An Interdisciplinary Perspective on IT

Services Management and Service Science

Indranil R. Bardhan, Haluk Demirkan, P.K. Kannan,
Robert J. Kauffman, and Ryan Sougstad

Indranil R. Bardhan is an Associate Professor of Management Information Systems

and Accounting and Information Management at the University of Texas at Dallas.
His research interests are in the areas of information technology valuation, business
impact of information systems on supply chain and firm performance, and health care
informatics. His research has been published in leading journals, including Informa‑
tion Systems Research, Journal of Management Information Systems, MIS Quarterly,
Operations Research, Manufacturing & Service Operations Management, Production
and Operations Management, European Journal of Operational Research, Annals of
Operations Research, Journal of Productivity Analysis, and Journal of the Operations
Research Society of Japan. He has ten years of management consulting experience and
has advised Fortune 500 executives on information technology strategy and systems
implementation.

Haluk Demirkan is a Clinical Associate Professor of Information Systems and a Re-

search Faculty member of the Center for Services Leadership at the W.P. Carey School
of Business at Arizona State University. He has a Ph.D. in Information Systems and
Operations Management from the University of Florida. His research in service sci-
ence and service-oriented management and technology solutions has included recent
industry-sponsored research projects with American Express, Intel, IBM, Micro­
Strategy, and Teradata. His research appears in a number of journals, including Journal
of the AIS, European Journal of Operational Research, IEEE Transactions on Systems,
Man, and Cybernetics, Electronic Commerce Research and Applications, Information
Systems Frontiers, Communications of the ACM, Information Systems and E‑Business
Management, International Journal of Services Science, and other leading journals.
He has 15 years of consulting experience in the areas of service-oriented solutions,
information supply chain, business intelligence, and strategic business engineering
with Fortune 100 companies. He is the recent recipient of the IBM Faculty Award for
a research project titled “Design Science for Self-Service Systems.”

P.K. Kannan is a Professor of Marketing in the Robert H. Smith School of Busi-

ness at the University of Maryland. He is the Director for the Center of Excellence
in Service. His research focuses on new product/service development, design and
pricing of digital products and product lines, marketing and product development on
the Internet, e‑service, and customer loyalty. He has received several grants from the
National Science Foundation, Mellon Foundation, Science Applications International
Corporation, and PricewaterhouseCoopers. His work has been published in Marketing
Science, Management Science, Journal of Marketing Research, International Journal
of Electronic Commerce, and Communications of the ACM. His research won the John
Little Best Paper Award (2008) and the INFORMS Society for Marketing Science
Practice Prize Award (2007). He serves on the editorial boards of Marketing Science,

Journal of Management Information Systems / Spring 2010, Vol. 26, No. 4, pp. 13–64.
© 2010 M.E. Sharpe, Inc.
0742–1222 / 2010 $9.50 + 0.00.
DOI 10.2753/MIS0742-1222260402
14 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

Journal of Marketing, Journal of the Academy of Marketing Science, International

Journal of Electronic Commerce, and Journal of Service Research.

Robert J. Kauffman is the W.P. Carey Chair in IS at the W.P. Carey School of Busi-
ness, Arizona State University, where he holds appointments in IS, Finance, Supply
Chain, and the School of Computing and Informatics. He has served on the faculty
at New York University, University of Minnesota, and University of Rochester. His
research interests span the economics of IS, competitive strategy and technology,
IT value, pricing, supply chain management, and theory development and empirical
methods. He has published in many leading journals and won outstanding research
awards from the IEEE, Association for Information Systems, INFORMS, International
Conference on Electronic Commerce, and Hawaii International Conference on System
Sciences in the past five years.

Ryan Sougstad is an Assistant Professor of Accounting and Business Administration

at Augustana College in Sioux Falls, South Dakota, which he joined in summer 2009.
He spent seven years with IBM in client sales and marketing and at IBM Research’s
Business Informatics group. He holds a B.A. from the University of Kansas, an MBA
from UT Dallas, and a Ph.D. in IS from the University of Minnesota. His research on
the valuation and risk management of IT-enabled services has appeared in the Journal
of Management Information Systems and International Journal of Services Science.

Abstract: The increasing importance of information technology (IT) services in

the global economy prompts researchers in the field of information systems (IS)
to give special attention to the foundations of managerial and technical knowledge
in this emerging arena of knowledge. Already we have seen the computer science
discipline embrace the challenges of finding new directions in design science toward
making services-oriented computing approaches more effective, setting the stage for
the development of a new science—service science, management, and engineering
(SSME). This paper addresses the issues from the point of view of service science
as a fundamental area for IS research. We propose a robust framework for evaluating
the research on service science, and the likely outcomes and new directions that we
expect to see in the coming decade. We emphasize the multiple roles of producers
and consumers of services-oriented technology innovations, as well as value-adding
seller intermediaries and systems integrators, and standards organizations, user groups,
and regulators as monitors. The analysis is cast in multidisciplinary terms, including
computer science and IS, economics and finance, marketing, and operations and supply
chain management. Evaluating the accomplishments and opportunities for research
related to the SSME perspective through a robust framework enables in-depth assess-
ment in the present, as well as an ongoing evaluation of new knowledge in this area,
and the advancement of the related management practice capabilities to improve IT
services in organizations.

Key words and phrases: cloud computing, economics, IS, IT services, literature sur-
vey, marketing, operations, research directions, service science, services management,
services-oriented systems, system science.

Most organizations today depend on information services that are facilitated by infor-
mation technology (IT) [186]. Services-oriented thinking is one of the fastest-growing
 IT services management and service science 15

paradigms in technology management, with relevance to many other disciplines, such

as accounting, finance, marketing, computer science, information systems (IS), and
operations. According to Babaie et al. [11], worldwide end-user spending on IT ser-
vices will grow at a 6.4 percent compound annual growth rate through 2010 to reach
$855.6 billion, with positive growth in nearly all market segments. International Data
Corporation (IDC) estimated that the spending on the software-as-a-service (SaaS)
market would significantly grow to $10 billion by 2009 [45], experiencing a 138
percent increase from $3.6 billion in 2005 [125]. It further estimated that spending
would grow to more than $33.8 billion by 2010, almost ten times what was spent in
2005. Plummer et al. predict that at least one-third of business application software
spending will be on SaaS, instead of as product licenses by 2012 [187]. Also, 40
percent of capital expenditures will be made for infrastructure-as-a-service (IaaS)
by 2011. In addition, Forrester Research indicates that companies implementing a
service-oriented architecture (SOA) are typically able to reduce costs for the integra-
tion of projects and maintenance by at least 30 percent [232].
A critical enabler of this growth is the convergence of different kinds of IT. Grow-
ing knowledge with respect to IT-related design, execution, storage, transmission,
and reuse is creating opportunities for organizations to configure services relation-
ships that create extraordinary new value [47]. IT helps to improve the efficiency,
effectiveness, and innovativeness of organizations. It makes this possible through the
commoditization of noncore competencies, including outsourcing and other forms
of external services acquisition. Another improvement comes through value-adding
collaboration supported by new inter- and intraorganizational workflows and business
processes made possible by IT [144]. Another beneficial effect is decreasing the risk
of information security breaches. We see entirely new types of services being facili-
tated, including Internet search, mobile ticketing, digital wallets, biometric security
capabilities, and mobile medicine applications.
Other developments involve the separation of production and consumption of
services, so multiple organizations can be involved in adding value [47]. Related to
this are capabilities that support storage, transport, and access to knowledge-based
services. These include online university courses, Internet tax filings, and multifirm
sharing of risk management data. Additional efforts have gone toward coordination
of services systems, including online brokerage systems, information and opinion
markets, and open innovation platforms, which have the capacity to change the
business processes of the past for a new, higher-technology future. We have also
seen reductions in the costs of services production, with semiautomated and fully
automated call centers, digital delivery of surveys and information to customers,
and after-sale warranty services and customer support. Improvements in customer-
perceived services quality have also been occurring with the IT-enhanced ability to
standardize elements of services, and to more flexibly customize them [69]. Another
area of beneficial effects comes from the integration of customer operations in sup-
port of services creation and delivery, as we have seen in business-to-business (B2B)
activities such as electronic procurement, co-production of services, new product
development, and security services design [161].
16 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

Although services-oriented thinking is a growing paradigm, scholars from different

functional perspectives have investigated the challenges of services independent of
one another. This includes IT services and computer science, economics and financial
analysis of services, services marketing and management, services operations and
supply chain management, and human resources. The ideas have grown with the avail-
ability of theories, tools, and methods of the individual disciplines. As firms attempt
to remap their offerings from goods to services, to increase value for their customers,
to rethink strategies and structures, and to transition to services management for their
portfolio of resources and capabilities, functional perspectives alone are insufficient
[186]. Instead, interdisciplinary and cross-disciplinary approaches are required to
understand how services should be designed, delivered, and supported.
Current research in IT and computer science has examined issues in decision support
services environments [107], services management [64], service-level agreements [24]
and negotiation processes [26], knowledge management, business valuation, enterprise
modeling, business process analysis, and applications services. Most services-oriented
technology research focuses on service-oriented architectures with the use of data
grids, Web services, grid services, component technology, middleware, and agent
technology to create a technical architecture that orchestrates software services into
applications and an infrastructure that supports services consumer needs [180, 217].
A large portion of the SOA literature describes specific applications: network services
[77], digital libraries [225], data mining [48], and health care [53]. Other literature
examines SOA development and implementation issues, such as service-level agree-
ment management [176], and enterprise services. These studies assess the means for
the success of SOA implementations. Also, there is a growing research awareness of
developing new types of decision support infrastructures that link lower-level archi-
tecture to virtual support environments [107].
New business applications require effective valuation to support investment deci-
sion making. There are many valuation methods, but recently new decision making
under uncertainty approaches have gained attention. Their limitations are apparent
in their inability to address some sequential investment decisions, including ongoing
service-level agreement negotiation in co-sourcing contexts [74]. The managerial
needs create the impetus for exploring theory-based approaches from economics and
finance to improve the organization’s control of services-oriented technology and
management activities.
Researchers in services marketing have been analyzing customer-defined service
quality, satisfaction and loyalty, participation in services delivery, and lifetime value
[159, 231, 238]. Services culture and climate, employee empowerment, hiring and
training services employees, and incentives have also been considered. Some studies
related to services-oriented operations and supply chain management estimate the
economic impact of data quality problems. They also evaluate the effectiveness of
radio frequency identification (RFID), determine control policies that perform robustly
in systems with less-than-perfect data, and promote development of decision support
frameworks to accommodate the diverse concerns of geographically dispersed enti-
ties across the supply chain [169]. Difficulties arise with the presence of uncertainty
 IT services management and service science 17

in demand, capacity, transportation and manufacturing time, costs and quality, and
priorities [35]. Other concerns include the effects of missing or ambiguous informa-
tion and the bullwhip effect.
Meanwhile, the world economy is transitioning from a goods-based economy to
one of value creation, employment, and economic wealth dependent on services [220,
221]. According to Pal and Zimmerie [178], services account for 75 percent of U.S.
gross domestic product (GDP) and 80 percent of private-sector employment [135].
The Organization for Economic Cooperation and Development (OECD) countries are
also having this change. As described by Friedman, globalization has created a triple
convergence of “new players, on a new playing field, developing new processes and
habits for horizontal collaboration” [100, p. 175]. This has resulted in an explosive
opportunity for countries all over to participate in global value chains, where services
are increasingly essential. A silo-based approach to research and education within
disciplines that are critical to this new approach of conducting business and address-
ing societal needs is untenable, as a result.
Rai and Sambamurthy [189] stated that the growth of services-oriented IT innova-
tions, coupled with the shift from goods to services, will yield many opportunities
for IS researchers to investigate behavioral, economic, technical, and organizational
issues. In this paper, our intent is to build on the core foundations related to IT and
the services orientation. The relevant research culture is characterized by a cross-
disciplinary attitude, recognizing that fulfilling client needs is the primary objective. A
related attitude is an awareness of the complexities associated with service trade-offs
and the associated decision making involving value, risk, and cost.
We present a robust framework that supports our evaluation of theory and methods for
the management of services-oriented systems.1 Then we initiate our exploration of the
issues and opportunities for new managerial knowledge for services-oriented systems
through the computer science, design science, and IS and technology perspectives.
The discussion in the fourth and fifth sections considers the economics and financial
economics of services-oriented systems and the applicability of leading theoretical
perspectives that suggest where new foundational knowledge for the emerging disci-
pline of service science can be developed. Then we consider perspectives on service
science developed by services marketing and logistics and operations and supply chain
management researchers. In both disciplines, services-oriented approaches have been
shown to be critical to organizational performance.

