Neven Zitek
September 30, 2014
This blog post will be the final part of our “ITIL Service Provider types” mini-series. Now would be a great time to read previous articles, if you haven’t already done so:
Here’s a quick recap from previous articles: Type I (Internal Service Provider) is responsible for service delivery within their own Business Unit (BU). Consolidating all Type I providers into a single organization will create Type II – Shared Services Unit, and when services are provided outside the company – it’s Type III or External Service Provider.
When looking at internal organization, External Service Providers are similar to Type II providers, but for multiple (external) companies. They provide generic services, so the companies that use them have to find their own way in aligning those services with business needs.
Figure 1– ITIL Type III – External Service Providers
External Service Providers will deliver the same KPIs or other measurable objectives as Type II providers (Shared Services Units – SSU) which adopted best practice frameworks (ITIL), or standards such as ISO 20000. However, by using services from external providers, companies have more options in finding one that best fits the targeted business service. By using multiple providers (as shown on Figure 1), companies aren’t “locked” with single provider capabilities.
If competition uses an External Service Provider, using the same model diminishes any advantages they might gain by doing so, but the main advantage would be in asset and risk ownership, which is now in the hands of the service provider.
For example, if your company decides to outsource managed desktop service, which often is the most expensive part of IT service, you no longer have a substantial amount of monetary value locked into equipment and software that has to be managed and maintained, and loses value over time. There is no longer any need for keeping track of those assets, spare parts and stocktaking, which releases a significant amount of resources that can be allocated for other things. All costs are predictable and correspond to the Service Catalogue, which makes the finance department very happy during forecasting and budgeting season.
There is a common misconception about External Service Providers being cheaper than Shared Service Units (Type II). This isn’t true for many reasons, but I’ll mention only the most important ones:
If you had the opportunity to read the whole mini-series on service provider types, you’ll see that each provider type has benefits and drawbacks. On top of that, when making a decision regarding the best option for your company, you have to be aware of possibletransition costs (costs of migrating from one operating model to another, or between service providers), and transaction costs (costs of finding a suitable provider, negotiating, defining requirements, agreements, relationship management, changes, disputes, etc.).
Here are some questions that may help you decide:
Customers can decide to switch between types of service providers (Figure 1) based on the answers to those simple questions. Of course, the answers to the questions themselves may change over time, depending on new economic conditions, regulations, and technological innovation – with the latest being inevitable.