By Khali Henderson

Posted: 2/2004

CRM Meets Revenue Assurance
Introducing Customer Profitability Management

By Khali Henderson

Post-tech bust, communications providers understandably
have been obsessed with revenue assurance. This discipline primarily has focused
on accurate reconciliation of intercarrier billing and fraud prevention. It has
progressed to include other strategies such as network inventory assessment and
least-cost routing. Now, its wriggled its way up from the OSS and network
infrastructure departments to customer relations.

In fact, a July 2003 study by Yankee Group puts customer
profitability analyses as the most important business intelligence initiative
for telcos in 2003-2004. To succeed in todays communications market,
companies must know which customers are profitable and focus on the quality of
customer revenue rather than the quantity, the Yankee Group report notes, identifying this new focus as
customer profitability assurance.

Daniel Kenyon, vice president of communications industry
solutions for PeopleSoft Inc., and his colleagues at the software firm call it
customer profitability management. Whatever its name, this new discipline
goes beyond measurement of average revenue per user, net new customer additions
and market-share acquisition to evaluation of the present value of the customer.
Its getting an accurate picture of the profitability of a customer … to
create a view of customer value, Kenyon says.

Last summer, PeopleSoft packaged this capability in its
Customer Profitability Management for Communications, a solution combining CRM,
financial management and business analytics to enable telcos to compare revenue
and cost for each customer in real time. Products like PeopleSofts are moving
financial accountability into the customer management process. The Yankee Group
says customer profitability assurance synchronizes CRM, product promotion and
pricing, billing, collection, cash management and financial analysis in an
effort to reduce revenue leakage a process that begins before the order is
taken.

On this point the Yankee Group finds a vocal ally in the folks
at Bluespring Software Inc. It all starts with the deal, says Jeffrey
Mills, marketing manager for the software company. You can eliminate a lot of
the revenue leakage that you are trying to track down if you focus on getting it right up front, knowing how
you are going to bill for it, knowing that you can do it.

Bluespring Software is championing a solution for what it
calls deal assurance. The tie to customer profitability, says Mills,
revolves around the fact that these companies [telcos] have to rethink their
customer acquisition. Many of the issues that impact profitability are decided
before the deal is signed.

Bluesprings Opportunity Feasibility Management (OFM)
software, launched in April 2003, was designed to address deals done on a
one-off or individual case basis. Such nonstandard deals also are known as ICBs
and, according to Bluespring, are being offered to an increasingly larger number
of customers, complicating the presale assessment. About 90 percent of these
ICBs are flawed before they are sold to the customer, says Rob Daly,
president and CEO of Bluespring. Common errors include miscalculation of total
delivered cost and inaccurate solution design.

Mills says OFM standardizes ICBs by using automated tools to
qualify the opportunity, design the solution, set pricing and terms, obtain
approvals and generate contracts (see diagrams, right). For simple deals that
meet pre-approval criteria, the process reduces the sales cycle from days to
hours. For more complex deals, those taking more than 60 days, OFM decreases the
time to about a week. Overall, says Daly, customers report a 60 percent
reduction in the sales cycle.

A bonus with the software is the ability to automate
management of the contract, and application of rebates and credits. If a
customers special long-distance pricing is tied to adding T1s later in the
contract period, that event is automated so new service can be ordered or
penalties applied on time. For all the dynamic or consequential aspects of
the contract, its a very sophisticated tickler system, says Daly.

Bluesprings OFM solution is available for license for north
of seven figures and as a service bureau for $35,000 to $50,000 per month.
Daly says telcos, in most cases, can cost justify the software with cost
reductions realized from any single function billing, finance, operations,
network or sales support.

Image: Effective ICB Opportunity Management

GARBAGE IN, GARBAGE OUT

Inaccurate data not only from order
entry but also from billing and network systems combine to form the flotsam and
jetsam that get in the way of determining customer profitability. Many of the
more common revenue assurance solutions, which are solving data errors at deeper
network and OSS levels, allow accurate information to float up to the CRM level.

Take inventory management. Robert Curran, director of global
communications for OSS automation vendor Cramer Systems Ltd., say inventory
management is crucial to customer profitability. Traditionally, when
operators think inventory management, they really mean database of record,
Curran says. The problem is [the database of record] is a static repository
pushed by other applications, he explains. Managing the inventory requires
much more, he says, describing an application that provides a reliable view of
capacity, configurations and assets in the network and enables the carrier to
accurately determine which resources are being used, at what capacity, by which
services and for which customers.

When a marketing department recommends an upsell or
bundling program, the operator can determine in advance whether it has the
capacity to support the initiative, says Curran, offering a practical example
of such an application. Process-driven inventory management precludes
situations where the operator might offer a service [only] then to find it has
to make additional capex investment to support the provisioning and explain to
customers why service has been delayed.

He adds the same tools let operators find overlooked revenue
opportunities by showing available, underused capacity, creating an opportunity
to offer customers additional services at a reduced rate, fueling revenue and
hopefully customer satisfaction.

A similar result can be had from cleansing bad inaccurate,
incomplete or missing billing data, says Connexn Technologies Inc., a firm
that focuses on data recovery and its impact on cost and revenue assurance. As customer profitability comes into focus, the
accuracy of the data becomes very important, says Gary Ross, vice president
of product management, explaining that an incorrect billing address can cost
years of profitability for an account thats not billed, billed late or ends
up in customer care or collections scenario.