Evaluating Theory and Methods for Services-Oriented Systems

In the development of a survey of current thinking and research directions related
to theory and methods that will come to define a new area of exploration in academic
research, it is important to work from a set of organizing principles that will find
widespread agreement among university researchers and industry practitioners for their
relevance in the present and their continuing applicability in the future. In this paper, we
view the new paradigm, the related emerging practices, the fresh theoretical perspec-
tives, and the promising methodologies as arising around a disruptive technological
18 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

approach for computing and systems in organizations—the services-oriented systems

paradigm [123]. Our perspective emphasizes (1) the multiple roles of different stake‑
holders, (2) the effects of the technological changes that are under way, and, (3) where
different theories are likely to find an important place in the foundational knowledge
of this emerging discipline, possible new research directions.
A robust framework offers a means for analyzing technological innovations in a
manner that aims to provide validity over time and across different environments and
settings [9, 142]. The property of robustness has the multiple connotations of standing
the test of time, enduring in the face of changes in the marketplace and technology, and
being continuously useful even with the passage of time. It offers the capability for
an observer to evaluate the effects of technology, the efficacy of different theoretical
perspectives, the appropriateness of alternate firm strategies, and thus the usefulness
of various theories when some of the conditions of a setting are changing.
Utilizing a robust framework for analyzing these issues—services-oriented systems
and service science—offers an unusual opportunity for laying down some key con-
ceptual foundations, initiating perspectives for business school research, and defining
some of the important elements of the future agenda for studying key issues in this
area. In this context, a disruptive technology is a technological innovation that changes
the market and industry infrastructure; gives rise to new business processes and soft-
ware applications; and supports the displacement of current technologies, products,
and services while creating a new basis for products, services, infrastructures, and
applications that will become dominant in future markets [50, 51].
We will leverage the proposed robust framework to provide a basis for analyzing
how services-oriented systems and service science will act as a disruptive technologi-
cal innovation that will have effects on four kinds of stakeholders. A stakeholder is
an agent that is able to effect change through its own actions with technology, or is
affected by a technological innovation and the related products and services changes
due to the actions of another stakeholder. These kinds of things occur within technol-
ogy ecosystems [1, 2]. The effects of changes that occur may be more or less readily
observed, depending on the specific impact dimension considered. The resulting
changes involve consumer utility, business processes, managerial practices, and wel-
fare. An agent may be a consumer, user, buyer, innovator, producer, vendor or sales
and consulting intermediary, government regulator, user group, standards organization,
and so on. Stakeholder roles can create effects or will be subject to being affected by
the technology disruption.
Typical stakeholders have private profit incentive–driven and social welfare–driven
considerations related to the economic, organizational, human, and technological
issues that may arise. Our term stakeholder differs from its usage in economics and
finance. In those disciplines, a stakeholder is an agent that has some financial or other
interest in a firm (www.thefreedictionary.com/stakeholder). This includes relation-
ships involving the local community, as in the case of utilities, and the regional and
national government, which may have an interest to regulate some activities due to
technological innovation.
Figure 1 shows our framework as a stakeholder circle. It emphasizes stakeholder
roles and the extent to which one stakeholder’s interests differs from another’s. On
 IT services management and service science 19

Figure 1. A Stakeholder Framework for IT Services Management

Notes: A disruptive technological innovation enters the environment at the epicenter of the
circle. The ripples (outer circles) affect stakeholders that are arrayed around the point of
the first disruption, illustrated by the large and innermost circle. The producer stakeholders
and the consumer stakeholders have somewhat opposing goals; for example, buying at a
low price versus achieving a value-maximizing payback on a technological innovation. The
same is true for the intermediary stakeholders and the monitor stakeholders; one is interested
in adding value to the intermediation process between producers and consumers, while
the other is interested in regulating or standardizing the intermediation process so that the
highest social welfare is achieved.

the top, we have the producer stakeholders, whose actions have resulted in the new
technological solutions and business practices associated with services-oriented sys-
tems and service science. These stakeholders are technology and IT services firms;
consulting firms; government, industry, and university research labs; and commer-
cialization programs. They are involved in the development of intellectual property
related to products and services. On the bottom are consumer stakeholders. They are
opposed in their interests to what the producers and innovators wish to achieve. They
are customers, clients, and users of the technological innovations. They have cost
minimization and revenue maximization as a basis for profitability on their minds.
Kauffman and Walden [142] have characterized these contrasting stakeholder roles
as value makers and value takers, as they are at opposite ends of the spectrum of
production and consumption.
The picture is incomplete without considering some other key intermediaries and
third-party stakeholders. Situated between the innovators and producers of service
science innovations and the users and consumers who purchase them, another class of
organizational stakeholders paves the roads and builds the bridges for economic ex-
change. The intermediary stakeholders are IT and technology vendors that obtain rights
20 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

to the technological innovations, from innovators and producers, to be marketplace

and value-added resellers of derivative products and services that acquisition of the
relevant intellectual property permits. They include large and small technology solu-
tions vendors and value-added resellers and consulting firms that refine the innovations
of other firms for the market distribution of IT services. They are intermediaries in the
classical sense of market economics: without their involvement and intermediation,
the economic value of exchange would be less than if they were involved, such that
there is room for them to earn an economic profit for the intermediation services that
they offer [223]. They also support value creation, smoothing the path for consumer
adoption, acceptance of new selling, and movement to the global sourcing of capabili-
ties that are necessary to make the innovations economical.
There is another class of intermediaries—the monitor stakeholders (the “monitors”)—
that act as welfare-supporting representatives for society and the business arena. They
are third parties and do not play a direct role in buying or selling, although they may
represent other stakeholders. Their value comes from the representation they provide
so that other stakeholders’ interests are preserved: producers to continue to innovate in
the targeted technology area, vendors to sell unfettered in markets that demand their
services, and consumers to obtain protection for the purchase of goods and services
that they wish to buy. They are government agencies that are involved in regulating
trade and economic exchange, standards groups that seek to bridge the technology
and profit interests between different producers, and user representation groups that
seek lower-cost and higher-quality products and services. Examples are the World
Wide Web Consortium (W3C), the Organization for the Advancement of Structured
Information Standards (OASIS), Component Based Development and Integration
(CBDI), and IT Infrastructure Library (ITIL). (See Text Box 1.)
These ideas are useful to identify where the innovations in the IT services manage-
ment arena will cluster. With the technological innovations of IT services led by the
innovator-producers, it is natural to think of the managerial responses that occur—the
first ripple—as being a call for a new discipline of service science, management, and
engineering (SSME). This will match the changed conditions in business processes,
firms, and markets that are wrought by the services-oriented technological innovations
[75, 121, 220, 221].

The IS and Computer Science Perspectives

The service science paradigm, from the perspective of the IS and computer science
disciplines, involves all of the stakeholders. For example, the producer stakehold-
ers have created and adopted the fundamentals of the service science paradigm to
support efforts to commoditize their business processes, to make their technological
architecture and infrastructure more effective, and to enhance operational efficiency
and control costs. The services-oriented paradigm views the consumer stakeholders as
co-developers and recipients of services. This paradigm has increased the attractiveness
of market entry by value-added vendors, services process consultants, and assorted
intermediary stakeholders. The new marketplace has transformed the relationships
 IT services management and service science 21

Text Box 1. An Example: SaaS, ASPs, and CRM

A recent example of a technological disruption is the introduction of software-as-a-
service (SaaS) and application service providers (ASPs) to the market for enterprise
resource planning software. In the case of customer relationship management (CRM)
software, a new stakeholder, SalesForce.com, entered successfully as a software and
services innovator. This introduction rippled to the marketplace of buyers, where new
clients, small and medium-sized businesses, were able to afford enterprise-quality
software, only now delivered as a service. Fearing erosion of their markets, larger
companies began to embrace SalesForce.com as well. Meanwhile, the existing inno-
vators and producers, such as Siebel (now merged into Oracle), entered the market-
place with SaaS applications of their own. Since these applications are geared toward
smaller firms, the existing providers relied on their existing sales channels, which
changes the role of the value-added reseller as a business intermediary to one of a
services delivery intermediary. Meanwhile, new standards have been evolving around
the SaaS offerings, and new stakeholders are beginning to have an increasing say in
how these standards will emerge.

these stakeholders engage in, far beyond the dyadic buyer–supplier relationships of
the 1980s. Finally, there is increasing interest in the development and expansion of
monitor stakeholders. Collectively, these stakeholders lobby for and provide technol-
ogy standards and managerial guidelines on behalf of organizations that adopt the
services-oriented paradigm.

SOA, Business Strategy, and IT Alignment

Spohrer et al. [222] define services as the application of competence and knowledge
to create value between providers and receivers. This value accrues from the interac-
tions of services systems that involves people, technology, organizations, and shared
information in addition to language, laws, measures, and models. The goal of service
science is to provide a foundation to advance our ability to design, refine, and scale
services systems for practical business and societal purposes. In the IT context,
services-oriented systems address the fusion of business processes and technologies
by building innovative bridges or autonomous, implementation-independent interfaces
from business processes to software, data, and technology services [152]. They also
provide the capability to transform current technologies that exist in silos across the
organization in support of flexible IT services. Linkages between business processes
and services that source their execution will be aligned in a manner that facilitates
cost advantages from the commoditization of hardware (e.g., on-demand utility com-
puting, software-oriented infrastructure with virtualized resources, and infrastructure
services providers), software (e.g., SaaS, SOA, and application service providers
[ASPs]), and even business processes [62, 69]. This is referred to as a service-oriented
architecture [30].2
SOA is not limited to Web services or architecture. It is about the value of distrib-
uted processes, reuse, information, and coordination. It offers benefits for enterprise
22 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

connectivity by removing redundancies, generating collaboration tools, and stream-

lining processes [31, 72]. With services thinking, companies co-create their offerings
with customers and break process silos into modular services that can be reused in
loosely coupled services systems or out-tasked to external providers [73, 75]. Out-
tasking occurs on a smaller scale than outsourcing. It involves individual tasks or parts
of the process-sourcing strategy, not collections of them [144]. The services paradigm
is still new and the technologies and practices are changing rapidly. Thus, it is time
to rethink our managerial approaches to IS and technology from new organizational
and technical vantage points [189].
One aspect of many IT services is the high degree of involvement by people in delivery
and usage. The innovators, vendors and systems integration consultants, and consum-
ers and users are critical. We recognize that innovation, planning, design, delivery,
use, support, and maintenance of any IT service includes a variety of capabilities,
heterogeneous expectations of value and performance, and the willingness to permit
nonstandard solutions to co-exist with standard solutions [67, 99].
Another aspect of IT services is that they are more or less intangible [155]. IT services
cannot be touched or felt, though they may be associated with something physical—a
computer, a network server, or the activities of a business process. The installation of
network cabling, including the physical production process of delivering the service
through the cable, is tangible. Help desk operations, IT training, and systems design
are not tangible. IT services cannot be stored in inventory for later use like com-
modity inputs or manufactured products. So the management of consumer demand
and service delivery capacity supply will be similar to revenue yield management of
perishable goods such as airline seats. Whatever services can be produced must be
simultaneously consumed, a property called inseparability. Traditional measures of
the quality of goods and organizational success are insufficient for effective manage-
ment of intangible and perishable services.
Edvardsson et al. [84] noted that pricing decisions are crucial in services. They
need to be value maximizing for production and consumption and, under some cir-
cumstances, must be provided in high volume with short response times. A related
property is co-creation by producers and customers, which blurs the typical distinction
between vendor and client [237]. IT services also involve high customer–producer
and vendor contact. Krajewski and Ritzman [149] have argued that services providers
sometimes may become customers in the delivery process, getting as much value from
the process as they produce. This occurs in settings with co-production of software
applications that are used as intended by the customer but subject to reuse and refine-
ment by the producer.
We expect to see pressure on organizations with respect to technical, organizational,
and behavioral challenges that must be overcome. Several perspectives from IS and
computer science are useful for exploring research issues in IT services management.
They include business strategy and IT alignment, the services-oriented property of
loose coupling, use of semantics for interoperability, reuse and modularity as part of
organizational culture, the organizational and human effects of SOA adoption, and orga-
nizational dynamic capabilities that are enabled by services-oriented technologies.
 IT services management and service science 23

