1. IBM Global Services
o
Managing Information Technology Services
“How can we tell if what we spend on IT is reasonable?”
“What are we getting from our IT organization?”
“How do we maximise value from our e-business solution?”
“How do we sustain or improve IT service levels and customer satisfaction?”
“How can we cope with the increasing complexity of technology?”
“What capabilities will we need in the future?”
“How do we leverage the increasing variety of IT service providers?”
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.
1

2. IBM Global Services
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.
2

3. IBM Global Services
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
3

4. 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.
4

5. 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.
5

6. 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.
6

7. 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.
7

8. 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.
8

9. 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.
9

10. 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
nies
ent T
mpa
rs
ches
ries
ncillo
y Co
agem
Libra
Bran
Cou
idiar
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.
10

11. 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.
11

12. 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

13. 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
In
s
t
ag an ure
f
e d
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
l
O De
e
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

14. 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
14