According to the “six markets” model of Christopher, Payne and Ballantyne (1991), an organization needs to be concerned with six markets, namely, customer markets, referral markets, influencer markets, employee markets, supplier markets and internal markets (Payne, Ballantyne & Christopher, 2005). While customer markets refer to existing and prospective customers of the organization, internal markets refer to the organization itself, including its different departments and staff (Payne et al., 2005). For the purpose of this section, only
‘customer markets’ and ‘internal markets’ are of interest. Since both customers and internal employees constitute markets for the organization, both can be managed through similar approaches. This approach consists of the following stages:
(1) Identify key participants, or segments, within each of the market domains;
(2) Review the expectations and needs of key participants;
(3) Review current and proposed levels of emphasis in each market; and (4) Formulate an appropriate relationship strategy.
In the customer market, the organization acts as the service provider for its traditional customers or external customers. In the internal market, various departments or functions of the organization become both customers and service providers to each other, i.e. various internal service providers provide internal services to internal customers. Gremler, Bitner and Evans (1995) defined an internal customer as “anyone in an organization who is supplied with products or services by others in the organization. That is, the employees of an organization can be considered as internal customers who, like external customers, are looking to get their needs satisfied”.
Vandermerwe and Gilbert (1989) stated that firms typically take one of three approaches towards management of internal services: the accounting approach, the organizational approach and the operational approach. Vandermerwe and Gilbert (1989) also proposed a fourth approach, namely, the market-driven approach to improve upon the existing three approaches (see Tables 5.3 and 5.4). The following discussion of the four approaches is based on Vandermerwe and Gilbert (1989).
Cost Communications Efficiency Users &
Usage
Accounting X
Organizational X X
Operational X X X
Market-driven X X X X
Table 5.3: A shift in focus between the approaches of internal service management (from Vandermerwe & Gilbert, 1989)
Approach Focus Buyer / Seller relationship
Accounting Cost Rigid
• Low customer commitment
• Financially based Organizational Information Structured
• Defined relationship
• Task-oriented
Operational Efficiency Periodic
• Limited involvement
• Process-base Market-driven Users and usage Ongoing
• Flexible
• Market-based
Table 5.4: Aspects of approaches of internal service management (from Vandermerwe & Gilbert, 1989)
In the accounting approach, the focus is on minimizing the costs of internal services. This focus becomes dysfunctional and leads to several shortcomings. In this approach, service providers become insensitive towards their customers. Offered services become undifferentiated and inflexible and fail to meet the requirements of the customers. Since these customers are internal to the organization, the organization as a whole suffers.
In the organizational approach, the focus shifts from minimizing costs to creating a structure that facilitates relationships and communication between internal customers and internal service providers. Though this approach often works, it limits the interaction between internal service providers and internal customers to functional issues only.
The operational approach takes a ‘service-factory’ orientation towards internal services. In this approach, the focus is not on minimizing cost but rather on maximizing the efficiency of internal service production and delivery across the organization. The operational approach results in routine, standardized service offerings. This approach limits the interaction between internal service providers and internal customers to only those issues that are relevant to efficient production.
The above three approaches suffer from two problems: (1) internal service providers are insensitive to the needs of their internal customers, and (2) they often do not realize this.
Consequently, the internal services fail to meet the requirements of internal customers and often do not adapt to their changing needs. This is the result of a focus on the service itself and a lack of sensitivity towards the users.
To alleviate the short-comings of the three approaches to internal services, Vandermerwe and Gilbert (1989) have proposed the market-driven approach. This approach shifts the focus from the internal service offering to the customer of the service; the approach forces the internal service providers to ask and answer two questions: who uses our services, and for what purpose?
In the market-driven approach, the internal service providers align themselves with the internal customers’ needs, thereby increasing the overall effectiveness of the organization. The market-driven approach to internal services necessitates the following:
(1) Providers and receivers become sellers and buyers. This radically changes attitudes and the providers realize that they exist to serve an end-market.
(2) Sellers want to understand the needs of their customers and adapt to their changing needs.
(3) Providers are focused on adding value to their customers, and thus to the overall organization.
(4) The operations become ‘flexible service factories’ emphasizing routinization and standardization, but at the same time remaining flexible to meet specific customer needs.
Earlier sections have provided an overview of the service management approach, as it is applied to the relationship between the organization and its customers. Here, the organization is the service provider and the customer is external to the organization. Service management is inherently customer-focused. This section has provided an overview of a customer-focused, market-driven approach to internal services. In internal services, the concepts of service management are equally applicable, the only difference being that both service providers and customers are employees, and hence internal to the organization.
Information technology (IT) operations in organizations are frequently managed as an internal service. The next section provides an overview of IT service management.