There has never been a more compelling reason to adopt the best service management practices than having to make the most of lean IT budgets. Peter Wheatcroft, Partners in IT, explains how the cheapest service is often the best.

As the song used to say, 'when the going gets tough, the tough get going' and service delivery departments are as hard headed as they come. Whilst the techniques of investment appraisal have long been used in IT to evaluate the business benefits of spend on development projects, they are rarely used by IT services departments because the linkage between investment levels, return on investment (ROI) and the ongoing cost of delivery has not been properly articulated. This is a pity, because the cheapest service is almost always the most effective - as it cuts out waste and delivers value.

Background

The official ITIL®v3 definition of a service is as a means of delivering value to customers by facilitating outcomes customers want to achieve, without the ownership of specific costs and risks . What this means in practice is that a service should achieve what the customer wants, at a price they are prepared to pay and without worrying about it going wrong. A service that doesn't worry the customer when it goes wrong is well managed if it doesn't jeopardise their business goals and they have trust in the delivery provider. This isn't new, but is far from current industry practice as evidenced by the continual wave of outsourcing (and new insourcing) deals being reported.

A major survey  carried out recently of over 2,600 service projects in 550 different companies returned some surprising results. Over 75 per cent of these projects were completed in order to improve customer service, and yet only 12 per cent of them had yielded any form of financial benefit. Of course, not all projects will show a financial return, although it could be argued that the cost of poor service will lead to loss of customer confidence and so addressing this concern will show a benefit - although the organisations concerned did not generally take this into account in their submissions. 

Many projects were felt to have some financial justification, although there was little or no evidence provided of a detailed, robust or consistent ROI process to demonstrate the value. Despite this, measurement of value derived from these projects was thought to be important in 37 per cent of the companies surveyed. So what about some initiatives that can show value?

Case study 1

Let's take a look at a real business case that established a new help desk. This high street bank wanted to consolidate a number of separate help desks and at the same time increase the capability of its staff to answer customer queries. The benefits from this were seen in a reduction in internal costs by being able to handle more calls at first touch, which is cheaper than getting technical specialists involved, and by handling calls faster by use of a knowledge base containing the solutions to previously reported incidents. 

The total cost of the project was £2.1m, consisting of workstations, furniture, help desk software and all other project development costs such as relocation and staff training. This project yielded an internal rate of return (IRR) of 29.6 per cent and a net present value (NPV) of +£720,000 whilst simultaneously improving the service proposition by delivering an 80 per cent fix at first touch. Payback was in three years and customers got an improved service.

Case study 2
        
A consumer products manufacturing company decided to take a strict ITIL®-based approach to service delivery and introduced rigorous disciplines along with ITIL® process automation. The result of this was that, despite salary inflation, they reduced the cost per supported workstation from £202 per month to £103 within 18 months, whilst simultaneously increasing customer satisfaction with both the speed and quality of response of the IT service. This formed the rationale to expand that service discipline across the world.

Case study 3

A high street retailer that was benchmarked as having reached best practice was able to employ staff at a total cost of less than £40,000 a head - including employer's pension contribution, SE regional supplement, travel and subsistence and training costs. This was only possible by the adoption of consistent service management disciplines, ITIL® process automation and a knowledge base that meant tier 1 staff could handle faults that would otherwise have been referred to much more expensive tier 2/3 specialists.

Case study 4

An outsourced IT service provider was able to offer a profitable ITIL® fault resolution service to its clients on the basis of a service desk tier 1 call being charged at £5, a tier 2 call costing £30 and tier 3 call costing £60. This service not only made money for the provider but offered their clients a value beyond that possible internally, where a large help desk may well cost £90,000 a month in terms of total staffing and product licence costs.  

The bottom line

When budgets are tight, it is tempting to stop thinking about spending money. But when the benefits of good service management are looked at in terms of value rather than expenditure, the picture is quite different. The least cost service is invariably based on high value customer propositions and if there is an agenda in your company to save money, improving service should be at the top of the list. Why not start with the ITIL®v3 definition of service delivering customer outcomes and look to cut your costs that way?

March 2009