SS

Certain parcel delivery firms and retailers are market leaders in highly commoditized businesses simply because they offer a level of certainty unsurpassed by their peers. Their services guarantee delivery of goods on time regardless of location, time zone, or size of shipments. They are able to offer such warranties because they have developed certain service management capabilities and resources that instil a level of confidence in their operations.

Service providers should be able to develop such levels of confidence so they are able to support the business strategies of their customers. They add value to their customers by injecting this level of confidence in those strategies. Service providers emulate each other, leading to situations where providers offer similar levels of utility or warranty. Service providers must continually improve their value propositions to break away from the pack. The improvements can drive through one or more of the service management processes.

The guidance provided in the Service design , Service transition , and Service operation processes is useful in this strategic context. Service Design processes provide new and improved designs delivering better utility or better warranty. Service Transition processes ensure design improvements are directed into Service Operation while minimizing costs and risks. Service Operation processes inject the new value propositions into the customer’s business by delivering higher levels of utility and warranty. The processes of Continual Service Improvement coordinate the flow of knowledge between the processes and provide feedback throughout the lifecycle .

Case example 2 (solution): Warranty and utility

A casual observer may quip that both provide identical services: mobile communication services. However, by adopting a marketing mindset, each provider focuses on different aspects of customer outcomes or value creation.

The slogan ‘Can you hear me now?’ differentiates value based on a customer’s desire for warranty: service availability regardless of location.

The slogan ‘Fair and Flexible’ differentiates value based on a customer’s desire for utility : fair pricing under a variety of service usage scenarios

3.2 Service assets

‘A basic code of good business behaviour is a bit like oxygen: We take an interest in its presence only when it is absent.’

Amartya Sen, Nobel Laureate in Economics

Case example 3: Financial services

Some time in the late 1990s, a leading financial services company launched a direct banking service. The service offered an internet-based savings and loans service.

After eight days, the company received almost 2 million website hits and over 100,000 enquiries. After five weeks, demand was so high that the company warned customers of delays of up to 28 days.

As CIO, what do you suspect is the problem?

(Answer given in Section 3.2.1)

3.2.1 Resources and capabilities

Resource s and capabilities are types of asset s (Figure 3.8). Organization s use them to create value in the form of goods and services. Resources are direct inputs for production. Management, organization , people, and knowledge are used to transform resources. Capabilities represent an organization’s ability to coordinate, control , and deploy resources to produce value. They are typically experience-driven, knowledge-intensive, information-based, and firmly embedded within an organization’s people, system s, processes and technologies. It is relatively easy to acquire resource s compared to capabilities. Supplementary guidance on capabilities and resources is presented in Appendix B, Section B.1.

Case example 3 (solution): Chokepoints in staff (overlooking customer assets)

The constraint, it turns out, was not infrastructure capacity or availability , but a customer asset shortcoming in the form of 250 staff members. Once this chokepoint was resolved (250 hires), the company went on to win over 500,000 new customers and £5B in deposits in less than six months.

The performance or growth of services will ultimately be limited either by limits in a resource or capability , or its own potential. Attempts to push a service beyond a resource or capability limit can have strong consequences – often negating any benefits achieved.

The constraint, in this case, did not appear to be technology-related. They were account processors. The CIO missed it because he only considered service asset s, overlooking the constraining effect of customer assets on the performance of his organization ’s services. The CIO’s customer, in this case, includes the processing department.

Figure 3.8 Resources and capabilities are the basis for value creation

Capabilities are developed over time. The development of distinctive capabilities is enhanced by the breadth and depth of experience gained from the number and variety of customers, market space s, contract s, and services. Experience is similarly enriched from solving problems, handling situations, managing risks, and analysing failure s. For example, the combination of experience in a market space, reputation among customers, long-term contracts, subject matter experts, mature processes, and infrastructure in key locations, results in distinctive capabilities difficult for alternatives to offer. This assumes the organization captures knowledge and feeds it back into its management system s and processes. Investments in learning capabilities are particularly important for service provider s for the development of strategic assets (See Section 4.3).

Service providers need to develop distinctive capabilities to retain customers with value propositions that are hard for competitors to duplicate. For example, two service providers may have similar resources such as application s, infrastructure, and access to finance. Their capabilities, however, differ in terms of management systems, organization structure, processes, and knowledge assets. This difference is reflected in actual performance.

Capabilities by themselves cannot produce value without adequate and appropriate resources. The productive capacity of a service provider is dependent on the resources under its control. Capabilities are used to develop, deploy and coordinate this productive capacity. For example, capabilities such as Capacity Management and Availability Management are used to manage the performance and utilization of processes, application s and infrastructure, ensuring service level s are effectively delivered.

3.2.2 Business units and service units

3.2.2.1 The business unit

A business unit is simply a bundle of assets meant to create value for customers in the form of goods and services (Figure 3.9). Customer s pay for the value they receive, which ensures that the business unit maintains an adequate return on assets. The relationship is good as long as the customer receives value and the business unit recovers costs and receives some form of compensation or profit.