Managing Information Technology Services

IBM Global Services

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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?”

The challenge facing IT today
challenge
Key Messages Businesses today face fundamental issues relating to the value of, sustainability of,
and satisfaction with information technology (IT).
An IT services approach IT organizations within businesses today are under increasing pressure to justify the
provides the foundation value of IT and reduce IT costs. This pressure comes from several factors external
and internal to the business. See Figure 1.
for addressing many of
the challenges facing IT External factors are contributing to changing perceptions of the IT organization and
pressure to demonstrate its value. Technology is becoming increasingly packaged
organizations today
and commoditized. Industry and defacto standards have contributed to the
commoditization of products. Subsequent industry rationalization has seen the
A portfolio of IT services number of suppliers for technology products reduced to a handful of major vendors
provides a way to in many areas of the IT industry. Packaged solutions such as enterprise application
offerings from SAP and PeopleSoft have reduced the need for in-house custom built
communicate the value
solutions. These developments have enabled a more ‘building block’ approach to IT
the IT organization solutions where many of the blocks can be bought whole, resulting in a level of
delivers commonality not previously possible. Furthermore, this commonality has enabled
the emergence of a slew of external service providers with expertise in various
technologies and products. The shift to packages and more modular software
The capabilities of the
building blocks have also contributed to the emergence of Application Service
IT organization should Provider and e-sourcing models - putting even more pressure on internal IT
be aligned to services organizations. External service providers invariably have an advantage of
that its customers have economies of scale over the internal IT organization that gives them a competitive
cost advantage. While the selection of a set of technology and products may be
agreed to
becoming relatively simpler, the build versus buy decision for IT service provision for
business have never been more complex.
Internal factors such as poor visibility of IT value in the past has led to poor
understanding of what value IT brings to the business and a need for justification.
The now common practice of accountability for profitability by individual business
units is forcing the customers of internal IT organizations to reexamine the value and
The relationship of the IT cost of IT at a business unit level. IT customers are also becoming increasingly
savvy in their use of IT and IT services, as IT permeates through all facets of the
organization with business business and becomes mainstream. These customers are more demanding and
units is changing, and have a better understanding of their IT needs. The relationship of the IT
adoption of shared-services organization with business units is changing, and adoption of shared-services
business models has forced business models has forced a rethink on the roles of the IT organization. Many IT
organizations today have a stated emphasis on customer satisfaction and are
a rethink on the roles of the seeking to transform themselves by becoming more customer-focused.
IT organization.

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Substitutes
Decentralized IT organization
Individual business units with their own
IT capabilities
Spin-offs and joint venture companies for
IT service provision
Selective out-tasking
IT Suppliers
Industry and defacto
standard technologies IT Customers
TCP/IP, HTML, XML, Internal Environment Responsibility for
Java, Windows, Linux, Shared services business models profitability lies with
etc. Evolving perception of role of IT individual business units
Commoditization of products organization Enjoy declining switching
resulting in reduced set of Highly visible IT costs but poor costs as technology
vendors through industry communication of IT value commoditizes and
rationalization Staffing issues standardizes
Networks, desktop, Retention, motivation, skills, etc. Becoming more savvy
mobile, servers, software users of IT and IT services
Packaged solutions
ERP, CRM, etc.

External IT Service Providers
Advantage of economies of scale
Includes
Outsourcing
e-Sourcing eg. Web hosting, Storage on
Demand, etc.
Consultants and contractors Source: Michael Porter's five
Increasingly crowded market with many forces model applied to the
major and niche providers internal IT organization 1

Figure 1. Internal and external forces influencing internal IT organizations
Sustaining e-business solutions
Many IT organizations today are consumed by developing and implementing
e-business solutions. Often, they do this with help from vendors like IBM.
Implementing e-business solutions can take significant time and effort, but what
happens afterwards? Who operates and manages the solutions when the
implementation is over? What new capabilities are needed? Responsibility for
operating and managing the new e-business solution and the resulting more
complex IT environment usually resides with the IT organization. To maximise the
ongoing value of e-business solutions, the IT organization must have a clear
understanding of who its customers are, what they value, what it needs to deliver
and what capabilities this requires.
Why services?
Adopting a services approach to IT provides us with a framework to begin to
Focussing on services address some of the issues described and provide a cornerstone for the IT
forces us to seek and clarify organization to deliver value to its customers. Focussing on services forces us to
answers to some of the seek and clarify answers to some of the fundamental questions about managing the
internal IT organization:
fundamental questions
about managing the Ÿ Who are the customers of the IT organization?
internal IT organization. Ÿ What does the IT organization deliver to its customers, and what is its core
business?
Ÿ How does the IT organization deliver to its customers?
Ÿ What does the IT organization need in order to deliver to its customers?
Ÿ What does the IT organization get in return?
The answers to these questions have far reaching consequences and dictate how
the IT organization structures itself and how it will behave.
This document describes a services approach for IT and outlines how the IT
organization may benefit from adopting such an approach. Some of the potential
benefits from adopting a services approach are:
Ÿ It allows the IT organization to transform itself from a supplier of infrastructure
and technology, to a provider of value-added services.
Ÿ It helps the IT organization articulate the value it delivers to the business and to
set expectations.
Ÿ It provides a foundation for assessing how well business needs for IT are being
met.
Ÿ It promotes alignment with the business and provides an insight into the ‘why’ of
activities of the IT organization.

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Ÿ It emphasizes the needs of the customer and their satisfaction.
Ÿ It enables required IT capabilities to be identified.
Ÿ It provides a foundation for different grades of service and customization for
different customers.
Ÿ It gives a basis for value comparisons with market offerings from external IT
service providers, and can be used as a reference point when procuring IT
services.
Service concepts are not new and are widely used by many businesses in industries
such as telecommunication, transportation, banking and finance. In this document,
we will look at how IBM has applied basic service concepts to the internal IT
organization.

What’s different about services?
services?

Service characteristics
What is a service? What are the characteristics of a service? The definition of a
service is highly variable as we will see when we briefly examine some IT service
models. However, an understanding of typical service characteristics and their
implications must be established, not only as a foundation for our discussion on
services, but also to direct emphasis during implementation. Services have four
distinguishing 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 will
look for signs or evidence of service quality. Therefore, service providers must
manage their customers’ expectations and perceptions.
Service providers must Service production and consumption are inseparable. Unlike physical goods or
manage their customers’ products that can be manufactured beforehand, and consumed at a later date;
services are produced and consumed simultaneously. The service customer must
expectations and be present for the service to be produced and effectively co-produces the service.
perceptions. The implication of this characteristic is that service providers must understand who
their customers are and what their needs are. Inseparability dictates that without a
Service providers must customer a service cannot exist.
understand who their
Service quality is variable and dependent on who provides the service and when and
customers are and what where the service is provided. Conventional quality controls such as ‘six-sigma’
their needs are. initiatives that apply to production of physical goods may not apply to services.
Service providers must understand the attributes of the service being provided and
Service providers must ensure that they have people with the right skills for the job. A highly competent
understand the attributes of technician for instance may not necessarily have the right people skills to staff a
the service they provide help-desk. Many IT services depend heavily on people for delivery and, as human
beings are fallible, consistency cannot be guaranteed. Therefore, a second
and continually monitor implication of this characteristic is that service providers must monitor customer
customer satisfaction. satisfaction as, ultimately, that is the measure of service quality that counts.

Service providers must Services are perishable and cannot be stockpiled. Service providers must plan
ahead to ensure that adequate resources and infrastructure are in place to deliver
manage both service supply services as and when required. Therefore, service providers must endeavor to
and service demand. manage both service supply and service demand to ensure that supply meets
demand.
Service models - similar goals, different paths
There are several ways to apply service concepts, and we will look briefly at some IT
services 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 customer
that provides measurable value.”
The notion of IT services is incorporated in all of IBM’s systems management
consulting and design methods. As early as 1998, the IT Services concept was

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IBM Global Services

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

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.