Mergers and acquisitions, new regulations, rapidly changing technology, increasing

competition, and heightened customer expectations mean companies must become
more responsive to changing demands in order to become more innovative and agile
[52]. For organizations to respond to market changes promptly, their business strate-
gies need to be tightly linked with their IT operations. Organizations need to sense
and respond to market changes and reallocate their resources dynamically [175].
Today, some organizations still do not have the capabilities to react fast due to their
IT infrastructures. Most enterprises do not have documented processes and policies
in place [134]. Another challenge is inconsistent information scattered throughout the
organization, which makes interorganizational and intraorganizational collaboration
much harder. Internal and external regulations and compliance requirements also
increase the environmental complexity of organizations [157].
This set of components can be defined in multiple ways. For example, Luftman and
McLean [156] define business strategy and IT alignment in terms of the correspon-
dence between the strategies, goals, and needs of the business and the requirements
of IT-based systems. Alignment needs to be done for intra- and interorganizational
processes [18], with a focus on external alignment with collaborators and business
partners [167, 203].3

Characteristics of Systems and Organizations Implementing SOA

Loose Coupling

Loose coupling is a fundamental promise of services orientation properties to support

organizational dynamism. With loose coupling, an organization maintains interdepen-
dent elements that vary in the number and strength of relationships with other elements
in other locations. Coupling indicates these elements are linked. Loose means they are
subject to spontaneous changes and possess some degree of independence [174]. So
loosely coupled systems are connected yet changeable. Implementing an SOA allows
loose coupling at multiple levels.
Service orientation allows loose coupling between an organization’s application
architecture and the business processes it supports [3]. Application logic can be
decoupled within a system, just as business process logic is separate from business
services, which are mapped to appropriate application services. This way, if business
processes need to change to meet market changes, an organization only needs to alter
its application service pattern to fit the new business logic. It will not need to develop
a new application.

Dynamic Capabilities

Dynamic capabilities of an organization are vital to the development of greater process

flexibility and agility in decision making [229]. Pavlou and El Sawy [184] explain how
dynamic capabilities can be established with five major processes. The integration
process supports implementation of new configurations of operational competencies
24 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

by developing required patterns of systems interaction. The coordination process helps

allocate resources and services, assign tasks, and synchronize activities. The learning
process drives innovative thinking and new knowledge generation to enhance exist-
ing resources and services. The sensing process aids management’s understanding of
the environment, business needs, and opportunity identification. The reconfiguration
process shapes existing resources and services into new configurations to match the
environment.
The dynamic capability of a services environment implies that the system has long-
term viability and that it meets services providers’ objectives for scale, quality, produc-
tion costs, margins, and return on investment (ROI). Similarly, infrastructure service
dynamic capability involves IT, policies, organization, and coordination. Creating
dynamic capabilities for the organization involves oversight, services and software,
IT and infrastructure, scalability and scope, and performance assessment.

System Semantics and Ontology

The transformation to the services orientation involves the deployment of what is

referred to as semantics. At the business process layer, semantics efforts represent
the move toward standardization of business processes, operations, and informa-
tion requirements, and their representations. These requirements can be turned into
machine-processable descriptions by using semantic Web capabilities at the architec-
tural services layer. A machine in a system will be able to execute these requirements
with Web services through infrastructure resources to apply necessary functionality
or complete a relevant task. Establishing appropriate semantics is a difficult task in
a single organization, and it becomes almost impossible when many collaborating
organizations in a value chain are considered.4
Central to all these efforts is the use of ontology to provide domain-based data
representation to facilitate automated reasoning. One benefit is to provide a means
for machine processing to dynamically bind disparate services together to deliver
computational capabilities to an enterprise. Another is to use representations that
make sense to humans. Because semantics requires achieving commonality and rigor
with domain-specific phrases, words, and concepts, it makes sense that organizations
devise their own semantics. They also need to pay attention to semantics development
efforts that can link their business processes and computing capabilities to external
communities.

Reuse, Modularity, and Decomposition

The services orientation for IT also has the potential to make out-tasking and outsourc-
ing more effective because it reduces the dependencies between standardized units of
services [153] and supports reuse. The commoditization of business processes, soft-
ware services, and infrastructure requires strategies for reuse though. So discovering
generic reuse processes that are relevant is important. Because business processes may
share subprocesses, the ability to reuse subprocess capabilities is important. Another
 IT services management and service science 25

challenge of designing, executing, and maintaining an SOA is services identifica‑

tion. To identify reusable services that can be integrated, it is appropriate to have a
methodology to support examination of the business from multiple perspectives and
to identify the basic building blocks. Fundamentally, the services-oriented paradigm
is a decomposition process that results in modularity [98]. This means that the logic
required to solve complex problems can be broken down into smaller and more man-
ageable components.
Modularity refers to the degree a system’s components can be separated and recom-
bined [14, 15, 212]. The basic premise is that modularity allows for greater agility
when the need for change arises. Modular software or systems can be developed in the
form of components with standardized interfaces. This permits parts of the software
or the system to be easily changed with minimal interactions elsewhere and integrated
into the whole system when there is a need.
Although there are exceptions [44], modular products typically lead to modular
organizational forms [120], and are best produced by modular organizations [151].
This is consistent with the relationship between task environments and organization
structure. The requirements of an organization’s technological core shape the task
environment, and this determines the appropriate organizational structure. However,
there is a trade-off. As modularity increases, so does complexity. Baldwin and Clark
[14] indicate that to be effective, modular systems require architectures that specify all
modules and their functions, interfaces for module interaction, coordination, and com-
munication, and the standards for testing the module’s conformity to design rules.

Services-Oriented Technology Adoption and Management

Another issue with the adoption of services-oriented IT is how this process changes
the way people and organizations work. Coordination theory provides a road map to
investigate the process of managing dependencies between activities [162]. It identifies
several such dependencies and describes the coordination processes between them.
Coordination structures represent patterns of decision making and communication
among a set of actors who perform tasks to achieve goals. There are four coordination
structures—product and functional hierarchies, and centralized and decentralized mar-
kets. Each has trade-offs between production, coordination, and vulnerability costs.
Coordination costs in services systems arise due to the need to maintain commu-
nication links and exchange messages among the actors [71]. This includes formal
knowledge and information sharing, task scheduling, transferring instructions for
input and output, and other transaction costs. Vulnerability costs are incurred when
sudden and unexpected changes arise. Relative to the different coordination structures
that are possible for IT services, the consumer stakeholders are task processor users.
Williamson’s [234] theory of transaction costs concerning governance structures is
another applicable theory for IT services that fits well. An organization’s governance
structure should be designed based on the degree of asset specificity and the complex-
ity of its products’ descriptions, which give rise to important considerations about the
supporting role of IT services and related costs.
26 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

Based on its IT infrastructure for Web services, SOA offers new ways of viewing
units of automation within the enterprise. It offers benefits such as “end-to-end enter-
prise connectivity by removing redundancies, generating unified collaboration tools,
and streamlining IT processes” [30, p. 691]. The research has focused on technical
prescriptions of best practices for architecture integration in various contexts [180].
Overall, there is little research on the organizational and human effects of SOA
adoption, workflow patterns, knowledge sharing, and individual and group perfor-
mance. Coordination and social network analysis will help to understand the human
factors of SOA adoption. Coordination network analysis is based on prior research in
network theory, and it looks at the formal coordination structures of human resources
[106]. Social network analysis is more about informal relationships. Prior research
has demonstrated that these networks of informal relationships influence workflows,
knowledge sharing, learning, and innovation [42, 66].

Related Research Directions

Drawing upon the prior discussion, we propose the following research directions that
seem appropriate for IS researchers to pursue, in collaboration with others from the
appropriate disciplines:

Research Direction 1 (The Commoditization of Hardware, Software, and Busi‑

ness Processes): Research should focus on the effects of the commoditization of
hardware (e.g., on-demand computing, cloud computing, SOA with virtualized
resources, and infrastructure service providers), software (e.g., SaaS, and ASPs),
and business process services.
This research direction is a natural outgrowth of e‑commerce, outsourcing, and
process management, all of which are enabled by services-oriented technology and
management. There has been limited research on the commoditization of processes
and assessing the service quality risks associated with IT services outsourcing [69].
We call for research that supports organizational capabilities to propagate business
process changes with minimal impact to underlying platform-specific architectures.
More needs to be done related to handling dynamic business process workflow reli-
ability and the mapping of reliable solutions to technology services [209].

Research Direction 2 (The Value and Agility of SOA-Based Enterprise Business

Applications): Research should assess the agility aspects of SOA-based enter‑
prise business applications, including customer relationship and performance
management systems.
Horizontal and vertical linkages between business processes and the application
services that source their execution through related technology services also need to
be aligned and streamlined.

Research Direction 3 (A Semantic Basis for SOA): We further call for development
of a semantic basis for SOA, including the development of application domain
 IT services management and service science 27

ontologies, semantic Web technologies, and knowledge-based techniques for

service discovery and selection.
Other related issues involve scalability, performance, and reliability of algorithms
for processing transactions, queries, rules, and distributed events. Also important is
research on enterprise application modeling and component integration, model-driven
architecture and network, system, and application aspects that support trustworthy
networked systems [230, 235].

The Economics of Information Systems Perspective

The authors of a 2006 article in Booz Allen Hamilton’s Strategy+Business magazine,
Couto and Divakaran [63] noted that after a series of high-profile failures occurred,
many observers came to believe that outsourcing was on its way out. But early errors
actually helped the industry evolve from one focused on cost to one focused on high-
quality services critical to its customers. Today, outsourcing firms are upgrading their
systems, offering increased flexibility, and focusing on performance and quality assur-
ance. In spite of these concerns, the demand for and supply of IT services represent a
burgeoning part of the global economy, and one whose innovations can be appropri-
ated as value by organizations that adopt them. Paul Horn [121] of IBM’s T.J. Watson
Research Center has called for the development of a “new service science.” Horn,
recognizing that the U.S. economy is about 75 percent services today, views service
science as “a melding of technology with an understanding of business processes and
organization . . . crucial to the . . . next wave” [121]. The services orientation is an
economic phenomenon of major proportions that requires the full attention of business
leaders, company managers, innovators and intermediaries, educators, and government
regulators to ensure that the value it offers comes to fruition [123].

Network Externalities, Standards, and the Development of

Technology-Related Expectations
The new service science will benefit from leveraging long-standing ideas in economics
that span network effects, as well as from technology and process standards forma-
tion as they relate to IT services and the services orientation. The network literature
offers many insights regarding the effects of an installed base of technology [82, 89],
market expectations about future network dominance [136], market uncertainty about
standards and compatibility [88, 90], and path-dependent behavior of key services
producers and services delivery intermediaries [109]. There is also knowledge about
specific technologies and industries, including Federal Reserve bank check clearing
[108], software provision [54], automated teller machines [204], Web servers [104],
and telecommunications [83]. Much of this knowledge from economics can be ported
to IT services contexts.
In the area of standards, the path to full technology adoption is often marked by
events that help to diminish the uncertainty that exists in the market with respect to
28 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

the technology and that individual potential adopters will feel by committing to par-
ticular kinds of solutions. Adopting an IT services orientation means that, in addition
to make–buy decision making, a firm will have to simultaneously figure out who will
be its vendors, how robust their solutions will be over time, what the value trajectory
for technology will be, and whether it can expect to be locked in to the extent that
future first-best IT infrastructure choices may not be reachable. Standards often arise
from a number of different directions, and those are often difficult to foresee [136].
So managers at firms that are contemplating adoption of SOAs will need to consider
the extent to which they are subject to rational expectations–based decision mak‑
ing [7, 8, 208].
The expectations of management decision makers are often based on the expectations
of others with whom they associate—within their firm, in other competing firms, in
other industries, and so on. They share information as a means to develop a dynamic
consensus of what outcomes are likely to ensue in the marketplace. How do they do
it? Prior research has shown there are at least three ways that information sharing may
occur between different stakeholders that will assist their decision-making efforts
[87]. Different forms of economic institutions are instrumental in moving information
between consumers, firms, and managers. These include search markets for different
goods and services and competitive markets that adjust prices for different levels of
supply and demand. In addition, sometimes firms consciously communicate infor-
mation to the marketplace about their intended actions or expectations [218, 219].
Signaling may occur as product preannouncements, statements of commitments to a
standard, publication of services development path plans, and so on.
A third mode of communication is informal but effective in information transmis-
sion. Cheap talk is low-cost, nonbinding, and unverifiable communication between
different stakeholders and sometimes reflects strategic information transformation
on the part of the parties who share [65]. It happens a lot of different ways: e‑mail,
telephone conversations, coffee breaks at industry conferences, and discussions over
meals. Kim [146] reports that although this type of communication may be easy to
dismiss, people have an incentive to provide truthful information in such situations.
Decision makers are also subject to problems with strategic information transmis-
sion and information processing, which occurs with herd behavior in investments [16,
211], information cascades [32, 33], and market manipulation and credibility problems
that are seen to occur in technology markets as well as financial markets [22]. This
is critical for newly emerging technologies and technology-based business practices.
These issues prompt us to recommend this body of theoretical knowledge in economics
as a set of referents to understand the concerns of the producers and consumers. The
choices vendors make on the direction and content of their innovations, and how they
package them as products and services, will have a bearing on the compatibility and
complementarities with existing standards. The literature offers an important body of
theory relevant for the consumer stakeholders who need to decide whether to adopt
these new technologies and services. It also has obvious implications for the formation
of standards bandwagons.
 IT services management and service science 29

