Managing Information Technology Services

The The chchallengeallenge facing facing IT today IT today

Businesses today face fundamental issues relating to the value of, sustainability of,and satisfaction with information technology (IT).

IT organizations within businesses today are under increasing pressure to justify thevalue of IT and reduce IT costs. This pressure comes from several factors externaland internal to the business. See Figure 1.

External factors are contributing to changing perceptions of the IT organization andpressure to demonstrate its value. Technology is becoming increasingly packagedand commoditized. Industry and defacto standards have contributed to thecommoditization of products. Subsequent industry rationalization has seen thenumber of suppliers for technology products reduced to a handful of major vendorsin many areas of the IT industry. Packaged solutions such as enterprise applicationofferings from SAP and PeopleSoft have reduced the need for in-house custom builtsolutions. These developments have enabled a more ‘building block’ approach to ITsolutions where many of the blocks can be bought whole, resulting in a level ofcommonality not previously possible. Furthermore, this commonality has enabledthe emergence of a slew of external service providers with expertise in varioustechnologies and products. The shift to packages and more modular softwarebuilding blocks have also contributed to the emergence of Application ServiceProvider and e-sourcing models - putting even more pressure on internal ITorganizations. External service providers invariably have an advantage ofeconomies of scale over the internal IT organization that gives them a competitivecost advantage. While the selection of a set of technology and products may bebecoming relatively simpler, the build versus buy decision for IT service provision forbusiness have never been more complex.

Internal factors such as poor visibility of IT value in the past has led to poorunderstanding of what value IT brings to the business and a need for justification.The now common practice of accountability for profitability by individual businessunits is forcing the customers of internal IT organizations to reexamine the value andcost of IT at a business unit level. IT customers are also becoming increasinglysavvy in their use of IT and IT services, as IT permeates through all facets of thebusiness and becomes mainstream. These customers are more demanding andhave a better understanding of their IT needs. The relationship of the ITorganization with business units is changing, and adoption of shared-servicesbusiness models has forced a rethink on the roles of the IT organization. Many ITorganizations today have a stated emphasis on customer satisfaction and areseeking to transform themselves by becoming more customer-focused.

o

Managing Information Technology Services

“How can we tell if what we spend on IT is reasonable?”

“What are we getting from our IT organization?”

“How do we maximise value from our e-business solution?”

“How do we sustain or improve IT service levels and customer satisfaction?”

“How can we cope with the increasing complexity of technology?”

“What capabilities will we need in the future?”

“How do we leverage the increasing variety of IT service providers?”

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Key Messages

An IT services approachprovides the foundationfor addressing many ofthe challenges facing ITorganizations today

A portfolio of IT servicesprovides a way tocommunicate the valuethe IT organizationdelivers

The capabilities of theIT organization shouldbe aligned to servicesthat its customers haveagreed to

The relationship of the ITorganization with businessunits is changing, andadoption of shared-servicesbusiness models has forceda rethink on the roles of theIT organization.

Internal EnvironmentShared services business modelsEvolving perception of role of IT organizationHighly visible IT costs but poor communication of IT valueStaffing issues

Retention, motivation, skills, etc.

IT CustomersResponsibility for profitability lies with individual business unitsEnjoy declining switching costs as technology commoditizes and standardizesBecoming more savvy users of IT and IT services

IT SuppliersIndustry and defacto standard technologies

TCP/IP, HTML, XML, Java, Windows, Linux, etc.

Commoditization of products resulting in reduced set of vendors through industry rationalization

Networks, desktop, mobile, servers, software

Packaged solutionsERP, CRM, etc.

SubstitutesDecentralized IT organization

Individual business units with their own IT capabilities

Spin-offs and joint venture companies for IT service provisionSelective out-tasking

External IT Service ProvidersAdvantage of economies of scaleIncludes

Outsourcinge-Sourcing eg. Web hosting, Storage on Demand, etc.Consultants and contractors

Increasingly crowded market with many major and niche providers

Source: Michael Porter's five forces model applied to the internal IT organization 1

Figure 1. Internal and external forces influencing internal IT organizations

Sustaining e-business solutionsMany IT organizations today are consumed by developing and implementinge-business solutions. Often, they do this with help from vendors like IBM.Implementing e-business solutions can take significant time and effort, but whathappens afterwards? Who operates and manages the solutions when theimplementation is over? What new capabilities are needed? Responsibility foroperating and managing the new e-business solution and the resulting morecomplex IT environment usually resides with the IT organization. To maximise theongoing value of e-business solutions, the IT organization must have a clearunderstanding of who its customers are, what they value, what it needs to deliverand what capabilities this requires.

Why services?Adopting a services approach to IT provides us with a framework to begin toaddress some of the issues described and provide a cornerstone for the ITorganization to deliver value to its customers. Focussing on services forces us toseek and clarify answers to some of the fundamental questions about managing theinternal IT organization:

� Who are the customers of the IT organization?

� What does the IT organization deliver to its customers, and what is its corebusiness?

� How does the IT organization deliver to its customers?

� What does the IT organization need in order to deliver to its customers?

� What does the IT organization get in return?

The answers to these questions have far reaching consequences and dictate howthe IT organization structures itself and how it will behave.

This document describes a services approach for IT and outlines how the ITorganization may benefit from adopting such an approach. Some of the potentialbenefits from adopting a services approach are:

� It allows the IT organization to transform itself from a supplier of infrastructureand technology, to a provider of value-added services.

� It helps the IT organization articulate the value it delivers to the business and toset expectations.

� It provides a foundation for assessing how well business needs for IT are beingmet.

� It promotes alignment with the business and provides an insight into the ‘why’ ofactivities of the IT organization.

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Focussing on servicesforces us to seek and clarifyanswers to some of thefundamental questionsabout managing theinternal IT organization.

� It emphasizes the needs of the customer and their satisfaction.

� It enables required IT capabilities to be identified.

� It provides a foundation for different grades of service and customization fordifferent customers.

� It gives a basis for value comparisons with market offerings from external ITservice providers, and can be used as a reference point when procuring ITservices.

Service concepts are not new and are widely used by many businesses in industriessuch as telecommunication, transportation, banking and finance. In this document,we will look at how IBM has applied basic service concepts to the internal ITorganization.

What’s different about sWhat’s different about services?ervices?

Service characteristicsWhat is a service? What are the characteristics of a service? The definition of aservice is highly variable as we will see when we briefly examine some IT servicemodels. However, an understanding of typical service characteristics and theirimplications must be established, not only as a foundation for our discussion onservices, but also to direct emphasis during implementation. Services have fourdistinguishing characteristics 2:

1. Intangibility

2. Inseparability

3. Variability

4. Perishability

Services are intangible. They cannot be seen or felt before they are consumed.Understandably, service customers are wary about what they will be getting and willlook for signs or evidence of service quality. Therefore, service providers mustmanage their customers’ expectations and perceptions.

Service production and consumption are inseparable. Unlike physical goods orproducts that can be manufactured beforehand, and consumed at a later date;services are produced and consumed simultaneously. The service customer mustbe present for the service to be produced and effectively co-produces the service.The implication of this characteristic is that service providers must understand whotheir customers are and what their needs are. Inseparability dictates that without acustomer a service cannot exist.

Service quality is variable and dependent on who provides the service and when andwhere the service is provided. Conventional quality controls such as ‘six-sigma’initiatives that apply to production of physical goods may not apply to services.Service providers must understand the attributes of the service being provided andensure that they have people with the right skills for the job. A highly competenttechnician for instance may not necessarily have the right people skills to staff ahelp-desk. Many IT services depend heavily on people for delivery and, as humanbeings are fallible, consistency cannot be guaranteed. Therefore, a secondimplication of this characteristic is that service providers must monitor customersatisfaction as, ultimately, that is the measure of service quality that counts.

Services are perishable and cannot be stockpiled. Service providers must planahead to ensure that adequate resources and infrastructure are in place to deliverservices as and when required. Therefore, service providers must endeavor tomanage both service supply and service demand to ensure that supply meetsdemand.

Service models - similar goals, different pathsThere are several ways to apply service concepts, and we will look briefly at some ITservices models, to examine the different perspectives that have been taken.

An early IT services model and taxonomy“A service is a specific IT function performed on behalf of or in support of a customerthat provides measurable value.”

The notion of IT services is incorporated in all of IBM’s systems managementconsulting and design methods. As early as 1998, the IT Services concept was

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Service providers mustmanage their customers’expectations andperceptions.

Service providers mustunderstand who theircustomers are and whattheir needs are.

Service providers mustunderstand the attributes ofthe service they provideand continually monitorcustomer satisfaction.

Service providers mustmanage both service supplyand service demand.

introduced to show how processes, roles and tools needed to be linked andintegrated in order to deliver the specific services requested by IT customers. Thisled to the creation of the model illustrated in Figure 2.

Process: A collection of related activities that take inputs, transforms them, and produces outputs that support an enterprise goal. Implemented processes are enabled through people, tools and information.

