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They usually require significant investments and time to develop
Their value is extracted by combination with other factors.
Critical success factors by themselves are altered or influenced by one or more of the following factors:
Customers
Competitors
Suppliers
Regulators.
Identifying critical success factors for a market space is an essential aspect of strategicplanning and development. In each market space service providers require a core set of assets in order to support a Customer Portfolio through a Service Portfolio (Figure 4.21). For example, in the market space for high-volume real-time data processing, such as those required by the financial services industry, service providers must have large-scale computer systems, highly reliable network infrastructure, secure facilities, knowledge of industry regulations, and a very high level of contingency. Without these assets, it would not be possible for such service units to provide the utility and warranty demanded by customers in that market space.
Figure 4.21 Critical success factors
The dynamic nature of markets, business strategies, and organizations requires critical success factors to be reviewed periodically or at significant events such as changes to Customer Portfolios, expansion into new market spaces, changes in the regulatory environment and disruptive technologies. For example, new legislation for the healthcare industry on the portability and privacy of patient data would alter the set of critical success factors for all service providers operating in market spaces related to healthcare.
The dominating success of a new market leader in search engines and online advertising may add a new critical success factor through a combination of innovative business model and technological capability. Most critical success factors are a combination of several service assets such as financial assets, experience, competencies, intellectual property, processes, infrastructure, and scale of operations.
Critical success factors determine the service assets required to implement a service strategy successfully. For example, if a strategy requires services to be made available across a large network of locations or a wide area of coverage, the service provider must not only build capacity at key locations. The provider must also operate the network as a system of nodes so that the cost of serving all customers is roughly identical to and within a price point consistent with a strategic position in a market space. Not all critical success factors need favour large organizations or economy of scale in operations. Some strategies favour organizations small in size but highly competitive through the knowledge they have of customers and related market spaces. Managers must therefore conduct evaluation exercises to ascertain the critical success factors in force.
One way to define critical success factors is by customer assets and the service archetypes (Figure 4.22). For example, in healthcare, IT Service Providers have extensive knowledge of hospital procedures, medical equipment, interactions between physicians, clinicians and pharmacists, insurance policies and privacy regulations. Service providers present in market spaces related to the quality of outcomes in healthcare typically have physicians and clinicians on their payroll. Service strategies for the healthcare market spaces take into account the need to deal with users with highly specialized skills, special-purpose equipment, low tolerance for error, and the need to balance security with usability of services. These are critical success factors for a cluster of market spaces related to healthcare. A subset of these critical success factors is shared by other market spaces such as military applications. Critical success factors can therefore span more than one market space. They represent opportunities for leveraging economies of scale and scope.
Figure 4.22 Critical success factors leveraged across market spaces
4.4.5 Critical success factors and competitive analysis
CSFs are determinants of success in a market space. They are also useful in evaluating a service provider’s strategic position in a market space and driving changes to such positions. This requires CSFs to be further refined in terms of some distinct value proposition to customers. For example, being competitive in a market space may require very high levels of availability, fail-safe operation of IT infrastructure, and adequate capacity to support business continuity of services. In many market spaces cost-effectiveness is a common CSF, while in others it may be specialized domain knowledge or reliability of infrastructure. Customer satisfaction, richness of service offerings, compliance with standards and global presence are also common CSFs. Type I and Type II providers tend to score well on familiarity with the customer’s business.
Conduct a strategic analysis for every market space, major customer and Service Portfolio to determine current strategic positions and desired strategic positions for success. This analysis requires service providers to gather data from customer surveys, service levelreviews, industry benchmarks, and competitive analysis conducted by third parties or internal research teams. Each critical success factor is measured on a meaningful index or scale. It is best to adopt indices and scales that are commonly used within a market space or industry to facilitate benchmarking and comparative analysis. Critical success factors are used to define playing fields, which serve as reference frameworks for evaluation of strategic positions and competitive scenarios (Figure 4.23).
Figure 4.23 Critical success factors and competitive positions in playing fields
Playing fields have the following benchmarks that determine the various zones in which a service provider is currently positioned or plans to be.