Connexns Usage Data and Rating application, rolled out last
summer, is designed to stop this kind of revenue leakage. The application
sources data, including raw event records from network elements and output from
the mediation, rating, billing and invoicing systems, and analyzes it to ensure
the integrity of recorded data and that all usage data records accurately flow
to customer invoices. This allows service providers to independently rate the
usage records to validate rate plans, tariff structures and pricing models, and
ensure the accuracy of the value assigned and presented in the rating, billing
and invoicing systems. In addition, the application helps correct under billing
of national and international toll, premium rate, third-party billing and
toll-free calls, and provides an accurate representation and reconciliation of
prepaid platform and thirdparty content usage.

Vibrant Solutions is another company focused on curbing
revenue leakage in the order-to-bill cycle. Its Order Verification and
Validation Application identifies lost revenue and discrepancies between a
carriers order management and billing systems, including customer errors,
underbilling and overbilling, incorrect product feature and charges and
erroneous rates. Its Off-Net Revenue Recovery application examines a carriers
off-net invoice data, inventory and billing system to identify off-net order
errors, overcharges, billing errors and unused or unidentified network capacity
for leased circuits and services.

Andrew Hurrell, director of product marketing for Vibrant,
says the company has been in the cost and revenue management business since the
early 90s primarily focused on the intercarrier billing reconciliation, but
in recent months has applied its core competency at the subscriber level.

Historically, there has been a disconnect between revenue and
costs. Correlating them at the market, product or subscriber level is
complicated and becoming more so. If a company is a local, long-distance and
wireless company, you have a huge issue allocating costs back to each service
line let alone each specific customer, says Carl Geppert, partner and
industry director of the Americas Communications Practice of audit, tax and
advisory firm KPMG LLP, which, among other things, helps telcos develop
cost-allocation methodologies. He cites the example of the longdistance service
for a wireless customer that could be allocated in multiple ways. Cost
allocation is further confounded, he says, by different pricing schemes
usage or flat rates as well as different schools of thought on assigning
costs for incremental products over the same network. Should I look at the full
cost or the marginal cost of adding that product? One of the things we are
starting to see is that marketing people are moving faster than the network and
cost-allocation people can keep up with, he adds. As we begin to talk about different rates for different
speeds, or different rates for different types of data, for example, those are
new issues that enhance the complexity of being able to compile the necessary
cost information to get a really good working model for customer profitability.

Nevertheless, he says telcos are working to amass this data
because of its impact on pricing and bundling. If a company can get an
extremely robust product and customer profitability process in place, thats a
competitive advantage, he says. They know what they can bill on new
contracts, they know what they can deliver new services (or bundled service
packages) for and they can enter into each of these arrangements more openly.
Secondly, they can identify who their really valuable customers are; the ones
they need to super-serve because those are going to be the ones that they
can least afford to lose.

PREDICTING BEHAVIOR

Indeed, one of the key aspects to customer
profitability assurance, according to Yankee Group, is that it also embeds
into the process a greater degree of customer behavior model and metric analysis
to make more informed customer service decisions.

In other words, techniques used by telco credit departments
for risk management are now being turned to product marketing and customer care.

PeopleSoft, for example, includes a predictive analytics offer
as part of its Customer Profitability Management solution, which also includes
CRM and activity-based cost costing. The software features templates for churn
and campaign response that bring complex tools to customerfacing employees.
According to PeopleSoft, call center managers and account executives can use
predictive analytics tool in real time to ensure the most effective messages
reach customers most likely to purchase or defect, increasing customer
profitability and lifetime value.

Telco billing vendor CSG Systems Inc., also offers a
predictive analytics modeling engine it calls ProfitNow! ProfitNow! not only
identifies customers that are likely to churn or buy services but also offers
reasons why and strategies for preventing attrition and increasing profitability
of existing customers. CSG Systems claims one unnamed telco realized a 95
percent acceptance rate on an upsell campaign dictated by the application. The
application, which takes advantage of multiple data sources, decision theory and
neural networks, can help carriers figure out which plans or payment methods
post- or prepaid will be more profitable over the long term. We predict
the net present value of the future revenue stream and what may cause that to
change, says Richard Wolniewicz, vice president of engineering.

Wolniewicz says while carriers are aware of churn and are
looking at upselling, they havent thought through the ways that predictive
analytics can be used.

Mike Pfeifer, a senior consultant in the Global
Telecommunications Division of Fair, Isaac & Co., says although there is
some adoption of what his company calls adaptive control tools among
larger telcos, the telecom industry as a whole is surprisingly behind other
industries such as financial services, insurance and retail in embracing
predictive analytics about customer behavior that can impact profitability.

Fair, Isaac has adapted its proven risk-management software
products for the telecom industry in TelAdaptive. The company helps telcos to
treat customer segments differently based on their profiles current
services, payment information, demographics, etc. when considering new
offers and promotions.

If a telco wants to offer a new product, such tools help
identify which customers will be more responsive to the offer and which ones
will be most profitable so that it can refine its marketing efforts to a segment
of the base, lower costs and improve response rates and profitability of
customers that take the offer.

This is the way banks offer credit cards, says Pfeifer
offering up a commonplace example of this technique in practice.

Pfeifer says the same approach can be used for collections
actions, enabling a telco to determine which customers will pay when left alone
and which will not and need to be put into collections. Similarly, identification of fraud or propensity for fraud can
be spotted using such tools, he says. All of these things have an impact on
profitability, he adds.