The Business Value of Services-Oriented Systems

There are four trends that prompt action on the part of managers that relate to the
business value of IT [215]. First, senior managers today seem to have a far greater
appreciation of the game-theoretic aspects of their world, and they understand strategy
in terms of the movement of markets from one equilibrium to another in the presence
of technology changes. The move to a services paradigm requires an understanding of
how changes in strategy and operational processes will change the demand for services
systems components that have been designed as reusable business objects. So not
only do the senior managers of companies have to worry about competitors in their
business environment, they also need to consider how to increase their own flexibility
and agility [205]. This is an important observation, because business value and firm
performance are always determined in a “relative” way: relative to what competing
firms are doing in the marketplace and how to achieve competitive advantage, potential
value relative to the realized value a firm can obtain through technological agility and
infrastructure flexibility, relative to the expanded range of strategy business choices
that open up as a result of such dynamic capabilities, and so on.
Second, IT investment decision making is no longer a “seat-of-the-pants” process as
it once was [19]. There are many approaches, but senior managers have not been able
to agree on their usefulness in practice. It is all the more important that understanding
of a services orientation carry over into IT investment practices, where ballpark esti-
mates with strategic insight will be more useful than detailed quantitative evaluation
without strong innovation and market transformation-based intuition.
Third, the practice of investing in IT has become a much more complex undertak-
ing for senior managers. No longer is the choice “make versus buy.” Instead, there
are now many different levels of commitment that need to be thought through at the
infrastructure, network, software development, application, data, and software object
levels. The services orientation includes new developments in outsourcing, offshoring,
utility and grid computing, service-level agreements, vendor-managed infrastructure,
and Web services, as well as the economic risks they entail for the firms adopting
them [49].
The economics of IT services motivates us to consider the possibility of a new valu-
ation and ROI assessment paradigm. Management wonders how to achieve strategic
alignment in cross-functional terms—by bringing together IS with operations, mar-
keting, and supply chain management. The goals for IT and business alignment have
moved beyond the traditional boundary of the firm. This creates an opportunity for a
new economics of services co-creation, too [231]. The diffusion of these goals across
distant geographies, into global markets for IT services, and onto the technology-based
infrastructures of the IT services vendors is under way. Our stakeholder analysis sug-
gests that the risks need to be controlled from all sides of the compass, most importantly
by the buyers, intermediaries, and services creation innovators [6, 57].
The world is stochastic and unpredictable. Market competition, technologi-
cal progress, and stakeholder interactions in services guarantee that the operating
30 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

environment of large businesses will be complex. This makes it difficult to assemble

and apply the appropriate tools to achieve effective organizational performance and
technology investment [79]. As a result, organizations that adopt the service science
paradigm need to build an awareness of how technology platforms [85, 91] and funding
commitments for infrastructure [92] are affected by technological evolution. Kauff-
man and Li [137] have written about the “waiting game” for technology standards to
take shape in a marketplace without government intervention and regulation, and how
uncertainty causes a stochastic drift in valuation among the different stakeholders.
Having stakeholders on the sidelines of the technology adoption decision processes
creates undesirable pressure and uncertainty.

Changing Agency Relationships and Transaction Costs

One of the tenets of interorganizational interactions for supply chain management
and procurement, provision of services, and joint investments in IT architectures is
that the number of business partners is an economic decision. The literature is rich
and helpful for explaining how the service paradigm is likely to affect the roles of the
stakeholders. The expectation has been that technological progress has promoted a
move from hierarchies as the dominant form of business organization to the market
form. Many activities of the integrated firm of the past have been spun off, so the
market can provide the best-quality, lowest-price products and services. This is the
main thrust of the electronic markets hypothesis [163].
Others have argued that agency costs, information asymmetries, and strategic be-
havior on the part of key stakeholders add another layer of complexity that mutes the
effects of IT. Clemons et al. [61], with their move-to-the-middle theory, have articulated
the fullest statement of this perspective. Relational risks, vendor opportunism, and
other forms of agency costs diminish a buyer’s incentives to have transactions with
too many suppliers. The inherent complexity of many relationships—even though they
may be mediated by IT infrastructures and services that are highly effective—makes it
hard to overcome the downside risk in loss of value when problems occur.5 Kauffman
and Mohtadi [138] propose a risk-augmented transaction cost perspective and explain
what happens in proprietary and open supply procurement platform adoption when
there is uncertainty about demand and supply.

Related Research Directions

We propose two research directions that pertain to the economic perspective on ser-
vice science:
Research Direction 4 (The Business and Economic Value of Service Science):
Research should target the study of the business and economic value of service
science in the organization and market context in which they are most relevant.
The opportunities for research will come with the study of how IT-based changes
how the service infrastructures of modern organizations are architected and how the
 IT services management and service science 31

development of tailored services derive the greatest value from them. On the IT ser-
vices side, we expect tensions to mount between the long-standing move-to-the-middle
perspective of Clemons et al. [61] and the newer justifications for IT services procure-
ment with even fewer suppliers [141]. On the marketing services side, we expect to
see the emergence of reusable marketing services components. These plug-and-play
components will cover service and product pricing capabilities, advertising-related
decision support, product design knowledge components in targeted areas, and other
new developments. Similar opportunities to study IT services value will come as cloud
computing emerges. We suggest:

Research Direction 5 (The Effects of Cloud Computing): Additional service sci‑

ence research should be done to explore the value of cloud computing in specific
industry settings.
Kay defines cloud computing as

a system where users can connect to a vast network of computing resources, data
and servers that reside somewhere “out there,” usually on the Internet, rather
than on a local machine or a LAN or in a data center. [It] can give on-demand
access to supercomputer-level power, even from a thin client or mobile device
such as a smart phone or laptop. [143, p. 1]
Chappell [46] defines a cloud computing platform as one that lets developers write ap-
plications that run in cloud computing environments or uses services that are provided
by such an environment, or both. Some pre–cloud computing platforms have been
referred to as on-demand platforms and platforms-as-a-service. They incorporate the
capabilities of SaaS application execution and delivery as well as attached services.
An example of an attached service is iTunes, which is used locally on a personal
computer, which permits music acquisitions from the marketplace that Apple offers
via its service functionality to support search and purchase. A related opportunity
for service science research involves the circumstances under which companies will
choose to form their own value-producing private cloud computing networks, which
is similar to the idea of that was floated earlier in the 2000s about a “private Internet”
for large corporations [43]. This brings up the general issue of the industrial structure
of the players that will populate the market for cloud computing services, how the
stakeholders will interact, and how their roles may shift.

Research Direction 6 (Agency Relationships and Changing Industry Structure):

Research should be undertaken to explore the changing nature of agency relation‑
ships around IT services as well as the changing nature of industry structure.
Service science can be conducted at a higher level of analysis as a means to predict
changing vendor–client relationships in the marketplace and industry structure. Some
other contexts involve the global distribution systems of the travel and hospitality
industry [109] and the value chain in the digital music distribution market [37]. An-
other example is Microsoft, which recently became a late entrant to the Internet-based
IT services market with what it calls “Azure” (www.microsoft.com/windowsazure/
32 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

windowsazure). It is staying with the familiar Microsoft operating system, server, and
application products, but its stated goal is to have firms and consumers access them in
new ways via a proprietary cloud computing network. Microsoft hopes to gain share in
a growth marketplace for computing services [119]. There will be significant interest
in conducting service science research on how cloud computing affects agency rela-
tionships in specific industry contexts, where the extent of economic value produced
should be unique. One context is health care, for things such as pharmaceutical research
and test-based diagnosis. Others include government intelligence, aircraft design,
weather forecasting, and financial services. The high-speed networks associated with
this technological innovation will make the new capabilities possible [194].6

The Finance Perspective

Much of the application of financial economic theory and methods takes place along
the producer and consumer stakeholders’ axis in Figure 1, with additional involve-
ment from intermediaries and value-added packagers of IT services. The production
of IT services occurs externally to the firms that use them as well as internally. In this
sense, the producer and consumer stakeholders may be different parts of the same
organization, instead of two or more different organizations.

Negotiation, Contracts, Valuation, and Execution

Negotiations in the services domain involve complex interactions between the produc-
ers of technological innovations and the associated partners, intermediaries, clients,
and users. These interactions may involve discussions regarding opaque cost structures,
incomplete markets, and transfers of risk between parties. All IT services, even those
that are automated, are subject to negotiation for the terms and the conditions of their
offering, followed by an execution phase [78]. During the execution phase, the parties
are subject to a variety of risks from opportunistic behavior [6] or technical, market,
or competitive risks associated with the delivery of the IT solution [23]. Clients and
providers can leverage information regarding this risk exposure during negotiations.
Although previous work has addressed risk management from the transaction cost
and agency theory perspectives [6], current perspectives on risk management draw
upon financial economics [19]. These include real options theory [79], risk manage-
ment thinking such as “black swan” extreme value theory [226], value-at-risk [130]
and contingent claims theory [24], and auction-based approaches to model volatility
in IT services delivery [113].
Clemons and Gu [57] and Dos Santos [80] were among the first to recognize that
IT investment management should be viewed as a process that offers valuable mana-
gerial flexibility, with the timing of investment or with its delay. The manager, as a
consumer stakeholder, holds an option to abandon or delay a project [79]. Benaroch
[23] provides an overview of the typical options seen in IT investments. The strategic
and operational flexibility inherent in IT service relationships is constrained by the
client–vendor contract. A client cannot abandon a project that an IT services vendor
has contracted to deliver without exercising a buyout or backsourcing clause. And a
 IT services management and service science 33

provider, as a direct producer of the service or as an intermediary in the delivery of

the IT service, cannot scale back delivery unless the client agrees or it is otherwise
specified in the contract. Techniques to value real options can be leveraged by these
three kinds of stakeholders to inform contract negotiation and the timing of contractual
options, such as abandonment or backsourcing [24]. For much of the execution phase,
however, firms may need to consider other techniques to actively manage risk.