Process: A collection of CS01 - User Call Management
Requests
related activities that for New Responses Call Service
take inputs, transforms Customer Calls Service to Queries Result Marketing
them, and produces CSC
outputs that support an A141
A142
A143
A144
A145
Monitor Open
Call Tickets
Market IS HelpDesk
Offerings
Assign Call
enterprise goal. Receive and
Log Call
Analyze Call
Ticket
Answer Query

Implemented processes A146
Close Call
CSA
are enabled through
people, tools and A771
Identify Problem
A772
Perform Problem

information. Determination

A521
Generate
Customer
TS Request

Activity: Specific
A523 A524 A526
collection of tasks
SPA,
Determine Request
Solution
Assess Request
Solution Impact
Consolidate / Schedule
Requests organized around a
Service Flow: SPO commonly understood
Description of all the result, typically executed
activities, in sequence, in a prescribed
required to deliver a Service CS02
Product Repair Support
CS03
Product Move/Add/
Change
sequence.
Interfaces
service. It includes the
interprocess flows. Manual
CTT,
OLD,
CFG,
GRT,
CFG,
CTT,
GRT, CRT CRT,
PPT
CTT,
CTT, CRT,
Tools PTT ACD GRT,
PTT,
OLD,
PTT
CGT CTT TCST GRT,
MBT
TCST PPT

RCT

Automated
Tools

Figure 2. An early IT services model and taxonomy
In 1999, further work was undertaken to refine IBM’s approach to IT services and to
extend these concepts throughout IBM’s Systems Management Solution Life
Cycle 3. This project developed a model of IT services that defined two distinct
perspectives on service definition - a customer view, and a provider view. It also
introduced the notion of hierarchy of services, where the grouping or granularity of
the services being defined, is dependent upon who will be using that definition and
their purpose. For example, a much greater level of detail is required by a functional
manager defining service workflows than by a CIO negotiating an outsourcing
contract with an external service provider.
An important deliverable of this work was a proposed starter set of service
categories or groups. The starter set of service categories was based heavily on
prior client engagements and tightly linked with IBM’s IT Process Model (ITPM). The
project also developed new techniques for assessing IT services and evaluating how
well IT service delivery meets customer requirements and expectations.
Business architecture and design model
IBM is an industry leader in e-business strategy and design. As a result of our
research in this field, work is in progress to develop a proposed Business
Architecture Description Standard for use across IBM Global Services. This will
provide a systematic, repeatable means for describing business architectures and
relationships between business entities. A greatly simplified view of these
relationships is shown in Figure 3. This model provides valuable insight into how
proven business architecture and design techniques can be applied to the business
of providing IT services.
The model begins with the assertion that customers have wants and needs. These
wants and needs help determine the value propositions offered by the service
provider, who must in turn ensure that they have the capabilities required to deliver
those value propositions. Capabilities are articulated as the ability to provide some
specific value, for example, the ability to solve problems within a specific time frame.
Capabilities are then implemented by enablers that include combinations of
processes, organization, technology and knowledge. The functions and features
delivered by the enablers are packaged into products and services that satisfy
customers wants and needs. This model defines many service concepts as distinct
layers of abstraction such as value proposition, capabilities, enablers, function and
features, etc.

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IBM Global Services

is part of
Customer Target Market

has
appeals to

Wants & Needs Brand Image
define are addresed
by
helps to
position
Value are Products &
delivered
Proposition by Services reinforce
the

are supported by are packaged as

Features &
Capabilities
Functions

are implemented by are used to deliver

Enablers

Process Organization Knowledge Technology

Figure 3. An entity relationship model illustrating the linkages between key business
and service concepts
A simple service model
The services models examined so far share many basic tenets and represent
different valid views on how services are defined. Unfortunately, these models are
quite sophisticated and introduce several levels of abstraction that are perhaps
better 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 critical success factor for a service model is that it must be understood and
accepted at all levels in the IT organization. This is particularly true for IT
a service model, is that it organizations just starting to embrace services concepts. Simplicity helps
must be understood and communication and understanding, which facilitates buy-in. Therefore, simplicity is
accepted at all levels in the paramount, and the rigour of an academically robust model with several layers of
abstraction must be balanced against the practical benefits from keeping it simple.
IT organization.
In this section we propose a simple service model designed for practical
implementation. See Figure 4. We will be using this model to articulate the
relationship between various service concepts.

Service Provider Service Customer

Knowledge

IT Processes
IT Services
IT Customers
services
Procured

Line of visibility
IT Organization

Technology
Tools &

Capabilities

Figure 4. A simple services model
Customers. This model begins with IT customers. Identification and definition of
the customers of the IT organization underpins the definition of the services that the
IT organization delivers to them. By definition, all customers receive at least one
service and all services have at least one customer. Customers may be grouped
into categories known as segments.

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IBM Global Services

Services. Services are what the IT organization delivers to IT customers. Services
are 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 its
customers. A service where no customer can be identified cannot be a service (but
could be an internal process behind the Line of Visibility). If customers are not
prepared 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 highly
dependent on the customers. With this in mind, we will use a simple definition of
services 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 a
strict academic definition of service. If a customer sees value in something, is
prepared to pay for it, and it can be measured, resourced, monitored and charged
for, why should it not be a service? The implications from the characteristics of
services (intangibility, inseparability, variability and perishability) are emphasized in
this model rather a generic definition for service.
Processes. Behind the Line of Visibility, are the processes that are necessary to
produce the services. Processes are how the IT organization delivers services to IT
customers. 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 produce
services.
Tools & Technology. Processes may require tools or technology to automate
them. These include tools used in delivering service such as diagnostic and remote
monitoring software, reporting tools, pagers, and so forth.
Organization. Processes need people to execute them. The organization
component of the model refers to who executes the processes and in so doing
performs 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 reflects
the reality that IT organizations not longer produce everything in-house, but
increasingly rely of services procured from external service providers to produce the
end service delivered to IT customers. Procured services can enhance an IT
organization’s in-house capabilities, particularly when it makes sense to buy rather
than build specific capabilities.
Knowledge. Knowledge is the collection of data, information and cumulative
experience 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 of
The distinction between Visibility as ‘capabilities’. This definition of capabilities is a simplification that
capabilities and services is aggregates what other models distinguish as enablers, capabilities, functions and
important as many IT features, etc. The distinction between capabilities and services is important as
many IT organizations define their value to the business in terms of their capabilities
organization define their instead of what their customers want. A focus on services ensures that capabilities
value to the business in are aligned to what customers want. Effectively, services are the encapsulation of
terms of their capabilities the benefits that the IT organization delivers to its customers.
instead of what their Gartner Service Decomposition Model 4
customers want. A focus on Other consultants' views are consistent with IBM’s perspective on IT services, and
services ensures that emphasize the need for IT organizations to focus on why they exist and the value
they provide to their customers.
capabilities are aligned to
what customers want. “A service is giving assistance or advantage to another.”
In August 2000, the Gartner Group published a report that described a Service
Decomposition model as a tool to assist clients in restructuring and re-engineering
of their IT organizations. The model consists of a hierarchy of six primary elements:
service, process, capabilities, activities, tools and technical skills. Significantly, they
found that clients whose restructuring and re-engineering efforts have utterly failed
to transform them into more adaptive, flexible service organizations, had inevitably
designed their organizations around what they do rather than why they exist.
Gartner concluded that IT organizations that develop or attempt to optimize
processes outside the service context will almost certainly face organizational
misalignment.

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IBM Global Services

Service customers
A successful IT service delivery organization needs a clear understanding of who its
customers are, the services they require and the service levels they expect. This
means identifying stakeholders in interactions between IT service provider and IT
service customers; and understanding how value is derived and exchanged between
the two parties.
Customers and users
A successful IT service Some service models distinguish between customers, the ones paying for the
service; and users, the recipients of the service. However, these definitions imply
delivery organization needs that users consume services and pay nothing, and that customers pay and receive
a clear understanding of nothing. If that was the case, then what is the incentive for customers to pay, and
who its customers are, the what is the incentive for the service provider to provide quality service to users?
services they require and If we broaden the definition of ‘paying’ for a service to include non-financial payment,
the service levels they we find that users could pay with intangibles such as their satisfaction with the
service provider. These intangibles may be indicated through some form of
expect. measure, for example, a customer satisfaction rating, which is something that the
customers with the cheque book place value on and are prepared to pay financially
for. These relationships are illustrated using a simplistic example of a Help Desk
service. See Figure 5. In this example, it is clear that the Help Desk would want to
provide quality service to End-users as full payment for service by Business unit
management is contingent on achieving service level and satisfaction targets. This
is a simple example of value exchange analysis utilizing value-chain and value-net
theory. IBM consultants use value exchange analysis extensively when assisting
clients in analyzing their relationship with their customers.

