Creating Service Value

Perhaps historically, both providers and customers have used price as the focal point for communication and negotiation, but it is this path that ultimately leads to a negative experience for both parties. One of the key mantras that exist for any modern Service provider (IT or otherwise) is that it is essential to clearly establish value before you can attach a price to the services offered. This ensures a few key things:

  • It avoids an apple to oranges comparison, which usually occurs with a price focal point
  • It enables the Service Provider to distinguish their capabilities and differentiation from their competitors
  • It clearly communicates to the customer what they can expect to receive as part of the delivery service.

Providers of IT Services need to take special appreciation of the concept of value creation and communication, due to the many misunderstandings about technology on behalf of customers (and poor communication by their IT providers). To address this issue, a central theme throughout the Service Strategy is value creation through services.

To explain the concept of value creation, the example of an Internet Service Provider (ISP) will be used throughout the next few sections.

Figure 4.B – Creating Service Value

Important Formula: Service Warranty + Service Utility   =   Service Value

Service Utility describes the positive effect on business processes, activities, objects and tasks. This could be the removal of constraints that improves performance or some other positive effect that improves the outcomes managed and focused on by the customer and business. This is generally summarized as being fit for purpose.

In the case of a service provided by an ISP, examples of Service Utility could be:

  • Ability to shop and bank online
  • Communicate easily with friends and family around the world, without incurring an expensive phone bill
  • Remove the need to always be ‘at the office’, instead allowing an individual to work or run their business from home.

Service Warranty on the other hand describes how well these benefits are delivered to the customer. It describes the Service’s attributes such as the availability, capacity, performance, security and continuity levels to be delivered by the provider. Importantly, the Service Utility potential is only realized when the Service is available with sufficient capacity and performance.

Examples of Service Warranty for the previously mentioned ISP are:

  • The connection speed of the internet service
  • The download quota provided (20 GBs per month)
  • The coverage of the service and network (e.g. for mobile broadband)
  • The availability of support (e.g. 6am – 10pm).

By describing both Service Utility and Service Warranty, it enables the provider to clearly establish the value of the Service, differentiate themselves from the competition and, where necessary, attach a meaningful price tag that has relevance to the customer and associated market space.