How to Redesign Your Services & Pricing. The 5 key Elements.

DIGITALIZATION - READY FOR A FUNDAMENTAL SHIFT?

After working for a long time in IT in different organisations, I have seen how the transformation from "server" management to service management is not an easy task. Digitalization is transforming strategies and pushing more and more businesses towards services. In practice this entails more components in service pricing and more partners in service delivery and management.

In days past mainly technology components made our lives more complex - today the reality is, that we have more and more service-driven components to manage. 

So what are the key elements of service design and pricing? Furthermore, what factors are inhibiting us from succeeding with these needed new changes? Let me walk you through some examples and discuss the the key requirements.

From Assets to Services. The Race Is On.

It's clear to most of us that digitalization challenges all companies to see how they can create new business by delivering services instead of selling assets. In the IT industry this transformation started some time ago and we have seen huge developments. This is also especially true for us as consumers. We now understand what can be expected from IT and wonder when we will be able to enjoy the same usability at the office.

It doesn't occur to us to think about CPUs, servers, sw code or even the service desk while using Google or Facebook - all those things that we are so aware of at work when systems do not work as expected. 

Preferring Value Networks & Service Integrators

IT organizations have worked based on functions. Service design and management through a wider ecosystem, however, requires a new way of thinking and organize. The same also applies to other business support areas.

Outsourcing has radically changed the role of internal IT from provider to integrator. Digitalization creates service integrators in other industries as well. The capability to create value networks will separate the wheat from the chaff. The pressure to reduce costs is hard. At the same time many companies still charge IT costs according to last year's budget estimates while outsourcing and staff reductions seem to be the most popular tools in the IT development arsenal.

Does this sound familiar to you too? 

Value Is The Critical Component

Wait a minute - aren't functions service providers also? Yes of course they are, but there are services and then...

Generally speaking services delivered by a function are enablers. While they concentrate on optimizing capacity and operations costs the value to business is the key. Notice that the value of the same service for one customer can be quite different to another.

On the other hand, how we operate should not directly impact how we sell. Many times we look at customer pricing just through the operational cost lense. When we look at it through the value lense we start to see other elements which could be taken into account too. 

Some examples:  

• A service manager had a problem on how to organize support for corporate ERP for a single division which - unlike all other divisions using it - did not see the solution as mission critical. So I asked them why they felt they needed to organize separately. The manager explained that their customers didn't what to pay for critical service. I asked him to think about airlines and how they sell the same flights at different prices for different customers. A person sitting next to you on the flight home can pay half the price you paid for the same service - and we're happy with that. Why couldn't this work for IT service pricing too? Optimize operations costs separately and define customer price according to its value to different businesses.  
• What is the value of ice cream to you when it's +40 C or, conversely, when it's  -10 C? It's different for sure. When we understand value we can differentiate pricing. In IT we already use SLA sanctions and bonuses but there could be more elements. 
• While implementing server asset data as part of CMDB in relation to business services, hundreds of servers were found to be useless and hence removed from service. Nevertheless, the service provider continued to send invoices related to old information and customers continued to approve the invoices. When asking managers why they accepted these invoices the answer was because the amounts were according to what was budgeted. What can we learn? While accurate information is missing you're forced to rely on other sources like budget. Real efficiency will not achieved without proper information and the understanding of the different components of the service.  

The 5 Key Requirements In Service Design & Pricing: 

1. Business understanding - what is needed, what's the value?
2. Ecosystem understanding - how value is created through the network 
3. Continuous profit and cost analysis - profit and cost information available on a detailed enough level 
4. Flexible pricing model - value based components, from "pay as use" to fixed billing 
5. Online operative tools environment support, accurate information and quick changes throughout the ecosystem 

NEW SKILLS AND A DIFFERENT MINDSET

More easily said than done, right?  Indeed, a lot of companies are finding the transformation exceedingly hard to accomplish. What prevents us from designing or developing our services and pricing?

In my opinion these are some of the major issues involved: 

Managing operations is different from managing services and, indeed, an ecosystem. It requires different skills and a different mindset. Are your business services defined or have you just defined the enabling services? Take a look! Check to see whether your network management is just a list of preferred partners! 

You do not have accurate information available. Or are you data rich but information poor? You probably have a lot of different tools and data cannot be combined into relevant information. Furthermore, the act of harmonizing data or tools seems too expensive! 

In many cases existing tools do not support flexible pricing models or customer specific contracts. And that requires a lot of manual effort!

If your services are already defined we know how to merge the data and implement successful billing. Visit our website to get more information about our solutions for service automation. 

If you're wondering what the impact of IoT is on service delivery and what issues can make or break your business please feel free to view our free slideshare.