Service levels and Satisfaction
Satisfaction rating Help Desk rating
targets achieved

$ Payment Delivered
for service service

Productivity
Business unit
management End-users

Figure 5. A simplistic value exchange analysis of a Help Desk service
If we think of the transaction between service provider and these two identified
groups as an exchange of value, then there is little distinction between customers
and users, provided that we understand what value is being exchanged. Users then
become a type of customer, i.e. a customer segment.
Segmentation
The relationship the IT organization has with its customers defines the services to be
delivered and drives behaviour. Segmentation identifies groups of customers with
different service requirements. This enables the IT organization to offer customize
services with different service performance levels or price points to maximize
customer value and satisfaction.
In many businesses, there is invariably a defacto segmentation of customers into at
least two segments: an ‘executive’ segment, and a segment for ‘normal’ customers.
The executive segment usually includes high ranking executives and managers (and
their personal assistants) of the business, and enjoys a priority service even where
there is no official segmentation. Who is going to argue when the CEO’s secretary’s
workstation 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 be
in a queue for some time before their service requests are actioned.

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IBM Global Services

Given the reality of the IT organization’s different behaviours towards the two
defacto segments, it makes sense for the IT organization to consider these two
segments explicitly so that capabilities can be developed to address each segment’s
specific needs.
Identification of the customer may not be apparent at first glance. IT strategy
development, 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 can
even, 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 the
business has engaged the IT organization to perform. The resources and effort
required to develop an IT strategy for the business can be explicitly identified and
costed, therefore, the service can be costed. The customer here is the CEO or an
identified 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 are
demographics and usage. Segmentation by demographics includes grouping
customers by attributes such as physical locations, business units or other
organizational structures. Segmentation by usage includes grouping customers by
how they use IT, for instance, power users, retail staff and mobile workers. Other
segmentation schemes exists and IBM has, in past engagements, helped clients
define frameworks for IT customer segmentation, but a detailed discussion on the
basis of segmentation is beyond the scope of this document.
For an IT organization beginning to embrace services concepts, it is prudent to keep
Segmentation and value it simple and start with a small number of defined segments. A small number of
explicitly defined segments can be a big step for such organizations. The ideal of
exchange analysis can help mass customization, i.e. segments with zero aggregation, must be evaluated for its
IT organizations better applicability to the business. Mass customization has yet to be attained by many
understand their organizations commercially let alone by internal service delivery organizations.
relationships with their Segmentation and value exchange analysis can help IT organizations better
customers, and the value understand their relationships with their customers, and the value propositions being
propositions being offered offered to each customer. It enables IT organizations to better tailor their service
portfolio and formulate appropriate behaviours to maximize value for themselves
to each customer. and their customers.

Specifying services
IT organizations too often define their services in terms of their capabilities rather
than what their customers want. See Figure 6. From a customer perspective, four
basic components constitute a service:
1. Elements
2. Attributes
3. Deliverables
4. Price
Elements are the fundamental functions or features that a customer expects as part
of the service. A service may contain one or more service elements. Each element
is described by attributes that provide the scope and boundaries of the element.
Attributes also provide the basis for the definition of service measurements and
targets. Deliverables are the main results or outputs of the service that the
customer receives. A clear definition of deliverables helps to define the service
scope. Price is the payment the service provider expects in return for providing the
service. Figure 7 depicts an example of how the framework described is used to
define an IT Help Desk service.

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IBM Global Services

Service deliverable
That's all very interesting,
Technology but what I really want to
We have the latest remote know is: Will there be
Service attribute
administration tools. Any someone who can provide
incident on our servers is Process
technical assistance when
automatically logged and an Service price we need it between 8am to
alert dispatched to our Organization 7pm each weekday? How
tech-support staff. We have much will it cost me? And,
35 highly skilled tech-support Service element
can I get a monthly report
staff who are certified in on all the problems that
Cisco and Microsoft products. we've had?

IT organization's IT organization's
representative customer

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 rather
than what customers want
A set of elements, attributes, deliverables and price should be specified for each IT
customer segment. The service specification may also be enhanced with a defined
service objective or value proposition.
The framework described here provides a basis for specifying services and
associated service level agreements (SLAs) that emphasize the customer
perspective rather than the service provider perspective. The framework is
designed to enable services to be articulated in terms that are easy for IT customers
to understand.

ELEMENTS ATTRIBUTES DELIVERABLES PRICE

Single point of One telephone Rendered
HelpDesk contact number assistance
User satisfaction
Service
Dedicated e-mail
ID

Hours of
operation

Call logging & Call record End-user
management number segment
asignment

Call closure
confirmation

Response,
follow-up and Specified
The service level agreement escalation response times
is the document that
Monitoring and Reporting
encapsulates the value of reporting interval
Regular report Charge per call

the service to the IT
Satisfaction Specified Business unit
customer by bringing monitoring customer management
satisfaction rating
together the service segment

benefits, expressed as the Figure 7. A framework for defining IT services from an IT customer perspective
level of service, and service
Service level agreements
costs, expressed as the
The service level agreement is the document that encapsulates the value of the
price of service. service to the IT customer by bringing together the service benefits, expressed as
the 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 arrangements
between IT service provider and IT customer, or to mitigate blame if anything goes
wrong, the primary purpose of a service level agreement is to help set expectations
between the IT service provider and its customer.

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IBM Global Services

Therefore, the service level agreement must be expressed in terms that IT
customers can understand and appreciate. It should describe what is visible to IT
customers, hence, the focus should be on services rather than the capabilities
behind the line of visibility (shown earlier in Figure 4).
The service level agreement is where the full definition of the service to be provided
should reside. IBM can assist IT organizations develop service level agreements
with their customers that effectively describe the services and the value to both the
IT organization and their customer.
Service portfolio
Defining a portfolio of IT services, matched to identified customer requirements,
Defining a portfolio of IT provides a way to communicate the value that the IT organization delivers to the
business. This portfolio of IT services allows the IT organization to say to the
services, matched to business, “Here is what we deliver to you”. Effectively, it is the list of what
identified customer customers ‘buy’ from the IT organization. Explicitly matching the portfolio of services
requirements, provides a to customer segments is a step towards understanding what IT customers value and
way to communicate the want. See Figure 8.
value that the IT The service portfolio is also sometimes called a services catalog.
organization delivers to the Customer segments
business.

eam
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Libra

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Man
Subs
Service

Exec
Categories Services
IT strategy and planning
IT architecture and standards development and maintenance
IT governance development and maintenance
Consultancy
Project management
Services
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

Operational Infrastructure operation and administration/maintenance
Services Business continuity
Supplier management
IT Management &
Administration IT procurement services
Services
IT asset management
Other Services End user training

Consumer

Figure 8. An example of IT services mapped against consumption by customer
segments
Service branding
Some IT organizations have progressed to branding some of their services such as
the Help Desk; developing specific logos and internal marketing campaigns for the
service. A discussion on the merits of branding services is beyond the scope of this
document. However, this phenomenon does appear to mimic the actions of
commercial service providers and provides a powerful tool for the IT organization to
communicate the value that it delivers.

Managing service demand
Internal IT organizations normally operate in a largely captive market where they
may have monopoly on service provision. Nevertheless, some of the factors that
influence demand in free markets are still applicable 5. Demand for a service is
affected by factors such as:
Ÿ Price of the service. Generally, the higher the service costs to customer, the
less attractive it is to them.

