adjusting the service level agreements/contracts, etc. In business-to-consumer services, this may include surveys and other marketing research.
2.4.1 The service relationship model
The basic unit of one provider and one consumer can be repeated over and over again, to create endless chains and networks of provider-consumer relationships. For each unit, the provider creates new resources for the consumer or modifies existing resources.
In these service ecosystems, the term provider indicates a relative position: each consumer on its turn is a provider when that consumer adds value to the received services and provides it to the next position in the chain or network. This way, complex ecosystems of provider-consumer relationships can be created (Figure 3).
Figure 3. The service relationship model
■ 2.5 VALUE
Value is co-created in a service relationship between service consumer and service provider, as well as other stakeholders that are part of the relevant service relationship.
Value is only achieved when relationships have more positive effects than negative. This is a balance between desired outcomes and the associated costs and risks.
From the consumer’s perspective a service represents potential value, in terms of potential benefits at given costs and risks. On the one hand, the consumer has to define these benefits. Benefits can relate to gains created and/or pains relieved2. On the other hand, the consumer has to define the financial costs of the service (costs of service, risks imposed, etc.). A positive balance will lead to a service relationship with the service provider.
The relationship between the service and the desired outcomes is expressed in terms of the utility and warranty of the service.
2.5.1 Outcomes
The direct result of an activity is an output.
Output: A tangible or intangible deliverable of an activity.
Outcomes result from the use of these outputs (see Figure 6). The service provider produces outputs that help its consumers to achieve these outcomes.
Outcome: A result for a stakeholder enabled by one or more outputs.
To a large extent outcomes determine the actual value for the consumer. And as value is determined by the consumer, outcomes should also be determined by the consumer.
Service providers should spend serious amounts of effort in understanding the nature of the consumer’s needs and business characteristics, so that they are able to contribute to the desired outcomes for the consumer.
2.5.2 Costs
The co-creation of value often involves a transfer of money from the consumer to the provider. This is income for the provider, and cost for the consumer.
Cost: The amount of money spent on a specific activity or resource.
Often, costs are financial, but they may also be expressed in non-monetary terms, e.g. as time that is spent or avoided by resources. Ultimately, all costs can be expressed in terms of money, so they can be compared and used in a business case for the service consumer, weighing costs removed and costs imposed:
■ A service may remove costs from the service consumer: reduced costs of staff, technology, and other resources, which the consumer does not need to provide any more.
■ A service may also impose costs on the service customer: a price may be charged by the service provider, and there are other costs such as staff training, costs of network utilization, procurement, etc., which come with the service.
2.5.3 Risks
A service may also introduce new risks imposed on the service consumer, resulting from using the service.
Risk:
1. A possible event that could cause harm or loss, or make it more difficult to achieve objectives.
2. Uncertainty of outcome that can be used in the context of measuring the probability of positive outcomes as well as negative outcomes.
From the customer’s perspective, as with costs, risks can be removed as well as imposed. The consumer should weigh risks removed and risks imposed in the business case of the service proposition:
■ A service may remove risks from the service consumer: failure of the consumer’s infrastructure or lack of consumer’s staff will be avoided (or mitigated), through the use of the service provider’s more reliable resources.
■ A service may impose risks on the service consumer: the provider’s resources may fail or experience security breaches.
These risks need to be balanced with the net result of costs removed and costs imposed. This requires the customer and the provider to both clearly understand the impact of the service on the user’s business. The consumer contributes to this by clearly articulating the service requirements and its desired outcomes, defining the associated critical success factors (CSFs) and constraints. The service provider and the service consumer cooperate in the management of risks, balancing their interests.
The provider should also have access to the necessary resources of the consumer during the service relationship.
2.5.4 Utility and warranty
The evaluation of the ability of a service to provide the desired outcomes requires an assessment of the utility and warranty of the service. Both utility and warranty are essential to the creation of value.
Utility: The functionality offered by a product or service to meet a particular need.
Utility can be summarized as ‘what the service does’ and can be used to determine whether a service is ‘fit for purpose’. This requires that a service either supports the business activities of the consumer or removes constraints from the consumer - or both.
Warranty: The assurance that a product or service will meet agreed requirements.
Warranty relates to how the service performs: is it ‘fit for use’? Like for utility, this can be expressed in terms of service levels that should be agreed and aligned with the needs of consumers, including:
■ availability
■ capacity
■ security
