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Processes are measurable – we are able to measure the
process in a relevant manner. It is performance driven. Managers want to measure
cost,
quality and other variables while practitioners are concerned with duration and productivity.
They have specific results – the reason a process exists is to deliver a specific result. This result must be individually identifiable and countable. While we can count changes, it is impossible to count how many Service Desks were completed. So change is a process and Service Desk is not: it is a function.
Processes have customers – every process delivers its primary results to a customer or stakeholder. They may be internal or external to the organization but the process must meet their expectations.
They respond to specific events – while a process may be ongoing or iterative, it should be traceable to a specific trigger.
Functions are often mistaken for processes. For example, there are misconceptions about Capacity Management being a service management process. First, Capacity Management is an organizational capability with specialized processes and work methods. Whether or not it is a function or a process depends entirely on organization design. It is a mistake to assume that Capacity Management can only be a process. It is possible to measure and control capacity and to determine whether it is adequate for a given purpose. Assuming that it is always a process with discrete countable outcomes can be an error.
2.6.3 Specialization and coordination across the lifecycle
Specialization and coordination are necessary in the lifecycle approach. Feedback and control between the functions and processes within and across the elements of the lifecycle make this possible (Figure 2.15). The dominant pattern in the lifecycle is the sequential progress starting from SS through SD-ST-SO and back to SS through CSI. That, however, is not the only pattern of action. Every element of the lifecycle provides points for feedback and control.
Figure 2.15 Service management processes are applied across the Service Lifecycle
The combination of multiple perspectives allows greater flexibility and control across environments and situations. The lifecycle approach mimics the reality of most organizations where effective management requires the use of multiple control perspectives. Those responsible for the design, development and improvement of processes for service management can adopt a process-based control perspective. Those responsible for managing agreements, contracts, and services may be better served by a lifecycle-based control perspective with distinct phases. Both these control perspectives benefit from systems thinking. Each control perspective can reveal patterns that may not be apparent from the other.
Case example 1 (solution): The lack of a Service Lifecycle
The decision to adopt the pricingstrategy did not appear to be coordinated with service design, service transition or service operations, indicating a lack of holistic or systems thinking in crafting the service pricing strategy. Though strategically sound, the pricing strategy did not consider the many interrelated parts of the entire system.
Among the unintended consequences is a service strategy that appeared in the front pages of world newspapers as a colossal blunder in service management
3 Service strategy principles
‘People do not want quarter-inch drills. They want quarter-inch holes.’
Professor Emeritus Theodore Levitt, Harvard Business School
Case example 2: Mobile communication services
A well-known provider of mobile communication services has the advertising slogan, ‘Can you hear me now?’ Another provider has the slogan, ‘Fair and Flexible’.
What dimensions of value does each slogan promote?
(Answer at the end of Section 3.1)
3.1 Value creation
3.1.1 Mind the gap
Calculating the economic value of a service can sometimes be straightforward in financial terms. In other instances, however, it is harder to quantify the value although it may still be possible to qualify it. Value is defined not only strictly in terms of the customer’s business outcomes: it is also highly dependent on customer’s perceptions (Figure 3.1). Perceptions are influenced by attributes of a service that are indications of value, present or prior experiences with similar attributes, and relative endowment of competitors and other peers. Perceptions are also influenced by the customer’s self-image or actual position in the market, such as those of being an innovator, market leader, and risk-taker. The value of a service takes on many forms, and customers have preferences influenced by their perceptions. Definition and differentiation of value is in the customer’s mind.
Figure 3.1 Attributes, perceptions and preferences
The more intangible the value, the more important the definitions and differentiation become. Customers are reluctant to buy when there is ambiguity in the cause-and-effect relationship between the utilization of a service and the realization of benefits. It is incumbent on providers to demonstrate value, influence perceptions, and respond to preferences.
Perceptions of value are influenced by expectations. Customers have reference values on which they base their perceptions of added value from a service. The reference value may be vaguely defined or based on hard facts. An example of reference value is the baseline that customers maintain on the cost of in-house functions or services. What matters is that it is important for the service provider to understand and get a sense of what this reference value is. This may be obtained through extensive dialogue with the customer, prior experience with the same or a similar customer, or through research and analysis available in the market. The economic value of the service is the sum of this reference value and the net difference in value the customer associates with the offered service (Figure 3.2). Positive difference comes from the utility and warranty of the service. Negative difference comes from losses suffered by the customer from utilizing the service due to poor quality or hidden costs. As stated earlier, value is defined strictly in the context of business outcomes.
