The Ofwat consultation document – ‘Protecting consumers, promoting value, safeguarding the future’ – sets out proposals for regulations help to directly correlate standards of customer service with cash for water utility companies. A key part of these proposals is the establishment of a Service Incentive Mechanism (SIM).
Under the Ofwat proposals, water companies would be rewarded for providing ‘good customer service’ by being allowed to raise prices by up to 0.5 per cent and penalised for ‘bad customer service’ by being forced to reduce prices by up to one per cent. Ofwat is still in discussions with the industry as to how the proposals will be implemented and, currently, it is unclear as to whether the scoring will be in absolute or relative terms.
Welcoming these proposals, Simon Rustom, managing director of the customer and change management company Customer Consulting Ltd (CCL) said: “Applying these regulations to a water company turning over £1bn could see its income rise or fall by some £75m or more over five years.”
Building on previous experience in the water and other industries, CCL has developed a three year project to help water companies improve levels of customer satisfaction. This process starts with a fact find to clarify where improvements can be made, the gaps between current and best practice and how to consolidate all projects that impact the customer experience into a clear road map showing what, why and how the customer satisfaction can be improved.
The majority of the work is delivered through water companies’ internal resources but CCL provides a three year framework to review, refine and support the implementation to ensure the results are achieved.
CCL’s experience in other industries, such as rail, shows that a consistent and strategic approach can yield sustainable improvements in customer service and satisfaction. Initial modelling has shown that the return on investment in the water industry should be significant, said Rustom.
The Ofwat consultation document – ‘Protecting consumers, promoting value, safeguarding the future’ – outlines a service incentive mechanism.
This new approach, designed to encourage water and sewerage companies in England and Wales to improve the quality of service they provide, is scheduled to be introduced from April 2010. It will replace the current incentive mechanism, the overall performance assessment (OPA), which has been used since 1996/97.
The service incentive mechanism will form one element of the package of incentives that comprise the determination of price limits for companies for 2010 to 2015.
“At present, the water and sewerage sectors in England and Wales consist of 21 monopoly companies,” said CCL’s Rustom. “Apart from large business customers, most customers are unable to choose their supplier.
“Given this lack of customer choice, Ofwat acts as a substitute for a competitive market. It seeks to ensure that the monopoly companies identify their customers’ needs, deliver services designed to meet them and continually try to improve those services within the price limits it sets.
According to Ofwat, there are a number of reasons why a new approach to measuring and incentivising customer service is needed. Among these is that, although most consumers are generally satisfied with the basic aspects of the service they receive, some six per cent of consumers are dissatisfied.
In addition, many of the current OPA measures focus on companies’ reliability and response times. They do not measure the quality of the company’s response.
Moreover, the recently published Cave report and Walker review both supported the need for a new incentive mechanism that focuses more on the customer experience. They also made recommendations that would change the structure of the industry and extend customer choice.
“A key principle of good service is that a company should meet its customers’ expectations and, where it does not do so, quickly put the matter right,” said Rustom.
“Within the water and other industries, we know that many customer contacts could have been avoided by getting things right first time. Dŵr Cymru, for example, recently estimated that about a quarter of its written complaints were avoidable.”
For further details of CCL’s approach to customer satisfaction, contact Kathy Duxbury at CCL on +44 (0) 1908 441012 or email kathy.duxbury[.]customerconsulting.com.
The Water Services Regulation Authority (Ofwat) is the economic regulator of the water and sewerage companies in England and Wales and works with a wide range of other stakeholders. These include the water quality regulators (the Environment Agency and the Drinking Water Inspectorate) and the Consumer Council for Water.
Ofwat was established to make sure that the companies provide household and business customers with a good quality service and value for money.
It does this by:
• keeping bills for consumers as low as possible;
• monitoring and comparing the services the companies provide;
• scrutinising the companies’ costs and investment;
• encouraging competition where this benefits consumers.
If a company falls short of what Ofwat or customers expect, Ofwat takes the action necessary to protect consumers’ interests. This may include legal steps such as enforcement action and fines.
About Customer Consulting Limited (CCL)
Customer Consulting Ltd (customerconsulting.com) is a specialist customer and change management company. It helps organisations to optimise their return on investment in customer management - especially contact centres and customer-orientated information and technology.
Its vision is to demonstrate that a best practice approach to customer management delivers sustainable business growth. CCL aims to deliver a combination of insight, intellect, wisdom and pragmatism - combined with a real understanding of people - to achieve commercial results that are beyond the norm. Using a joint project team approach, CCL offers advice and support to help companies develop and implement customer strategies that produce results.
With its 100 consultants averaging 20 years experience, CCL helps business leaders and their teams – including those at Aviva, BUPA, South West Trains and Orange – to activate their internal resources and ensure measurable success.