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Figure 3.18 Basic value chain and value network

Take, for example, the financial services industry. Brokerage services leveraged IT to provide customers with market access, real-time market data and the ability to execute trades. The costs of computing, network and data were high, creating significant barriers to entry for competitors. The value proposition was based on the ability to perform these services reliably and securely.

Online brokerages, however, disaggregated these services from the proprietary systems. The same services are offered to their customers, but are now aggregated through intermediaries. The online brokerages do not own the computing, the networks or the real-time data. The value proposition is based on the services provided to the customer, not the activities performed. As a result of this strategy, the design, operations and improvement of services are performed in ways radically different from previous models.

3.4.2 Service systems

Services are often characterized by complex networks of value flows and forms of value, often involving many parties that influence each other in many ways. Value nets serve to communicate the model in a clear and simple way. They are designed to leverage external capabilities. These sources complement the core enterprise within a business. Despite many actors, the services operate with the efficiency of a self-contained enterprise, operating on a process rather than an organizational basis. The core enterprise is the central point of execution, rather than one actor in a chain, and is responsible for the whole value network. This includes the infrastructure by which other business partners can collaborate to deliver goods and services. Intangible exchanges are not just activities that support the service; they are the service.

First consider customer expectation. Only then consider the resources and capabilities required to deliver services. This model requires high-performance information flows, not rigid supply chains. Not too long ago, business employees were the only consumers of its IT Services. The pervasive examples of banking ATMs, airport kiosks, and online reservation systems illustrate this is no longer the case. Collaborative services such as Wikipedia, YouTube and Second Life suggest increasing levels of sophistication in customer interactions. As customers and suppliers become the direct users of IT Services, the expectations and requirements become more demanding – requiring a value net approach.

Figure 3.19 Example value network

In a value net diagram, an arrow designates a transaction. See Figure 3.19. The direction of the arrow denotes the direction of the transaction or impact on a participant: service provider or customer. Transactions can be temporary. They may include deliverables, tangible or intangible. Dotted arrows can be used to distinguish intangible transactions.

Figure 3.20 Unit of analysis for value nets in service management

The following questions are useful in constructing and analysing the dynamics of a service model. See Figure 3.20.

 Who are all the participants in the service?

 What are the overall patterns of exchange or transactions?

 What are the impacts or deliverables of each transaction on each participant?

 What is the best way to generate value?

Case example 6: Service Desk

A Type I provider for a healthcare business unit performed an assessment of their Service Desk. A map of the Service Desk process was developed: Figure 3.21. This flow chart described how the Service Desk function worked. While the flow chart looked orderly, the experience of the staff did not match the documented flow. A value net analysis was subsequently performed.

The staff described informal processes used to manoeuvre around the constraints of the process model. The informal processes were needed in order to be effective. Newcomers to the staff predictably took longer to become effective as they learned these undocumented ways to do things.

The analysis moved the focus away from the linear depiction of the process. Rather, it focused on the people who were fulfilling different roles. It became apparent that simple steps on the flowchart were complex instead. They involved multiple staff members and required continuing activities throughout the entire process: Figure 3.22.

The value net appeared messy. But staff agreed that it accurately described how the Service desk really worked. The analysis captured the intangibles for which staff were accountable but were not reflected in the flow chart.

The goal was not to replace process modelling or to map the entire organization. The method was used to describe a complex, non-linear process that had been artificially forced into the linear flow diagram.

Figure 3.21 Existing flowchart of how the Service Desk was supposed to work (adapted from Allee)17

Figure 3.22 Value net exchanges showing how things really worked (adapted from Allee)17

Value net diagrams are tools for service analysis. They show what an organization does, how it is done and for whom. They need not be overly complex to be useful. Simple forms are used throughout the publication to illustrate service management structures and topics

3.5 Service strategy fundamentals

‘The essence of strategy is choosing what not to do.’

Michael E. Porter18

Case example 7: Security services

Some time in 2001, a global network security services provider lost a major customer due to quality concerns materially affecting revenues and profits. Senior executives demanded that something be done – either cut costs or find a replacement customer.

While a replacement customer was sought, service operations dutifully reduced costs. Service quality was impacted, prompting three recently acquired customers to depart – further negatively affecting revenues and profits.

Senior executives again demanded that something be done – either cut costs of find replacement customers.

As CIO, what is your response or suggestion?

(Answer at the end of the chapter)

3.5.1 Fundamental aspects of strategy

Carl von Clausewitz remarked, ‘Everything in strategy is very simple, but that does not mean that everything is very easy’. Strategic thought and action are difficult for the following reasons:

 A level of comfort is necessary in dealing with complexity, uncertainty and conflict beyond the comfort zones of experience and codes of practice.

 It is necessary to discern patterns, to project trends, and to estimate probabilities.

 One must consider all factors including the interactions between them.

 It is important to delve into underlying principles and when all else fails, it is often necessary to fall back on basic theory.

Theory is often discounted because of associations with the abstract or impractical. Theory, however, is the basis of good practice. The law of gravity, for example, is theory. Engineers use theory to solve practical problems. Investment banks use portfolio theory to validate investments. Key methods of Six Sigma are based on the theories of probability and statistics.

Managers rely on mental models that will assure them that they will indeed achieve desired outcomes. Trouble occurs when they use the wrong mental model for the problem at hand. What appears as unfixable or random often looks that way because of a misunderstanding of a process or system. Without underlying principles, it is not possible to explain why a perfectly good solution fails in one instance after tremendous success in another.

A good businessmodel describes the means of fulfilling an organization’s objectives. However, without a strategy that in some way makes a service provider uniquely valuable to the customer, there is little to prevent alternatives from displacing the organization, degrading its mission or entering its market space. A service strategy therefore defines a unique approach for delivering better value. The need for having a service strategy is not limited to service providers who are commercial enterprises. Internal service providers need just as much to have a clear perspective, positioning and plans to ensure they remain relevant to the business strategies of their enterprises.

Customers continually seek to improve their business models and strategies. They want solutions that break through performance barriers – and achieve higher quality of outcomes in business processes with little or no increase in cost, as in Figure 3.23. Such solutions are usually made available through innovative products and services. If such solutions are not available within a customer’s existing span of control, service contracts, or value network, they are compelled to look elsewhere.

Figure 3.23 Innovative solutions break through performance barriers

Service providers should not take for granted their position and role within their customer’s plans even though they have the advantage of being incumbents. The value of services from a customer’s perspective may change over time due to conditions, events, and factors outside a provider’s control. A strategic view of service management means a carefully considered approach to the relationships with customers and a state of readiness in dealing with the uncertainties in the value that defines that relationship.

Imagine you have been given responsibility for an IT organization. This organization could be internal or external, commercial or not-for-profit. How would you go about deciding on a strategy to serve customers? First, acknowledge that there exist other organizations whose aims are to compete with yours. Even government agencies are subject to competitive forces. While the value they create can sometimes be difficult to define and measure, these forces demand that an organization should perform its mission better than the alternatives.