Financial Risk Management for IT Services

Financial risk management theory considers three sources of risk—operational risk,
credit risk, and market risk [25, 130]. We draw an analogy involving these three sources
of risk for the new financial economics–based perspectives to the financial manage-
ment of IT services.7 First, we consider operational risks in IT services as delivery or
project-specific risks that arise with IT, organizations, and business processes. These
risks occur on the provider side—whether a producer or an intermediary—such as miss-
ing a service-level target due to lack of available technology or operational problems.
Operational risks may also occur, such as with respect to network or communications
failures that disrupt IT services delivery. We think in terms of client demand risk in
IT services. Bhargava and Sundarasen [28, 29] remind us that demand uncertainty on
the client side is one of the paramount risk considerations in an IT services contract.
A benefit of IT services is that clients can have flexible “on-demand” access to an IT
infrastructure without the uncertainty of making large-scale investments. Finally, we
consider market risk of IT services as the uncertainties with the underlying technology
and labor markets. These uncertainties could be associated with various forces, includ-
ing standards [137], labor markets [24], and revenues and costs volatility [80].
The operational risks associated with IT services delivery also fit the IT invest-
ment perspective. Benaroch [23] views these as firm-specific risks in the context of
IT investments. Dos Santos [80] modeled integrated services digital network (ISDN)
adoption and implementation cost risks in an options model and showed that follow-on
investments should be modeled and understood by the manager. Taudes et al. [228]
studied the adoption of the enterprise resource planning (ERP) systems and found that
firms can leverage flexibility of timing such investments in the face of adoption and
effective use of software platforms.
Schwartz and Zozaya-Gorostiza [214] modeled costs by considering risks specific
to the firm’s implementation of a technology, as well as market risks associated with
acquiring technology inputs. In the context of IT services, a provider firm may be able
to stage a rollout of service delivery. Kauffman and Sougstad [139] proposed an ap-
proach involving value-at-risk methods to evaluate trade-offs that occur when a provider
delivers a service through dedicated, on-site resources versus pooled resources shared
across contracts. This enables the provider to limit its exposure to operational risk for
any single client. Tansey and Stroulia [227] proposed a contingent valuation perspec-
tive for SOA design. They assessed how option value works for the potential reuse of
different components, modules, and services. Applications of financial management
techniques to IT services have centered on client demand risk, from the viewpoint of
the consumer stakeholders in our framework. Bardhan et al. [17] modeled a portfolio
34 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

of IT investment opportunities subject to client adoption risk. They showed that op-
tion valuation could shed light on how to optimally sequence IT project investment
decisions that had various operational and strategic interdependence.
Researchers have used other methods to manage client demand uncertainty. Paleologo
[179] proposed a model for pricing grid services using a value-at-risk model. He
analyzed how firms can make significant improvements over cost-based pricing by
incorporating risk considerations. Hackenbroch and Henneberger [115] also utilized
a value-at-risk model to value grid infrastructures in financial services firms. They
focused on the inherent demand variability of the usage of computing resources in
financial services, which tend to fluctuate greatly during peak trading and transaction-
making periods. Other researchers have modeled demand variability for pricing. For
example, Kenyon [145] analyzed demand variability as a natural basis for pricing
variable-capacity outsourcing contracts.
We define market risks in IT services as those associated with standards, technology
evolution, competition, and labor markets, as we noted earlier. Benaroch et al. [25]
assessed environmental and technological risks in an empirical validation of options
analysis for IT investments. Kauffman and Li [137] modeled platform adoption deci-
sions and found that optimal timing decisions are affected by the ability of the firms
to apply rational expectations and wait until a standards winner emerges. Gaynor and
Bradner [105] also developed an options-based model for the market adoption of IT
network standards. Although the perspective of financial management of market risks is
somewhat less well developed outside of real option methods, significant opportunities
exist to exploit uncertainties in service life cycles, as well as in the context of declin-
ing costs of IT services [70]. In this vein, Kauffman and Sougstad [140] discussed
the potential application of risk management methods to capture the effects of labor
cost uncertainties associated with delivering IT services involving vendors that have
a portfolio of customers.

Related Research Directions

State-of-the-art applications of financial economics–based techniques for IT services
management are still nascent. Nevertheless, we expect to see great strides made in the
“financification” of IT services management due to the clarity that financial economics
has to offer for decision making. We propose:

Research Direction 7 (The Service Science Relationship and Productivity Met‑

rics and Pricing and Contract Specification Approaches): It will be important to
develop metrics, models, and methods that provide support for managerial deci‑
sion making regarding IT services issues, especially IT services pricing, contract
design, and shared organizational investment.
Research Direction 8 (The Financification of IT Services): We encourage scholars
and practitioners to undertake new research to explore the extent to which financial
economics approaches, such as portfolio management, risk management, and
extreme value analysis, will be useful for active management of IT services risk
for the producer and consumer stakeholders.
 IT services management and service science 35

These research directions build on the prior discussion of financial economics and
risk management approaches to IT services management [24, 140, 179]. We believe
consumers, producers, and intermediaries will benefit from viewing services networks
as portfolios of relationships with complex and interdependent obligations and benefits
[139]. Services producers can leverage economies of scale, scope, and risk diversifica-
tion by applying a portfolio view. Intermediaries can play a role in providing transpar-
ency for IT services through pricing research and other consulting services they offer.
Likewise, clients can leverage supply-side economies of scale through their portfolio
of services spending. Our projection of the importance of this research stems from
what we see in the economics of IS more generally. There is increasing interest in the
areas of ownership and joint investment theories, contract economics, bundling [13],
and the underlying rationale for information sharing and service component sharing.
Beneficial methods developments involving financial economics for service science
will emerge in support of infrastructure and SOA evaluation approaches, too.

The Marketing Perspective

The evolution of the service science paradigm from the perspective of the market-
ing discipline can be better understood when we trace the developments in thinking,
theories, and frameworks in the services marketing literature that have emerged in
the recent past. The theories central to the marketing discipline—social exchange
theory, transactions cost theory, and consumer choice theory—reinforce the view of
the transactional, exchange-based, goods-dominated model of marketing. However,
recent developments in services marketing have emerged with the disruptive effects
of Internet technologies. This encourages researchers to broaden their horizons and
rescope their work so that it encompasses all of the key stakeholders—producers,
consumers, intermediaries, and monitors. Such a broadening of scope is a necessary
condition for the beneficial evolution of the service science paradigm and the theory
of service-dominant logic [34, 200].
There are several implications as a result of this emergent thinking. First, the ideas
provide a different “lens” to view the findings of past research in services marketing.
Second, they offer important frameworks to understand the interface issues between
marketing and other disciplines. Finally, they lay the foundation for the emerging ser-
vice science mind-set that is critical for cross-disciplinary research. We will delineate
new issues from services marketing that contribute to service science thinking—the
e‑services orientation, the theory of service-dominant logic, personalization and
customization, customer relationships, and customer equity—based on the social
exchange viewpoint of relationships.

Services Marketing
Even prior to the Internet technology–driven disruption, the focus of services market-
ing had always been on the consumer stakeholders shown in Figure 1—customers,
clients, and users—especially understanding their needs and creating benefits to
meet them. There was an interest in defining service quality and designing service
36 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

delivery from the customers’ viewpoint, thereby assisting the producer stakeholders
to compete effectively in the market by providing value to customers. Topics such
as service quality, managing customer expectations, customer satisfaction, customer
loyalty, services design and service-scapes, services pricing, service encounters, ser-
vice recovery, self-service technologies, and customer co-production of services have
dominated the field for the past 25 years [34]. These have evolved from the theoretical
viewpoint of purely examining transaction costs to the more contemporary viewpoint
of social exchange and relationships.
The Internet and the emergence of the network-based economy have only made the
focus on customers more important. Technologies such as wireless, broadband, data
warehousing, data mining, and agent technologies are contributing to the accessibility
and servicing of targeted segments of customers for businesses and governments while
providing more choices and options to customers. This has had the effect of shifting
power to the customers. These technologies have also enabled businesses to improve
their service processes, develop new markets, and improve their competitive posi-
tions. They also are enabling the transformation of physical products to pure service
components, especially the network-based, digital, and information-based products
[133]. This leads to a blurring of the distinction between products and services, a
boundary that for a long time has defined the scope of services research. In addition,
the shifting of market power to the consumer stakeholders, the rapid commoditization
of products brought about by IT, and the trend toward businesses migrating up the
value chain to services as their primary value generators all are hastening the trans-
formation of the world economy from a goods-based to a services-based economy
[199]. These developments have also led to more expansive thinking in the realm of
services marketing.

The E‑Services Orientation

The immediate effect of this expansion has been in the online environment, where
it evolved into an e‑services orientation [199]. This is a coherent point of view that
challenges many of the traditional assumptions about how to increase revenues in the
online environment. The approach is based less on reducing costs through automation
and IT to achieve service efficiency and more on expanding revenues through enhanced
services and building profitable customer relationships. Thus, IT should help firms to
be both forward focused and outward looking, emphasizing the need to understand
the customer more, and complementing the present-focused, inward-looking view of
technology-based services systems and efficiency.8
Enabling strategies and tactics to make value equity a reality calls for the develop-
ment of a technology infrastructure to support them. This technology infrastructure
can be developed at the firm level by firms interested in providing customer value,
or by a network of firms interested in benefiting themselves in the supply chain as
well as their customers, or at the market level by government entities. Investment in
Internet technologies and broadband to create such networks is a good example. The
analysis of ROI in such a technology infrastructure and deployment calls for objective
 IT services management and service science 37

measures of the benefits—whether service quality, value equity, personalization and

customization, customer satisfaction, or customer loyalty. Development in the area
of services metrics and customer equity management [201] can lead to quantification
of such benefits that are necessary to support business decisions for the investment in
such technology and its subsequent successful deployment.

Service-Dominant Logic: A Theory for Service Science

in Marketing
One of the most important paradigm shifts in thinking about services that emerged
around the same time as the e‑services orientation has significantly altered the scope of
services research in the marketing domain. The new service-dominant logic proposed
by Vargo and Lusch [231] can be viewed as emerging out of the natural evolution that
has been enabled by the series of technological disruptions in the last two decades of
the twentieth century. This evolution started with a fundamental shift in the definition
of services. The traditional view of services is often a restricted conceptualization. It
treats services as a residual, especially something that is offered to enhance the goods
or products via value-added services, or in terms of situations that are devoid of read-
ily defined products; for example, think of services industries, including health care,
government, and education. Instead, Vargo and Lusch treat services as the application
of specialized competencies—for example, knowledge and skill—through acts, pro-
cesses, and performances to create value for the benefit of another entity or the entity
itself. Moving away from the goods and product-centered view where people mostly
exchange goods, service-dominant logic contends that people engage in exchange to get
the benefits of specialized competencies, knowledge, and skills as operant resources.
Products or goods are subsumed in value creation for services. Goods are transmitters
of operant resources—that is, they are embedded knowledge. They also are intermediate
products used by other operant resources as appliances in value-creation processes.
This implies that customers are co-producers of services, and they themselves become
operant resources. Thus, the value of any exchange or relationship is perceived and
determined by customers on the basis of value-in-use. Value results from the beneficial
application of operant resources that are sometimes transmitted through other operant
resources. Firms can only offer compelling value propositions, but they actually have
to be actualized or brought to life in a business process context by customers [231].
One of the important implications of the service-dominant logic is that because value
is perceived and determined by the customer, the producer stakeholders need to be
customer-centric—something they have long espoused in words but have not had the
technological capabilities to implement in a truly effective way. They need to learn
the value they are creating for their customers. Services systems design, pricing, and
innovations all emerge from this customer-centric focus. They center on enhancing
the value that is created for the customer and lead to increased revenue rather than
improved internal efficiency alone [160]. The emergence of this paradigm has spawned
new efforts to understand the dynamics of services systems that can bring value to the
service science perspective [158].
38 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

The evolution of service-dominant logic has contributed in a significant way to

theory development in marketing. Heretofore, goods-dominated logic was a guiding
(if limited) theory for marketing. The marketing mix approach arising out of goods-
dominated logic was geared toward purchasing. It did not include consumption as an
integral part of marketing theory. During the process of consumption, value is generated
for consumers and the relationships that organizations build with them. The focus in
services marketing, then, is not on goods but on interactions in services encounters.
Service-dominant logic gives an important theoretical base for analyzing marketing
problems this way. It provides a foundation to understand customer relationships, a
key shift characterizing the process of marketing to the customer.