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IBM Global Services

Ÿ Customer budgets. Customers’ limited budgets may force them to prioritize
their requirements thereby impacting demand for services that meet low priority
requirements.
Ÿ Availability and price of alternatives. Other avenues available to customer to
satisfy their requirements can dilute demand by reducing the reliance on a
particular service, for example, peer support instead of a Help Desk service.
Ÿ Preferences of customers and their expectations of the future. Customer
preferences can influence service demand, for example, on-site support versus
remote support arrangements. Customer expectations of their future
requirements can also dictate demand for services, particularly services that
deliver future benefits to customers such as training services.
Ÿ Number of customers for the service. More customers generally mean more
demand.
Ÿ Level of service. The service details and attributes can determine the benefit
customers derive, thus influencing demand. The higher the benefit to
customers, the greater the demand.
Of the above factors, internal IT organizations usually have some control of only
price and level of service. Although it is important for IT organizations to have some
understanding 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 service
and price.
Level of service
Generally, assuming all other factors remain constant, the higher the level of service
provided, 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 more
IT customers would tend to use it. This situation can result in run away demand as
any efforts to improve Help Desk services are soon neutralized by the increased
demand. Inevitably, due to cost and resource constraints, IT organizations are
forced to cap the level of service being offered, for example, by limiting the number
of Help Desk operators.

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

Level of service Price of service

As the level of service improves, As price for service increases,
demand for service typically demand for service typically
increases. decreases.
"This is all you can have" - "You can have what you want
IT organizations are often forced as long as you can pay for it" -
to cap service levels due to cost Visibility of price leaves the
or resource constraints. responsibility for cost-benefit
However, this may lead to poor decisions with the customer and
customer satisfaction as fosters accountability for service
customer requirements may not demand.
be met.

Figure 9. Service Demand versus Level of Service and Price
However, what is the appropriate level at which services should be capped? Who
decides? Capping the level of service may result in dissatisfied customers because
their needs may not be met. Demand may appear to be constrained, but the risk is
that visible demand is converted to latent demand that customers may try to satisfy
by seeking alternatives such as other service providers.
Unfortunately, the decision to cap service levels is often seen by IT customers as a
decision that is forced on them, regardless of whether, their views have been taken
into consideration. This can lead to poor customer satisfaction as the IT
organization will come to be regarded as restrictive.

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IBM Global Services

Price
At this point, it is appropriate that we distinguish between cost and price. Cost and
price have different meanings for service providers and their customers. For the
service provider, the cost of a service refers to both the financial and non-financial
charges and expenses the service provider incurs in providing the service. Price is
the charge a service provider levies on its customers for a particular service.
Depending on the principles and policies governing IT service delivery for the
business, price and cost may not be identical, and the difference between them is
called a margin. Price is usually visible to customers whereas cost may not be. For
customers of the service provider, the service price is a cost to them.
Generally, as price increases, demand decreases; assuming all other factors remain
constant. See Figure 9 (b). Therefore, price can be used as a lever to manage
demand as it forces customers to ultimately decide if they are willing to pay for the
service. Provided that the price for service is competitive, customers will view it as
their responsibility to make the cost-benefit consideration for the usage of the
service. Consequently, customer satisfaction is likely to be maintained even if the
price for a service may be considerable, but the customer sees significant benefit
from it and is prepared to pay for it.
The price charged for services must be competitive, otherwise service providers run
the risk of their customers feeling ‘ripped-off’. Customers that are unhappy with the
price 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 implicit
notion of accountability for service consumption that many IT organization eventually
have to deal with.
Accountability of service consumption
Visibility of service pricing For customers to be accountable for their consumption of IT services, there must be
an appreciation of the value exchanged between the service provider and customer.
encourages accountability The term ‘exchanged’ denotes a reciprocal arrangement whereby the service
for service consumption provider receives value through some form of payment in return for providing the
and facilitates comparison service.
of alternatives. Value is a trade-off between benefits and costs and can be represented by the
following equation:
Value = Benefits / Costs
where, Value is the worth to customers.
Benefits are the financial and non-financial advantage that customers
derive.
Costs are the financial and non-financial expenditure required of customers
to 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 IT
organizations, the costs of providing IT services may be well understood, but the
service 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 of
what it costs them (i.e. the price of the service).
If we apply the value equation from the IT customer perspective, we observe that for
IT customers to appreciate the Value of IT services, the Costs to them must be
clear. This implies that the price of the service must be visible. Without price
visibility, IT customers would naturally seek to maximize service Value by
maximizing service Benefits. Maximizing service Benefits, usually means
demanding higher service levels - either as increased service capacity or greater
service performance levels.
Visibility of price forces customers to think about their service level demands. It
forces them to perform the cost-benefit analysis themselves to determine the value
to them, thereby fostering their accountability for service consumption.
Visibility of service pricing also encourages the IT organization to compare their
prices to those of alternative service providers and ensure that they are efficient and
competitive.
The level of aggregation of service pricing can affect visibility, and is a continuum
that ranges from total aggregation (e.g. IT as a cost centre) to pricing based on
consumption (e.g. user pays). The level of aggregation of service pricing must be

12

IBM Global Services

appropriate for the business to ensure sufficient visibility to foster accountability and
Managing service demand drive desired behaviours in service customer and service provider.
is likely to employ both
IT organizations should consider making their service prices visible at an
levers of managing level of appropriate granularity to encourage accountability for service consumption.
service and managing However, managing service demand is likely to employ both levers of managing
service pricing. level of service and managing service pricing.

Managing service supply
Managing service supply is an area where considerable knowledge and methods
already exists. Most if not all IT organizations are familiar with ensuring that
essential capabilities required for service delivery are in place, whether or not they
have adopted a services model. Given the extensive knowledge that already exists,
we will not discuss in detail the initiatives for managing and maintaining capabilities
for service delivery, but focus instead on how these initiatives are linked to IT
services.
Linking capability initiatives to IT services
If 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 have
described the four main types of capabilities in our simple services model earlier in
the document.
1. Processes are how services are produced. They are ordered sequences of
activities with explicit inputs and outputs.
2. Technology is the set of tools used to deliver services, and includes hardware
and software.
3. Organization refers to the people that carry out the processes. It includes the
people, organization structure, roles, responsibilities, skills and incentives.
4. Procured services are services procured from external service providers that
are needed by the IT organization to produce the IT services for their
customers.

Information Technology Process Model
IBM's IT Process Model is a functional
Satisfy
Customer
process model for the management of
information technology which is
IT

Relation-
em en se
M se truc
an ts t

st m ri

ships independent of organisation,
A ras

Sy age terp
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architecture and technology.
an n
IT

M eE
id
ov

The model is differentiated by its
Pr

Ability to be applied in any management
Support IT Manage IT
Services and Business
structure
Solutions Value Broad coverage of IT management
needs
Rigorous engineering according to
R lut
rv tio r
es l

So
ea io
Se era ive

industry standard modelling techniques
ic na

lis ns
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O De

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Deploy Flexibility
p

Solutions
Common terminology for cross
functional communications
a. Focus on the Customer The characteristics of the IT Process
b. Deliver what the Model make it a valuable tool in realising
8 Process Groups Customer values value from Information Technology.
41 Processes c. Support the service over
176 Sub-processes time
d. All within a Management
Framework

Figure 10. IBM's IT Process Model for the management of information technology 6
Processes underpin service Processes underpin service delivery because they describe how the work gets done
to deliver services. Process models are available that assist IT organization define
delivery because they and develop their IT processes. IBM’s IT Process Model (ITPM) (see Figure 10) and
describe how the work gets the IT Infrastructure Library (ITIL) are examples of process resources that IT
done to deliver services. organizations 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 towards
linking services to processes. To enhance this, IBM is seeking to develop an
integrated service model that will provide clear linkages between services and