Activity: Specific collection of tasks organized around a commonly understood result, typically executed in a prescribed sequence.

Service: Specific IT function or output that provides customer value. It is a measurable 'product' which is the basis for doing business with the customer, and is delivered through a series of implemented processes and/or activities.

Service Flow: Description of all the activities, in sequence, required to deliver a service. It includes the interprocess flows.

Customer

CS01 - User Call Management

Call ResultCalls

Manual Tools

Automated Tools

Service Interfaces

CSA

PTT

OLD,CFG,GRT,PTT,RCT

CTT,GRT,TCST

TS

A521GenerateCustomerRequest

CTT,ACD

CGTCTT,GRT,MBT

A141Receive and

Log Call

A142Analyze Call

A143Assign Call

Ticket

A144Answer Query

A146Close Call

A145Monitor OpenCall Tickets

CSC

Requests for New Service

Market IS HelpDeskOfferings

A771Identify Problem

SPA, SPO

Responses to Queries

CRTCRT,PPT

A524Assess RequestSolution Impact

CRT,PPT

A772Perform Problem

Determination

GRT,CFG,OLD,PTT

CTT

Service Marketing

CS03Product Move/Add/

Change

CTT,TCST

A526Consolidate / Schedule

Requests

A523Determine Request

Solution

CS02Product Repair Support

Figure 2. An early IT services model and taxonomy

In 1999, further work was undertaken to refine IBM’s approach to IT services and toextend these concepts throughout IBM’s Systems Management Solution LifeCycle 3. This project developed a model of IT services that defined two distinctperspectives on service definition - a customer view, and a provider view. It alsointroduced the notion of hierarchy of services, where the grouping or granularity ofthe services being defined, is dependent upon who will be using that definition andtheir purpose. For example, a much greater level of detail is required by a functionalmanager defining service workflows than by a CIO negotiating an outsourcingcontract with an external service provider.

An important deliverable of this work was a proposed starter set of servicecategories or groups. The starter set of service categories was based heavily onprior client engagements and tightly linked with IBM’s IT Process Model (ITPM). Theproject also developed new techniques for assessing IT services and evaluating howwell IT service delivery meets customer requirements and expectations.

Business architecture and design modelIBM is an industry leader in e-business strategy and design. As a result of ourresearch in this field, work is in progress to develop a proposed BusinessArchitecture Description Standard for use across IBM Global Services. This willprovide a systematic, repeatable means for describing business architectures andrelationships between business entities. A greatly simplified view of theserelationships is shown in Figure 3. This model provides valuable insight into howproven business architecture and design techniques can be applied to the businessof providing IT services.

The model begins with the assertion that customers have wants and needs. Thesewants and needs help determine the value propositions offered by the serviceprovider, who must in turn ensure that they have the capabilities required to deliverthose value propositions. Capabilities are articulated as the ability to provide somespecific value, for example, the ability to solve problems within a specific time frame.Capabilities are then implemented by enablers that include combinations ofprocesses, organization, technology and knowledge. The functions and featuresdelivered by the enablers are packaged into products and services that satisfycustomers wants and needs. This model defines many service concepts as distinctlayers of abstraction such as value proposition, capabilities, enablers, function andfeatures, etc.

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Customer

Wants & Needs

Value Proposition

Capabilities

Products & Services

Enablers

Features & Functions

Target Market

Brand Image

has

define

are supported by

are implemented by

are addresed by

are delivered

by

are packaged as

are used to deliver

is part of

appeals to

helps to position

reinforce the

Organization KnowledgeProcess Technology

Figure 3. An entity relationship model illustrating the linkages between key businessand service concepts

A simple service modelThe services models examined so far share many basic tenets and representdifferent valid views on how services are defined. Unfortunately, these models arequite sophisticated and introduce several levels of abstraction that are perhapsbetter suited to IT organizations that are fairly advanced in their services thinking.Furthermore, little guidance is available on how these models may be implemented.

A critical success factor for a service model is that it must be understood andaccepted at all levels in the IT organization. This is particularly true for ITorganizations just starting to embrace services concepts. Simplicity helpscommunication and understanding, which facilitates buy-in. Therefore, simplicity isparamount, and the rigour of an academically robust model with several layers ofabstraction must be balanced against the practical benefits from keeping it simple.

In this section we propose a simple service model designed for practicalimplementation. See Figure 4. We will be using this model to articulate therelationship between various service concepts.

IT Processes

IT O

rgan

ization

To

ols &

T

echn

olo

gy

Pro

cured

services

IT Services

Line of visibility

IT Customers

Capabilities

Service Provider Service Customer

Knowledge

Figure 4. A simple services model

Customers. This model begins with IT customers. Identification and definition ofthe customers of the IT organization underpins the definition of the services that theIT organization delivers to them. By definition, all customers receive at least oneservice and all services have at least one customer. Customers may be groupedinto categories known as segments.

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A critical success factor fora service model, is that itmust be understood andaccepted at all levels in theIT organization.

Services. Services are what the IT organization delivers to IT customers. Servicesare the only deliverables of the IT organization that is visible to IT customers.Hence, a notional Line of Visibility (LOV) exists between the IT organization and itscustomers. A service where no customer can be identified cannot be a service (butcould be an internal process behind the Line of Visibility). If customers are notprepared to accept a service because they do not see the relevance or value in it,then it is not a service to them. Therefore, the definition of a service is highlydependent on the customers. With this in mind, we will use a simple definition ofservices that advocates the customer view:

“A service is what the customer is prepared to buy.”

This definition focusses more on what is important to IT customers rather than astrict academic definition of service. If a customer sees value in something, isprepared to pay for it, and it can be measured, resourced, monitored and chargedfor, why should it not be a service? The implications from the characteristics ofservices (intangibility, inseparability, variability and perishability) are emphasized inthis model rather a generic definition for service.

Processes. Behind the Line of Visibility, are the processes that are necessary toproduce the services. Processes are how the IT organization delivers services to ITcustomers. They describe the work that must be done to produce the service.Implicit in this is that these processes exist for no other purpose than to produceservices.

Tools & Technology. Processes may require tools or technology to automatethem. These include tools used in delivering service such as diagnostic and remotemonitoring software, reporting tools, pagers, and so forth.

Organization. Processes need people to execute them. The organizationcomponent of the model refers to who executes the processes and in so doingperforms the service. The organization component includes the people,organization structure, roles, responsibilities, skills and incentives.

Procured services. In recent years, a new component has emerged that reflectsthe reality that IT organizations not longer produce everything in-house, butincreasingly rely of services procured from external service providers to produce theend service delivered to IT customers. Procured services can enhance an ITorganization’s in-house capabilities, particularly when it makes sense to buy ratherthan build specific capabilities.

Knowledge. Knowledge is the collection of data, information and cumulativeexperience used within the IT organization. Knowledge is embedded in processes,tools & technology, organization and procured services.

Capabilities. In this document, we refer to all the components behind the Line ofVisibility as ‘capabilities’. This definition of capabilities is a simplification thataggregates what other models distinguish as enablers, capabilities, functions andfeatures, etc. The distinction between capabilities and services is important asmany IT organizations define their value to the business in terms of their capabilitiesinstead of what their customers want. A focus on services ensures that capabilitiesare aligned to what customers want. Effectively, services are the encapsulation ofthe benefits that the IT organization delivers to its customers.

Gartner Service Decomposition Model 4

Other consultants' views are consistent with IBM’s perspective on IT services, andemphasize the need for IT organizations to focus on why they exist and the valuethey provide to their customers.

“A service is giving assistance or advantage to another.”

In August 2000, the Gartner Group published a report that described a ServiceDecomposition model as a tool to assist clients in restructuring and re-engineeringof their IT organizations. The model consists of a hierarchy of six primary elements:service, process, capabilities, activities, tools and technical skills. Significantly, theyfound that clients whose restructuring and re-engineering efforts have utterly failedto transform them into more adaptive, flexible service organizations, had inevitablydesigned their organizations around what they do rather than why they exist.Gartner concluded that IT organizations that develop or attempt to optimizeprocesses outside the service context will almost certainly face organizationalmisalignment.

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The distinction betweencapabilities and services isimportant as many ITorganization define theirvalue to the business interms of their capabilitiesinstead of what theircustomers want. A focus onservices ensures thatcapabilities are aligned towhat customers want.

Service customersService customers

A successful IT service delivery organization needs a clear understanding of who itscustomers are, the services they require and the service levels they expect. Thismeans identifying stakeholders in interactions between IT service provider and ITservice customers; and understanding how value is derived and exchanged betweenthe two parties.

Customers and usersSome service models distinguish between customers, the ones paying for theservice; and users, the recipients of the service. However, these definitions implythat users consume services and pay nothing, and that customers pay and receivenothing. If that was the case, then what is the incentive for customers to pay, andwhat is the incentive for the service provider to provide quality service to users?

