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TYPE I, II AND III PROVIDERS

Service Provider Types 

Although most aspects of service management apply for all types, it is important to differentiate between them. The domains of customers, contracts, competition, market, income and strategy have a slightly different meaning for the different types.

Type I- Internal Service Provider : 

Type I is a service provider that is embedded within a business unit and provides IT service exclusively for a specific business unit.  They are often considered a cost center and are an integral part of the businesses operation.  They are dedicated to specific business units and as such they are required to have an in-depth knowledge of the business and its goals, plans and operations. They are usually highly specialized, often focusing on designing, customizing and supporting specific applications, or on supporting a specific type of business process.

Type II – Shared Service Unit : 

Type II is an internal service provider that provides shared IT services to more than one business unit.  A good example of this would be IT in fact.  In most businesses, IT provides services to many other parts of the organization (sales, operations, marketing etc...) and this is considered a SSU (Shared Service Unit).

Type II can offer lower prices compared to external service providers by leveraging corporate advantage, internal agreements and accounting policies. They can standardize their service offerings across business units and use market-based pricing to influence demand patterns.

Type III – External service provider : 

Type III is a service provider that provides IT services to external customers.  A good example of this is B2B Technical Support ... most companies that are selling a product or service manufactured by a 3rd party, will require support on that product if/when they run into any issues.  While they may develop some capabilities in house, they will definitely need more advanced support for difficult or complex installations and in those instances they might need to access the support operations from the manufacturer directly.  The motivation may be access to knowledge, experience, scale, scope, capabilities and resources that are either beyond the reach of the organization or outside the scope of a carefully considered investment portfolio.

Choosing the Right type of Provider

Each provider type has benefits and drawbacks. Services, infrastructure, applications etc. may be sourced from each type of service provider with decisions based on possible transition 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.).

Whether customers keep a business activity in-house (aggregate), separate it out for dedicated management (disaggregate) or source it from outside (outsource) depends on answers to the following questions:
  • Are highly specialized assets required? 
    • Are those assets going to be idle after the required activity is done?
      • If yes – it’s recommended to outsource it. 
    • Are those assets going be obsolete, or lose a significant proportion of the value over time?
      • If yes – it’s recommended to outsource it. 
  • Is the activity required performed sporadically?
    • If yes – it’s recommended to outsource it. 
  • Is the activity simple enough without any major changes within the activity over time? 
    • If yes – it’s recommended to outsource it. 
  • Can you define good and satisfactory performance? 
    • If no – it’s recommended to keep it in-house. 
  • Can you measure what constitutes good performance? 
    • If no – it’s recommended to keep it in-house. 
  • Is the activity tightly connected with other activities and processes, where in case of separation a new layer of complexity would be added? 
    • If yes – it’s recommended to keep it in-house. 
Customers can decide to switch between types of service providers 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. 

Types of Services 

I've covered this already in a previous post, but it bears repeating as it definitely applies in the context of the conversation we're having here.

Core Services : 

Core Services are services that deliver the basic outcomes desired by one or more customers. Core services anchor the value proposition for the customers and provide the basis for their continued utilization and satisfaction as they represent the value that the customers want and for which they are willing to pay. 

Enabling Services: 

Enabling services are services that are needed in order to deliver a core service. Enabling services may or may not be visible to the customer, but the customer does not perceive them as services in their own right. 

Enhancing Services: 

Enhancing services are services that are added to a core service to make it more exciting or alluring to the customer. They are not essential to the delivery of a core service, and are added to a core service as ‘excitement’ factors, which will encourage customers to use the core service more.

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