Personalization and Customization, Customer Relationships, and

Customer Equity
IT-based systems allow firms to target customers through new channels, such as
e‑mail, short message services (SMS), Web sites, and targeted databases, adding
to their revenue streams. Customer portals and online services kiosks provide new
ways of disseminating information to customers, which in turn allow firms to develop
closer relationships with their customers by increasing the frequency and precision
of marketing messages while obtaining richer insights into customer behavior and
customer loyalty.
Personalization and customization efforts are the natural outcome of a customer-
centric approach facilitated by IT. If the customers’ value-in-use is measured by a firm
to determine what value customers derive from services, then the by-product of such
measurement will be the determination of an individual customer’s preferences and
willingness to pay. This can further lead to customized services offerings and pricing
[5, 110, 127]. Focused, relevant offerings reduce overall costs for customers—via
lower search cost, lower risk costs, and lower transaction costs—and build in switch-
ing costs. They also reduce the costs of providing services for the firms as customer
preferences become accurately known, better predicted, and more fully met. The effect
is the same across a variety of services settings—B2B, business-to-consumer (B2C),
and government-to-consumer (G2C) commerce are all included.
The challenges that customization will face in the service-dominant paradigm are
many. The traditional product-centric view calls for quality in products through stan-
dardization, and customization has always been viewed as mass customization that
will not affect the quality negatively. Customization in the traditional service context,
meanwhile, has been viewed as individualized services design and services delivery,
and there have been problems scaling up such efforts.
The topic of customer satisfaction and relationships has been widely studied in
the services marketing literature, encompassing issues such as customer satisfaction
and delight [39, 40, 173, 182], customer expectations [172], customer satisfaction
measurement and analysis [95, 96, 129], and customer loyalty and retention [38,
193]. Most of this research has been in the context of individual services providers
interacting with their customers. However, given the increasingly global nature of
 IT services management and service science 39

services provision through offshoring and outsourcing, services networks that involve
components of services from multiple providers are becoming very common [198].
In addition, because some services are co-produced by customers, how then should
customer satisfaction be measured in such contexts? How will this kind of customer
involvement relate to loyalty? What does a customer relationship mean in the context
of services networks? Who will “own” these kinds of relationships, and how should
the quality of services be measured and guaranteed in such contexts?
A recent development in marketing is the measurement of the value of a customer
and how to link the customer to firm profitability and firm value. Customer lifetime
value models originated in the direct marketing context [27, 81]. They soon were
extended to other contexts and used to guide marketing investments and corporate
strategy. The concepts of one-on-one marketing, database marketing, and customer
relationship management (CRM) all emerged in the early to mid-1990s. These tech-
niques used the power of customer databases and data warehousing technology to
analyze customers and treat them as a “portfolio” that needs to be actively managed
to extract the greatest value for the organization (e.g., [36, 191, 192, 201, 202]).
Customer equity is the sum of all customers’ lifetime value, and it has been linked to
financial performance [114]. The successful implementation of the customer life cycle
valuation model, and CRM concepts, and also using them to guide strategy requires
a customer-centric focus that permeates the organization—and not just the marketing
or sales or services part of the organization. Despite the initial enthusiasm, though,
such implementations have not paid off consistently in different industry settings,
to our knowledge. With the service science paradigm and its power to link various
disciplines, better insights should be obtainable to understand how the power of IT
artifacts such as CRM can be harnessed.

Service Management and Linkages with Other Disciplines

Let us consider some of the links. Service management research has focused on
issues ranging from services demand (e.g., [20, 41, 210]) and services pricing [68,
216] to guarantees for services delivery [166, 177] and employee incentives [116].
Given the nature of services, many of these issues cut across services operations and
organizational behavior. With the e‑services orientation and the service-dominant logic
perspective, the locus of these problems will be more on customers than on business
processes or organizational units. For example, services demand management and
services pricing call for a better understanding of how customers derive value from a
firm’s core value propositions, and how much of the services that are offered are co-
produced. Thus, management and modeling approaches to services demand problems
need not assume that demand is fixed. Instead, the idea is to actively manage demand
through self-service and co-production. Similarly, customer-centric service pricing
can be very flexible, based on management’s understanding of how customers derive
value. This should lead to better yield management techniques and methodologies. In
addition, because goods can be viewed as intermediate products through which oper-
ant resources are exchanged with customers, and customers can be viewed as operant
40 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

resources, demand management and pricing can become very flexible—services can be
inventoried if needed and pricing can be personalized. The notion of services guarantees
and employee incentives can be closely related to customer value, too.
A natural outcome of the expansion in the scope of services is that issues at the
interface of the other disciplines with marketing become much more critical. The
nature of services is highly interdisciplinary. Researchers within each discipline
are good at providing solutions for which the controls and the outcomes typically
lie within their own discipline’s scope. But when controls or outcomes are outside
that scope, it becomes important to understand the linkages and the nature of the
trade-offs. Consider the satisfaction and productivity trade-off for services [4]. The
customization of services may call for individualized services design and delivery,
whereas efficient production may call for more process standardization and less vari-
ability. These objectives are at odds with each other. Increasing the revenue of the firm
demands a customized customer-centric approach, based on the e‑service orientation
and service-dominant logic; but operational efficiency and cost-effectiveness may
call for just the opposite.
Such trade-offs abound in the services context. Services designs generally focus
on reducing variability in operations and increasing efficiency, whereas services
delivery may demand robustness to different variance drivers that are encountered in
practice. Similarly, at the interface of human resources and services marketing, there
are issues with regard to whether a satisfied employee is a necessary condition for
a satisfied customer. While some research has taken it as an entering premise [131],
others have questioned such links [213]. Similarly, the issue of variability in employee
performance in interacting with customers has attracted attention. So it is clear that
expanding the scope of services can lead to the development of new paradigms that
will be more effective.
An example of where a service science paradigm may help is in services systems
designs when engineering and IT together interact with services operations and market-
ing teams [132]. In services systems, variability is encountered in many components,
interfaces, and entities interacting with the system. There could be variations in services
system performance across different usage situations and conditions. It is in this context
that a service science paradigm is needed. It will provide not only a new perspective
for the research that is ongoing in a particular discipline but also a framework to link
up with other services disciplines so as to coordinate work on problems that occur at
the interface. Such work has been going on sporadically—the linkages between ser-
vice operations and service marketing is a good example—but more is needed. Some
developments such as CRM may never deliver the expected payoffs, if an integrated
view of services across all the functions of a firm never emerges. These observations
call for critical work in contributing toward a service science mind-set that spans the
marketing and IS disciplines, emphasizing the service orientation.

Related Research Directions

We propose a number of research directions that tie in closely with the analysis of the
issues and the literature that we have offered the reader from the marketing perspec-
 IT services management and service science 41

tive. An interesting avenue for research that the service science paradigm may be
able to contribute to is how to mass customize service design and delivery. Although
personalization and customization of services in the online context have been achieved
mainly in the context of e‑retailing and are well researched (e.g., [5]), mass-customized
services in other channels and in other contexts lag behind. Thus, we propose:

Research Direction 9 (The Design of Mass Customized Systems): We encourage

joint marketing and IS research efforts to explore the ways that service science
approaches can be developed to make the design of mass customized systems in
marketing more effective.
We have observed the role that customers play in the construction of services in
the presence of advanced IT and the importance of firm awareness of the opportuni-
ties to engage them in service co-creation. The current state of our knowledge is not
far enough advanced to make this the kind of service science that we envision being
possible, however. Thus, we propose:

Research Direction 10 (Knowledge of Value-Maximizing Customer Involvement

in the Co-Creation of Services): As physical and social networks of customers
are facilitated by emergent technologies, new research needs to focus on service
designs that support the co-creation of services with firms that are able to con‑
sistently produce value-maximizing service process design.
The service-dominant logic clearly identifies customers as operant resources capable
of creating customized services for their needs. Social networks, based on Web 2.0
and other technologies, provide the infrastructure allowing firms to reach stakeholders
in all quadrants to interact and network in ways hitherto impossible. This network of
firms and customers, intermediaries and customers, and customers who are in touch
with other customers provides significant potential to create value [198]. How can
services be designed to take advantage of such opportunities while ensuring high lev-
els of service quality, personalization and customization, and customer satisfaction?
We call for collaboration among IS researchers and their counterparts in marketing,
consumer psychology, and service operations research to harness the potential value
of social networks for co-creation of services. (For our additional thoughts on this
broad-brush recommendation, see Text Box 2.)

The Operations and Supply Chain Management Perspective

The operations and supply chain management discipline has the potential to play a
marquee role as a basis for an emerging science of services in concert with the IS
discipline. The former discipline has offered foundational definitions for key concepts
and constructs, and it continues to provide useful guidance for the management of
services operations. Sampson differentiates the services operations management
discipline from traditional production and operations management:

in service processes, the customer provides significant inputs into the produc-
tion process. On the other hand, within manufacturing processes, while groups
42 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

Text Box 2. The Services-as-Art Perspective on Service Science for Marketing

and IS Research
The aesthetic aspect of service creation and delivery provides another stream of
inquiry that will shape research in e‑services. Fisk et al. [93] propose a services-as-
theatre perspective, in which services are viewed as performances, involving actors
who transmit meaning and information to customer audiences. For example, the act
of hiring is considered to be a process of casting service actors. Later work draws
on principles derived from the training of actors, such as Stanislavsky’s methods,
to guide the management of service interactions [112]. Further work extends the
services-as-art perspective to draw upon a metaphor of playing jazz music [128].
Service firms must coordinate complex activities and must often utilize improvisation
when dealing with stakeholders.
In the e‑services perspective, the theatre becomes virtual but the performance is
no less important to the customer. Design skills from the gaming industry may play an
important part as companies present services in a virtual world. This can be seen with
IBM, Hewlett-Packard, and other firms offering not only a presence, but real services,
such as customer support, information, and recruiting services, in Second Life.
Current technologies allow customers, as the audience, to participate in the services
performance. Web 2.0 social networking sites permit customers to add content and
comments and experience the delivery of the service. An example is Wesabe (www.
wesabe.com), an online personal finance site in which members participate as a
community, rating various businesses and providing financial tips to other members.
Another is RateBeer (www.ratebeer.com), which specializes in craft brewing, and
NetFlix’s Pandora (www.pandora.com), which supports customer co-creation of
Internet radio streaming music, based on individual tastes and listening histories.

of customers may contribute to product design, individual customers’ only

participation is to select and consume the output. [206, p. 16]
Several characteristics of services processes make them unique when compared to
traditional production processes [147]. They include:
• Heterogeneity: Individual units of services production are unique, which can be
primarily attributed to the heterogeneity in customer inputs [207].
• Simultaneity: Services are produced and consumed simultaneously, which differs
from traditional processes where products are created in advance of demand and
consumption [164].
• Perishability: A services provider’s capacity to produce services is time-sensitive
because significant elements of the production cannot happen before customer
inputs are present [164].
• Customer co-production: Customers participate in the production of services
by providing not only labor but also property and information that assist the
process [207].
IT is a critical determinant of the design of services processes and the quality of ser-
vices delivery [154, 188]. It has special relevance for the producer, intermediary, and
consumer stakeholders and can serve multiple roles in the services delivery process.
For example, many firms employ self-service technologies to increase the effectiveness
 IT services management and service science 43

of technology-mediated communication channels with customers. Self-service tech‑

nologies are IT-enabled interfaces that facilitate sales and related transactions, such as
customer ordering, payment, and exchange without human intervention [165]. Because
interpersonal interactions are more expensive than automated transactions, self-service
technologies have led to a dramatic reduction in transaction costs through the elimination
of face-to-face interactions, thus lowering employee and customer support costs.