If we broaden the definition of ‘paying’ for a service to include non-financial payment,we find that users could pay with intangibles such as their satisfaction with theservice provider. These intangibles may be indicated through some form ofmeasure, for example, a customer satisfaction rating, which is something that thecustomers with the cheque book place value on and are prepared to pay financiallyfor. These relationships are illustrated using a simplistic example of a Help Deskservice. See Figure 5. In this example, it is clear that the Help Desk would want toprovide quality service to End-users as full payment for service by Business unitmanagement is contingent on achieving service level and satisfaction targets. Thisis a simple example of value exchange analysis utilizing value-chain and value-nettheory. IBM consultants use value exchange analysis extensively when assistingclients in analyzing their relationship with their customers.

Help Desk

End-usersBusiness unit management

$ Payment for service

Satisfaction rating

Delivered service

Service levels and Satisfaction rating targets achieved

Productivity

Figure 5. A simplistic value exchange analysis of a Help Desk service

If we think of the transaction between service provider and these two identifiedgroups as an exchange of value, then there is little distinction between customersand users, provided that we understand what value is being exchanged. Users thenbecome a type of customer, i.e. a customer segment.

SegmentationThe relationship the IT organization has with its customers defines the services to bedelivered and drives behaviour. Segmentation identifies groups of customers withdifferent service requirements. This enables the IT organization to offer customizeservices with different service performance levels or price points to maximizecustomer value and satisfaction.

In many businesses, there is invariably a defacto segmentation of customers into atleast two segments: an ‘executive’ segment, and a segment for ‘normal’ customers.The executive segment usually includes high ranking executives and managers (andtheir personal assistants) of the business, and enjoys a priority service even wherethere is no official segmentation. Who is going to argue when the CEO’s secretary’sworkstation has crashed, and she wants it repaired immediately? In contrast,‘normal’ customers may be dealt with on a first-come-first-served basis and may bein a queue for some time before their service requests are actioned.

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A successful IT servicedelivery organization needsa clear understanding ofwho its customers are, theservices they require andthe service levels theyexpect.

Given the reality of the IT organization’s different behaviours towards the twodefacto segments, it makes sense for the IT organization to consider these twosegments explicitly so that capabilities can be developed to address each segment’sspecific needs.

Identification of the customer may not be apparent at first glance. IT strategydevelopment, for example, is a necessary activity many IT organizations perform,but is it a service, and if so, who is the customer? IT strategy development caneven, to an extent, be outsourced to external consultants, but who is it really for?One way of looking at this, is that IT strategy development is a service that thebusiness has engaged the IT organization to perform. The resources and effortrequired to develop an IT strategy for the business can be explicitly identified andcosted, therefore, the service can be costed. The customer here is the CEO or anidentified executive management committee who will sign-off on the IT strategy.

Clearly many customer segments can be identified for the IT organization.Segmentation can be done in many ways. Two common schemes aredemographics and usage. Segmentation by demographics includes groupingcustomers by attributes such as physical locations, business units or otherorganizational structures. Segmentation by usage includes grouping customers byhow they use IT, for instance, power users, retail staff and mobile workers. Othersegmentation schemes exists and IBM has, in past engagements, helped clientsdefine frameworks for IT customer segmentation, but a detailed discussion on thebasis of segmentation is beyond the scope of this document.

For an IT organization beginning to embrace services concepts, it is prudent to keepit simple and start with a small number of defined segments. A small number ofexplicitly defined segments can be a big step for such organizations. The ideal ofmass customization, i.e. segments with zero aggregation, must be evaluated for itsapplicability to the business. Mass customization has yet to be attained by manyorganizations commercially let alone by internal service delivery organizations.

Segmentation and value exchange analysis can help IT organizations betterunderstand their relationships with their customers, and the value propositions beingoffered to each customer. It enables IT organizations to better tailor their serviceportfolio and formulate appropriate behaviours to maximize value for themselvesand their customers.

Specifying servicesSpecifying services

IT organizations too often define their services in terms of their capabilities ratherthan what their customers want. See Figure 6. From a customer perspective, fourbasic components constitute a service:

1. Elements

2. Attributes

3. Deliverables

4. Price

Elements are the fundamental functions or features that a customer expects as partof the service. A service may contain one or more service elements. Each elementis described by attributes that provide the scope and boundaries of the element.Attributes also provide the basis for the definition of service measurements andtargets. Deliverables are the main results or outputs of the service that thecustomer receives. A clear definition of deliverables helps to define the servicescope. Price is the payment the service provider expects in return for providing theservice. Figure 7 depicts an example of how the framework described is used todefine an IT Help Desk service.

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Segmentation and valueexchange analysis can helpIT organizations betterunderstand theirrelationships with theircustomers, and the valuepropositions being offeredto each customer.

IT organization's representative

IT organization's customer

Technology

Process

Organization

Service deliverable

Service attribute

Service price

Service element

We have the latest remote administration tools. Any incident on our servers is

automatically logged and an alert dispatched to our

tech-support staff. We have 35 highly skilled tech-support

staff who are certified in Cisco and Microsoft products.

That's all very interesting, but what I really want to know is: Will there be

someone who can provide technical assistance when we need it between 8am to 7pm each weekday? How much will it cost me? And, can I get a monthly report on all the problems that

we've had?

IT Services are effectively what IT customers 'buy' from their IT service provider organization.

Figure 6. Many IT organization define their value by their internal capabilities ratherthan what customers want

A set of elements, attributes, deliverables and price should be specified for each ITcustomer segment. The service specification may also be enhanced with a definedservice objective or value proposition.

The framework described here provides a basis for specifying services andassociated service level agreements (SLAs) that emphasize the customerperspective rather than the service provider perspective. The framework isdesigned to enable services to be articulated in terms that are easy for IT customersto understand.

Single point of contact

One telephone number

Dedicated e-mail ID

Call logging & management

Call record number asignment

Call closure confirmation

Response, follow-up and escalation

Specified response times

Charge per call

Rendered assistance

Monitoring and reporting

Reporting interval

Regular report

ELEMENTS ATTRIBUTES DELIVERABLES PRICE

Satisfaction monitoring

Specified customer satisfaction rating

HelpDesk Service

User satisfaction

Business unit management

segment

End-user segment

Hours of operation

Figure 7. A framework for defining IT services from an IT customer perspective

Service level agreementsThe service level agreement is the document that encapsulates the value of theservice to the IT customer by bringing together the service benefits, expressed asthe level of service, and service costs, expressed as the price of service.

It is the statement of value for both IT service provider and IT customer.

Although it may have other purposes such as, to enforce contractual arrangementsbetween IT service provider and IT customer, or to mitigate blame if anything goeswrong, the primary purpose of a service level agreement is to help set expectationsbetween the IT service provider and its customer.

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The service level agreementis the document thatencapsulates the value ofthe service to the ITcustomer by bringingtogether the servicebenefits, expressed as thelevel of service, and servicecosts, expressed as theprice of service.

Therefore, the service level agreement must be expressed in terms that ITcustomers can understand and appreciate. It should describe what is visible to ITcustomers, hence, the focus should be on services rather than the capabilitiesbehind the line of visibility (shown earlier in Figure 4).

The service level agreement is where the full definition of the service to be providedshould reside. IBM can assist IT organizations develop service level agreementswith their customers that effectively describe the services and the value to both theIT organization and their customer.

Service portfolioDefining a portfolio of IT services, matched to identified customer requirements,provides a way to communicate the value that the IT organization delivers to thebusiness. This portfolio of IT services allows the IT organization to say to thebusiness, “Here is what we deliver to you”. Effectively, it is the list of whatcustomers ‘buy’ from the IT organization. Explicitly matching the portfolio of servicesto customer segments is a step towards understanding what IT customers value andwant. See Figure 8.

The service portfolio is also sometimes called a services catalog.

Customer segments

Service Categories Services S

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Consultancy Services

IT strategy and planning

IT architecture and standards development and maintenance

IT governance development and maintenance

Project management

Technology and industry advice/consulting

IT customer relationship management

Business analysis

Solution Services Solution design / development / construction

Support Services End-user support / help desk / break fix

Infrastructure operation and administration/maintenance

Business continuity

Supplier management

IT procurement services

IT asset management

Other Services End user training

Consumer

IT Management & Administration

Services

Consultancy Services

Operational Services

Figure 8. An example of IT services mapped against consumption by customersegments

Service brandingSome IT organizations have progressed to branding some of their services such asthe Help Desk; developing specific logos and internal marketing campaigns for theservice. A discussion on the merits of branding services is beyond the scope of thisdocument. However, this phenomenon does appear to mimic the actions ofcommercial service providers and provides a powerful tool for the IT organization tocommunicate the value that it delivers.

Managing service demandManaging service demand

Internal IT organizations normally operate in a largely captive market where theymay have monopoly on service provision. Nevertheless, some of the factors thatinfluence demand in free markets are still applicable 5. Demand for a service isaffected by factors such as:

� Price of the service. Generally, the higher the service costs to customer, theless attractive it is to them.

