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Guus Leeuw, ITPassion Ltd: Providing a Service is all about the client... yeah right!
September 2008 by Guus Leeuw jr. - President & CEO, ITPassion Ltd
There are two types of storage services that can be provided to organisations: in-sourcing and out-sourcing. With in-sourcing, the client would receive, say, a storage administration team that then works on the premises and with the equipment of that client. The business model behind this type of service is quite easy to setup and to sell. Setting up an average cost, to be paid per team member per month, is quite easily done, as one only has to look at the salary ranges of these people to figure out how much the client should be paying for each one of them. As Junior Administrators are likely to be less expensive than a Senior Administrator, an average price covering all variants between Junior and Principal is easily made up.
The client side of this is that one would expect a good balance in skills, ranging from junior people to Principals. However, it is fairly easy to provide a lot more junior people than a good balance would suggest, and thus under-deliver on the quality of service.
The result of such a scheme would be that the client is over-charged for the service that it receives. After a while the client becomes unhappy with the service and starts looking for a different organisation to provide more of the same. Meanwhile, the storage provider gets a nice bonus for under-delivering on the quality and is doing well financially.
The difficulty in this scenario is to find and maintain the right balance, for the sake of the client. The interests of both parties are essentially conflicting, as the service provider wants to reduce cost, whereas the client wants to improve quality of service. Often, this conflict of interest is not understood at the client, who assumes that the service provider will do their utmost to provide good services, whereas the service providers eagerly make sure, that this remains so.
It would be a good thing, if the service provider would care more about profit in the long term, making clients happy. For the only good client is a happy client.
Out-sourcing is a lot trickier to setup from a business model perspective. There are several factors that play a role: Cost of data centre, electricity, cooling, equipment, and staff all play a vital role in making sure that the price for 1 TB of storage actually matches the cost that the service provider has in providing and managing that Terabyte of storage.
There are several ways to make sure one can over-charge a client, the most obvious is to hide the business model and the calculations that resulted in the price of that Terabyte of storage. Unless faced with procurement who already did the cost calculations for the organisation itself, not many clients understand the business model behind storage service providers.
Another easy way to reduce ones costs, from a provider perspective, is to utilise low-cost labour. Low-cost labour is often times also less experienced. Again, here is a conflict of interest: the client wants good quality storage services, whereas the provider wants to reduce the cost behind its business model.
In reality providing a service to a client is about making a profit off that client. The question that the client should ask and answer for himself is: How much of a profit do I want the service provider to make? And only when the answer is understood should one go about selecting a service provider.