13

IBM Global Services

processes. This model will provide a starting point for organizations looking to
implement IT services and understand how they are linked to the enabling
processes that are likely to already be in place. However, it is highly likely that most
organizations will structure their IT service portfolios quite differently in response to
their customers’ unique wants and needs. Consequently, many IT organizations
intent on implementing a services model will need to establish the link between
services and processes largely from first principles.
Technology is the set of tools that are employed by the service provider in the
delivery of services. They facilitate or automate the processes used in service
delivery. This suggests that the choice of technology is dictated by the requirements
of the processes. In reality, however, the choice of technology is influenced by
many factors including strategy, IT architecture, costs, political implications, and
historical reasons. In some circumstances, it may make sense to tailor the
processes to fit the tools instead, à la the rationale for packaged applications such
as SAP and PeopleSoft. However, the impact this may have on service delivery
needs to be identified and understood.
Processes require people to perform them, even though some process steps may
be automated by the underlying tools or technology. People are often the most
important, but unfortunately, often overlooked capability in IT service improvement
initiatives. Many services can be delivered, albeit less efficiently, through informal
practices (without processes); many can be delivered without automation (without
technology); but few can be delivered without people. Therefore, how people are
organized, their level of skill and the incentive for them to perform are crucial to
service delivery.
Technology is now a key enabler of business strategy. However, the recent
Services provide an difficulties of many ‘dot-com’ companies serve as a reminder that technology for
important mechanism to technology’s sake without a sound business model and rationale is unsustainable.
link processes, technology IT organizations can play a crucial role in highlighting potential business needs.
and the organization to However, these needs have to be linked to the IT services to be provided, that are in
turn, linked to the underpinning processes, that are in turn, performed by people and
business needs. facilitated by the technology. Services provide an important mechanism to link
processes, technology and the organization to business needs. See Figure 11.

Capability initiatives

Job
descriptions

Organization structure
IT Customers needs
Roles & Skill
and wants responsibilities requirements

Training

Measurements KPIs
IT IT &
Services Processes SLAs

Targets & incentives

Functional
requirements
Tool
requirements

Tools & technology

Figure 11. Linking IT services capability initiatives through processes
External service providers can provide an alternative to IT organization having to
develop capabilities in-house. Procured services may substitute combinations of
internal processes, organization and technology, with those of the external service
provider. The external service provider capabilities are embedded in the procured
services (in the same way that the IT organization's capabilities are embedded in the
services it offers its customers). Procured services should be linked to the IT
services 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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IBM Global Services

managing IT that incorporates these capabilities. Now, management of these
capabilities must be clearly linked to the services that are to be delivered.
Service level management
To many internal IT organizations, managing service levels is not new. Managing
service levels involves activities centered around the terms and conditions
expressed in Service Level Agreements (SLAs). SLAs have been employed by IT
organizations for years, and processes for managing service levels are described
both in IBM’s IT Process Model and ITIL. These processes define the activities for
developing and negotiating service level agreements, monitoring service levels and
reporting service level attainment.
However, a close examination of the SLAs many IT organizations have in place
today with their customer, would likely reveal definitions for services that are more
akin to descriptions of the IT organization's capabilities rather than service
descriptions 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 in
terms that customers understand and want. IT organizations must develop an
appreciation of the benefits of each service to their customers, and the things that
will 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 a
long way towards assisting IT organizations work out how to manage service levels.
The techniques and methods embodied in these models, however, must be
augmented by service definitions from the customer’s perspective, and a clear
understanding of how customers value the services they receive. This enables IT
organizations to focus on and prioritize their efforts to maintain or improve service
levels, with confidence that it will lead to improved satisfaction of their customers.

Desired outcomes - a service culture
The development of a service culture is invariably a critical success factor in the
implementation of a service model. The culture of an organization is influenced by
many factors such as knowledge, beliefs, accepted norms, roles, symbols and so
forth. Consequently, there are many changes in thinking that are necessary in
developing a service culture.
The goal of instituting a service culture for the internal IT organization is to ensure it
The goal of instituting a exhibits the appropriate behaviours and attitudes in its dealings with its customers.
service culture for the Focussing on the IT organization’s capabilities alone (processes, technology, and
internal IT organization is organization) do not guarantee appropriate behaviours and attitudes.
to ensure it exhibits the Processes enable consistency and provide guidance on how service delivery
appropriate behaviours activities should be performed, but how does one ensure that the activities are
carried out with a high level of quality? Quality gates and checkpoints could be used
and attitudes in its dealings to provide a level of quality assurance but there is a limit to the type and number of
with its customers. gates and checkpoints that can be designed into a process before it becomes
onerous. In many cases, they merely shift responsibility for quality to the persons
doing the checking, and what is to compel them to do a good job? Establishing
good processes certainly provides the foundations for service delivery quality but
processes alone do not guarantee quality. If processes need people to perform
them, how do we motivate people to perform?
Restructuring the organization and training staff may make it easier for people to
work, but does not necessarily improve motivation. Setting measurements and
incentives may improve motivation but incentives alone are not what motivates most
people. Job satisfaction is often cited as a strong motivator for many. Job
satisfaction is driven by, amongst other things, an appreciation of worth and
meaning in the tasks and duties of the job. In other words, “Why is my job important
and 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 all
levels in the IT organization to help provide context and articulate meaning in order
to influence behaviour and attitudes.

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IBM Global Services

Service provider vs. Product supplier
Is the internal IT organization purely a service provider or does it produce tangible
products such as software applications or physical infrastructure?
But first, why does it matter? IT customers can derive value through the
consumption of both services and products. However, because services have the
characteristic of inseparability, the areas of emphasis for service providers tends to
be at the Line of Visibility, whereas the areas of emphasis for product producers
tends to be further back behind the Line of Visibility where tangible products are
produced. The value add for product producers is embedded in the product. Value
for service providers is added at the time of delivery. This subtle distinction can lead
to emphasis on a different set of capabilities being developed, for example, an
emphasis on qualify control versus and emphasis on IT customer relationship
management. Furthermore, a strong sense of ownership by IT organizations of the
products is often associated with tangible products such as a major business
application. This can lead to some interesting behaviours, particularly in the captive
market that many IT organizations find themselves in, where they are the sole
supplier to the business. Products can appear to take on a life of their own with
product improvement becoming a preoccupation for the IT organization almost
independent on whether the business is asking for it.
Many IT organizations believe they offer tangible products. IBM’s experience with
IBM’s experience with clients suggests that many tangible outputs of the IT organization are simply
clients suggests that many consequences of services as illustrated in the following examples.
tangible outputs of the IT Ÿ IT organizations usually do not own software applications that they produce for
organization are simply the business in the way software companies like Microsoft or SAP do. They do
consequences of services. not own copyright for the code nor do they licence out the applications.
Application code belongs to the business or individual business units. If the IT
organization were not there to provide support and development of in-house
developed applications, the business could decide to acquire their own
resources or engage an external service provider to provide support and
development. This suggest that IT organizations do not produce applications as
products but instead, provide services for development and support of those
applications.
Ÿ IT organizations may be responsible for shared infrastructure such as networks
and servers. Ownership by the IT organization of these assets may even be
reflected in the asset register of the business. This infrastructure, though
essential, is incidental to providing IT services, is generally not visible to IT
customers, and therefore holds little interest for them. A Wide Area Network,
for example, is no more a product of an IT organization than aircraft are
products or an airline.
The answer to the question of what the IT organization delivers to the business is
something that the IT organization must determine for itself. Suffice to say, most if
not 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 services
are viewed as notional products that the IT organization supplies. It is the
implications 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 well
made the product is. These criteria may be independent of customer satisfaction.
In contrast, the characteristic of inseparability of services dictates that the customer
is closely involved in the production of service, and customer satisfaction then is the
ultimate measure of service quality. In these situations, the difference in attitude
towards quality therefore, is one of being internally focussed (with product quality)
versus being externally focussed (on customer satisfaction).
Service focus vs. Process focus
Processes are primarily internal to the service provider. They lie largely behind the
line of visibility and are usually not something IT customers are interested in. As
mentioned earlier, processes alone cannot guarantee quality or customer
satisfaction. Process improvements may improve internal efficiencies but after a
certain 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 exist
and what they deliver, rather than focus purely on how they deliver.
A service focus helps IT organizations keep in perspective what they deliver to their
customers and why. It is not always possible to codify every activity needed to

