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However, through this deepening interest in performance assessment, utilities are discovering that benchmarking opportunities in North America have very uneven quality -- including internal and external efforts. Internal efforts rely on comparing a utility's own performance across business units or subsidiaries year after year, excluding the consideration of how peer companies may be changing. The absence of reference to peer companies prevents the understanding of the pace of industry change. External benchmarking efforts face a different set of challenges. A substantial amount of benchmarking today relies on state of the art practices from 10 to 15 years ago. In addition, software developments have created a new breed of internet based surveys for targeted studies. Both approaches tend to generate the most basic normalizations that yield results ranging from misleading to marginally useful.
For these reasons combined with increasing resource scarcity, utilities question why to engage in benchmarking if results provide minimal guidance on quantitative performance comparisons, best practices and results-based performance improvement opportunities. In this demanding economic environment, how can a utility achieve an attractive ROI through benchmarking initiatives?
Regulated utilities need to engage into periodic benchmarking to justify their expenses and performance levels to regulators while meeting customer needs efficiently. The answer is to recognize that performance comparisons can offer benefit to utilities if they utilize a more precise and comprehensive portfolio of benchmarking solutions. This portfolio approach may consist of three main components:
- A rear-view perspective that provides previous year's detailed results including normalized expenses, several types of service levels, safety metrics and offers a degree of flexibility to capture developments in more rapidly evolving areas such as smart grid and customer self-service.
- Best practice performance assessment segmented by level of sophistication or maturity and linked with expenses and service levels.
- Current view via monthly / quarterly monitoring reports for selected functional areas experiencing more rapid change (e.g., credit and collections in a distressed economy).
- Cover functional areas in sufficient detail.
- Collect data for metrics that are relevant and provide performance insights -- metrics that yield either a direct measure or a proxy for key performance levers.
- Possess data quality expectations that are well defined and are achieved through program oversight and peer to peer assistance.
The evolution of benchmarking
External benchmarking has evolved into a more advanced state over the past 10 years. Early programs focused on numbers only. Today, more advanced programs focus on relevant metrics (ratios) and how practices influence those metrics. These sophisticated benchmarking initiatives establish a common language for more effective knowledge sharing among peer utilities focused on the most useful comparative criteria. Leading benchmarking enables utility performance comparisons at a sufficiently detailed level, relative to peers, to effectively address performance challenges. Benchmarking results are a foundation and a starting point for target-setting to elevate performance and to align operations with business objectives.
To understand the benefits of benchmarking and appreciate how far this field of analysis has come, it is useful to briefly review its evolution in recent years. Over a decade ago, at stage one, when cost pressures were much lower than today and much less information was available, data quality was limited as the scope of and footprints for activities were not well defined. Regrettably, today many companies still participate in these types of surveys -- and by supplying high level data, they receive very little useful and actionable intelligence. In addition to data quality and validation issues, the absence of thoughtful questions, yields vague comparisons and weak or incorrect guidance on where a utility should prioritize improvement investment.
At stage two, earlier in this decade, survey quality and the value extracted from benchmarking data improved. Footprints became more sharply focused and there was more care in selecting metrics that were meaningful and relevant to operational and financial proficiency. Questions such as "what is a meter reading error and how do you report that data" were consistently resolved among companies. But that was the extent of advancement -- same exercise with higher quality. The sober realization is that this traditional benchmarking failed to provide value in the form of business practice improvement opportunities.
For example, a manual meter reading company might have a metric that rewards a high percentage of read meters -- in itself a desirable goal, but not when that high percentage is achieved through special reads or re-reads. That high overall percentage increases expenses and does little for overall customer service. State-of-the-art benchmarking would identify this desirable but costly-in-execution metric. It would also recognize companies with more sophisticated practices -- such as:
- Perform as many reads as possible on first attempt
- Estimate the remainder
- Identify monthly accounts with multiple estimates.
For example, take a functional area such as billing where different sophistication of practices directly impacts performance outcomes, some of which are listed below:
- How billing analysts are assigned exceptions for processing
- Types of exceptions that require approval for processing
- Whether there is a feedback process to review and reduce errors
- Whether there are timeliness standards for processing exceptions
The level of acceptance and adoption of these practices make recognizable difference in expenses and service levels and explains correlations between them. Companies with embedded feedback checks learn from past mistakes or under-optimized processes and are capable of improvement. Companies with these practices in place consistently achieve higher service level outcomes.
Achieving the most from benchmarking
The combination of expenses, service levels and best practices data can then be converted into normalized metrics that provide a comprehensive and actionable perspective of any utility function. This multi-dimensional view informs a utility about performance levels, indicates what may be driving those outcomes and highlights opportunities to improve operational and expense profiles. The result is a comprehensive and apple-to-apple normalized comparison based on a common language through which to communicate performance, while meeting regulatory purposes.
The chart below shows two companies that exhibit same overall expense levels on a per customer basis, but very different expense structure and operating outcomes in terms of service levels. Company 1 spends 65 percent more on technology and 40 percent less on labor than Company 2, but because it standardized and structured customer contacts, it can serve customers much more efficiently -- addressing more customer inquiries and at higher service (chart below).
Sophisticated benchmarking also establishes the framework to chart a path forward. Using such benchmarking as a foundation for performance management, a utility can ensure that primary business objectives are aligned with strategy through:
- The selection of applicable and "benchmark-able" KPIs
- Target setting and internal/external progress tracking on an annual and more current timeframe
- Identification of performance improvement opportunities through best practice assessments and analysis of key trends (e.g., AMI, work force management, service delivery, etc)
These are capabilities that utilities expect today. However, relative to total utility populations, few utilities participate in the most sophisticated and useful performance comparisons. Many utilities do not make the most of their benchmarking efforts and resources and instead participate in surveys that are of little practical value and are not actionable. These utilities earn the right to "check the box"; however, the experience perpetuates the skeptical views on benchmarking initiatives and often leads to sub-optimal decisions.
Before launching a benchmarking effort, a utility needs to strategically assess the expected return on the investment. The next step is to encourage and to provide incentives regarding the level of engagement that is consistent with identified return expectations. Common obstacles raised that delay or circumvent this process include:
- Other more pressing utility initiatives (i.e., system implementation, staff reorganization, etc.)
- General constraints on staff time and the ability to fully engage in the effort
- "Unique" or "difficult to compare" demographic characteristics or regulatory landscape
- Corporate or department budget limitations
- Internal bias that performance challenges are either already understood or potentially damaging if comparisons were shared
Leading utilities recognize that they can improve through performance "competition" through a well-structured portfolio of benchmarking initiatives. These companies have realized attractive returns and continue to push for more effective performance analysis that the entire industry can benefit from. Utilities that have lagged the field with old or inefficient practices can choose a more effective path forward supported by today's more sophisticated benchmarking alternatives. This will require some work to overcome the obstacles noted above, however, the potential returns and risk avoided in this economy is compelling.