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Defining a portfolio of ITservices, matched toidentified customerrequirements, provides away to communicate thevalue that the ITorganization delivers to thebusiness.

� Customer budgets. Customers’ limited budgets may force them to prioritizetheir requirements thereby impacting demand for services that meet low priorityrequirements.

� Availability and price of alternatives. Other avenues available to customer tosatisfy their requirements can dilute demand by reducing the reliance on aparticular service, for example, peer support instead of a Help Desk service.

� Preferences of customers and their expectations of the future. Customerpreferences can influence service demand, for example, on-site support versusremote support arrangements. Customer expectations of their futurerequirements can also dictate demand for services, particularly services thatdeliver future benefits to customers such as training services.

� Number of customers for the service. More customers generally mean moredemand.

� Level of service. The service details and attributes can determine the benefitcustomers derive, thus influencing demand. The higher the benefit tocustomers, the greater the demand.

Of the above factors, internal IT organizations usually have some control of onlyprice and level of service. Although it is important for IT organizations to have someunderstanding of the other factors, they usually have little or no influence on them.Therefore, we will look at how demand for services is influenced by level of serviceand price.

Level of serviceGenerally, assuming all other factors remain constant, the higher the level of serviceprovided, the greater the benefit to the customer, which results in greater demand.See Figure 9 (a). For example, the more responsive the Help Desk gets, the moreIT customers would tend to use it. This situation can result in run away demand asany efforts to improve Help Desk services are soon neutralized by the increaseddemand. Inevitably, due to cost and resource constraints, IT organizations areforced to cap the level of service being offered, for example, by limiting the numberof Help Desk operators.

As the level of service improves, demand for service typically increases."This is all you can have" -IT organizations are often forced to cap service levels due to cost or resource constraints. However, this may lead to poor customer satisfaction as customer requirements may not be met.

As price for service increases, demand for service typically decreases."You can have what you want as long as you can pay for it" - Visibility of price leaves the responsibility for cost-benefit decisions with the customer and fosters accountability for service demand.

Level of service

Dem

and

for

serv

ice

Price of service

Dem

and

for

serv

ice

a) Demand vs Level of Service b) Demand vs Price of Service

Figure 9. Service Demand versus Level of Service and Price

However, what is the appropriate level at which services should be capped? Whodecides? Capping the level of service may result in dissatisfied customers becausetheir needs may not be met. Demand may appear to be constrained, but the risk isthat visible demand is converted to latent demand that customers may try to satisfyby seeking alternatives such as other service providers.

Unfortunately, the decision to cap service levels is often seen by IT customers as adecision that is forced on them, regardless of whether, their views have been takeninto consideration. This can lead to poor customer satisfaction as the ITorganization will come to be regarded as restrictive.

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PriceAt this point, it is appropriate that we distinguish between cost and price. Cost andprice have different meanings for service providers and their customers. For theservice provider, the cost of a service refers to both the financial and non-financialcharges and expenses the service provider incurs in providing the service. Price isthe charge a service provider levies on its customers for a particular service.Depending on the principles and policies governing IT service delivery for thebusiness, price and cost may not be identical, and the difference between them iscalled a margin. Price is usually visible to customers whereas cost may not be. Forcustomers of the service provider, the service price is a cost to them.

Generally, as price increases, demand decreases; assuming all other factors remainconstant. See Figure 9 (b). Therefore, price can be used as a lever to managedemand as it forces customers to ultimately decide if they are willing to pay for theservice. Provided that the price for service is competitive, customers will view it astheir responsibility to make the cost-benefit consideration for the usage of theservice. Consequently, customer satisfaction is likely to be maintained even if theprice for a service may be considerable, but the customer sees significant benefitfrom it and is prepared to pay for it.

The price charged for services must be competitive, otherwise service providers runthe risk of their customers feeling ‘ripped-off’. Customers that are unhappy with theprice they are charged for service, may seek alternative providers for the service.

Underpinning the concept of using price as a lever to manage demand, is an implicitnotion of accountability for service consumption that many IT organization eventuallyhave to deal with.

Accountability of service consumptionFor customers to be accountable for their consumption of IT services, there must bean appreciation of the value exchanged between the service provider and customer.The term ‘exchanged’ denotes a reciprocal arrangement whereby the serviceprovider receives value through some form of payment in return for providing theservice.

Value is a trade-off between benefits and costs and can be represented by thefollowing equation:

Value = Benefits / Costs

where, Value is the worth to customers.

Benefits are the financial and non-financial advantage that customersderive.

Costs are the financial and non-financial expenditure required of customersto receive the benefits.

The Costs in the value equation above include the price charged for the service.Price is largely dictated by the costs of providing the IT service. For many ITorganizations, the costs of providing IT services may be well understood, but theservice benefits to IT customers are often not well understood. On the other hand,many IT customers appreciate the benefits from a service but have little visibility ofwhat it costs them (i.e. the price of the service).

If we apply the value equation from the IT customer perspective, we observe that forIT customers to appreciate the Value of IT services, the Costs to them must beclear. This implies that the price of the service must be visible. Without pricevisibility, IT customers would naturally seek to maximize service Value bymaximizing service Benefits. Maximizing service Benefits, usually meansdemanding higher service levels - either as increased service capacity or greaterservice performance levels.

Visibility of price forces customers to think about their service level demands. Itforces them to perform the cost-benefit analysis themselves to determine the valueto them, thereby fostering their accountability for service consumption.

Visibility of service pricing also encourages the IT organization to compare theirprices to those of alternative service providers and ensure that they are efficient andcompetitive.

The level of aggregation of service pricing can affect visibility, and is a continuumthat ranges from total aggregation (e.g. IT as a cost centre) to pricing based onconsumption (e.g. user pays). The level of aggregation of service pricing must be

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Visibility of service pricingencourages accountabilityfor service consumptionand facilitates comparisonof alternatives.

appropriate for the business to ensure sufficient visibility to foster accountability anddrive desired behaviours in service customer and service provider.

IT organizations should consider making their service prices visible at anappropriate granularity to encourage accountability for service consumption.However, managing service demand is likely to employ both levers of managinglevel of service and managing service pricing.

Managing service supplyManaging service supply

Managing service supply is an area where considerable knowledge and methodsalready exists. Most if not all IT organizations are familiar with ensuring thatessential capabilities required for service delivery are in place, whether or not theyhave adopted a services model. Given the extensive knowledge that already exists,we will not discuss in detail the initiatives for managing and maintaining capabilitiesfor service delivery, but focus instead on how these initiatives are linked to ITservices.

Linking capability initiatives to IT servicesIf a service is an outcome visible to a customer resulting from a series of activities,then capabilities are what the IT organization needs to deliver the service. We havedescribed the four main types of capabilities in our simple services model earlier inthe document.

1. Processes are how services are produced. They are ordered sequences ofactivities with explicit inputs and outputs.

2. Technology is the set of tools used to deliver services, and includes hardwareand software.

3. Organization refers to the people that carry out the processes. It includes thepeople, organization structure, roles, responsibilities, skills and incentives.

4. Procured services are services procured from external service providers thatare needed by the IT organization to produce the IT services for theircustomers.

Information Technology Process ModelIBM's IT Process Model is a functional process model for the management of information technology which is independent of organisation, architecture and technology.

The model is differentiated by its Ability to be applied in any management structureBroad coverage of IT management needsRigorous engineering according to industry standard modelling techniques FlexibilityCommon terminology for cross functional communications

The characteristics of the IT Process Model make it a valuable tool in realising value from Information Technology.8 Process Groups

41 Processes176 Sub-processes

a. Focus on the Customer

b. Deliver what the Customer values

c. Support the service over time

d. All within a Management Framework

SatisfyCustomerRelation-

ships

Manage ITBusiness

Value

Support ITServices and

Solutions

Delive

r

Operat

ional

Servic

es

Manage IT

Assets and

InfrastructurePro

vide E

nterp

rise I

T

Manag

emen

t

Syste

m

Realise

SolutionsDeploy Solutions

Figure 10. IBM's IT Process Model for the management of information technology 6

Processes underpin service delivery because they describe how the work gets doneto deliver services. Process models are available that assist IT organization defineand develop their IT processes. IBM’s IT Process Model (ITPM) (see Figure 10) andthe IT Infrastructure Library (ITIL) are examples of process resources that ITorganizations have to assist them bootstrap their process improvement initiatives 6.A critical factor here is how IT processes are linked to IT services, but unfortunately,this is an area where existing process models provide little guidance.

The early starter set of service categories proposed by IBM went some way towardslinking services to processes. To enhance this, IBM is seeking to develop anintegrated service model that will provide clear linkages between services and

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Managing service demandis likely to employ bothlevers of managing level ofservice and managingservice pricing.

