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SIM (Service Incentive Mechanism)

SIM – The Holy Grail of Customer Service for UK Water Companies

Designed to simulate competition in a monopolistic market, Service Incentive Mechanism (SIM) is a game changer for the UK water industry. Introduced by the Office of Water Services (OFWAT) in April 2010, the new measures are designed to radically improve the poor, often substandard customer service currently provided by UK water companies. Based on metrics such as customer satisfaction, abandoned calls, unwanted telephone contacts, and written complaints, SIM financially rewards water companies that provide the best customer service – and penalizes those that don’t.

The UK’s  water & wastewater companies will compete to receive rewards and avoid OFWAT penalties. Any company performing below the industry average can be penalized, with charges of as much as 1% of revenues. With water rates fixed by OFWAT for a period of five years, and so no way to increase prices to make up for lost revenue, any penalty or fine will have a strong negative impact on a provider’s margins, budgets, and future forecasts.

The SIM results, to be published as league table rankings for the first time in Q4 2011, will be highly competitive. Even a slight change in performance could mean the difference between penalty and reward, as very little will separate first, second, and third quartile performers. Just one investigation, escalation, or incident could drop a water company to the fourth quartile – losing it millions of pounds.

Figure 1

Figure 1: Plot of Unwanted Calls per 1000 connected properties and Customer Satisfaction scores of all UK Water Companies as Per June 2011 Returns

Why Real-Time Performance Matters for SIM

To succeed in these unchartered waters, utilities must be able forecast and analyze consumer data patterns and SIM scores, identifying areas that need improvement. Dashboards, reports, and scenario analysis can help provide strategic insight into SIM measures, illuminating performance against each metric and its underlying driver. For example, is an uptick in unwanted calls the result of a billing error, misread meter, or operations? Is there a relationship between ‘Unwanted Calls’ and ‘Customer Satisfaction’ (refer company ‘PW’ in Figure 1 above whose Customer Satisfaction score in the top quartile but the number of unwanted calls per 1000 connected properties was the highest amongst the industry) and if yes then how are they related? What are the other factors driving Customer Satisfaction scores and how that can be improved? With this level of insight, utilities can systematically work to improve their overall SIM score and financial reward.

How SAP Can Help

Performance and Insight Optimization services from SAP have created a SIM predictor model designed to provide visually instructive dashboards that calculate and present a company’s current SIM score based on OFWAT guidelines. Additionally, utilities can use the SIM predictor model to:

  • Identify underlying factors driving each      metric
  • Perform what-if scenario analysis to      see the effect of changes to individual parameters on an overall SIM score     
  • Use a predictive model to forecast both      trends and overall SIM score
  • Identify where to focus initiatives      and investments to improve a SIM score
  • View the historic trends of multiple parameters      affecting a SIM score

The SIM predictor model can also help generate reports for specific stakeholder groups, and automate the annual SIM score reporting process. Utilities can use the model to analyze additional business-specific requirements such as customer segmentation and GIS capabilities, further guiding strategic investments.

Improving SIM Scores

With the SAP SIM predictor model, utilities can improve insight behind SIM scores and identify priority areas with the most impact on customer service (and scores). This insight enables utilities to avoid penalties and earn incentives from OFWAT based on improved customer service and satisfaction scores.

For more information on Performance Insight and Optimization Services from SAP, please visit us online

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