Services in Operations Management and Supply Chain Management

Spohrer and Maglio note that “a central problem in service science is . . . understanding
service system evolution” [220, p. 243]. Services innovations can be fostered in dif-
ferent ways, including improving customer relevance, the degree to which operational
processes are able to sense and meet customer needs. Customer agility is the ability
to engage customers in the exploration of innovation opportunities [205]. This type of
competence involves customers in new product ideation as users in testing and filter-
ing ideas and the enhancement of virtual communities for product design and testing
[168]. Sambamurthy et al. [205] describe the case of eBay, which uses its customers
as product development teams by gleaning insights based on their feedback obtained
through Web portals. CRM systems similarly enable managers to identify customer
requirements in a timely manner and facilitate customer participation in project deci-
sions. Individual-level communication tools, such as instant messaging, permit project
teams to solicit customer and supplier input for key project decisions. These can lead
to improvements in the quality of such decisions.
Services innovation can also be fostered by improving the services processes that
enable project teams to leverage their firm’s physical and knowledge assets and the
competencies of suppliers, distributors, and partners in the exploration of new op-
portunities [205]. Technologies such as collaboration portals, supply chain manage-
ment systems, and knowledge management software enable project teams to leverage
knowledge assets across the firm, quickly identify qualified suppliers, and coordinate
information flows [18]. New types of Web 2.0 technologies, such as the corporate
use of Twitter and social networking tools, also can improve customer relevance by
improving the productivity of service interactions and service productivity.
Spohrer and Maglio [220] proposed a research framework for studying work evolu-
tion in service systems. They posited that work systems evolve over time from fully
human systems involving interpersonal collaboration (face-to-face customer service)
to fully automated (face-to-screen customer service) systems with little or no human
contact (see Table 1).
They describe a service system in which developers and engineers collaborate
without direct technological support for customer services (row  1, column  3). As
demand for the service and the need for greater scalability increase, however, it is
not possible to provide the same quality of service that technological support can by
using human customer service support alone. In such environments, firms typically
augment or enhance their human services processes with some level of automation
(row 2, column 3). A simple approach is through the use of a frequently asked ques-
tions (FAQ) tool [222].
 44

Table 1. A Framework for Customer Contact in Technology-Enabled Services Settings

Type of Technological Level of

service Type of enablement for Level of human
interaction contact customer contact collaboration involvement Examples

Face-to-face Collaborate Technology free High High Interacting with a service

customer representative in a
service face-to-face customer
service episode without any
technology support.
Augment/ Technology assisted High Medium Using an FAQ tool in a
enhance face-to-face consultation with
a human customer service
representative of a company.
Technology facilitated High Low Using a screen-based video
tool to resolve a problem or
get an answer to some issue
that requires company
assistance.
Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

Face-to-screen Delegate Technology mediated Low High Using an instant messenger

customer tool or e-mail to interact with
service a third-party service
representative for a company.
Automate Technology generated Low Low Using the Internet to purchase
an airline ticket without
interacting with a service
representative.
Note: Adapted from frameworks attributable to Froehle and Roth [101] and Spohrer and Maglio [220].
 IT services management and service science 45

As demand for customer services increases, firms may seek to outsource via owned or
third-party services providers in India, Eastern Europe, the Philippines, and elsewhere
to produce the customer support component of their services processes. The same is
true for other business processes, such as new product development, market research,
and business process outsourcing services. The next step is to delegate outsourced
services processes to other service providers (row 3, column 3). These typically are
in-house-affiliated service providers or third-party vendors. With recent technological
advances and Web 2.0 technologies, the final step that organizations take is to automate
services processes (row 4, column 3). They may do this themselves, but we increasingly
see such services purchased externally by the firm. An example is automated speech
recognition systems. These now can provide self-service support to customers. In such
automated services environments, customer self-service technologies lower employee
and customer support costs through the implementation of IT-enabled interfaces that
facilitate sales and related transactions. These include customer ordering, payment,
and exchange [165].
Spohrer and Maglio [220] provide useful thoughts for discussion of work evolu-
tion in service science, especially from an operations and supply chain perspective.
The types of information-intensive services depicted in Table 1 can be supported by
one or more forms of customer contact that involve a combination of human and IT-
enabled processes.

The Modes of Technology-Mediated Customer Contact

in Services
Froehle and Roth [101] have proposed a conceptual typology of a technology-me‑
diated customer contact model that differentiates between physical face-to-face and
virtual screen-to-face contact in services operations. Froehle and Roth’s typology of
technology-mediated customer contact is also shown in Table 1. Froehle and Roth’s
typology involves three types of face-to-face customer contact—technology free,
technology assisted, and technology facilitated. The authors also define two types of
face-to-screen customer contact—technology mediated and technology generated. In
the technology-free customer contact mode, the customer interacts with the service
representative independent of technology. Such contacts are typical of some types of
services work that involve sales and product demonstrations and analysis-intensive
services that require face-to-face collaboration, such as legal or accounting services.
In the technology-assisted customer contact mode, the customer interacts with a
service representative who, in turn, relies on an IT infrastructure to service the cus-
tomer. Such interactions may be in the form of a CRM system that the service repre-
sentative accesses to obtain appropriate information during the service process. With
technology-facilitated customer contact, in contrast, both the customer and a service
representative may access a Web portal to obtain access to a service. However, the
customer and service representative still communicate independently of the technology
that is available [197]. Information-intensive services in the technology-assisted or
technology-facilitated customer contact modes are representative of IT tool–augmented
46 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

service work, where technology assists in the delivery of services but may require
some human intervention from service representatives at a call center.
In the face-to-screen customer contact mode, the IT platform mediates communica-
tion between a customer and service representative. Such technologies involve online
e‑commerce Web sites where information flows between the service representative
and the customer are channeled through the technology of a digital intermediary, such
as via an online live chat feature. The last type of contact, the technology-generated
customer contact, is representative of situations where the customer is self-serviced
primarily through a technology platform or layer, such as with travel reservations
or scheduling systems. Services work that entails technology-mediated customer
contact is more likely to be outsourced to third-party vendors or offshored to captive
customer service centers to achieve lower labor costs. On the other hand, services that
involve technology-generated customer contact are more likely to be fully automated
through a self-service e‑commerce platform that is integrated with speech recogni-
tion software.
The service representative typically represents the producers, who include the in-
novators, developers, and direct-delivery providers of the service production process.
The customers are the consumers, and may be users or clients. In some instances, the
service representatives may be more like intermediaries though. This group is com-
posed of business partners, systems integrators, value-added resellers, and systems
solutions brokers. In such cases, the customer may interact with these intermediaries
in their service encounters due to expertise that the intermediaries bring. In both cases,
the IT involved may be a tool that is jointly or separately developed by the producer
and intermediary but is available to either party to service the customer. The monitors
may represent government, industry, and user standards organizations that also stand
to benefit through interactions.
In many knowledge-intensive industries, services managers are focused on providing
personalized services offerings that require high-touch or high-tech delivery processes.
Such differentiation becomes important in the context of professional services, where
knowledge workers are more likely to provide services based on the face-to-face
model [103]. Customer service is more likely to be provided through face-to-screen
contact. For example, high-end consulting services that involve rigorous analyses
(e.g., management consulting or architectural services) require face-to-face contact,
whereas business process outsourcing is likely to involve services delivered via face-
to-screen modes. The design issues and integrating challenges associated with such
customized service processes have not been fully examined, and they have not been
conceptualized as critical to services strategy [197].

The Current State of Services Research in Operations Management

E‑services delivered through electronic channels are becoming an increasingly im-
portant area for research in operations management and IS [117, 197]. Many of the
traditional notions of services management and its economic value have not been
empirically validated in electronic markets. To date, research in IS and operations and
 IT services management and service science 47

supply chain management has been mostly customer based, focusing on the online
experience [170], services quality [239], and customer choices [126]. They also have
been operations based, with a focus on customer efficiency [236] and customer services
process configurations [117, 196]. Roth and Menor observe that “neither knowledge-
based e‑service paradigms nor core operating principles related to e‑service strategies
have been rigorously examined” [197, p. 159]. Similarly, the areas of B2B e‑commerce
and people-to-people services, such as the online interest-specific communities eBay,
Facebook, or MySpace.com, have gained increasing importance, but research from a
services management perspective has lagged behind.
An area that has received scant attention is system dynamics and its application
to services research. System dynamics is a method to depict, model, and simulate
dynamic systems [111]. It provides a useful framework to study information flows
from a service science viewpoint. Characteristics associated with real-world opera-
tions management problems, such as feedback loops, accumulation processes, and
delays, are sometimes ignored in analytical and empirical research. System dynamics
offers an alternative lens to study, explain, and interpret such phenomena in operations
and supply chain management. Forrester [97] developed a system dynamics–based
simulation of a supply chain consisting of four stages—factory, warehouse, distribu-
tor, and retailer. Forrester’s model describes the dynamic flow of goods and orders
in industrial systems and shows that inventories in the different stages are amplified
when moving down the supply chain. Hence, system dynamics provides a structural
framework to explain how delayed information and material flows, when combined
with feedback loops, result in oscillations in system behavior. This is commonly
referred to as the bullwhip effect.
System dynamics models are more descriptive than normative. They focus on inves-
tigating a system with its complexity, instead of deriving elegant, optimal solutions.
Grobler et al. [111, p. 379] categorized the literature on system dynamics into papers
dealing with production flow and supply chain management, process improvement
programs in operations, project management issues, new product development and
innovation, and effects of different production technologies. For services research,
Oliva and Sterman [171] examine services systems in which increases in services
demand allow for a number of alternate provider responses, such as increasing ef-
fort, cutting corners, and investment in greater capacity. System dynamics enable us
to understand services issues involving optimal investment strategies for managing
talent, technology, and environments in services delivery.

Related Research Directions

The trend toward globalization of supply chains has created a need to develop a better
understanding of services system evolution [222]. We propose the following research
direction:

Research Direction 11 (The Specialization of Modularization and Services): Re‑

search should be undertaken to understanding the changes in business processes
48 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

associated with greater modularization of services for effective global operations

and supply chain management.
Innovations in services creation and delivery have been accompanied by greater
specialization of services, wherein customers and producers often co-create value. This
affects business process design. For the producers, specialization can lead to greater
talent, high technology, and superior capabilities for creating value-added services
[220]. Such work system evolution is also associated with a greater need for trust and
coordination across the extended network of stakeholders—producers, intermediaries,
value-added sellers, consumers, governmental standards organizations, and develop-
ers. Understanding the system dynamics of services systems provides opportunities
to develop models that capture the essence of service operations [171]. It is critical
to understand when transitions can occur between various states in the evolution of
services systems—from fully human systems to technology-augmented systems to
outsourced systems across firm boundaries and fully automated, self-service systems.
Both analytical and simulation approaches to solve these problems are required, but
so too are experimental and behavioral approaches. Thus, we propose:

Research Direction 12 (Experimental and Behavioral Research Approaches):

There is high potential for new knowledge from the application of experimental
and behavioral science methods to build service science approaches in operations
and supply chain management settings.

Services systems are essentially sociotechnical systems that are a collection of

interdependent entities. It is important to apply new techniques grounded in behav-
ioral theories of operations to address a number of questions. How does the nature of
customer contacts change as firms move to more “high-touch” experiential customer
service environments? What are the linkages between customer service design and
outcomes related to emotional responses, such as customer satisfaction? What trade-
offs exist between the use of high-experience services versus traditional approaches
to customer service? Experimental economics-based approaches can also provide a
useful setting to empirically study these issues and develop a better understanding
of specific conditions and situations that are more suitable for experiential services.
Knowledge-based e‑services, such as the types of services provided through busi-
ness process outsourcing, fall into this category. Froehle and Roth [102] and Voss et
al. [233] provide useful ideas for research in services operations involving customer
behavior. Also important will be

Research Direction 13 (Cloud Computing Service Design Issues in Operations

and Supply Chain Management): There are major opportunities for new research
to probe the extent to which cloud computing service design decisions are able to
best support operations and supply chain management and the value co-creation
activities of their primary stakeholders.

The emerging services-oriented technology approach that pushes Davenport’s com-

moditization of IT the farthest is cloud computing [118]. Baker [12] characterizes
 IT services management and service science 49

the emergence of cloud computing as a technological transformation in the power of

computing that brings to mind the transition that the industrial economies of Europe
and North America made to electricity in the late 1800s and early 1990s, which
eliminated the need for individual businesses to use their own generators in lieu of
acquiring power from utilities.9
In spite of this positive view of the future for cloud computing, there are those who
believe this development will not bring high business value to the vendors that offer
services this way in the near term, or to the clients that sign on to use it. For example,
Knorr and Gruman [148] view it as being in the early stages of the hype cycle, and
refer to it as “sky computing.” They note that the primary components include single-
applications SaaS through browsers, utility computing and server infrastructure vir-
tualization, Web services via the Internet to support the market for service-focused
software objects, service computing systems development platforms, managed service
providers, service commerce platforms and service hubs acting as automated cloud
computing service bureaus, and Internet integration for connections among SaaS
providers. Clearly, there are many issues related to cloud computing that need to be
sorted out by IS researchers.10
More generally, there is a critical need to empirically measure the productivity of
service innovations within service-oriented systems. In industrial work, the productivity
effect of technology has been viewed as simply increasing the output and decreasing
the inputs needed for processing. In an innovation-oriented context, though, the quality
of the work and the outcome may be equally important, if not more salient, than the
quantity of output produced. Thus, we propose:

Research Direction 14 (Productivity and Service-Oriented Systems Performance):

