You might want to switch service desk providers due to dissatisfaction with your current IT service management (ITSM) tool, or perhaps because you need to bring in improved IT service delivery and support capabilities. Whatever the case, switching costs don't limit to the tool's price. They include associated costs that should be taken into account to understand the full extent of changing help desks.
After years of helping numerous clients around the world, we're in a pretty good place to attempt to explain the economic costs of making the switch decision. If you're considering migrating to a new service desk, this is the perfect article to help you with that.
Keep reading to find out more about:
- What the customer’s switching costs are.
- The typical switching costs involved in changing IT service desk tools.
- What your organization can do to minimize switching costs – or switching barriers – to painlessly switch between their existing and a better service desk tool.
What are switching costs?
Switching costs are a marketing term used to increase customer retention. In some industries, they’re used for creating and maintaining a competitive advantage – because high switching costs make it difficult for customers to look for other products or service providers. It is, in effect, part of the supplier’s business model and a key weapon in combatting competition.
Due to this, customer switching costs are also known as “switching barriers.” But no matter the name, suppliers (and their sales and marketing functions) will likely aim to make their switching costs as high as possible to not only “lock” customers in but also to help protect against periodical price rises and customer satisfaction issues.
It is a marketing approach that aids customer retention, creates a competitive advantage, and positively affects margin levels.
A customer’s switching cost can come in many forms. For example, switching between products or service providers requires time and effort. It’s also essential to appreciate the risks associated with switching if the change is likely to disrupt business operations and outcomes.
The ability to set high switching costs will depend on the industry. For some products and services, there will only be low switching costs no matter how hard marketing departments try to make them higher. Switching barriers such as contract terms and exit penalties are employed in such instances.
In the case of IT service desks, suppliers commonly rely on the high switching costs – which are explained later – and the use of contractual switching barriers to reduce customer “churn” and act as a barrier to new market entrants.
When market power and conditions allow it, high switching costs prevent customers from switching between products and service providers.
Their reluctance to change is because switching costs are perceived as too high versus the perceived value of switching (even when faced with poor customer satisfaction).
That is why, when your organization is considering the move from one IT service desk or ITSM tool to another, it’s crucial that they not only know the costs associated with switching but also the added value of employing a new and better device.
3 types of switching costs
While the above switching costs definition splits switching costs into low and high ones, it’s also essential to understand the different “flavors” of switching costs. For example, the categorization of changing costs into three groupings:
- Financial switching costs
- Procedural switching costs
- Relational switching costs
Each of these switching cost types is explained below.
1. Financial switching costs
These are the costs incurred through switching. They might be payments that need to be made, but they can also be costs associated with forgone revenue or “opportunity costs.”
To fully understand the financial switching costs of changing the IT service desk or ITSM tool, your organization must undertake a cost-benefit analysis comparing the status quo versus the desired future state. Here, it’s essential to understand the new possibilities and benefits of the replacement tool, and how the current tool is adversely impacting IT and business operations and outcomes, including unnecessary costs and missed opportunities.
In terms of the more visible switching costs, in addition to the new purchase cost, it’s essential that your organization also considers:
- Contractual commitments and any associated early release penalties.
- The operational disruption caused by the switch – not only to the IT organization but also to the business operations it serves and supports. For example, while there might not be any system downtime, the change will likely affect IT personnel productivity and impact business operations and outcomes.
2. Procedural switching costs
Procedural switching costs relate to the switching exercise. These start from considering potential IT service desk alternatives to the assessment and selection process. Then, there are the implementation costs, including the configuration and customization of the vanilla tool, plus the training costs for IT users and potential end-users.
- Consideration-related costs include marketing research and conversations with sales personnel. It might also include third-party advisory fees.
- Assessment and selection costs include the tool demos and the analysis of the considered solutions.
- The implementation costs might include considerable vendor or third-party professional services effort and expense (depending on the selected tool and business requirements).
3. Relational switching costs
The relational switching costs relate to your organization’s previous investments in the current IT help desk tool. These are often easily overlooked in cost-benefit analysis calculations. For example:
- Discounts on other supplier offerings will be lost.
- The personnel and skills built up to support the current IT service desk tool versus the need to acquire equivalents for the new solution.
- Integrations with other systems and the ease of data migration.
6 switching costs of changing help desks you need to consider
Up to now, much of the above switching cost explanation has been somewhat generic and perhaps high-level. Below, we'll dive into the true cost of changing help desks — or, in a less mysterious note, into the switching costs associated with changing the IT service desk or ITSM tool.
Your organization needs to consider the most relevant switching costs when moving between different IT help desk tools and their vendors. For each of these switching costs, you (or your IT service desk manager) must be able to explain what the switching cost entails and the contra benefits that help make the business case to IT and potentially business leadership.
