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Irish Water

Customer Operations

Interim Price Control Submission 2014-2016

Document No: IW-IPC-006

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1 Executive Summary

The delivery of water services in Ireland has suffered from a severe lack of adequate investment for several decades. As a result, many customers do not receive the water quality or service levels expected in a modern economy. Against this backdrop, Irish Water (IW), as the new national utility, must introduce domestic customer charges from Q4, 2014 and improve the collection rate for the existing non-domestic customer base to contribute to the investment in new infrastructure and services.

As the function with responsibility for customer engagement, billing and service, the Customer Operations area of IW will play a critical role in the organisation’s future success. Over the Interim Price Control period, the Team will deliver a significant level of activity and outputs including the:

Establishment of accurate and comprehensive customer bases (including a national campaign to validate domestic customers);

Successful migration of non-domestic billing;

Issuing of bills to all domestic and non-domestic customers;

Achievement of high levels of customer propensity to pay;

Introduction of a broad range of robust payment and collection channels;

Deployment of a broad range of accessible and effective contact channels;

Establishment and positioning of the IW brand.

These activities and outputs provide an insight into the scale of the challenge involved in creating and serving the IW customer base of approximately 1.8m. To avail of competitively priced best practice business processes and systems, the outsourcing of all high volume functions is being pursued by procurement and a range of 3

rd party service providers

will be complemented by less than 90 permanent staff.

The primary costs of the Customer Operations function relate to the meter to cash collection cycles and associated contacts. Billing Services and Customer Services will account for almost 80% of costs from 2016 onwards. A summary of the overall projected costs is provided below.

Q4 2014 €m

FY 2014 €m

FY 2015 €m

FY 2016 €m

Customer Operations

10.71 24.20 49.29 46.43

Labour

1.39 4.38 5.95 5.95

Non Labour

9.32 19.83 43.33 40.48

Professional Services

0.57 1.53 2.10 1.70

Marketing and Communications

1.65 6.20 5.63 4.98

Billing Services

4.40 4.90 19.70 19.30

Customer Service

2.70 7.20 15.90 14.50

Figure 1: Customer Operations Cost Summary

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2 Context and Challenges

The Customer Operations function is responsible for delivering the majority of IW’s revenue requirement by engaging with customers, producing accurate billing and facilitating payment. The Customer Operations Team faces numerous challenges over the Interim Price Control period. These can be identified under each of the sub teams within the function: Customer Experience & Strategy; Customer Service; Billing Services; and Customer Operations Support.

2.1 Customer Experience & Strategy Challenges

The Customer Experience and Strategy Team are tasked with providing information to customers and defining their experience of IW. This Team will be responsible for informing customers of the value of water services and the requirement to pay domestic charges. Non-domestic collection rates must also be improved.

IW must build relationships with both domestic and non-domestic customers, and clearly explain the need to fund investment in water services in order to reach the standards expected in a modern economy. Conveying this message to customers, and making payment for water services the norm, is particularly challenging in the current economic environment. In addition new tariff structures (acceptable to customers) must be developed, consulted on and implemented.

2.2 Billing Services Challenges

Non Domestic Customers

Non-domestic customers have been billed by the Local Authorities (LAs) for some time. From January 2014, LAs will continue to bill as agents of IW. There are currently 44 billing entities each with its own schedule of tariffs which differ in structure and price, using different billing systems and practices, some of which are currently outsourced. These will be migrated to the IW CC&B (Customer Care & Billing) System from Q3 2014 onwards whilst retaining the diverse tariff structures and prices. The numerous variations and individual agreements that will need to be accommodated make this a particularly onerous task for the Billing Services Team. The tariff structures and prices will go through several phases of change that will require the management of system changes together with a process of customer engagement.

Domestic Customers

Domestic customers are not currently charged or billed for water services but will be liable for water charges from October 2014 with first bills to follow in January 2015. Because there are no domestic tariffs currently in place, the billing system had to be designed, built and tested in advance of the tariff structure being finalised. Once the tariff structures and levels are announced, there will be significant work required to complete the billing system set-up and final testing. An entire meter reading and data structure will also be required. The Billing Services Team must also establish a full range of payment channels to easily accommodate customer payments.