Figure 3.2 Economic value of a service14
Focus on business outcomes over everything else is a critical advance in outlook for many service providers. It represents a shift of emphasis from efficient utilization of resources to the effective realization of outcomes. Efficiency in operations is driven by the need for effectiveness in helping customers realize outcomes. Customers do not buy services; they buy the fulfilment of particular needs. This distinction explains the frequent disconnection between IT organizations and the businesses they serve. What the customer values is frequently different from what the IT organization believes it provides. Mind the gap.
3.1.2 Marketing mindset
What are the outcomes that matter? How are they identified and ranked in terms of customer perceptions and preferences? Effectiveness in answering such questions requires a marketing mindset, which is quite different from engineering and operations mindsets. Rather than focusing inward on the production of services, there is a need to look from the outside in, from the customer’s perspective. A marketing mindset begins with simple questions:
What is our business?
Who is our customer?
What does the customer value?
Who depends on our services?
How do they use our services?
Why are they valuable to them?
Value can be added at different levels. What matters is the net difference (Figure 3.2). For example, service providers differentiate themselves from equipment vendors purely through added value even while using the equipment from those same vendors as assets. Differentiation can arise from the provision of communication services instead of routers and switchboards. Further differentiation may be gained from the provision of collaboration services instead of simply operating email and voice mail services. The focus shifts from attributes to the fulfilment of outcomes. With a marketing mindset it is possible to understand the components of value from the customer’s perspective. As described in Section 2.2.2, value consists of two components: utility or fitness for purpose and warranty or fitness for use.
Fitness for purpose comes from the attributes of the service that have a positive effect on the performance of activities, objects, and tasks associated with desired outcomes. Removal or relaxation of constraints on performance is also perceived as a positive effect.
Fitness for use comes from the positive effect being available when needed, in sufficient capacity or magnitude, and dependably in terms of continuity and security.
It is useful to separate the logic of utility from the logic of warranty for the purpose of design, development, and improvement (Figure 2.2). Using the marketing mindset in service management provides deep insight into the challenges and opportunities related to the customer’s business. Such insight is necessary for success in strategy. It is therefore critical, first and foremost, to understand the positive effect that customers perceive a service can have on their business outcomes. For customers, the positive effect is the utility of a service. The assurance of the positive effect is the warranty.
3.1.3 Framing the value of services
There is scepticism about the value realized from services when there is uncertainty in the service output. It is not good for the customer that there is certainty in costs and uncertainty in utility from one unit of output to another. When the utility of a service is not backed up by warranty, customers worry about possible losses due to poor service quality more than the possible gains from receiving the promised utility. To allay such concerns and influence customer perceptions of possible gains and losses, it is important that the value of a service is fully described in terms of utility and warranty.
The utility effect of a service is explained as the increase in possible gains from the performance of customer assets, leading to an increase in the probability of achieving outcomes (Figure 3.3). Warranty of services is explained as the decrease in possible losses for the customer from variation in performance (Figure 3.4). Customers feel more certain that every unit of demand for service will be fulfilled with the same level of utility with little variation.
Figure 3.3 Utility increases the performance average
Figure 3.4 Warranty reduces the performance variation
This approach can change customer perceptions of uncertainty in the promised benefits of a service. Customers expect to see a strong link between the utilization of a service and the positive effect on the performance of their own assets, leading to higher return on assets (Figure 3.5).
Figure 3.5 Value of a service in terms of return on assets for the customer
A mere graphic is, however, not sufficient to convince customers. They must be assured of the actual mental mapping made by groups engaged in different parts of the Service Lifecycle. Customers may also expect evidence that policies, procedures, and guidelines are in place to uncover all costs and risks associated with service delivery and support. In the absence of such institutionalized practice, the promise of a service can just as easily turn to peril during the course of carrying out the terms of the contract or service agreement.
3.1.4 Communicating utility
3.1.4.1 In terms of outcomes supported
Take the example of a bank that earns profit from lending money to credit-worthy customers who pay fees and interest on loans. The bank would like to disburse as many good loans as possible within a time period (desired outcome). The bank has a lending process that includes the activity of determining the credit rating of loan applicants. The bank uses a commercial credit reporting service, which is available over the phone and internet. The service provider undertakes to supply accurate, comprehensive, and current information on loan applicants in under a minute. The lending process is the consumer of the credit report, the loan officer being the user. The utility of a credit reporting service is from the high quality of information it provides to the lending process (customer asset) to determine the credit-worthiness of borrowers, so that loan applications may be approved in a timely manner after calculating all the risks for the applicant (Figure 3.6). By reducing the time it takes to obtain good quality of information, the bank is able to have a high-performance asset in the lending process.
Figure 3.6 Utility framed in terms of outcomes supported and constraints removed
3.1.4.2 In terms of ownership costs and risks avoided