The Economics of Service Level Engineering

Today, the management of service quality poses a major challenge for many service providers and their business customers. We argue that the trade-off between service cost and benefit incurred by both parties is not sufficiently considered when service quality is stipulated. Up to now, neither in practice nor in academia a commonly accepted engineering approach exists to determine business-relevant performance metrics and associated cost-efficient target values to precisely identify efficient service quality. It can be expected, though, that such a systematically developed and economically well-founded Service Level Engineering approach - based on the individual economic conditions of customer and provider - can enhance the value generation in service systems formed by both these parties. In this work we lay the foundation for the field of Service Level Engineering discussing its constitutional concepts and elements. After developing a generic framework for different Service Level Engineering scenarios, we analyze one scenario - the system view - in detail as a quantitative optimization problem: In particular, we aim at the derivation of cost-efficient target values given business-relevant performance-metrics.