2.3 Customer Service Challenges

The Customer Service Team has already successfully procured a contact centre provider, Abtran, and managed its establishment in a very short timescale. It now faces two additional challenges during the Interim Price Control period.

Firstly, major IW milestones are likely to give rise to high volumes of contact from customers. In order of timing, these include: operational calls relating to service issues; migrating non-domestic customers to IW’s billing system; the domestic customer Validation Campaign; and the commencement of domestic billing. The domestic customer Validation Campaign and domestic billing will be the largest in scale and most challenging and must be delivered in tandem with meeting customers’ expectations in relation to consistent standards of service. Customers will be encouraged to self serve where possible but as this is a national service there is a considerable number of customers who will continue to contact by telephone and white mail, which are the most costly channels to manage.

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Secondly, the planning and resourcing needs for these activities are inherently difficult to determine as they are once off events with few comparators. The publicising of a centralised facility to deal with water services issues, and higher expectation of service driven by customer charges, may lead to higher levels of contact and more complex issues for newly trained staff.

2.4 Operations Support Challenges

This Operations Support Team is tasked with establishing the initial data set for the domestic Customer Validation Campaign. This has required the evaluation and collation of several databases, none of which entirely meet the campaign and billing requirements. Once billing has commenced, the accuracy of the database must then be maintained. High accuracy standards are important for both billing purposes and to enable IW to proactively contact customers in the event of service issues.

The Customer Operations Team is putting in place the necessary people, systems, processes and service providers to meet all of the above challenges. The following sections of this document provide an overview of the Teams’ organisation structure, key activities, costs, and deliverables.

3 Customer Operations Structure

The Customer Operations function within IW is organised into four areas, to provide services similar to a supply focused utility but with the added responsibility of managing network related customer contact. The structure has been designed to develop, deliver and support excellent customer experience and service to domestic and non-domestic water services customers. Further detail on the role of each area is contained in Section 4.

Head of Customer

Operations

CustomerService

Customer

Operations Support

Billing Services

CustomerExperience &

Strategy

Meter DataManagement

Billing

Revenue Assurance

Credit, Collections &

Payments

ChannelManagement

Key AccountManagement

Customer Contact

Complaints

Operational Analytics

Customer Data Strategy &

Management

Quality, Performance

& Change

Vendor Administration

Marketing

Customer Strategy

Customer Regulation & Compliance

Figure 2: Customer Operations Organisation Structure.

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4 Customer Operations Activities

The Customer Operations function will ensure that a customer centred approach is at the heart of water services design and delivery. Services will be designed for acceptability and affordability. Processes and performance standards will be established to strike an appropriate balance between cost to serve and customer expectations and to ensure that service delivery promises can be kept with very high levels of compliance.

Activities of the Customer Operations sub-areas are described in further detail below.

4.1 Customer Experience & Strategy Activities

The Customer Experience and Strategy Team is responsible for the brand and marketing activities of IW, customer strategy and journey mapping, and ensuring compliance with all relevant customer statutes, regulations and codes. It comprises the following sub-functions:

Marketing - responsible for the IW brand, all advertising, online content, customer communications, product

development and market research activity for IW. This Team is also responsible for all major customer facing campaigns including Metering, Business Migration, Domestic Validation and Conservation.

Customer Strategy - responsible for defining and maintaining the overall customer strategy for IW and

translating this into processes to deliver desired customer outcomes and satisfying customer experiences.

Customer Regulation and Compliance - this Team is responsible for developing and maintaining standard

terms and conditions for the supply of water services together with development of Customer Codes of Practice with reference to standards set out by the Commission for Energy Regulation (CER).

4.2 Billing Services

The Billing Services Team will be responsible for the end to end meter-to-cash process. It comprises the following sub-functions:

Meter Data Management - responsible for the definition of all business rules, policies and strategies within

the Meter Data Management function. This team will also be accountable for overseeing Metering Operations which involves scheduling, reading and validating meter reads and interfacing this with central billing.

Billing - responsible for the management of billing operations across domestic and non-domestic segments

including customers of all scales and types. This team are also responsible for billing optimisation and the on-going management of bill process and bill production through an outsourced provider.