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IBM Global Services

deliver a particular service. Consequently, a focus solely on process may result in
behaviours that are limited to defined activities even if they fall short of delivering
quality service. A service focus on the other hand, advocates behaviours geared
towards achieving service quality regardless of whether the activities are defined by
processes. Clearly the latter arrangement is more likely to result in satisfied
customers. A process focus emphasizes the IT organization’s effectiveness and
efficiency. A service focus emphasizes the IT organization’s deliverables. The right
combination of service and process focus will ensure efficient service delivery as
well as service quality.
Value focus vs. Cost focus
Many internal IT organization have been embroiled in cost cutting measures at some
point in time. The objective of reducing the costs of providing IT services is
generally to reduce the price of services to customers, and is often in response to
business pressures to reduce the cost of IT. While reducing price may at first
glance appear to be attractive to IT customers, if the benefits customers derive from
the service are reduced commensurately, then the value to the customer has not
improved. See Figure 12. In other words, reducing costs does not automatically
result in superior value for IT customers. A focus on value forces a more
comprehensive view that takes service benefits into consideration while at the same
time 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.
+
A focus on value forces a 3. the ability of a thing to serve a purpose or cause
an effect.
100%

Value
more comprehensive view -Oxford English Dictionary

that takes service benefits -
into consideration while at
the same time examining Benefits

s
Value = Co

fit
sts

ne
service costs. Costs

Be
Focussing on value is more where, To increase value you must increase
the level of benefits for a given cost.
effective in ensuring Value is the worth to customers
Cost reduction alone will not
Benefits are the financial and non-financial
customer satisfaction. advantage that customers derive
guarantee increased value - you must
ensure that you provide an improved
Costs are the financial and non-financial ratio of benefits to cost.
expenditure required of customers to
receive the benefits

Figure 12. Service Costs, Benefits and Value
If customers believe they are receiving higher value relative to perceived
alternatives, then the issues of costs tend to diminish. Therefore, focussing on
value is more effective in securing customer satisfaction than focussing on costs.
Furthermore, a focus on costs in providing services inherently places the emphasis
on the internal machinations of the service provider. A focus on value encourages a
more customer oriented perspective that emphasizes customer satisfaction.
Business requirements vs. Business intent
Internal IT organizations must have a clear understanding of their role in the
business and the limits of where their responsibilities extend. It is presumptuous of
IT organizations to think that they know how to run the business better than the
business can. This is not to say that internal IT organizations should not be
proactive. IT organizations can add-value to the business planning and decision
process by being subject-matter experts in the application of technology and provide
advisory or consultative services to the business. IT organizations can play a pivotal
role in helping the business achieve its objectives, however, the responsibility for
business 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 on
their understanding of business intent rather than actual requirements and the
following are a couple of examples:
Ÿ The IT department in a member-based organization put up a recommendation
for an IT disaster recovery service which was disapproved. When asked why,
senior management's reply was, “We are a member-based organization and if

17

IBM Global Services

our systems go down for two weeks, so what? We are a monopoly. Our
members don’t have anybody else to join. It is not going to have a big impact
on us or our members.”
Ÿ A business analyst of an IT department in a government organization
bemoaned the fact that his proposal for an e-procurement solution was not
acted upon even though it clearly showed how head-count in the existing
procurement process could be halved. When queried, the manager in charge
of procurement explained that he could gain more significant cost savings for
the organization by renegotiating contracts with suppliers. Reducing head
count would also mean lengthy negotiations with the human resources
department and the union that he was unprepared to undertake at that point in
time.
It is essential that IT organizations design their services to meet their customers real
requirements. To do this, they need to ensure that their perception or interpretation
of the requirements is the same as their customers. This will be discussed in more
detail in the next section.
However, it is equally important for IT organizations to understand the limits of their
Services provide a roles and responsibilities. Services provide a mechanism to facilitate the
mechanism to facilitate the segregation of responsibilities between the service provider and service customers.
segregation of With few exceptions, the line-of-visibility between service providers and their
customers, marks the point where service provider responsibilities end and their
responsibilities between the customers' responsibilities begin. A clear understanding of responsibilities at all
service provider and levels in the internal IT organization will influence attitudes and guide behaviours.
service customers.
Managing expectations and perceptions
The intangibility of services requires that service providers continually manage their
customers' expectations and perceptions of service quality to ensure high customer
satisfaction.
A model for service quality can assist service providers to identify the factors that
influence 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 services
meet or exceed expectations, customers will be satisfied. If perceived services fall
below expectations, customers will be dissatisfied. The Service Quality Model
illustrates how four other gaps contribute towards the gap between customers'
service expectations and service perceptions.
1. Gap between customer expectation and service provider management
perception of the service required: The service provider may misinterpret what
the customers' requirements are.
2. Gap between service provider management perception of the service required
and the design of the service: The design of the service may not accurately
reflect what service provider management had in mind.
3. Gap between the service design and actual service delivery: Break down in
service delivery may result in service delivery falling short of the service design.
4. Gap between service delivery and communication with the customer: Service
delivered may not match what has been communicated with the service
customer.

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IBM Global Services

Customer View
Analysis of the ’Service Quality
Model’ identifies potential gaps
which can lead to failure to meet
customer expectations regarding the
Service Expectations
D
services delivered (D5).
D5 D 1: Customer Expectations vs. Provider

Communication
Management Perceptions
Service Perception
The customers expectations are not
understood or adequately considered.
Moment
of Truth D 2: Provider Management Perceptions vs.
Service Design
Service Delivery D1 The service architecture and infrastructure is
D4
specified incorrectly and/or incomplete.
D3 D 3: Service Design vs. Service Delivery
The service delivery processes do not deliver
Service Design the specified quality. (Service activities or
processes are not aligned and/or the
D2 appropriate resources are not assigned.)

Management Perceptions of Customer D 4: Service Delivery vs. Customer
Expectations Communications
The services delivered do not match the
announced services.

Service Provider View 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 formulation
of appropriate initiatives to reduce or eliminate these gaps and help to improve or
maintain customer satisfaction.
Moments of truth
The Service Quality Model also shows three points where service providers actually
interact 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.

Continual management of Processes underpin services delivery but are largely hidden behind the
line-of-visibility. Where processes come in contact with customers, they manifest
customer expectations and themselves as moments of truth. The term ‘moment of truth’ was popularized by
perceptions means that Jan Carlzon, the then president of Scandinavian Airlines System who in the early
service provider staff must 1980’s turned the loss making airline into a profitable business with consistently high
customer satisfaction ratings. Carlzon reasoned that each moment of truth was an
exhibit the appropriate opportunity to either satisfy or dissatisfy customers. The cumulation of moments of
behaviours and attitudes at truth constitutes service delivery as far as customers are concerned as that is all
each moment of truth. that is visible to them.
Continual management of customer expectations and perceptions means that
service provider staff must exhibit the appropriate behaviours and attitudes at each
moment of truth. It is these demonstrated behaviors and attitudes that underpin a
service culture.
Managing transitions to an IT services framework
Managing the transition to Managing the transition to an IT services framework is really about managing an
organizational transformation. The techniques and methods employed in
an IT services framework is organizational transformations are applicable. The areas of particular importance in
really about managing an an IT services framework implementation are:
organizational Ÿ Establishing a case for change. Establishing compelling reasons why the IT
transformation. organization needs to move to a services framework is a critical first step. A
vision of the desired target state must be developed. The cost of change must
be weighed against the cost of maintaining the status quo. The case for change
must also be put forward from both perspectives of the IT organization and its
customers. Identification of a compelling event though not essential, can assist
in strengthening the case for change.
Ÿ Securing executive sponsorship. For an IT services approach to be successful,
change may have to occur both within the IT organization and with their
customers. Some changes may be profound, for example, moving from a