There is an important opportunity to redefine our approaches to the assessment
of productivity and the operational performance of services-oriented systems
through the development of new conceptual and modeling approaches.
Extending a manufacturing mind-set to the application of IT in services may be coun-
terproductive for services-oriented systems. Application of IT in knowledge-intensive
services settings, such as the small-scale “skunkworks” of research and development
and innovation for operations management, requires adaptation and additional sensitiv-
ity to the unique characteristics of these environments. It is important to remember that
IT’s primary benefits in the area of services processes are twofold. First, IT helps in
the achievement of consistent results and supports the organization in creating better-
quality outputs through improved market intelligence and customer-focused business
intelligence. Third-party customer information from online discussion media enables
the firm to leverage its work with global suppliers and to reuse knowledge assets from
other organizational entities as well [18]. Second, IT-enabled service processes help
a firm to keep its customers engaged throughout their relationship, whether in joint
project contexts, for procurement and supply chain management, or for after-sale
customer service. IT does this at a lower cost and with higher quality than would ever
be possible for relationship managers to achieve otherwise. As a result, the research
agenda for IS and operations management relative to service science is very rich.
50 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

Conclusion
Contributions
This paper presented a robust analysis framework that we used to evaluate the exist-
ing literature, the current emphases in research, and the likely outcomes and directions
that we expect to see in the short and medium term with respect to services-oriented
technology and management and to service science. In addition to its focus on the
effects of technological disruption, the framework emphasizes the multiple roles of
different stakeholders: producer stakeholders, including service innovators and pro-
ducers; consumer stakeholders, including customers, users, and buyers; intermediary
stakeholders, including value-adding sellers, consultants, and system integrators; and,
finally, monitor stakeholders, comprising standard organizations, vendor consortia,
and user groups. No stakeholder group is any more important than another; however,
the locations of the producer and consumer stakeholders and the intermediary and
monitor stakeholders are intended to highlight their opposing interests and their shared
concerns. Our framework also points to the nature of the primary, secondary, and other
effects of the technological changes that are under way and shows where different
theories and methodologies are likely to find an important place in the foundational
knowledge of the emerging discipline of service science.
Aspirations for an integrated services culture are now pervasive in the manage-
ment philosophies of modern organizations. A unique contribution of this paper is
its perspective on services-oriented technology in multidisciplinary terms, including
IS, computer science, economics, finance, marketing, and operations and supply
chain management. The result is comprehensive coverage and interpretation of the
issues and theoretical perspectives that will be useful for those who wish to identify
starting points for their own research and applications to better understand services-
oriented innovations. Because the study of service science as a fundamental content
area for IS research has only started up recently, many of the research streams that
we discussed are still in the preliminary stages. We will see it mature rapidly in the
IS and computer science disciplines. The marketing and operations and supply chain
management disciplines are further along in their handling of services, while econom-
ics and finance researchers are only beginning to catch on to the importance of doing
this kind of research.

Limitations and Future Work

There are additional and important behavioral and organizational issues that we have
not fully addressed. For example, what will be the effects of service orientation and
technology on knowledge management in organizations? How will career paths and
the required skills sets be changed? What can be done to pave the way for harmony
between technological innovation and skilled labor development? Future work should
further explore the theoretical perspectives and approaches that will yield new knowl-
edge about the efficacy and effects of SOA and services management.
 IT services management and service science 51

Second, we have not given the producer stakeholder issues as much scrutiny as might
be appropriate in view of their key role as innovators. The impetus for technological
innovation, the capability to produce technology infrastructures and services, and
knowledge of what the market is ready to embrace fall into the producer stakeholders’
domain. Much of the critical data regarding services design, economics, and organi-
zational effects will be in the hands of the services vendors and their intermediaries
and the value-added vendors. This presents opportunities for collaboration between
industry and academics. Vendor firms may realize benefits from sharing data and
third-party services cost benchmarking among their industry alliance partners and
even their competitors. With the rich spectrum of issues, we recognize that the inter-
mediary stakeholders—as value-added services providers adapt to ease the changes
that organizations will experience—deserve their own research agenda.
Third, the importance of the customer-centric view in the IT, marketing, and op-
erations and supply chain management contexts is plain. To achieve value from this
perspective, it will be necessary for firms to consider how their business processes
should be adjusted, their organizational units de-siloed, and their management’s
thinking retooled to go beyond the existing focus on the organization and operation
of business units and business functions. In effect, we are arguing here—counter to
the current catechism of the IS discipline—that business processes are a necessary,
but not a sufficient, emphasis. Instead, it will be necessary to jointly emphasize the
strategies that heighten the relevance of the design of business processes, the roles
of the customers they serve, the innovative uses of technology that are possible, and
the economic and financial outcomes associated with conducting business in this
manner.
A final caveat that we offer comes with our recognition of the extent to which
leading industry players are driving technological developments and management
practices with respect to IT services and SOAs. Firm such as IBM, Intel, Unisys,
Oracle, and other very large players all have a huge vested interest in the success
of the services-oriented paradigm, as do the host of other smaller producer and in-
termediary stakeholders that are a part of the industrial structure of this arena. Our
primary observation is that what comes out in the years to come—the future history
of service science—is likely to be strongly dependent on the multiple paths of the
large innovator-producers, much as we saw with mechanical typewriters and computer
keyboards in the twentieth century and personal computers, handheld computing
devices, digital wireless phones, and digital cameras more recently.

Acknowledgments: The authors thank the following people for helpful comments and interac-
tions: Michel Benaroch, Jian Chen, Qizhi Dai, Mike Goul, Ting Li, Fu‑Ren Lin, Paul Maglio,
Yong‑Jick Lee, Arti Mann, Jim Spohrer, Raghu Santanam, Sagnika Sen, Ben Shao, Juliana
Tsai, Eric van Heck, Jamshid Vayghan, Peter Vervest, and Vladimir Zwass. Rob Kauffman
also acknowledges the W.P. Carey Chair at Arizona State University; the Shidler School of
Business, University of Hawaii; the Rotterdam School of Management, Erasmus University;
the School of Economics and Management, Tsinghua University; National Taiwan University
of Science and Technology; and the National Science Council of Taiwan for generous funding.
The usual disclaimers apply.
52 Bardhan, Demirkan, Kannan, Kauffman, and Sougstad

Notes
1. Service science is grounded in the cross-functional issues of business and its operating
processes. Its theoretical roots extend to engineering, technology, and the social sciences. Re-
lated theories illustrate this. For example, the theory of transformation [150] has been stated
in terms of value deficiencies, work processes, decision making, and social networks. Another,
sociotechnical systems theory [10], is used to represent and understand self-regulation for
interactions between physical and institutional structures. Services complexity theory [122],
which typically is expressed as a function of the number and variety of people, technologies, and
organizations linked in value-creation networks, is noteworthy. Theories of consumer behavior
are also relevant, including customer decision making, role experience, customer satisfaction,
and perceived quality.
2. In contrast, Erl defines service-oriented architecture (SOA) as “a technical architecture,
a business modeling concept, a piece of infrastructure, an integration source, and a new way
of viewing units of automation within the enterprise” [86, p. 476]. Another definition, from
OASIS, suggests it is a “paradigm for organizing and utilizing distributed capabilities that may
be under the control of different ownership domains. It provides a uniform means to offer,
discover, interact with and use capabilities to produce desired effects” [190, p. 6].
3. Organizations have challenges with this important task. Technological convergence and
the services orientation will enable organizations to transform their traditional silos and tightly
coupled business processes that support business strategies into more loosely coupled services
and align them vertically with IT services that are sourced by virtual resources. Establishing
services-oriented business and architecture is also key to establishing loosely coupled services
and integrated value chains [240].
Services-oriented organizations have three layers that support business strategy execution,
ranging from top-level business and business processes (e.g., business service choreographies
and ITIL), to the mid-level architectural layer with services (e.g., SaaS), to the infrastructure
layer (e.g., utility computing, SOA with virtualized resources) [181]. These services are similar
to reusable objects (e.g., components, modules) that represent repeatable business activities and
tasks and should be accessible through a network that enables intra- and interorganizational
value networks [185]. The goal is to facilitate acquisition and integration of the best business
and technology services that can be obtained from the market with maximum agility.
4. Meta-modeling has been proposed to enable Web services execution. A meta-modeling
language involves syntax, semantics, and notation to express information, knowledge, or systems
constructs in a structure defined by rules.
5. Clemons’s research articles on transformations involving economic exchange in markets
and organizations in the past 20 years point to a number of sources of these problems. They
include the functionality risk of business IT [55] and the lack of corporate understanding of
the need for in-depth strategic analysis of IT investment decision making [60]. He also points
to the changing economics of coordination of business processes and ownership of shared IT
infrastructures [59], a theme that has been echoed by others [162]. He further notes specific
agency issues involving buyers and sellers, including poaching and information exploitation
[58] and the necessity of bonding seller performance in e‑markets where trust is lacking [56].
6. The vision for the future of internal risk management IT that is represented by cloud
computing is a medium- to long-term opportunity for banks, brokerage houses, and insurers,
but the conceptual ideas behind the development of the virtualization layer between applica-
tions and distributed computing resources are being worked out [76]. Major players in global
financial services (especially Singapore and Hong Kong) have already embraced the idea of
grid computing so that IT services demand spikes can be handled as market purchases. They
also view the economic performance and the nearly unlimited processing power to be attrac-
tive [21]. More recently, the European Union–funded CATNETS (the catallaxy paradigm of
market adjustments that bring order via the decentralized operation of dynamic application
networks) project has been exploring the creation of a self-organizing financial market for
grid services similar to how electricity grid markets work [224]. As a result, there is ample
opportunity to bring mechanism design, an important branch of economics, into the context
of service science.
 IT services management and service science 53

7. Operational risk consists of issues that could arise that disrupt the ability of the financial
institution to carry out its duties. IT failure and security breaches are both operational risk con-
siderations. Credit risk refers to the likelihood of a borrower defaulting on interest or principal
payments. Market risk refers to economic conditions that affect the volatility of the prices of
traded assets or derivatives.
8. Parasuraman et al. [183] define service quality for the new services environment. At a
strategic level, the e‑services orientation calls for moving the emphasis from products and trans-
actions to services and relationships. It advocates viewing customers for their equity value to the
firm. At a tactical level, the e‑services orientation calls for personalization and customization,
self-service strategies, privacy and security management, and value co-creation.
9. Baker goes on to illustrate the idea of cloud computing in the context of Google, which now
provides many of us with cloud computing–based e‑mail through its Gmail service. He asks:
What is Google’s cloud? It’s a network made of hundreds of thousands, or by some esti-
mates one million cheap servers, each not much more powerful than the PCs we have in
our homes. It stores staggering amounts of data, including numerous copies of the World
Wide Web. This makes search faster, helping ferret out answers to billions of queries in a
fraction of a second. Unlike many traditional supercomputers, Google’s system never ages.
When its individual pieces die, usually after about three years, engineers pluck them out
and replace them with new, faster boxes. This means “the cloud” regenerates as it grows,
almost like a living thing. [12]
Recognizing additional new opportunities with the expansion of IT services and services-oriented
computing, IBM [124] spent about $1.6 billion on data centers globally in 2008, including a
cloud computing infrastructure and its “Blue Cloud” approach. IBM has referred to this as
autonomic computing to indicate the capabilities of adaptive systems that are self-managing
and widely distributed. An important thrust of its current strategy is to create capabilities in the
arena of cloud computing services management. In 2007 and 2008, it announced the opening
of cloud computing centers in Africa and China [194]. IBM’s shift to cloud computing service
management has been prompted by the global growth in collaborative business, future trends
in connected computing and personal digital devices, greater intensity of the use of real-time
data and video streams, and other Web 2.0 and social networking capabilities.
10. Ricciutti has quoted Richard Stallman of open source computing renown as saying:
“We’ve redefined cloud computing to include everything that we already do. [It] forces people
to hand over control of their information to a third party. It’s just as bad as using a proprietary
program” [195]. Stallman characterizes cloud computing as a “marketing hype campaign” and
expresses concerns about vendor lock-in and escalating user costs, in the presence of escalat-
ing vendor market power. In addition, Larry Ellison, the chairman of Oracle Corporation, has
indicated that he believes that cloud computing will not be profitable for the vendors due to its
complexity [119]. Too many more innovations are required to flesh a fully workable approach
that provides not only the massive joint application-and-computing hardware connectivity that
is envisioned. Many other observers view on-demand computing services as already having
peaked, though this is not the dominant view that is expressed in the marketplace now. Foley
[94], meanwhile, suggests that other significant issues need to be overcome, such as the manage-
ment of security and customer data privacy, the extent of client control of data and applications,
services delivery across hybrid computing environments, and the development of standards for
cloud computing services interoperability.

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