Digitization, climate change, blockchain, 5G and the like – the mega-topics of our time are bundled together in the energy sector and trigger massive pressure to act among the utility companies. The focus is primarily on “Cost-to-Serve” (CtS) because it has a massive impact on falling margins in mass business. Can a target value of 10 euros be achieved here? The answer from powercloud: a resounding “YES”. The costs can be reduced by up to 75 percent. And best of all: Existing legacy systems can now easily be migrated.
“Cost pressure” is currently a term that is often heard among energy suppliers – and no wonder: In which other industries have so many new competitors recently emerged, has the purchasing behavior of end customers changed so much and is digitization causing such massive changes in product development? In other words: While the automotive industry is still debating ordering cars by “clicking” online, something similar has long been a reality in the energy industry. It is obvious that the coronavirus pandemic is further complicating the cost situation of the supply companies – for example, because the demand for electricity is weakening due to decreased industrial production, digital channels are rapidly gaining in importance.
The expensive “legacy” burden of many utilities
Today, the question arises more than ever – how can utilities significantly reduce their cost-to -serve? Existing IT infrastructures often limit the potential for cost reductions and increased revenues: They are shaped by ´so-called´ legacy software systems – often consisting of home grown or aged vendor applications that are frequently over 15 years old, and based on outdated technologies. Users have grown comfortable and accustomed to such solutions – decision-makers fearing high cost and risk from the migration of these monolithic systems into new agile platforms. In a nutshell: They prefer to stick with the ´safe and old´, fearing to embrace strategies necessary to sure up their digital future and removing the shackles of a CtS of 25 to 80 euros per customer per year – which is simply not sustainable in today’s markets according to a Deloitte study. Instead, “a target CtS of 10 euros or lower per customer (…) can also be achieved for established suppliers” according to the authors.
But why exactly are such minimal costs impossible to achieve with established legacy systems?
- Lack of flexibility: The energy industry is constantly changing – some would say in a state of flux. In the case of old, monolithic software solutions, even simple regulatory format changes in market communication requires huge efforts to implement. And: For cost inhibitive reasons, new ideas and revenue innovations from sales or marketing fall at the first hurdle due to a feared cost avalanche adding to the churn problem.
- High effort: Beyond cost, the maintenance of in-house developments and legacy vendor solutions consisting of many individual customizations often puts too much strain on IT resources and related bandwidth. The whole thing is a constant “problem area” quoted one of powercloud’s newest customers: “We should have listed to our inner voice and done this sooner – we´ve lost too much time and too many customers”
- Security risk: Legacy software systems are a security risk – fact. And new compliance challenges such as amendments to General Data Protection Regulation (GDPR) can only be implemented by complex reprogramming.
Migration of the legacy system to an open cloud platform
Ultimately, these unresolved problems endanger the competitiveness of the utility companies – new market participants position themselves ahead of the game by using agile software solutions that focus on flexible communication and intimacy with end customers: Many suppliers are offering more and more products and services that have fee schedules and pricing tailored for the customer. In addition, additional topics such as “smart meters” and the “Internet of Things” bring added complexity and greater volumes of data that requires both integrating and managing.
In other words: More and more data has to be processed at speed and with confidence, from order acceptance to billing and payment. The basic prerequisite for this is having digitized processes underpinning the company which are designed and implemented according to customer needs. Gartner describes the ideal world as a “post-modern platform” – cloud-based end-to-end by approach – the powercloud platform for which there are impressive migration success stories with legacy systems. Last year powercloud carried out the largest replacement of SAP IS-U in Europe with around 4 million customers, who are now billed and managed on the powercloud platform.
The formula for the solution is: Standardization + speed with high flexibility. As a result, five central factors which ensure cost leadership:
- Regulatory updates: Regular format adjustments due to changing legal requirements within the regulatory framework of market communication requires timely adjustments in IT. powercloud delivers these format updates free of charge via a process of continuous updates, several times a week, with no downtime or business disruption.
- Automation: Highly automated processes are the DNA of powercloud, for example “change processes”: The system maps changes in accordance with regulation and monitors the timely exchange of messages with market partners saving an enormous amount of manual effort. The same applies to the automated detection, validation and reissuing of incorrect invoices via multiple channels. The processes relating to termination at the previous supplier – the start and end of delivery and incoming cancellations are also highly automated.
- Simplicity: The user interface with its stored functions and operational guidance is logically configured from the perspective of the user experience, and that is exactly what makes it so appreciated by our growing user community. For example, “pricing calculation” – a process that in the past required many individual coordination loops and work steps involving calculation/simulation on the basis of energy prices and margin requirements, network usage fees, taxes, levies and charges – has a completely guided user experience within powercloud, removing much decision complexity
- End-to-end approach: The system contains all business processes and data needed for the “energy-related machine room” – an end-to-end solution, in where all services can also be composed individually within the powerApp Store. This includes billing processes, market communication, payment transactions, receivables management, invoice verification, pricing & offer calculation but to name a few.
- powerApp Store: powercloud and various highly experienced partner companies offer over 80 apps that cover the individual requirements of utility companies. Examples of these would be forecasting software for electricity consumption and extensions for shared photovoltaic systems.
Combined, these factors ensure a CtS of 10 euros or less. Everything can be implemented step-by-step and the powercloud platform is founded on an open source architecture which guarantees substantial independence from vendors, suppliers and technologies. Additionally, powercloud has also created new innovative standards in terms of “implementation scenarios around the connecting and coupling to existing systems”. A real example is the migration to the powercloud platform at the green electricity start-up stromee. Despite social distancing and video conferencing, this took just eight weeks – from kick-off to go-live. Due to the completely digitized processes in the background, homee, with its innovative energy offer stromee, is able, on a one-to-one basis, to pass on to customers a basic fee of less than 5 euros, as well as the purchase price fohttp://www.hom.eer green electricity from hydropower – an outstanding example of the influence a modern energy IT structure can have on the CtS.
About the author
Marco Beicht, born in Achern in southern Baden, is the founder and CEO of powercloud. He still lives and works in Achern, the headquarters of powercloud GmbH, which will soon have a state-of-the-art and climate-neutral IT campus as the new company headquarters. Marco Beicht founded his first software start-up immediately after graduating from high school, and specialized in eCommerce after his university studies. Today, Marco Beicht is the Managing Director and partner of various energy, software and investment companies.