Processes underpin servicedelivery because theydescribe how the work getsdone to deliver services.

processes. This model will provide a starting point for organizations looking toimplement IT services and understand how they are linked to the enablingprocesses that are likely to already be in place. However, it is highly likely that mostorganizations will structure their IT service portfolios quite differently in response totheir customers’ unique wants and needs. Consequently, many IT organizationsintent on implementing a services model will need to establish the link betweenservices and processes largely from first principles.

Technology is the set of tools that are employed by the service provider in thedelivery of services. They facilitate or automate the processes used in servicedelivery. This suggests that the choice of technology is dictated by the requirementsof the processes. In reality, however, the choice of technology is influenced bymany factors including strategy, IT architecture, costs, political implications, andhistorical reasons. In some circumstances, it may make sense to tailor theprocesses to fit the tools instead, à la the rationale for packaged applications suchas SAP and PeopleSoft. However, the impact this may have on service deliveryneeds to be identified and understood.

Processes require people to perform them, even though some process steps maybe automated by the underlying tools or technology. People are often the mostimportant, but unfortunately, often overlooked capability in IT service improvementinitiatives. Many services can be delivered, albeit less efficiently, through informalpractices (without processes); many can be delivered without automation (withouttechnology); but few can be delivered without people. Therefore, how people areorganized, their level of skill and the incentive for them to perform are crucial toservice delivery.

Technology is now a key enabler of business strategy. However, the recentdifficulties of many ‘dot-com’ companies serve as a reminder that technology fortechnology’s sake without a sound business model and rationale is unsustainable.IT organizations can play a crucial role in highlighting potential business needs.However, these needs have to be linked to the IT services to be provided, that are inturn, linked to the underpinning processes, that are in turn, performed by people andfacilitated by the technology. Services provide an important mechanism to linkprocesses, technology and the organization to business needs. See Figure 11.

IT Processes

Roles & responsibilities

Functional requirements

Measurements KPIs &

SLAs

Tool requirements

Organization structure

Training

Targets & incentives

Tools & technology

Skill requirements

IT Services

IT Customers needs and wants

Capability initiatives

Job descriptions

Figure 11. Linking IT services capability initiatives through processes

External service providers can provide an alternative to IT organization having todevelop capabilities in-house. Procured services may substitute combinations ofinternal processes, organization and technology, with those of the external serviceprovider. The external service provider capabilities are embedded in the procuredservices (in the same way that the IT organization's capabilities are embedded in theservices it offers its customers). Procured services should be linked to the ITservices being offered by the IT organization.

In a nutshell, managing IT service supply involves managing the processes,organization, technology and procured services of the internal IT organization.Since the late 1970’s, IBM has been helping customers take a holistic view of

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Services provide animportant mechanism tolink processes, technologyand the organization tobusiness needs.

managing IT that incorporates these capabilities. Now, management of thesecapabilities must be clearly linked to the services that are to be delivered.

Service level managementTo many internal IT organizations, managing service levels is not new. Managingservice levels involves activities centered around the terms and conditionsexpressed in Service Level Agreements (SLAs). SLAs have been employed by ITorganizations for years, and processes for managing service levels are describedboth in IBM’s IT Process Model and ITIL. These processes define the activities fordeveloping and negotiating service level agreements, monitoring service levels andreporting service level attainment.

However, a close examination of the SLAs many IT organizations have in placetoday with their customer, would likely reveal definitions for services that are moreakin to descriptions of the IT organization's capabilities rather than servicedescriptions that their customers would understand let alone ‘buy’. For example,CICS availability of 99.9%.

The ultimate goal of service level management is to secure IT customer satisfaction. A strong emphasis therefore, is needed on defining services and service levels interms that customers understand and want. IT organizations must develop anappreciation of the benefits of each service to their customers, and the things thatwill secure their satisfaction. Without an understanding of service benefits,management of IT customer satisfaction is condemned to be reactive.

The available process models represent years of cumulative experience and go along way towards assisting IT organizations work out how to manage service levels.The techniques and methods embodied in these models, however, must beaugmented by service definitions from the customer’s perspective, and a clearunderstanding of how customers value the services they receive. This enables ITorganizations to focus on and prioritize their efforts to maintain or improve servicelevels, with confidence that it will lead to improved satisfaction of their customers.

Desired outcomes - a service cultureDesired outcomes - a service culture

The development of a service culture is invariably a critical success factor in theimplementation of a service model. The culture of an organization is influenced bymany factors such as knowledge, beliefs, accepted norms, roles, symbols and soforth. Consequently, there are many changes in thinking that are necessary indeveloping a service culture.

The goal of instituting a service culture for the internal IT organization is to ensure itexhibits the appropriate behaviours and attitudes in its dealings with its customers.Focussing on the IT organization’s capabilities alone (processes, technology, andorganization) do not guarantee appropriate behaviours and attitudes.

Processes enable consistency and provide guidance on how service deliveryactivities should be performed, but how does one ensure that the activities arecarried out with a high level of quality? Quality gates and checkpoints could be usedto provide a level of quality assurance but there is a limit to the type and number ofgates and checkpoints that can be designed into a process before it becomesonerous. In many cases, they merely shift responsibility for quality to the personsdoing the checking, and what is to compel them to do a good job? Establishinggood processes certainly provides the foundations for service delivery quality butprocesses alone do not guarantee quality. If processes need people to performthem, how do we motivate people to perform?

Restructuring the organization and training staff may make it easier for people towork, but does not necessarily improve motivation. Setting measurements andincentives may improve motivation but incentives alone are not what motivates mostpeople. Job satisfaction is often cited as a strong motivator for many. Jobsatisfaction is driven by, amongst other things, an appreciation of worth andmeaning in the tasks and duties of the job. In other words, “Why is my job importantand how does it fit in with what the organization is trying to do?”

The following are ideas that need to be understood, considered and embraced at alllevels in the IT organization to help provide context and articulate meaning in orderto influence behaviour and attitudes.

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The goal of instituting aservice culture for theinternal IT organization isto ensure it exhibits theappropriate behavioursand attitudes in its dealingswith its customers.

Service provider vs. Product supplierIs the internal IT organization purely a service provider or does it produce tangibleproducts such as software applications or physical infrastructure?

But first, why does it matter? IT customers can derive value through theconsumption of both services and products. However, because services have thecharacteristic of inseparability, the areas of emphasis for service providers tends tobe at the Line of Visibility, whereas the areas of emphasis for product producerstends to be further back behind the Line of Visibility where tangible products areproduced. The value add for product producers is embedded in the product. Valuefor service providers is added at the time of delivery. This subtle distinction can leadto emphasis on a different set of capabilities being developed, for example, anemphasis on qualify control versus and emphasis on IT customer relationshipmanagement. Furthermore, a strong sense of ownership by IT organizations of theproducts is often associated with tangible products such as a major businessapplication. This can lead to some interesting behaviours, particularly in the captivemarket that many IT organizations find themselves in, where they are the solesupplier to the business. Products can appear to take on a life of their own withproduct improvement becoming a preoccupation for the IT organization almostindependent on whether the business is asking for it.

Many IT organizations believe they offer tangible products. IBM’s experience withclients suggests that many tangible outputs of the IT organization are simplyconsequences of services as illustrated in the following examples.

� IT organizations usually do not own software applications that they produce forthe business in the way software companies like Microsoft or SAP do. They donot own copyright for the code nor do they licence out the applications.Application code belongs to the business or individual business units. If the ITorganization were not there to provide support and development of in-housedeveloped applications, the business could decide to acquire their ownresources or engage an external service provider to provide support anddevelopment. This suggest that IT organizations do not produce applications asproducts but instead, provide services for development and support of thoseapplications.

� IT organizations may be responsible for shared infrastructure such as networksand servers. Ownership by the IT organization of these assets may even bereflected in the asset register of the business. This infrastructure, thoughessential, is incidental to providing IT services, is generally not visible to ITcustomers, and therefore holds little interest for them. A Wide Area Network,for example, is no more a product of an IT organization than aircraft areproducts or an airline.

The answer to the question of what the IT organization delivers to the business issomething that the IT organization must determine for itself. Suffice to say, most ifnot all primary deliverables of an IT organization can be expressed as services.This is essentially what makes IT outsourcing possible.

The distinction between the two perspectives may be subtle, especially if servicesare viewed as notional products that the IT organization supplies. It is theimplications behind the concepts of what constitutes quality that are important.Product quality implies a view of quality based on a set of criteria relating to how wellmade the product is. These criteria may be independent of customer satisfaction.In contrast, the characteristic of inseparability of services dictates that the customeris closely involved in the production of service, and customer satisfaction then is theultimate measure of service quality. In these situations, the difference in attitudetowards quality therefore, is one of being internally focussed (with product quality)versus being externally focussed (on customer satisfaction).

Service focus vs. Process focusProcesses are primarily internal to the service provider. They lie largely behind theline of visibility and are usually not something IT customers are interested in. Asmentioned earlier, processes alone cannot guarantee quality or customersatisfaction. Process improvements may improve internal efficiencies but after acertain point, there are diminishing returns to be had from process improvement.Therefore, it is Important for IT organizations to always keep in mind why they existand what they deliver, rather than focus purely on how they deliver.

