Revenue Management in Business Services

A significant portion of the services industry is focused on providing services (medical, legal, financial, personal, travel) to individuals. However, a less visible, but rapidly growing segment of the service sector comprises firms that provide business functions to other businesses (Tanninen-Ahonen, 2003 and Ravi et al., 2006). The sector covers tasks such as payroll processing, procurement, information systems management,as well as business consulting, technical support, call center operations, and software development. Firms may choose to purchase, rather than perform, these business functions to reduce costs, mitigate risk, or simply to focus on their processes that provide marketplace differentiation. Transferring a business function from within a firm to an outside supplier is often called “outsourcing;” when the supplier provides the service from a lower-cost country, it is called “offshoring.” The risks and benefits of outsourcing to the firm purchasing a business service have been studied in some detail by both academics and consultants (Clemons and Aron, 2004, Booz Allen Hamilton, 2005, Dibbern et al. 2004, Kremic et al. 2006). In this paper we outline revenue management issues faced by business service providers, and describe some new opportunities for the use of analytic methods in the service science sector.