Managing Information Technology Services

IBM Global Services oManaging 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 challengeKey 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 theprovides 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 ofthe challenges facing IT External factors are contributing to changing perceptions of the IT organization and pressure to demonstrate its value. Technology is becoming increasingly packagedorganizations today and commoditized. Industry and defacto standards have contributed to the commoditization of products. Subsequent industry rationalization has seen theA portfolio of IT services number of suppliers for technology products reduced to a handful of major vendorsprovides 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 builtcommunicate the value solutions. These developments have enabled a more ‘building block’ approach to ITthe IT organization solutions where many of the blocks can be bought whole, resulting in a level ofdelivers 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 softwareThe capabilities of the building blocks have also contributed to the emergence of Application ServiceIT organization should Provider and e-sourcing models - putting even more pressure on internal ITbe aligned to services organizations. External service providers invariably have an advantage ofthat 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 beagreed 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 andThe 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 theorganization with business business and becomes mainstream. These customers are more demanding andunits is changing, and have a better understanding of their IT needs. The relationship of the ITadoption of shared-services organization with business units is changing, and adoption of shared-servicesbusiness 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 area rethink on the roles of the seeking to transform themselves by becoming more customer-focused.IT organization. 1

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 Porters 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 toFocussing on services address some of the issues described and provide a cornerstone for the ITforces us to seek and clarify organization to deliver value to its customers. Focussing on services forces us toanswers to some of the seek and clarify answers to some of the fundamental questions about managing the internal IT organization:fundamental questionsabout 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

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 ormanage their customers’ products that can be manufactured beforehand, and consumed at a later date; services are produced and consumed simultaneously. The service customer mustexpectations 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 aService providers must customer a service cannot exist.understand who their Service quality is variable and dependent on who provides the service and when andcustomers 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 andService providers must ensure that they have people with the right skills for the job. A highly competentunderstand the attributes of technician for instance may not necessarily have the right people skills to staff athe 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 secondand continually monitor implication of this characteristic is that service providers must monitor customercustomer 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 delivermanage both service supply services as and when required. Therefore, service providers must endeavor toand 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

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

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 ITa service model, is that it organizations just starting to embrace services concepts. Simplicity helpsmust be understood and communication and understanding, which facilitates buy-in. Therefore, simplicity isaccepted 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

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 ofThe distinction between Visibility as ‘capabilities’. This definition of capabilities is a simplification thatcapabilities and services is aggregates what other models distinguish as enablers, capabilities, functions andimportant 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 capabilitiesorganization define their instead of what their customers want. A focus on services ensures that capabilitiesvalue to the business in are aligned to what customers want. Effectively, services are the encapsulation ofterms of their capabilities the benefits that the IT organization delivers to its customers.instead of what their Gartner Service Decomposition Model 4customers want. A focus on Other consultants views are consistent with IBM’s perspective on IT services, andservices 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 towhat 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

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 usersA 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 implydelivery organization needs that users consume services and pay nothing, and that customers pay and receivea clear understanding of nothing. If that was the case, then what is the incentive for customers to pay, andwho 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 ofexpect. 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

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 keepSegmentation 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 ofexchange analysis can help mass customization, i.e. segments with zero aggregation, must be evaluated for itsIT organizations better applicability to the business. Mass customization has yet to be attained by manyunderstand their organizations commercially let alone by internal service delivery organizations.relationships with their Segmentation and value exchange analysis can help IT organizations bettercustomers, and the value understand their relationships with their customers, and the value propositions beingpropositions being offered offered to each customer. It enables IT organizations to better tailor their service portfolio and formulate appropriate behaviours to maximize value for themselvesto 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

IBM Global Services Service deliverable Thats 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. weve had? IT organizations IT organizations 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 SpecifiedThe service level agreement escalation response timesis the document that Monitoring and Reportingencapsulates the value of reporting interval Regular report Charge per callthe service to the IT Satisfaction Specified Business unitcustomer by bringing monitoring customer management satisfaction ratingtogether the service segmentbenefits, expressed as the Figure 7. A framework for defining IT services from an IT customer perspectivelevel of service, and service Service level agreementscosts, expressed as the The service level agreement is the document that encapsulates the value of theprice 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

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 theservices, matched to business, “Here is what we deliver to you”. Effectively, it is the list of whatidentified customer customers ‘buy’ from the IT organization. Explicitly matching the portfolio of servicesrequirements, provides a to customer segments is a step towards understanding what IT customers value andway 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 segmentsbusiness. 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