A service focus helps IT organizations keep in perspective what they deliver to theircustomers and why. It is not always possible to codify every activity needed to

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IBM’s experience withclients suggests that manytangible outputs of the ITorganization are simplyconsequences of services.

deliver a particular service. Consequently, a focus solely on process may result inbehaviours that are limited to defined activities even if they fall short of deliveringquality service. A service focus on the other hand, advocates behaviours gearedtowards achieving service quality regardless of whether the activities are defined byprocesses. Clearly the latter arrangement is more likely to result in satisfiedcustomers. A process focus emphasizes the IT organization’s effectiveness andefficiency. A service focus emphasizes the IT organization’s deliverables. The rightcombination of service and process focus will ensure efficient service delivery aswell as service quality.

Value focus vs. Cost focusMany internal IT organization have been embroiled in cost cutting measures at somepoint in time. The objective of reducing the costs of providing IT services isgenerally to reduce the price of services to customers, and is often in response tobusiness pressures to reduce the cost of IT. While reducing price may at firstglance appear to be attractive to IT customers, if the benefits customers derive fromthe service are reduced commensurately, then the value to the customer has notimproved. See Figure 12. In other words, reducing costs does not automaticallyresult in superior value for IT customers. A focus on value forces a morecomprehensive view that takes service benefits into consideration while at the sametime examining service costs.

value n. 1. the amount of money or other commodity or

service etc. considered to be equivalent to something else or for which a thing can be exchanged.

2. desirability, usefulness, importance.3. the ability of a thing to serve a purpose or cause

an effect.-Oxford English Dictionary

where, Value is the worth to customersBenefits are the financial and non-financial advantage that customers deriveCosts are the financial and non-financial expenditure required of customers to receive the benefits

Benefits

CostsValue =

To increase value you must increase the level of benefits for a given cost. Cost reduction alone will not guarantee increased value - you must ensure that you provide an improved ratio of benefits to cost.

Val

ue 100%

+

-

Costs

Benef

itsFigure 12. Service Costs, Benefits and Value

If customers believe they are receiving higher value relative to perceivedalternatives, then the issues of costs tend to diminish. Therefore, focussing onvalue is more effective in securing customer satisfaction than focussing on costs.

Furthermore, a focus on costs in providing services inherently places the emphasison the internal machinations of the service provider. A focus on value encourages amore customer oriented perspective that emphasizes customer satisfaction.

Business requirements vs. Business intentInternal IT organizations must have a clear understanding of their role in thebusiness and the limits of where their responsibilities extend. It is presumptuous ofIT organizations to think that they know how to run the business better than thebusiness can. This is not to say that internal IT organizations should not beproactive. IT organizations can add-value to the business planning and decisionprocess by being subject-matter experts in the application of technology and provideadvisory or consultative services to the business. IT organizations can play a pivotalrole in helping the business achieve its objectives, however, the responsibility forbusiness intent and achievement of business objectives is best left to the business.

There are many cases where IT organizations have tried to offer services based ontheir understanding of business intent rather than actual requirements and thefollowing are a couple of examples:

� The IT department in a member-based organization put up a recommendationfor an IT disaster recovery service which was disapproved. When asked why,senior management's reply was, “We are a member-based organization and if

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A focus on value forces amore comprehensive viewthat takes service benefitsinto consideration while atthe same time examiningservice costs.

Focussing on value is moreeffective in ensuringcustomer satisfaction.

our systems go down for two weeks, so what? We are a monopoly. Ourmembers don’t have anybody else to join. It is not going to have a big impacton us or our members.”

� A business analyst of an IT department in a government organizationbemoaned the fact that his proposal for an e-procurement solution was notacted upon even though it clearly showed how head-count in the existingprocurement process could be halved. When queried, the manager in chargeof procurement explained that he could gain more significant cost savings forthe organization by renegotiating contracts with suppliers. Reducing headcount would also mean lengthy negotiations with the human resourcesdepartment and the union that he was unprepared to undertake at that point intime.

It is essential that IT organizations design their services to meet their customers realrequirements. To do this, they need to ensure that their perception or interpretationof the requirements is the same as their customers. This will be discussed in moredetail in the next section.

However, it is equally important for IT organizations to understand the limits of theirroles and responsibilities. Services provide a mechanism to facilitate thesegregation of responsibilities between the service provider and service customers.With few exceptions, the line-of-visibility between service providers and theircustomers, marks the point where service provider responsibilities end and theircustomers' responsibilities begin. A clear understanding of responsibilities at alllevels in the internal IT organization will influence attitudes and guide behaviours.

Managing expectations and perceptionsThe intangibility of services requires that service providers continually manage theircustomers' expectations and perceptions of service quality to ensure high customersatisfaction.

A model for service quality can assist service providers to identify the factors thatinfluence their customers' expectations and perceptions of service delivery.

Service Quality Model 7

Service customer satisfaction is determined by the gap between the customers'service expectations and service perceptions. See Figure 13. If perceived servicesmeet or exceed expectations, customers will be satisfied. If perceived services fallbelow expectations, customers will be dissatisfied. The Service Quality Modelillustrates how four other gaps contribute towards the gap between customers'service expectations and service perceptions.

1. Gap between customer expectation and service provider managementperception of the service required: The service provider may misinterpret whatthe customers' requirements are.

2. Gap between service provider management perception of the service requiredand the design of the service: The design of the service may not accuratelyreflect what service provider management had in mind.

3. Gap between the service design and actual service delivery: Break down inservice delivery may result in service delivery falling short of the service design.

4. Gap between service delivery and communication with the customer: Servicedelivered may not match what has been communicated with the servicecustomer.

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Services provide amechanism to facilitate thesegregation ofresponsibilities between theservice provider andservice customers.

Service Expectations

Service Perception

Service Delivery

Service Design

Management Perceptions of Customer Expectations

Customer View

Service Provider View

Co

mm

un

icat

ion

D D 3

D D 2

D D 5

Moment of Truth

D D 4 D D 1

Analysis of the ’Service Quality Model’ identifies potential gaps which can lead to failure to meet customer expectations regarding the services delivered (DD5).

D D 1: Customer Expectations vs. Provider Management PerceptionsThe customers expectations are not understood or adequately considered.

D D 2: Provider Management Perceptions vs. Service DesignThe service architecture and infrastructure is specified incorrectly and/or incomplete.

D D 3: Service Design vs. Service DeliveryThe service delivery processes do not deliver the specified quality. (Service activities or processes are not aligned and/or the appropriate resources are not assigned.)

D D 4: Service Delivery vs. Customer CommunicationsThe services delivered do not match the announced services.

Source: Delivering Quality Service, V. Zeithaml, et al. 1990

Figure 13. The Service Quality Model identifies potential gaps in the customer -provider relationship

Gaps 1 through 4 lead to Gap 5, a difference between the expected and the perceived service. Understanding the causes behind these gaps enable formulationof appropriate initiatives to reduce or eliminate these gaps and help to improve ormaintain customer satisfaction.

Moments of truthThe Service Quality Model also shows three points where service providers actuallyinteract with their customers:

1. When understanding service requirements (Gap 1)

2. During actual service delivery

3. When communicating service details (Gap 4)

These three points are where the ‘moments of truth’ for the service provider lie.

Processes underpin services delivery but are largely hidden behind theline-of-visibility. Where processes come in contact with customers, they manifestthemselves as moments of truth. The term ‘moment of truth’ was popularized byJan Carlzon, the then president of Scandinavian Airlines System who in the early1980’s turned the loss making airline into a profitable business with consistently highcustomer satisfaction ratings. Carlzon reasoned that each moment of truth was anopportunity to either satisfy or dissatisfy customers. The cumulation of moments oftruth constitutes service delivery as far as customers are concerned as that is allthat is visible to them.

Continual management of customer expectations and perceptions means thatservice provider staff must exhibit the appropriate behaviours and attitudes at eachmoment of truth. It is these demonstrated behaviors and attitudes that underpin aservice culture.

Managing transitions to an IT services frameworkManaging the transition to an IT services framework is really about managing anorganizational transformation. The techniques and methods employed inorganizational transformations are applicable. The areas of particular importance inan IT services framework implementation are:

� Establishing a case for change. Establishing compelling reasons why the ITorganization needs to move to a services framework is a critical first step. Avision of the desired target state must be developed. The cost of change mustbe weighed against the cost of maintaining the status quo. The case for changemust also be put forward from both perspectives of the IT organization and itscustomers. Identification of a compelling event though not essential, can assistin strengthening the case for change.

� Securing executive sponsorship. For an IT services approach to be successful,change may have to occur both within the IT organization and with theircustomers. Some changes may be profound, for example, moving from a

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Continual management ofcustomer expectations andperceptions means thatservice provider staff mustexhibit the appropriatebehaviours and attitudes ateach moment of truth.