Revenue Assurance - responsible for maintaining an end-to-end view of all customer related revenue

processes across IW, and assessing and mitigating risk in this area. They will be responsible for overall management of revenue assurance auditing, reporting, and supporting implementation of solutions to mitigate revenue risk.

Credit, Collections and Payments - responsible for the management and implementation of the overarching

Credit and Collection policies and standards. This team will also be responsible for the development and implementation of IW’s payment Strategy.

4.3 Customer Service

The Customer Service Team is responsible for managing all customer contact operations and handling contacts through all channels. It comprises the following sub-functions:

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Channel Management and Analysis - responsible for managing all contact channel platforms. This Team

provides customers with a choice of channels and supports all inbound and outbound customer service contact. It is also responsible for ensuring that customers’ contact preferences and/or special needs are catered for and that customers are facilitated and encouraged to use the most cost effective channels for service. Ongoing analysis of customer contacts will result in initiatives to provide more information on low cost channels/outbound proactive contacts to customers to deflect inbound telephone contacts.

Key Account Management - responsible for providing proactive customer engagement to IW’s key

commercial customers. The Team is responsible for developing a relationship with these customers and providing advice on water and waste water usage. Staff will be located around the country to facilitate strong regional and national presence and to build enduring business partnerships with our key customers. Initially the team will assist key account customers in understanding IW tariffs.

Contact Management - responsible for managing the relationship with the outsourced contact centre

provider and for managing all multi-channel customer contact activities, inbound and outbound, including registration, move-in and move-out, account administration, customer reactive work initiation and general query handling. The contact centre is operated on a 24hr/7day basis and also provides a Local Representative support service.

Complaints and Escalations - responsible for managing the classification and resolution of customer

complaints and escalations. It supports the Contact Centre Complaints Team in identifying and mitigating common causes of complaints and managing customer complaints to ensure resolution in line with regulatory standards. Escalation volumes are analysed to drive process improvements to increase first contact resolution (FCR).

4.4 Customer Operations Support

The Customer Operations Support Team is responsible for managing predictive and descriptive analytics, all customer-related data and reporting. It will also support quality and change management initiatives, and manage customer-related vendors. It comprises the following sub-functions:

Analytics - responsible for managing descriptive and predictive analytics in support of all Customer

Operations functions in addition to supporting the performance management of vendors through provision of analytical insights.

Data Strategy and Management - responsible for effective management of information and data in support

of business objectives, including end to end governance, manipulation and cleansing of customer data, and ensuring compliance with consumer bodies and legislation as regards information and data governance requirements.

Quality, Performance and Change - responsible for managing all internal quality and performance

processes for the Customer Operations function. This includes management of associated tools and ensuring alignment of performance against strategies and KPIs set by Customer Operations and external bodies. The Team is also responsible for supporting change initiatives and ensuring all Customer Operation change requests are standardised and processed through the PMO office.

Vendor Administration - responsible for managing all 3rd

party service provider procurement, payment and

contract management processes. This Team is also responsible for developing a consistent vendor management framework across Customer Operations and developing and managing vendor Service Level Agreements (SLAs) and KPIs.

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5 Operating Costs

Figure 3 provides a high level summary of the projected costs for the Customer Operations function over the Interim Price Control period. These costs are explained in further detail in the following sections.

Q4 2014 €m

FY 2014 €m

FY 2015 €m

FY 2016 €m

Customer Operations

10.71 24.20 49.29 46.43

Labour

1.39 4.38 5.95 5.95

Non Labour

9.32 19.83 43.33 40.48

Professional Services

0.57 1.53 2.10 1.70

Marketing and Communications

1.65 6.20 5.63 4.98

Billing Services

4.40 4.90 19.70 19.30

Customer Service

2.70 7.20 15.90 14.50

Figure 3: Projected Customer Operations Cost Summary.

5.1 General Perspectives

The Customer Operations function is the national retail operation for IW with an emphasis on the outsourcing of all high volume functions to avail of competitively priced best practice business processes and systems. A range of 3

rd

party service providers will be complemented by less than 90 permanent staff.

