Posted: 28th April 2017
It is common knowledge that several sectors across the utilities industry are in the midst of a move towards principles-based regulation.
Firms are currently dealing with the implications of this on multiple fronts, particularly in relation to complaints handling, the impact on conduct risk policies and procedures, product development and how to best work with customers in vulnerable circumstances. The overarching theme of these initiatives is undoubtedly the fair treatment of customers.
With this in mind, utilities firms should be exploring more advanced types of assurance work in order to pro-actively demonstrate that they are able to operate compliantly under a principles-based regime, with the fair treatment of customers at the heart of the firm’s strategy.
With every product or service provided to customers, firms should consider how good outcomes are delivered throughout the journey, whether this is before, during or after point-of-sale. So how can utilities firms best move forwards in order achieve their commercial and customer-related goals while meeting regulatory requirements?
getting an enhanced view of performance
Satisfaction surveys undoubtedly provide great insight into customers’ immediate priorities. Ultimately, however, because they assess the customer’s own perception of their experience, they often provide limited insight into the long-term outcomes being provided. To truly deliver and demonstrate the fair treatment of customers, we have to go deeper.
With this in mind, there are a few factors firms should be considering when assessing their approach to gaining assurance of good customer outcomes.
‘The three Cs’
Firms should break down their obligations and view them through the three lenses of ‘conduct’, ‘customer experience’ and ‘culture’. This allows firms to think in a more structured way about their business and its overarching priorities.
Conduct: Conduct touches on almost everything; from customer acquisition to retention (and all operational processes in between). It is important that a firm’s conduct is geared towards delivering good customer outcomes to help it meet its commercial objectives and its regulatory requirements. Conduct relates to a firm’s compliance with regulation, however, in a principles-based regulatory environment, assessment of performance in this area will not be a case of discharging minimum obligations. The regulator will look to firms to evidence that their conduct results in good customer outcomes. This interlinks conduct and the customer experience being offered by a firm and makes regulation more intuitive.
Customer experience: A poor customer experience is a potential driver for loss of business; not just from that one customer, but from others who hear about it. Not all customers can be satisfied, and it is down to individual organisations and their conduct to keep poor experiences to a minimum. Being able to evidence this proportionality to the regulator is a key feature of a customer-centric organisation. The customer experience is also inextricably linked to a firm’s culture.
Culture: A firm’s culture should strike a balance between its commercial demands, risk appetite and customer outcomes it seeks to deliver. As an organisation, how do you currently interpret and understand culture, including employee sentiment and behaviour?
Utilities firms can use ‘the three Cs’ to rationalise and then conduct further testing on the customer-related outcomes that the firm wishes to achieve.
gaining assurance over your current state
1. Outcomes testing
In order to gain deeper insight into the customer experience, firms should perform robust and regular outcomes testing. Outcomes testing is a defined, considered approach to testing true customer understanding, and covers all products and distribution. Many firms will be performing it, but it’s certainly worth firms reviewing their approach to outcomes testing as they move towards fully-fledged principles-based regulation. Firms should start by mapping the customer journey and identifying what ‘good looks like’, which is tied to the self-assessment approach noted above.
Effective outcomes testing is performed through a combination of desk-based reviews and conversations with a representative sample of a firm’s customer base. Here, the firm has the ability to capture and understand how customers access, interact with, understand and even complain about their products and services. To ensure a robust approach, it needs to be subject to independent oversight and challenge within a business.
Outcomes testing can help a firm:
- Identify gaps in policies and procedures
- Detect spikes or trends that become costly and can damage your reputation
- Provide evidence to satisfy regulatory scrutiny and move towards positive assurance
- Improve processes and culture on an ongoing basis
Ultimately, outcomes testing provides more powerful insight than satisfaction surveys. Customers may be satisfied at a point in time, but they may not necessarily have received a good outcome (for example, they are unknowingly placed onto an unsuitable product).
2. Root cause analysis (RCA)
Using the data gathered from outcomes testing, firms can set out an agreed, proportionate reaction to any customer detriment issues identified. More than this though, they can detect issues that may be feeding into their customer base and react (and if necessary, remediate) before significant detriment (which may lead to regulatory censure) is caused. RCA can help firms to:
- Identify the root cause of a problem and not just the symptoms
- Produce solutions which eliminate the cause, where reasonable to do so
- Create a culture of identification and rectification before problems escalate
- Direct their attention based on the size of an issue and the likely impact
- Consider the implications for the non-complainant population
achieving commercial compliance
The commercial benefits of developing an iterative and proportional approach to the treatment of customers include:
- Operational efficiency – effective outcomes testing and RCA allows for firms to perform triage and address the most pressing issues in a risk-based way, which in turn reduces costs
- Reduced complaints volumes and redress – effective outcomes testing can lead to a reduction in complaints levels and redress due to a firm’s ability to react more quickly to issues
- Increased retention and advocacy – a constantly refined customer experience can lead to increases in customer retention, brand advocacy and enhance a firm’s reputation
- Mitigated regulatory risk – utilities regulators are moving increasingly towards principles and outcomes-focused regulation. Outcomes testing and RCA are an appropriate reaction for dealing with increased regulatory scrutiny
Ultimately, increasing firm activity around customer outcomes testing requires tangible expenditure, so firms will quite rightly want to know that the outlay is worth the benefit. Many of these benefits are self-evident, but some can be nebulous and hard to quantify. Customer trust fits squarely in this bracket: pinpointing the exact amount of pounds and pence that come with a trusted brand is an impossible task.
However, it should become clear that increased customer trust equals an increase in both customer acquisition and loyalty, and it is certainly true that this increased level of activity – if accompanied by effective record keeping – can satisfy a higher level of regulatory scrutiny.
Utilities firms should embrace changes being made in relation to principles-based regulation while ensuring they have a clear view of the customer outcomes they wish to provide. This will enable firms to embed change successfully and allow them to focus in on the things that will provide the greatest benefit to the firm and its customers.