Managing the transition toan IT services framework isreally about managing anorganizationaltransformation.

centralized cost-centre model for IT expenditure to a model with visible servicepricing. These changes will require cooperation of IT customers andstakeholders who are outside the direct control of the IT organization, and highlevel executive sponsorship will be essential.

� Recruiting and training change agents. A successful transformation mustpermeate through the entire IT organization. It will require individuals at alllevels of the organization to champion the change and be sources ofinformation about the transformation. Change agents need to be identified andtrained so that they may effect the transformation in their work areas.

� Managing communications and expectations. A communications strategy andplan must be developed to manage expectations of the IT organization staff andcustomers. Communications can mitigate resistance to change by reducingconfusion and fear. It is also important in ensuring staff understand what theyneed to do to effect the transformation. Communications include a variety ofchannels and a comprehensive strategy and plan must determine what is to besaid, who it will be said to, how it will be said and when it will be said (i.e. themessage, audience, medium and timing).

� Maintaining momentum over the term of the project. As with any long termproject, it is important to secure quick wins to give a sense of assurance thatprogress is being made. Quick wins in a services framework implementationinclude agreement on a defined portfolio of service, measurable serviceimprovements, and institution and commencement of measurement reporting.

IBM’s experience in implementing IT services frameworks has identified severalpitfalls to avoid and symptoms to be wary of when undertaking such initiatives:

� Lack of understanding and confusion. Transformation to a services frameworkis likely to require IT organizations to significantly rethink what they do today.Implementation initiatives need to be sensitive to the pace of change that theorganization can cope with. Where possible, concepts, initiatives andmessages should be kept simple. Simplifications suggested in this documentinclude aggregating capabilities and enablers into just ‘capabilities’, anddefining users as just another customer segment.

� Value to whom? Value exchange analysis is an important part of an IT servicesframework. When describing value, it must be clear to whom value is ascribed.For instance, if a service is described as high-value add, there are two possibleinterpretations: a service where IT customers derive significant benefits; or aservice where the internal IT organization adds significant value over what anexternal service provider can. Both interpretations are valid but the former is ofmore interest to IT customers; the latter is of more interest to the internal ITorganization.

� Vendor management. As IT organizations consolidate and rationalize theircapabilities, the need to use external providers to supplement capabilities mayincrease. For some services offered to IT customers, there may be anincreased reliance on services procured from external providers. Hence,effective management of vendors is likely to be a key capability that ITorganizations must develop early.

� Lack of measurements. The variability and intangibility of services require thatmeasurements be instituted to monitor quality and to communicate and setexpectations to customers on performance. Without measurements, not onlywill it be impossible to gauge service quality, there will be no way tocommunicate service performance levels.

� Process fanaticism. It is surprisingly easy to quickly lose sight of the goals ofan IT services transformation and become immersed in process. Processes areoften conceptually easier to assimilate, but processes are merely a means to anend, not an end in itself. It is important to remember that though processes arenecessary to deliver services, they are largely internal to IT organizations andhold little interest of IT customers.

� Over documentation. Often associated with process fanaticism, overdocumentation occurs when there is a misguided belief in the need to documentevery detail. Documentation facilitates communication and organizationallearning, however, good documentation is associated with the cost ofproducing, maintaining and distributing it. IT organizations will need to strike abalance between the benefits from documentation and the associated costs.

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The variability andintangibility of servicesrequire that measurementsbe instituted to monitorquality and to communicateand set expectations tocustomers on performance.

Benchmarking, prioritizing and outsourcing servicesBenchmarking, prioritizing and outsourcing services

Benchmarking at a macro levelWhen IT services can be clearly specified and priced, it positions internal ITorganizations to be able to consider service delivery alternatives using externalservice providers. There are two primary reasons why IT organizations may wish tobenchmark their services:

1. To compare the services of the IT organization with those being offered byalternative providers. The aim behind this comparison is to assist the ITorganization to answer questions such as: Are we offering the right services andservice levels? Are there service providers who can do the things we don’t wantto focus on?

2. To gauge competitiveness of service pricing with alternative providers.

Benchmarking using services as the basis, is different from traditional benchmarkingapproaches that use productivity-based parameters such as, ratio of support staff toworkstations, notional cost per workstation, total cost of ownership, and so forth.

� Services-based benchmarking can be tailored for the business. Traditionalbenchmarking relies on existing averaged and categorized data organized inpredefined categories from peer groups for comparison. Services-basedbenchmarking enables the business to compare the services at the level ofservice required to meet the unique requirements of the business.

� Services-based benchmarking is oriented towards bottom-line cost and includesall productivity contributions and value-add considerations. Traditionalbenchmarking usually revolves around productivity and efficiency with inferredpotential cost benefits.

� Services-based benchmarking performs comparisons with commercial serviceproviders. Traditional benchmarking is based on peer comparisons, usuallywith businesses in the same industry. Traditional benchmarking strives todetermine ‘best practice’ within a peer group. In contrast, services-basedbenchmarking strives to determine a realistic ‘best price’ through competitionamong service providers.

The crucial step in services-based benchmarking is in specifying services accuratelyand comprehensively enough to enable a true comparison of services and pricingfrom service providers. Locking down the specification for services effectively locksdown the benefits to be derived. Costs (which includes the service price) thenbecome the determining variable for value. Of course, this assumes that the serviceprovider is actually able to deliver the specified service at the promised servicelevels!

As with any benchmarking initiative, the effort to plan and conduct the benchmarkthen analyze the results, is significant. IT organizations should consider servicebenchmarking exercises only when there are serious concerns regarding theirvalue-add in service delivery, and are considering alternative sourcing arrangementsfor services. A services-based benchmarking exercise may reveal that someservices may be more cost effectively delivered by an external service provider. Theobvious question then is, should these services be done by an external serviceprovider?

Outsourcing or InsourcingOutsourcing has become common practice and is not limited to IT. The scope ofoutsourcing is a continuum that can range from,

� complete outsourcing of all services (which IBM calls strategic outsourcing), to

� selective outsourcing of discrete services, to

� procured services that augment existing capabilities.

Complete outsourcing of all services or strategic outsourcing, involves the serviceprovider taking on a large part of the IT operations of a business including the ITassets, staff and processes. Although some of the service concepts described haveapplicability to strategic outsourcing, here we will focus on selective outsourcing ofdiscrete services.

Selective outsourcing is an arrangement where a discrete service to the customersof an internal IT organization is delivered in whole or largely by an external serviceprovider.

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The crucial step inservices-basedbenchmarking is inspecifying servicesaccurately andcomprehensively enough toenable a true comparisonof services and pricingfrom service providers.

With the increasing complexity of technology, IT organizations are being spreadthinner. Coupled with the emergence of a multitude of IT service vendors, thismakes outsourcing of IT services more attractive. However, the decision whether ornot to outsource individual services, involves not only the service price but also anunderstanding of the priority attached to the services that the IT organizationdelivers to its customers.

Prioritizing IT servicesMany IT organizations would agree that the services they deliver are not equallyimportant, and recognize a need to prioritize their services. Organizations typicallyseek to prioritize their services to

� direct how resources and funding should be allocated,

� identify risks from service failure, and,

� determine where and how external service providers can be leveraged.

Prioritization of services is nontrivial and highly dependent on the organization’sintended purpose.

A first step in prioritizing services is to be able to discriminate services into broadcategories. One way of doing this is to categorize services based on expectations ofthe IT organization’s customers. Figure 14 illustrates an example where threecategories have been defined: base, expected and augmented. This simple schemeimplies a prioritization of services aligned with customer expectations, namely,services that the IT organization must have, should have or would be nice to have,respectively. Single dimensional categorization such as this example, may providesome guidance on the services that the IT organization should focus its efforts on tomeet customer expectations and improve satisfaction, but give little indication onhow external service providers can be utilized. It does not always follow that ‘nice tohave’ services should be outsourced or that ‘must have’ services should be retainedin-house.

IT strategy & planning

IT architecture & standards development & maintenance

IT governance development & maintenance

Project management

Technology & industry advice & consulting

IT customer relationship management

Business analysis

Solution design, construction and deployment

End-user support (HelpDesk / Break Fix)

Infrastructure operation & administration

Business continuity

Supplier management

IT asset management

IT procurement

End-user training

Base

Expected

AugmentedSource: Based on an original concept developed by Theodore Levitt.

Definitions:Base: Services that the business must have in order to operate.Expected: Services that various areas of the business expect IT to provide (i.e. should have) but are not critical for operation.Augmented: Services that are regarded as neither critical nor expected but would be nice for the business to have.

