Part 1: The Economics of IT Service Management

The Economics of IT Service Management

IT Service Management can improve bottom-line profits, manage risks and regulatory compliance, provide a consistent customer experience across products and channels, and enhanced quality of work-life for employees.  This is the first of a two-part article about IT Service Management (ITSM).  In this post I define what ITSM is while part two presents an economic framework and tradeoffs between different operating models.

IT Service Management comes in a variety of forms and goes by different names.  In short, ITSM is a shared service capability within an organization. A shared service refers to the provision of a service by one part of an organization or group to another. The funding and resourcing of the service is shared and the providing department becomes an internal service provider.

ITSM competes for the attention of internal consumers who often have alternative choices that allow them to avoid using the shared service if it isn’t perceived as providing value.  ITSM must also compete internally for investment capital in order to improve service delivery capabilities and must make regular decisions about how to best allocate limited resources.

From an Enterprise Architecture perspective, the BOST™ framework embodies the concept of service functions as follows:

“Basic Service Functions are elements of the Service Function Reference Model that which is part of the Operational (O) View of BOST™. They describe the essential building blocks of generic capabilities that a company requires to conduct its operations and deliver the requirements of its planned business models. Basic Service Functions abstract and encapsulate the people, process/procedures (including automation), and information into the essential building blocks needed to support a company’s operations. They are also designed to be organization-agnostic, thus relatively stable over time.”

Some of the many reasons that organizations may want to establish ITSM include:

  • Improve customers’ experience by integrating information and establishing consistent processes across channels and products
  • Optimize use of scarce resources by combining staff and tools into one group
  • Gain tighter governance and control over a critical aspect of the business or infrastructure
  • Reduce project delivery times and development and maintenance costs
  • Improve ROI through reuse of low-level building blocks, application components, and codified business rules
  • Decrease duplication of data integration and data quality efforts by promoting the concept of reuse within projects and the enterprise
  • Build on past successes instead of reinventing the wheel with each project

ITSM requires organizational units with specific delivery capabilities (competencies). Each unit consists of people with special skills, defined processes and methods, and technology and tools to support the capabilities it offers. Although the ITSM unit may be a temporary group focused on a specific project, it generally describes a permanent part of an organization that is responsible for maintaining repeatable methods for a defined capability.

A further characteristic that defines ITSM is the degree to which it takes a holistic perspective of the functional groups it serves and strives to synthesize their needs (which may be conflicting) by  driving business process changes and investments. The following sample ITSM charters highlight two options. The first one focuses on integration as a competency that leverages staff and common processes in an efficient manner. The second example focuses on synthesizing potentially conflicting motivations in the interest of optimizing the enterprise and acting as an organizational change agent.

  • Scenario 1: Sample charter for a competency-focused ITSM

Manage data integration pilots and projects across the company; develop and maintain data feeds for a data warehouse; lead and support data integration projects with the cooperation of subject matter experts; develop staff specialists in integration processes and operations and leverage their expertise company-wide.

  • Scenario 2: Sample charter for a change-focused ITSM

Establish a data governance program; gain agreement across functional areas for common business definitions; lead organizational changes to establish stewardship among business leaders for defined information subjects; develop business cases and drive investments for a data management infrastructure shared across the enterprise; promote data management as a formal discipline across the enterprise, including data warehousing, data migration, data quality management, and data integration for SOA.

Both scenarios need competent individuals with specialized skills, offer well-defined services, are customer-driven, constantly improve their processes, and have the necessary tools to operate efficiently. In addition, the ITSM in scenario 2 serves as a leader to drive change through the organization in line with the corporate mission, negotiate resolution to competing ideas, and build compromises for silos to work together in the interests of optimizing the enterprise.

Now, stay tuned for part 2 to be posted soon!


  • Jim Judge

    Good Article! ITSM if implemented correctly can add relevance for internal IT to its business units / customers and reduce the allure of shadow IT.

  • Jim Judge

    Good Article! ITSM if implemented correctly can add relevance for internal IT to its business units / customers and reduce the allure of shadow IT.

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