Entry level: performance below this level is not acceptable to customers (grey in Figure 4.23)
Industry average: performance below this level is not competitive (white in Figure 4.23)
Industry best: performance above this level signifies leadership (green in Figure 4.23).
These benchmarks are relative (not absolute) and their values on an index may vary over time. For example, the initial entry-level benchmark for cost as a CSF may be quite easy to cross in a new market space with low levels of competition. The benchmark may become higher (lower costs) because of competitive action combined with technology innovations or other factors, such as excessive supply of resources in the market space (as happened a few years ago with telecommunications bandwidth). Strategic analysis should take into account not only the current benchmarks for a playing field but also the direction in which they are expected to move (higher or lower), the magnitude of change, and the related probabilities.
This analysis is necessary for service providers to avoid being surprised by changes in the market space that can completely destroy their value proposition. Type I service providers may be particularly vulnerable to such blind spots if they are not accustomed to the business analysis found in Type II and Type III providers. Type I providers also face competition even if they have captive customers within their enterprise. The playing field is used to conduct strategic analysis of Market Spaces, Customer Portfolios (Figure 4.24), Service Portfolios, and Contract Portfolios. Managers decide the required scenarios to construct using applicable CSFs, scales and indices.
Figure 4.24 Strategic analysis of Customer Portfolio
4.4.6 Prioritizing investments
One common problem service providers have is prioritizing investments and managerial attention on the right set of opportunities. There is a hierarchy in customer needs analogous to Maslow’s Hierarchy of Needs for individuals. At any one time, the business needs of customers are fulfilled to varying levels of satisfaction. The combination of hierarchy or importance of a need and its current level of satisfaction determines the priority in the customer’s mind for purchases. The best opportunities for service providers lie in areas where an important customer need remains poorly satisfied (Figure 4.25).
Figure 4.25 Prioritizing strategic investments based on customer needs23
Service Portfolios should be extended to support such areas of opportunity. This typically means there is a need for services to provide certain levels of utility and warranty. However, managers should not overlook the costs and risks in such areas. There are usually strong reasons why certain needs of customers remain unfulfilled. Breakthrough performance and innovation are usually required to successfully deliver value in underserved areas of opportunity.
4.4.7 Exploring business potential
Service providers can be present in more than one market space. As part of strategic planning, service providers should analyse their presence across various market spaces. Strategicreviews include the analysis of strengths, weaknesses, opportunities and threats in each market space. Service providers also analyse their business potential based on unserved or underserved market spaces. This is an important aspect of leadership and direction provided by the senior management of service providers. The long-term vitality of the service provider rests on supporting customer needs as they change or grow as well exploiting new opportunities that emerge. This analysis identifies opportunities with current and prospective customers. It also prioritizes investments in service assets based on their potential to serve market spaces of interest. For example, if a service provider has strong capabilities and resources in service recovery, it explores all those market spaces where such assets can deliver value for customers.
Begin with a broad set of outcomes such as business asset productivity. This defines a broad market space. Lost business asset productivity is linked with how it is recovered through services. Unserved and underserved customer needs are identified within this context and focus is applied based on existing strengths and opportunities. This defines narrower market spaces with specialization based on the categories of business assets and the manner in which they are supported by services (service archetypes).
Providers decide which customer needs are effectively and efficiently served through services, while choosing to serve certain market spaces and avoid others. This essential aspect of service strategy is broken down into the following decisions. Firstly, identify:
Market spaces that are best served by existing service assets
Market spaces to avoid with existing service assets.
Then for each market space to be served (Figure 4.26), decisions are made with respect to:
Services to offer (Service Portfolio)
Customers to serve (Customer Portfolio)
Critical success factors
Underserved market spaces
Service models and service assets
Service Pipeline and Service Catalogue.
Figure 4.26 New service development
Market space analysis for Type I and Type II providers follows similar principles to those for Type III. Differences are in terms of the extent to which decisions are influenced by:
Priority and strategic value
Investments required
Financial objectives (including profit motive)