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IBM Global Services

centralized cost-centre model for IT expenditure to a model with visible service
pricing. These changes will require cooperation of IT customers and
stakeholders who are outside the direct control of the IT organization, and high
level executive sponsorship will be essential.
Ÿ Recruiting and training change agents. A successful transformation must
permeate through the entire IT organization. It will require individuals at all
levels of the organization to champion the change and be sources of
information about the transformation. Change agents need to be identified and
trained so that they may effect the transformation in their work areas.
Ÿ Managing communications and expectations. A communications strategy and
plan must be developed to manage expectations of the IT organization staff and
customers. Communications can mitigate resistance to change by reducing
confusion and fear. It is also important in ensuring staff understand what they
need to do to effect the transformation. Communications include a variety of
channels and a comprehensive strategy and plan must determine what is to be
said, who it will be said to, how it will be said and when it will be said (i.e. the
message, audience, medium and timing).
Ÿ Maintaining momentum over the term of the project. As with any long term
project, it is important to secure quick wins to give a sense of assurance that
progress is being made. Quick wins in a services framework implementation
include agreement on a defined portfolio of service, measurable service
improvements, and institution and commencement of measurement reporting.
IBM’s experience in implementing IT services frameworks has identified several
pitfalls to avoid and symptoms to be wary of when undertaking such initiatives:
Ÿ Lack of understanding and confusion. Transformation to a services framework
is likely to require IT organizations to significantly rethink what they do today.
Implementation initiatives need to be sensitive to the pace of change that the
organization can cope with. Where possible, concepts, initiatives and
messages should be kept simple. Simplifications suggested in this document
include aggregating capabilities and enablers into just ‘capabilities’, and
defining users as just another customer segment.
Ÿ Value to whom? Value exchange analysis is an important part of an IT services
framework. 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 possible
interpretations: a service where IT customers derive significant benefits; or a
service where the internal IT organization adds significant value over what an
external service provider can. Both interpretations are valid but the former is of
more interest to IT customers; the latter is of more interest to the internal IT
organization.
Ÿ Vendor management. As IT organizations consolidate and rationalize their
capabilities, the need to use external providers to supplement capabilities may
increase. For some services offered to IT customers, there may be an
increased reliance on services procured from external providers. Hence,
The variability and effective management of vendors is likely to be a key capability that IT
organizations must develop early.
intangibility of services
require that measurements Ÿ Lack of measurements. The variability and intangibility of services require that
measurements be instituted to monitor quality and to communicate and set
be instituted to monitor expectations to customers on performance. Without measurements, not only
quality and to communicate will it be impossible to gauge service quality, there will be no way to
and set expectations to communicate service performance levels.
customers on performance. Ÿ Process fanaticism. It is surprisingly easy to quickly lose sight of the goals of
an IT services transformation and become immersed in process. Processes are
often conceptually easier to assimilate, but processes are merely a means to an
end, not an end in itself. It is important to remember that though processes are
necessary to deliver services, they are largely internal to IT organizations and
hold little interest of IT customers.
Ÿ Over documentation. Often associated with process fanaticism, over
documentation occurs when there is a misguided belief in the need to document
every detail. Documentation facilitates communication and organizational
learning, however, good documentation is associated with the cost of
producing, maintaining and distributing it. IT organizations will need to strike a
balance between the benefits from documentation and the associated costs.

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IBM Global Services

Benchmarking, prioritizing and outsourcing services

Benchmarking at a macro level
When IT services can be clearly specified and priced, it positions internal IT
organizations to be able to consider service delivery alternatives using external
service providers. There are two primary reasons why IT organizations may wish to
benchmark their services:
1. To compare the services of the IT organization with those being offered by
alternative providers. The aim behind this comparison is to assist the IT
organization to answer questions such as: Are we offering the right services and
service levels? Are there service providers who can do the things we don’t want
to focus on?
2. To gauge competitiveness of service pricing with alternative providers.
Benchmarking using services as the basis, is different from traditional benchmarking
approaches that use productivity-based parameters such as, ratio of support staff to
workstations, notional cost per workstation, total cost of ownership, and so forth.
Ÿ Services-based benchmarking can be tailored for the business. Traditional
benchmarking relies on existing averaged and categorized data organized in
predefined categories from peer groups for comparison. Services-based
benchmarking enables the business to compare the services at the level of
service required to meet the unique requirements of the business.
Ÿ Services-based benchmarking is oriented towards bottom-line cost and includes
all productivity contributions and value-add considerations. Traditional
benchmarking usually revolves around productivity and efficiency with inferred
potential cost benefits.
Ÿ Services-based benchmarking performs comparisons with commercial service
providers. Traditional benchmarking is based on peer comparisons, usually
with businesses in the same industry. Traditional benchmarking strives to
determine ‘best practice’ within a peer group. In contrast, services-based
benchmarking strives to determine a realistic ‘best price’ through competition
among service providers.
The crucial step in services-based benchmarking is in specifying services accurately
The crucial step in and comprehensively enough to enable a true comparison of services and pricing
services-based from service providers. Locking down the specification for services effectively locks
benchmarking is in down the benefits to be derived. Costs (which includes the service price) then
specifying services become the determining variable for value. Of course, this assumes that the service
provider is actually able to deliver the specified service at the promised service
accurately and levels!
comprehensively enough to
As with any benchmarking initiative, the effort to plan and conduct the benchmark
enable a true comparison then analyze the results, is significant. IT organizations should consider service
of services and pricing benchmarking exercises only when there are serious concerns regarding their
from service providers. value-add in service delivery, and are considering alternative sourcing arrangements
for services. A services-based benchmarking exercise may reveal that some
services may be more cost effectively delivered by an external service provider. The
obvious question then is, should these services be done by an external service
provider?
Outsourcing or Insourcing
Outsourcing has become common practice and is not limited to IT. The scope of
outsourcing is a continuum that can range from,
Ÿ complete outsourcing of all services (which IBM calls strategic outsourcing), to
Ÿ selective outsourcing of discrete services, to
Ÿ procured services that augment existing capabilities.
Complete outsourcing of all services or strategic outsourcing, involves the service
provider taking on a large part of the IT operations of a business including the IT
assets, staff and processes. Although some of the service concepts described have
applicability to strategic outsourcing, here we will focus on selective outsourcing of
discrete services.
Selective outsourcing is an arrangement where a discrete service to the customers
of an internal IT organization is delivered in whole or largely by an external service
provider.

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IBM Global Services

With the increasing complexity of technology, IT organizations are being spread
thinner. Coupled with the emergence of a multitude of IT service vendors, this
makes outsourcing of IT services more attractive. However, the decision whether or
not to outsource individual services, involves not only the service price but also an
understanding of the priority attached to the services that the IT organization
delivers to its customers.
Prioritizing IT services
Many IT organizations would agree that the services they deliver are not equally
important, and recognize a need to prioritize their services. Organizations typically
seek to prioritize their services to
Ÿ direct how resources and funding should be allocated,
Ÿ identify risks from service failure, and,
Ÿ determine where and how external service providers can be leveraged.
Prioritization of services is nontrivial and highly dependent on the organization’s
intended purpose.
A first step in prioritizing services is to be able to discriminate services into broad
categories. One way of doing this is to categorize services based on expectations of
the IT organization’s customers. Figure 14 illustrates an example where three
categories have been defined: base, expected and augmented. This simple scheme
implies 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 provide
some guidance on the services that the IT organization should focus its efforts on to
meet customer expectations and improve satisfaction, but give little indication on
how external service providers can be utilized. It does not always follow that ‘nice to
have’ services should be outsourced or that ‘must have’ services should be retained
in-house.

End-user Over time, services
training typically tend to
evolve into Base
services as customer
expectations mature
Project
IT governance management
development & Supplier
maintenance IT architecture & End-user support management
standards (HelpDesk / Break
Technology development & Fix)
& industry maintenance IT asset IT procurement
advice & management
consulting Business IT strategy &
analysis planning Infrastructure
IT customer operation &
relationship administration
management Solution design,
Definitions:
construction and Business Base: Services that the business
deployment continuity must have in order to operate.
Expected: Services that various
Base areas of the business expect IT
to provide (i.e. should have) but
are not critical for operation.
Expected Augmented: Services that are
Source: Based on an regarded as neither critical nor
expected but would be nice for
original concept developed Augmented the business to have.
by Theodore Levitt.