Pricing is the most visible cost: the cost of procuring the new IT service desk tool. It might be a monthly subscription paid annually, perpetual licenses paid for upfront, and an annual support and maintenance fee. An exit cost might also be associated with switching from the incumbent service desk tool (exit costs).
It might be that the new tool is lower cost than the current tool, but it’s also important to explain how the switch will deliver additional business value thanks to the better tool capabilities. These might relate to the use of the solution and other capabilities it might bring, such as automation, the ease of configuration and customization, or something else.
It might also be necessary to calculate the total cost of ownership of both the old tool and the tool switched to. In addition to the purchase cost, this includes:
- Administration and management costs.
- The support and maintenance costs for on-premise tools.
- The cost of upgrades consists of any broken customizations or integrations.
Plus the other costs that follow.
2. Equipment costs
Equipment costs are relevant when an on-premise service desk tool is procured or replaced. The switch means that your organization will need to acquire or discard equipment even if another on-premise solution replaces an on-premise solution.
3. Implementation costs
The costs of implementing a new help desk tool can vary depending on the tool being switched to and your organization’s ITSM needs. Some significant shortcuts can be taken simply by not trying to replicate the old tool’s customizations automatically.
The IT service desk or ITSM tool implementation and setup costs usually include:
- Process redesign
- Tool configuration
- Tool customization if need
- Integrations (covered later)
- Training costs (covered later as learning costs)
4. Time-based costs
This is the time taken to switch, and while the financial costs incurred are covered elsewhere, the fact that it will be such a long journey to change might be sufficient to dissuade an organization. It might simply be that the length of time required to switch to the new service desk is seen as excessive or that there’s never a long enough window of opportunity operationally to implement it.
That is why we have focused on switching ITSM tools as simple and painless as possible for customers. To give you hope that this can be achieved, we have a quick video to prove that you can have InvGate Service Desk's basic configuration up and running in just a day!
5. Learning costs
Learning cost is the time and associated costs linked to users getting used to the new tool. People must become fully productive on the new service desk or ITSM tool. This isn’t just IT users but also businesspersons that will use it in scenarios such as self-help or service request approvals. If the ITSM tool is used outside of IT in enterprise service management’s use cases, the costs also include the service provider training for business function staff.
6. Integration costs
While integration costs can be considered an element of implementation costs, they can be significant enough to be viewed separately. To avoid any unwanted integration cost surprises, your organization should look at integrations on three levels:
- Pre-built integrations are relative to business needs.
- The available integration capabilities should make creating additional integrations such as Open REST APIs, Web APIs, and SDKs quick and cheap.
- The time and cost of required integrations that aren’t covered by capabilities 1 and 2.
It’s vital not to underestimate the additional work that integrations might bring to the switch between service desk tools.
In addition to the effort needed to switch between IT service desk tools, it’s essential to consider the associated costs. This is not only the “sticker price” of the new solution but also all of the expenses incurred in both making it “road ready” and decommissioning the old tool and its “operational environment.”
Beyond the licensing costs, the implementation costs can be substantial, including:
- The equipment costs for an on-premise tool
- The setup
- The configuration of capabilities
- Customizations to extend out-of-the-box capabilities
- Integrations with other systems
It’s important not to overlook other switching costs such as:
- Running costs (including maintenance)
- Training costs and retraining costs
- Upgrade costs
- Day-to-day use costs caused by missing capabilities (for example, missing automation will drive additional labor costs)
Finally, while it’s essential to understand the switching costs fully, this is only one side of the cost-benefit analysis required to justify the tool switch to senior IT leadership.
The other side of the equation is how the switch to the current supplier’s competition will benefit your organization, which will involve the calculation of operational and outcome-based benefits that outweigh the more visible costs of switching service desk tools.
Frequently Asked Questions
What is low switching cost?
Products or services considered quickly “interchangeable” usually have low switching costs. This means that it's easy for the consumer to stop using product A and start using new product B. This situation is for many consumer-world products or services where you can swap mobile phone service providers and keep the same number, change the TV brand in your living room, or move from one t-shirt manufacturer to another.
What are high switching costs?
Products and services with high switching costs are unique in the market or have exit barriers. For instance, a significant investment is required to move from product A to new product B. This is often true for the IT service desk or ITSM tools, given the amount of effort and cost involved in changing tools (and covered in the above switching costs sections).
Why are organizations switching ITSM tools?
The most common reason for an ITSM service desk or ITSM tool being replaced is that it fails to deliver the expected benefits. In 2021, survey data showed that was one of the reasons to meet enterprise service management use cases, tool rationalization projects, a corporate cloud strategy or transformation project, or new ITSM process adoption. Either way, the incumbent tool vendor loses out to its competition.