IW anticipates that costs for Customer Operations will peak in 2015 and then decline to reflect reduced levels of marketing activity and the benefits of a learning curve in the contact centre and customer service areas. From 2016 onward, emphasis will shift from customer acquisition and migration to a unit cost to serve focus e.g. promotion of cost-efficient service channels and self-service options.

Customer Operations costs are primarily related to the meter to cash collection cycles and associated contacts. Billing Services and Customer Services will account for almost 80% of costs from 2016 onwards. Bills will be underpinned by actual readings for customer confidence. The read process will be a “drive-by” process to ensure efficiency and robustness.

It is anticipated that costs for normal professional services will be higher in 2015 as additional legal work may be required to manage non-domestic customer migration and domestic customer take-on. It is also likely these activities will coincide with a range of regulatory frameworks and constructs which are due to finalise in the same period.

5.2 Customer Operations High Volume Activity

IW will have an enormous customer base of 1.8m. The operating model that has been put in place to meet the needs of these customers is based on efficient delivery of optimised customer service across a very significant volume of transactions. As outlined previously, IW has deployed an outsource model where possible, in order to access competitively priced best practice business processes and systems. Overleaf is a high level summary of the key activities, estimated annual volumes and outsource provider.

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Figure 4: Customer Operations High Volume Activities.

5.3 Labour Costs

The Customer Operations function was established in May 2013. Since then the Team has been involved in the establishment of the Customer Contact Centre, the creation of the IW website, supporting the metering go-live date in July 2013 and the national advertising campaign in September 2013. It is expected that there will be 79 FTEs at the end of 2014. There will be further recruitment in 2015 to meet the demands of transferring in 44 non-domestic customer bases, the commencement of non-domestic billing and domestic meter reading and charging. By year end 2015 it is expected that there will be 89 FTEs on the Team, this figure will remain constant in 2016.

Customer Operations Area Activity Annual Volumes Outsourced Provider

Customer Experience & Strategy (Marketing and Communications)

Customer Satisfaction Surveys Mystery Shopping 1k Red C Call Backs 3k Red C Metering 1.2k Red C Complaints 1.2k Red C

Print Items Terms and Conditions - Domestic 1.6m TBA Terms and Conditions - Non-Domestic 200k TBA Bill Inserts - Domestic 6.4m TBA Bill Inserts - Non-Domestic 550k TBA

Billing Services

Meter Reading & Meter Data Management Services Domestic Meter Reads per annum 4.2m H2O (MDMS) & Meter Reading Provider (TBA)

Non Domestic Meter Reads per annum 1.1m H2O (MDMS) & Meter Reading Provider (TBA)

Billing Domestic Bills issued 6.4m RR Donnelly Non Domestic bills issued 1.1m RR Donnelly

Payments & Collections Domestic payments & collections €460m Merchant Service (TBA) Non Domestic payments & collections €190m An Post

Banks Payzone Paypoint

Abtran ( Debt Specialist TBA)

Volume of Transactions 7.5m Abtran / Various Others

Contact Centre

Contact Calls 2.2m inbound & outbound Email 253k Online/Social Media 70.2k Webchat 46.8k

Key Account Management Visits (KAM) 2k

Complaints Complaints received 35k Abtran

Abtran

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5.4 Professional Services Costs

The Customer Operations function will also incur costs on a range of legal and professional services contracted to support its main activities. This additional support is required given the function’s lean design and the degree to which it will operate on an outsourced basis. Professional service support will be essential during the Interim Price Control period as the business is in start-up/ramp-up mode and will be involved in critical once off activities such as migrating and creating customer databases and producing initial terms and conditions, codes of operation, charters etc.

Professional expertise will be procured to assist with:

Customer Validation;

Contact Centre Development;

Systems Development;

Customer Journey Mapping;

Revenue Assurance.

Legal advice will be procured to assist with:

Billing and Debt Management;

Procurement Processes;

Contract Management;

Regulatory Compliance;

Complaint Management.

There may also be unforeseen issues that require external legal or professional advice and services.