Over time, services typically tend to evolve into Base services as customer expectations mature

Figure 14. An example of simple categorization and prioritization of services basedon customer expectations

When defining service importance, from whose perspective do we define it? In theprevious example, assignment of a sense of importance to individual services hasbeen made on the basis of customer expectations. In that example, the customerperspective was taken, but the importance customers may attach to a service doesnot always translate to equivalent importance for the service provider. For example,a particular service may be critical to an IT customer but it may be in an area thatthe IT organization is planning to withdraw from. Extending the categorization ofservices to accommodate the service provider perspective yields a two dimensionalscheme such as illustrated in Figure 15. Here, importance has been defined as how‘strategic’ the service is to the customer and service provider. Categorization bydiscrete bands has also given way to positioning of services along a continuum.However, the main point here, is that both the customer and service providerrequirements must be considered when prioritizing services.

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Both the customer andservice providerrequirements must beconsidered whenprioritizing services.

A service provider-customer importance matrix such as Figure 15, provides a tool tohelp guide IT organizations in their outsourcing decision. Development of such amatrix is nontrivial and potentially involves additional dimensions such as risk andservice maturity. IBM has assisted clients to develop IT service prioritizationframeworks, and this is a topic intended for discussion in another white paper. Aservice provider-customer importance matrix also assists IT organizations indeveloping the rationale for core competencies.

Str

ateg

ic t

o IT

cu

sto

mer

s

Retain in-house

IT architecture & standards

IT strategy & planning

Supplier management

IT governance

IT customer relationship management

Business continuity Solution design, construction & deploymentEnd-user support

Infrastructure operation & administration

IT asset management

End-user training

IT procurement

Outsource first

Strategic to IT organization

EXAMPLE

EXAMPLE

Incr

easi

ng

bu

sin

ess

imp

act

Increasing value add of IT organization

Figure 15. Categorizing and prioritizing services from both a customer and serviceprovider perspective

Focussing on core competenciesInternal IT organizations today, are being asked to do more, but with the same orless resources. Given the finite resources and funding available, IT organizationmust concentrate on where they can add the most value to the business. This maymean rationalizing services offered to IT customers, withdrawing some services orconsidering alternative sourcing arrangements. They need to consider not only thedirect costs but also the opportunity costs of providing each service. For instance, ifthe cost of providing a service is the same as an external service provider’s price,what value does the internal IT organization add over an external service provider?Would the internal resources used in providing this service be better deployed inother higher value-add services?

Identifying the services where internal IT organizations add the most value to thebusiness is key to determining core competencies. Core competencies can then bedefined on the basis of value-add to the business rather than what the ITorganization does best today.

An IT service portfolio, prioritized against dimensions such as strategic value to thecompany, can provide guidance on which form of outsourcing to use, and where ITinvestments should be directed to develop competencies. The IT organization canthen focus on developing and maintaining the competencies and capabilities itneeds to deliver its services. Thus, resources can be redeployed in a manner thatmaximises the value to the business.

Managing the IT service portfolioManaging the IT service portfolio

When IT organizations adopt a services approach and establish portfolios ofservices, new competencies must be developed to manage the ongoing vitality ofthe portfolio. Product management practices used in many businesses to managetheir products to the market, can provide a framework for internal IT organizations toidentify and develop the capabilities necessary for IT service portfolio management.A key aspect of product management is the concept of a product life-cycle 8. Thisconcept can be easily applied to services.

A services life-cycle defines four phases: introduction, growth, maturity and decline.These phases reflect the changing demand for a particular service from its initial

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Identifying the serviceswhere internal ITorganizations add the mostvalue to the business is keyto determining corecompetencies.

Product managementpractices used in manybusinesses to manage theirproducts to the market, canprovide a framework forinternal IT organizations toidentify and develop thecapabilities necessary forIT services portfoliomanagement.

offer through to withdrawal by the service provider. The strategies employed byinternal IT organizations will vary depending of the phase at which the service is inits life-cycle. Figure 16 shows an example of how potential strategies may vary.The life-cycle concept can be applied to IT services to assist IT organizations inplanning, forecasting and control.

Time

Ser

vice

Co

nsu

mp

tio

n

Potential Strategies

Introduction Growth Maturity Decline

Consumption Few customers Rising number of customers

Stable customer numbers

Declining customers

Awareness Focus on early adopters and key influencers

Build awareness and interest in main customers

Focus on performance reporting

Articulate alternatives and migration paths

Service features

Basic service Extend service features and functionality

Rationalize and streamline service features

Pare down or phase out service features

Cost & pricing Subsidize high costs per customer

Growing number of customers enables lower shared costs

Optimize costs through efficiencies

User lowest cost provider

Sourcing Delivered by development team

Hand-over to operational teams

Use external service providers for some components

Use external service provider for service delivery

IT staff Identify and develop new skills & training

Train required staffIncrease staff delopyment

Refine skills development in high value add areas

Redeploy staff to new areas and retrain.

Figure 16. The service life-cycle concept and potential strategies over the life-cycle

Life-cycle is just one of the concepts that can be applied. Product managementpractices also include product research, development and market testing. Theseconcepts are applicable to services too. Research and development for servicesincludes monitoring the market for services that are available from external serviceproviders.

We have established that the customer perspective underpins the definitions of ITservices. When developing new or refining existing IT service portfolios, it is criticalthat internal IT organizations seek validation of their understanding of businessneeds and the associated service definitions with their customers. IT customersmay have trouble articulating what they require in terms of IT, but it is a fallacy toassume they do not know what they want. The challenge for internal ITorganizations is to interpret the needs of their customers, often expressed in theirbusiness terms, into specific IT services that will meet those needs. Thisinterpretation is an iterative process but validation of IT services with potentialcustomers is crucial in services development.

It is likely that the skills, methods and processes for service management alreadyexist in some form within the business, particularly with product and brand managersin the marketing units. IT organizations are unlikely to require the same level ofsophistication employed by the marketing units, but they should seek to leverage theknowledge that exists there.

Moving forwardMoving forward

For IT organizations planning on implementing an IT services approach, thefollowing steps that are the embodiment of key concepts discussed in this documentmay provide some guidance:

1. Understand your customers: who they are, what they want and what they valuein the services you provide. This includes understanding how customers aresegmented, how their service requirements differ, and what value propositionsare being offer to each of those segments.

2. Develop a service portfolio in response to the wants and needs of customersand match it to customer segments.

3. Prioritize the services of your service portfolio, and evaluate sourcingalternatives.

4. Identify the key capabilities that must be developed or procured in order todeliver those services. When developing capabilities internally, identify the

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enablers that underpin these capabilities. Establish an inter-linked program ofcapability improvement initiatives that progressively develops the requiredenablers and capabilities.

5. Develop customer-focused service level agreements that spell out the serviceelements and deliverables, the service attributes and performance levels, costsand measurements.

6. Consider making service prices visible to encourage accountability for serviceconsumption when managing service demand. Ensure that the granularity ofservice prices, and the level at which they are made visible, will result inbehaviours you want to encourage.

7. Develop service marketing strategies and feedback mechanisms to continuallymanage customers’ perceptions and expectations.

8. Manage the organizational transition.

9. Actively manage the service portfolio to maintain the vitality of services offered.Ensure that for each service, appropriate strategies are adopted for each stageof its life cycle.

ConclusionConclusion

Adopting an IT services approach provides the foundation for addressing many ofthe challenges facing IT organizations today. Implementing a services framework ishighly likely to force IT organizations to rethink what they do today, why they do it,how they do it and perhaps most importantly who they do it for. For many ITorganizations, implementing a services framework will be a significant organizationaltransformation. A successful IT services implementation that emphasizes the ITcustomer perspective will reward IT organizations with a sustainable advantage inaddressing IT value and customer satisfaction issues.

IBM Global Services can help improve the service your IT organization delivers. Wecan also help reduce the cost of delivering a given grade of service. Finally, we canprepare your IT organization to support new e-business solutions.

We offer services ranging from initial planning, through to process reengineeringand managing organizational change. IBM Global Services offers diverse,customised solutions to help you meet - and beat - the challenge of managing ITservices successfully.

ReferencesReferences

1. Michael E. Porter, Competitive Strategy : Techniques for Analyzing Industriesand Competitors, Free Press, 1980.

2. Philip Kotler, Marketing Management - Analysis, Planning, Implementation andControl (Eighth edition), Prentice Hall, 1994, pp. 464-468.

3. IBM Systems Management Consulting and Design, IBM Systems ManagementSolution Lifecycle, 2000, http://www.ibm.com/services/ism/consulting/.

4. Gartner Group, The Core Elements of IT Service Design, 8 August 2000.

5. Joshua Gans, Stephen King & Gregory Mankiw, Principles of Microeconomics,Harcourt Brace & Co., 1999, pp. 63-64.

6. Valarie A. Zeithaml, A. Parasuraman & Leonard L. Berry, Delivering QualityService: Balancing Customer Perceptions and Expectations, Free Press, 1990.

7. IBM IT Process Model White Paper, Managing information technology in a newage, IBM, 2000, http://www.ibm.com/services/whitepapers/.

8. Glen Urban & Steven Star, Advanced Marketing Strategy, Prentice Hall, 1991,pp. 102-105.

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