Wednesday, April 08, 2009
The Debate Over Products Versus Services
I Say Apple you Say Orange - not exactly the same thing but they are both fruit.
The debate over terminology rings on as the IT Service industry grapples with an agreement of terms and the gradual settling on a Lingua Franca. One such dialog that I and my follow Pinkers have been engaged with more than once is the difference between the concept of an IT Product versus Service. This debate is further heated due to the fact that many organizations have people whose title includes the word product (e.g.: Product Manager, Product Analysts).
With the release of ITIL V3 and its focus on the Service Lifecycle, this clarity has not been improved, with some books such as Service Strategy using the word ‘Product’ and others (almost every other book) focusing on the concept of an IT Service. Sadly, the official ITIL glossary does not clarify the confusion, since it uses the term multiple times but neglects to shed any light on the definition of what a product is versus a service.
Some may argue (which they do) that a product and service are synonymous and should be considered interchangeable as expressions of what IT delivers to its customers (users, business unit, other IT groups and the external consumer). However, I am uneasy with this approach and unsatisfied with this vague answer. Since the ITIL books do not shed light on this confusion of terms we need to look at other sources for this particular question.
We don’t have to go far for clarity on these concepts. You can reference marketing and product management text books if you wish, but I particularly like the definitions found in a book titled “Reaching The Goal” by John Arther Ricketts (IBM) Theory of Constraints for Services Organizations
The overall premise of this book is how to apply the concept of Goldratt’s Theory Of Constraints (TOC) to IT Services and Processes, which is a subject worth its own discourse that I have written on in the past:
The Theory Of Constraints and Continual Improvement
I have taken the liberty to quote a few choice paragraphs from John’s book for your consideration. Also, for the purposes of this post, substitute “products” for “goods” in the first paragraph. I trust you will find them as useful as I have. Thank you John for your wisdom here.
“Basic differences between goods (products) and services are easy to see: Goods (products) are tangible and can be consumed now or later, while services are intangible and cannot be produced in advance. Of course, many purchases consist of a mix of goods (products) and services. Restaurants are roughly balanced. Gasoline purchases are 99 percent goods if you count the occasional once-over with a squeegee as a service. Airline flights are 99 percent services if you count refreshments as goods (products). So pure goods (products) and pure services are just end points on a continuum of possibilities.”
As a services enterprise moves from services as available to services on demand, many things have to change, including the way people perform their jobs. To appreciate roles, however, it’s helpful to understand a few other terms:
- Project— A set of finite-duration tasks that must be performed in a specified sequence to produce a desired result within a prescribed time and budget, such as building an information system.
- Deliverable— Things created by projects, such as consulting reports or computer software.
- Process— A set of activities performed continuously or on a frequently recurring schedule over an indefinite period, such as preparing paychecks.
- Service Level— The results of a process, such as its cycle time, quality, and cost.
- Client— A customer of a service provider.
- Solution— A combination of products and services that solve a client’s problem.
- Engagement— An agreement (contract) between a client and service provider to deliver solutions.
- Practice— A unit within the service provider that specializes in delivering particular solutions or serving particular clients.
Professional, Scientific, and Technical Services
One fundamental difference between industry and services is that services cannot start until the customer arrives. Of course, some preparations can be made without a customer, but the service itself can’t. For example, a restaurant can prepare certain foods in advance, and perhaps even distribute dishes to multiple venues from a central kitchen, but the core service doesn’t start until a hungry customer shows up. This contrasts with industry, where many workers rarely if ever meet consumers of their products.
Another difference concerns inventory. In industry, inventory issues are pervasive: Figuring out the right amount of raw material inventory to hold, the right amount of finished goods inventory to manufacture, and where it should be distributed are core problems. In contrast, there can be no inventory of completed services because as soon as there’s something to ship, it’s more like a product than a service. For example, when a manufactured product breaks under warranty, manufacturers often prefer to exchange it for a remanufactured unit instead of performing a repair service because such services require different management. Even when manufacturers do offer repair services, those services may actually be provided by subcontractors, business partners, or a separately managed services unit within the manufacturer’s enterprise.
A third difference between industry and some services is less often discussed: customization. In industry, customization of products makes it harder to manage constraints, so a preferred TOC strategy is to serve as many distinct market segments as possible with as few product variations as possible. Many services, such as health care and education, also benefit from standardization for constraint management and other purposes, such as quality control.
On the other hand, Professional, Scientific, and Technical Services (PSTS) are always customized to some degree. When a client engages an advertising firm to devise a new campaign, hires a research firm to conduct a scientific study, or utilizes an information technology services firm to build a website, it’s counting on those service providers to meet its unique requirements. So at the very least, the deliverables have be different from previous deliverables. But the projects or processes the service providers use to produce those deliverables often have to be customized, too. This customization makes it hard for service providers to find one constraint, marshal the nonconstraints around it, and keep the constraint from floating. This has largely kept TOC out of PSTS.
For me John’s approach to the concept of Product and Services provides clarity around two terms which are integral to understanding and applying the principles of Service Management, since what we provide to our customers is a solution which is a mix of products and services. Understanding this helps us to better define and publish IT’s value proposition.
For those of of you who are fans of the Theory Of Constraints or are looking for an interesting way to evaluate and measure the delivery of IT Services at a very detailed level I recommend John’s book, which can be purchased on Amazon.
Troy’s Thoughts What Are Yours?
”Better to light a candle than to curse the darkness.” ~Chinese Proverbs