Many of the customer and non-domestic billing services to be migrated and consolidated under IW are currently operated for LAs by 3

rd party service providers on an outsourced basis. The pace and manner in which migration and

consolidation can be achieved will be subject to legal review of the many contracts currently in force. Similarly individual non-domestic tariff arrangements will require legal review.

5.5 Marketing and Communications Costs

There will be a significant amount of marketing and communications activity by the Customer Experience and Strategy sub team towards the end of 2014 and throughout 2015 as IW engages with domestic customers and migrates the non-domestic customers from LAs. This will require significant work to ensure that customers understand the value of water services and the role that water charges play in increasing investment and improving operations across the country.

The domestic customer Validation Campaign will begin in 2014 and information packs will be delivered to all future domestic customers. This process is critical to the establishment of the domestic customer base and delivering customer propensity to pay above a level at which the regulated tariff model can be sustained. Investing in this process is critical to establishing the long-term financial viability of the regulated utility model.

The transfer of assets and responsibilities for Water Services provision in 2014 will also require IW to engage with customers and other stakeholders in order to raise awareness of its existence, role and services. This engagement will take place through a range of communications channels including:

Information Campaigns (TV, radio, press, online);

Direct Mail (validation campaign, terms & conditions);

Public Notices (IW Projects and Facilities);

Website Development (including transactional);

Social Media (proactive outbound contact);

SMS Text (proactive outbound contact);

Satisfaction Surveying and Mystery Shopper Activity.

This will involve expenditure on the production of advertising and online content, and media fees to place advertisements. Engaging with customers through direct mail involves significant print, design, fulfilment and postage costs due to the scale involved (approx. 1.6m domestic customers and 200k non-domestic customers). Reminders and confirmation of validation will also be sent to maximise billing accuracy ahead of January 2015. It is anticipated that costs will fall-back to a service level from 2016 onwards when customer acquisition and LA transfers will have been completed. An annual budget of c. €4m will be required to address business as usual needs and to carry out post-

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acquisition campaigns geared more towards conservation, waste water practices, and cost to serve initiatives (such as direct debit payment, online billing, online account management etc.).

5.6 Billing Services Costs

The cost of Billing Services in 2014 relates to the introduction of non-domestic billing by IW from July onwards and the meter read cycle for domestic customers from October. From 2015 onwards, the spend will be dominated by the domestic and non-domestic read/bill/collect repeats. The Meter Data Management function will drive read cycles and, through outsourced partners, will collect, collate and consolidate read data for submission to billing. Outsourced partners will include H2O, who will be responsible for the management of meter data and delivery of read capability to the selected read resources. Meter reading resources, yet to be selected, will be responsible for actually collecting the reads via “drive-by” processes. Transactions handled by these business partners will likely exceed 7m per annum.

The Billing function will process read data through the billing engine, ensuring exception handling is managed in a timely fashion. Resources at the Contact Centre will provide all Billing Services transaction processing functions, including exception handling and call escalations. Bill fulfilment will be handled by RR Donnelly. In addition, all other customer communications will be processed through this channel, including welcome packs and all other standard letters. IW will promote bill payment through all standard over-the-counter channels and, as such, expects to have relationships with a number of 3

rd party vendors, including An Post, Payzone, Paypoint, and commercial banks. A

selected merchant services provider will facilitate payment by credit/debit card. Payment exceptions will be handled by resources at the Contact Centre. The volume of transactions processed through the various channels will be driven by customer behaviour however, based on trends in the energy market, IW expects a high volume of over-the-counter payments.

For customers who fall into arrears, the Contact Centre will conduct the initial Dunning process on behalf of IW. If IW fails to recover monies owed, the account will be passed to external collection agencies. Resources in all of our outsourced partners will be flexed to support IW activities as required.

5.7 Customer Service Costs

IW contact handling is all conducted through a single outsource contract by Abtran at their site in Curraheen, Cork. Abtran will handle all call, correspondence and e-mail traffic on behalf of IW. The Contact Centre costs include both fixed and variable elements. The fixed costs reflect the provision of establishment and systems capabilities, of particular scale and standard, contingency and continuity cover in respect of the same, and a comprehensive management structure for their operation. Variable costs reflect the numbers of agents required to cover shifts, provide dedicated services and address forecasted contact volumes in compliance with specified service standards.