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

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 consumptionVisibility 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 servicefor service consumption provider receives value through some form of payment in return for providing theand 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 andManaging 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 anlevers 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 managingservice 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 IBMs 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. IBMs IT Process Model for the management of information technology 6Processes 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 definedelivery because they and develop their IT processes. IBM’s IT Process Model (ITPM) (see Figure 10) anddescribe how the work gets the IT Infrastructure Library (ITIL) are examples of process resources that ITdone 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 recentServices provide an difficulties of many ‘dot-com’ companies serve as a reminder that technology forimportant 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 andbusiness 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 organizations 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

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 organizations 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 itThe 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, andinternal 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 deliveryappropriate 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 usedand attitudes in its dealings to provide a level of quality assurance but there is a limit to the type and number ofwith 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. 15

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 withIBM’s experience with clients suggests that many tangible outputs of the IT organization are simplyclients 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 fororganization are simply the business in the way software companies like Microsoft or SAP do. They doconsequences 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 16

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% Valuemore comprehensive view -Oxford English Dictionarythat takes service benefits -into consideration while atthe same time examining Benefits s Value = Co fit sts neservice costs. Costs BeFocussing 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-financialcustomer 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 managements 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 theirServices provide a roles and responsibilities. Services provide a mechanism to facilitate themechanism 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 theirresponsibilities between the customers responsibilities begin. A clear understanding of responsibilities at allservice 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. 18

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 manifestcustomer expectations and themselves as moments of truth. The term ‘moment of truth’ was popularized byperceptions means that Jan Carlzon, the then president of Scandinavian Airlines System who in the earlyservice 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 anexhibit the appropriate opportunity to either satisfy or dissatisfy customers. The cumulation of moments ofbehaviours and attitudes at truth constitutes service delivery as far as customers are concerned as that is alleach 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 frameworkManaging the transition to Managing the transition to an IT services framework is really about managing an organizational transformation. The techniques and methods employed inan IT services framework is organizational transformations are applicable. The areas of particular importance inreally about managing an an IT services framework implementation are:organizational Ÿ Establishing a case for change. Establishing compelling reasons why the ITtransformation. 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 19

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 servicesrequire that measurements Ÿ Lack of measurements. The variability and intangibility of services require that measurements be instituted to monitor quality and to communicate and setbe instituted to monitor expectations to customers on performance. Without measurements, not onlyquality and to communicate will it be impossible to gauge service quality, there will be no way toand 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. 20

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 accuratelyThe crucial step in and comprehensively enough to enable a true comparison of services and pricingservices-based from service providers. Locking down the specification for services effectively locksbenchmarking is in down the benefits to be derived. Costs (which includes the service price) thenspecifying 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 serviceaccurately and levels!comprehensively enough to As with any benchmarking initiative, the effort to plan and conduct the benchmarkenable a true comparison then analyze the results, is significant. IT organizations should consider serviceof services and pricing benchmarking exercises only when there are serious concerns regarding theirfrom 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. 21

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 doesBoth 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 ofrequirements must be services to accommodate the service provider perspective yields a two dimensionalconsidered when scheme such as illustrated in Figure 15. Here, importance has been defined as howprioritizing 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 orIdentifying the services less resources. Given the finite resources and funding available, IT organizationwhere internal IT must concentrate on where they can add the most value to the business. This mayorganizations add the most mean rationalizing services offered to IT customers, withdrawing some services orvalue 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, ifto 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 itProduct management needs to deliver its services. Thus, resources can be redeployed in a manner thatpractices used in many maximises the value to the business.businesses to manage their Managing the IT service portfolioproducts to the market, canprovide a framework for When IT organizations adopt a services approach and establish portfolios ofinternal 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 manageidentify and develop the their products to the market, can provide a framework for internal IT organizations tocapabilities 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. Thismanagement. 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 100Somers, NY 10589U.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 America12-17 7. IBM IT Process Model White Paper, Managing information technology in a newVersion 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 ofInternational Business Machines Corporationin the United States, other countries, or both.Other company, product and service namesmay be trademarks or service marks of others.References in this publication to IBM productsor services do not imply the IBM intends tomake them available in all countries in whichIBM operates. 25

Managing Information Technology Services

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Managing Information Technology Services Document Transcript