Representatives, it has an already-established seller/customer
relationship and the association with the utility overcomes all security of
supply fears.
THEME 4
SECURITY OF SUPPLY AND PRICE ARE BUNDLED TOGETHER. If the marketer cannot
satisfy the customer that it can meet both of these criteria, then it cannot
make the sale. The ability to demonstrate the capability to deliver is at all
times is of paramount importance. The ability to demonstrate ownership of
generating capacity is important but only becomes of paramount importance
during times of shortage.
Three general rules seem to define the customers' concerns, these are:
1. In a sellers' market, electricity capacity ownership will become a
significant factor in security of supply terms. In a sellers market, price
concerns are relegated to a distant second place.
2. In a buyers' market ownership of the electricity capacity has a smaller
advantage, price is elevated.
3. In either a buyers' or sellers' market how you get from here to there that
is a major customer concern. In terms of the security of supply, it is the
supplier's ownership and access to the interstate transportation system
capacity which becomes the focus of the sale.
Although being able to offer the customer a variety of price and tariff options
has marketing value and a Price Menu should be developed, it must be assumed
that virtually all marketers will offer similar menus. Therefore, in terms of
price, a prospective power marketer's ability to win market share would largely
depend upon it abilities to obtain supplies (security) and setting its pricing
policy based upon first class market intelligence.
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PROJECT PROPOSAL
DELIVERABLES
o An architecture for a Data Mining/Data Warehouse that will allow SCE to:
o Leverage its information assets (mainly customer historical data) and
gain customer insights;
o Build Data Warehouses and datamarts that are scalable, and integrate
into SCE's information environment;
o Perform simple (canned queries) or complex (Data Mining) data
analysis using the same consistent architecture;
o Allow end-users to get "one answer for one question" (as opposed to
many answers for one question), and
o Understand the timeliness and meaning of a piece of information from
the CRCRS application into a state-of-the art Data Warehouse
PROJECT CRITICAL SUCCESS FACTORS:
o Clearly defined business objectives
o Understanding of business impacts and priorities
o Partnership & cooperative effort
o Reusable, continuously improved process
o Leveraging available and emerging technologies
o Use of standards
o Extensive Support Infrastructure
o Strong Process and Project Management disciplines
o Understanding the Year 2000 Realizations via Year 2000 audit
SCOPING (PHASE I) TASKS:
1. Business Needs Assessment (general)
o Identify the (general) "hot" business issues that relate to decision
making -- both for executives and non-executives
o Define the quantifiable benefit of SCE address identified "hot"
business issues using Data Warehousing/Data Mining
2. Technical Infrastructure Assessment (general)
o Obtain SCE's information systems infrastructure and general
architecture
o Obtain the standard architectures and practices
o Obtain the high level topology of the SCE infrastructure
3. Specification of a Data Warehouse/Data Mining architecture
o Using input from 1 and 2, propose an architecture for Data
Warehouse/Data Mining
o Define the quality of the data and amount of data scrubbing necessary
o Identify data locality
o Identify data format
4. Business Needs Analysis (CRCRS application)
o (using the context of 1)
o Identify the most important reports generated by CRCRS
o Define the type of business questions that CRCS raw data can answer
o Define the "hot" issues for the business areas that are interested in
CRCRS data
o Qualify the business value of solving identified "hot" issues
5. Technical assessment of the CRCRS application
o (using the context of 2)
o Gain an understanding of data, process and reports
o Perform or integrate with SCE year 2000 CRCS audit
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6. Application of the architecture to the CRCRS
o (using 3,4,5)
o Define relationships between CRCRS raw data and needed business
functionality
o Develop overview of how the proposed architecture applies to CRCRS
7. Project Plan Development for "super" CRCRS
o (using 4,5,6)
o Develop Project Plan (tasks, resources, timeline, etc.) for
transforming CRCRS into "super" CRCRS
8. Business Case Development
RESOURCES REQUIREMENTS (TASKS/ACTIVITY BASED)
1. Business need - 2 person-week (business analyst)
2. Business analysis (CRCRS) - 3 person-week (business analyst)
3. Data Analysis (Quality, Locality, Format) - 2 person-week (Data analyst)
4. Technical Assessment - 1 person-week (architect)
5. Data Warehouse architecture - 2 person-week (architect and DW developer)
6. Technical Development - 1 person-week (architect)
7. In-depth technical (CRCRS) - 2 person-week (mainframe specialist) +
1 person-week (year 2000)
8. Application of architecture to CRCRS - 2 person-week (architect, DW
developer, mainframe specialist)
9. Project Plan - 1 person-week (project manager + technologists + business
analysts)
10. Business case development - 1 person-week (project manager + technologists
+ business analysts)
TOTAL: 18 person-week
PSC: 12 person-week
SCE: 6 person-week
PROJECT DURATION: 8 calendar weeks
PROJECT TEAM
The PSC project team will contain skills and capabilities from technologists,
consultants, industry and functional experts, experienced creators of Data
Warehouses and Data Mining capabilities in deregulating industries. PSC also has
unparalleled expertise in DB2 and Sybase/Unix databases. In addition, the
Project Team skills will cover identified related business issues as well as
project management capabilities. Additional support will be provided to the
project team by the PSC bench which includes:
o Neo Vista, a partner of PSC, the recognized leader in Data Warehousing
and Data Mining,
o TRC, a wholly owned subsidiary of PSC, specializing in object oriented
technology, and
o Doblin Group, a wholly owned subsidiary of PSC, a design firm for
planning and innovation.
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