At the end of 2013, the contact centre had c. 45 FTEs deployed. The IW Contact Centre will expand its service offerings to customers through 2014-2015. Resources are expected to peak at c. 400 agents in late 2014 /early 2015 and reduce to between 340-370 from 2016 onwards (subject to normalisation of contact volumes, learning curve impacts and budgets).

In addition the IW Customer Service Team will support customers and Abtran in a number of activities including:

Complaint Management and Resolution;

Escalations Management and Resolution;

Back office administration support for IW Operations;

Provision of Customer Engagement across channels (Webchat, Social media);

Key Account Management and Support;

Specialised Business Support;

Local Representative Support Service;

Out of hours Structure to support 24 hours Operations;

Contact Centre Management.

Subject matter expertise will be required in certain areas and there will be a particular focus on the resolution of complaints and auditing of customer service to ensure high standards to our customers.

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6 Deliverables

The primary tasks of the Customer Operations function during the Interim Price Control period are to:

Recruit to populate the Customer Operations Target Operating Model;

Supplement staffing with 3rd

party outsourced capabilities;

Establish and position the IW brand;

Deploy a broad range of accessible and effective contact channels;

Establish accurate and comprehensive customer bases;

Engage customers for campaign awareness and adoption (conservation and good practice);

Issue bills to all domestic and non-domestic customers;

Secure high levels of customer propensity to pay;

Deploy a broad range of robust payment and collection channels, Detailed Customer Operations deliverables across its sub-functions are outlined below.

General Initiatives

Core Initiatives Additional Initiatives

Establishment of the Target Operating Model – Recruitment and filling of Customer Roles [2014-2015]

Customer Experience and Strategy Initiatives

Core Initiatives Additional Initiatives

Brand development & roll out [2014-2016]

Water services awareness campaigns [2014-2016]

Domestic Validation Campaign [2014]

Establish compliance assurance [2014-2016]:

- Terms and Conditions

- Customer Codes of Practice

Commence customer surveys [2014-2016]

Website Development [2014-2016]

- Compliance with website accessibility guidelines

- Validation Campaign capability on website

- Transactional capability through applications

- Website plan & project developments

Conservation campaign [2015-2016]

Customer Charter and Code of Practice development and implementation [2015-2016]

Customer journey mapping [2014-2016]

Online account management [2015]

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Billing Services Initiatives

Core Initiatives Additional Initiatives

Migration of non-domestic billing [2014-2015]

Commence meter reading for domestic market [2014]

Commence domestic billing [2015]

Establish agreed tariffs on billing system [2014-2016]

Establish payment & collection capabilities [2014-2015]

Establish MDM capability [2014]

Revenue assurance & protection capabilities [2014-2015]

Implementation of group billing [2016]

Grow online billing [2014-2015]

Grow Direct Debit payment [2014-2015]

Grow cost effective payment channels [2015-2016]

Customer Service Initiatives

Core Initiatives Additional Initiatives

Contact Centre Development [2014-2016]:

- 24 hour opening [2014-2016]

- Operations call handling [2014-2016]

- Non-domestic call handling [2014-2016]

- Domestic account contact [2015-2016]

Proactive outbound capability [2015-2016]

Key account management [2014-2016]

Administer appointment requests [2015]

Social Media and Web chat development

[2014-2016]

Customer Operations Support Initiatives

Core Initiatives Additional Initiatives

Customer Database:

- Establish full customer database [2014]

- Maintain accurate customer database [2014-2016]

Vendor management [2014-2016]

Reporting & KPI monitoring [2014-2016]

Establish & maintain process library [2014-

2016]

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When taken together, the deliverables of the Customer Operations function provide an indication of the scale of the challenge facing the Team over the Interim Price Control period. The level and importance of the activity required is enormous, from management of the initial customer engagement and validation effort to efficiently ramping up a full scale billing and service function for 1.8m customers. It is critical for long term success that IW achieves these targets and establishes both customer trust and a reputation for excellent service. This submission has set out how IW intends to deliver its customer objectives over the Interim Price Control period and the efficient costs which will be incurred as a result.