Figure 14. An example of simple categorization and prioritization of services based
on customer expectations
When defining service importance, from whose perspective do we define it? In the
previous example, assignment of a sense of importance to individual services has
been made on the basis of customer expectations. In that example, the customer
perspective was taken, but the importance customers may attach to a service does
Both the customer and not always translate to equivalent importance for the service provider. For example,
service provider a particular service may be critical to an IT customer but it may be in an area that
the IT organization is planning to withdraw from. Extending the categorization of
requirements must be services to accommodate the service provider perspective yields a two dimensional
considered when scheme such as illustrated in Figure 15. Here, importance has been defined as how
prioritizing services. ‘strategic’ the service is to the customer and service provider. Categorization by
discrete bands has also given way to positioning of services along a continuum.
However, the main point here, is that both the customer and service provider
requirements must be considered when prioritizing services.

22

IBM Global Services

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

Increasing value add of IT organization

Retain in-house
Strategic to IT
customers
IT strategy & planning

Business continuity Solution design,

Increasing business impact
construction &
deployment
End-user support

PLE IT asset management

M
Infrastructure IT architecture &

XA
operation & standards
administration IT customer
E
End-user training relationship
management
IT governance
IT procurement
Supplier
management
Outsource first

Strategic to IT
organization

Figure 15. Categorizing and prioritizing services from both a customer and service
provider perspective
Focussing on core competencies
Internal IT organizations today, are being asked to do more, but with the same or
Identifying the services less resources. Given the finite resources and funding available, IT organization
where internal IT must concentrate on where they can add the most value to the business. This may
organizations add the most mean rationalizing services offered to IT customers, withdrawing some services or
value to the business is key considering alternative sourcing arrangements. They need to consider not only the
direct costs but also the opportunity costs of providing each service. For instance, if
to determining core the cost of providing a service is the same as an external service provider’s price,
competencies. 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 in
other higher value-add services?
Identifying the services where internal IT organizations add the most value to the
business is key to determining core competencies. Core competencies can then be
defined on the basis of value-add to the business rather than what the IT
organization does best today.
An IT service portfolio, prioritized against dimensions such as strategic value to the
company, can provide guidance on which form of outsourcing to use, and where IT
investments should be directed to develop competencies. The IT organization can
then focus on developing and maintaining the competencies and capabilities it
Product management needs to deliver its services. Thus, resources can be redeployed in a manner that
practices used in many maximises the value to the business.
businesses to manage their
Managing the IT service portfolio
products to the market, can
provide a framework for When IT organizations adopt a services approach and establish portfolios of
internal IT organizations to services, new competencies must be developed to manage the ongoing vitality of
the portfolio. Product management practices used in many businesses to manage
identify and develop the their products to the market, can provide a framework for internal IT organizations to
capabilities necessary for identify and develop the capabilities necessary for IT service portfolio management.
IT services portfolio A key aspect of product management is the concept of a product life-cycle 8. This
management. concept 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

23

IBM Global Services

offer through to withdrawal by the service provider. The strategies employed by
internal IT organizations will vary depending of the phase at which the service is in
its 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 in
planning, forecasting and control.

Potential Introduction Growth Maturity Decline
Strategies

Consumption Few customers Rising number of Stable customer Declining customers
customers numbers
Awareness Focus on early Build awareness and Focus on Articulate

Service Consumption
adopters and key interest in main performance alternatives and
influencers customers reporting migration paths
Service Basic service Extend service Rationalize and Pare down or phase
features features and streamline service out service features
functionality features
Cost & pricing Subsidize high costs Growing number of Optimize costs User lowest cost
per customer customers enables through efficiencies provider
lower shared costs
Sourcing Delivered by Hand-over to Use external service Use external service
development team operational teams providers for some provider for service
components delivery
IT staff Identify and develop Train required staff Refine skills Redeploy staff to
new skills & training Increase staff development in high new areas and
delopyment value add areas retrain.

Time

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 management
practices also include product research, development and market testing. These
concepts are applicable to services too. Research and development for services
includes monitoring the market for services that are available from external service
providers.
We have established that the customer perspective underpins the definitions of IT
services. When developing new or refining existing IT service portfolios, it is critical
that internal IT organizations seek validation of their understanding of business
needs and the associated service definitions with their customers. IT customers
may have trouble articulating what they require in terms of IT, but it is a fallacy to
assume they do not know what they want. The challenge for internal IT
organizations is to interpret the needs of their customers, often expressed in their
business terms, into specific IT services that will meet those needs. This
interpretation is an iterative process but validation of IT services with potential
customers is crucial in services development.
It is likely that the skills, methods and processes for service management already
exist in some form within the business, particularly with product and brand managers
in the marketing units. IT organizations are unlikely to require the same level of
sophistication employed by the marketing units, but they should seek to leverage the
knowledge that exists there.

Moving forward
For IT organizations planning on implementing an IT services approach, the
following steps that are the embodiment of key concepts discussed in this document
may provide some guidance:
1. Understand your customers: who they are, what they want and what they value
in the services you provide. This includes understanding how customers are
segmented, how their service requirements differ, and what value propositions
are being offer to each of those segments.
2. Develop a service portfolio in response to the wants and needs of customers
and match it to customer segments.
3. Prioritize the services of your service portfolio, and evaluate sourcing
alternatives.
4. Identify the key capabilities that must be developed or procured in order to
deliver those services. When developing capabilities internally, identify the

24

IBM Global Services

enablers that underpin these capabilities. Establish an inter-linked program of
capability improvement initiatives that progressively develops the required
enablers and capabilities.
5. Develop customer-focused service level agreements that spell out the service
elements and deliverables, the service attributes and performance levels, costs
and measurements.
6. Consider making service prices visible to encourage accountability for service
consumption when managing service demand. Ensure that the granularity of
service prices, and the level at which they are made visible, will result in
behaviours you want to encourage.
7. Develop service marketing strategies and feedback mechanisms to continually
manage 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 stage
of its life cycle.

Conclusion
Adopting an IT services approach provides the foundation for addressing many of
the challenges facing IT organizations today. Implementing a services framework is
highly 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 IT
organizations, implementing a services framework will be a significant organizational
transformation. A successful IT services implementation that emphasizes the IT
customer perspective will reward IT organizations with a sustainable advantage in
addressing IT value and customer satisfaction issues.
IBM Global Services can help improve the service your IT organization delivers. We
can also help reduce the cost of delivering a given grade of service. Finally, we can
prepare your IT organization to support new e-business solutions.
We offer services ranging from initial planning, through to process reengineering
and managing organizational change. IBM Global Services offers diverse,
customised solutions to help you meet - and beat - the challenge of managing IT
services successfully.

References
1. Michael E. Porter, Competitive Strategy : Techniques for Analyzing Industries
and Competitors, Free Press, 1980.
2. Philip Kotler, Marketing Management - Analysis, Planning, Implementation and
Control (Eighth edition), Prentice Hall, 1994, pp. 464-468.

o 3. IBM Systems Management Consulting and Design, IBM Systems Management
Solution Lifecycle, 2000, http://www.ibm.com/services/ism/consulting/.
4. Gartner Group, The Core Elements of IT Service Design, 8 August 2000.
© Copyright IBM Corporation 2001
5. Joshua Gans, Stephen King & Gregory Mankiw, Principles of Microeconomics,
IBM Global Services Harcourt Brace & Co., 1999, pp. 63-64.
Route 100
Somers, NY 10589
U.S.A.
6. Valarie A. Zeithaml, A. Parasuraman & Leonard L. Berry, Delivering Quality
Service: Balancing Customer Perceptions and Expectations, Free Press, 1990.
Produced in the United States of America
12-17 7. IBM IT Process Model White Paper, Managing information technology in a new
Version 1.0
age, IBM, 2000, http://www.ibm.com/services/whitepapers/.
All Rights Reserved
8. Glen Urban & Steven Star, Advanced Marketing Strategy, Prentice Hall, 1991,
IBM, the IBM logo, and the e-business logo pp. 102-105.
are trademarks or registered trademarks of
International Business Machines Corporation
in the United States, other countries, or both.

Other company, product and service names
may be trademarks or service marks of others.

References in this publication to IBM products
or services do not imply the IBM intends to
make them available in all countries in which
IBM operates.

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