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In terms of ownership costs and risks avoided

The value proposition | Value composition | The business process | Specialization and coordination | Encapsulation | Lifecycle and systems thinking | Functions and processes across the Lifecycle | Service strategy principles | Marketing mindset | Combined effect of utility and warranty |


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Value of the credit-reporting service also comes from the lending division being able to avoid certain costs and risks it would incur from operating a credit inquiry system on its own instead of using the reporting service. For example, the costs of maintaining capabilities and resource s required to operate a credit reporting system would be borne entirely by the lending division. The cost per credit report would become prohibitive within the scope of the loan approval process, and would have to be passed on to the cost of the loan or be absorbed elsewhere within the banking system. Under prevailing conditions, buying the service turns out to be a good decision for the bank. It increases gains and reduces losses.

An alternative strategy is for the lending division to convince other divisions within the same bank, financial services group, or industry to use its credit reporting system. This may be a viable option in which the lending division would now offer a credit reporting service to lenders along with its core service to borrowers. This is a strategic choice that has to be made by the senior managers of the lending division and their leadership at the bank. The risks of such a choice include the lending division straying from its core capabilities, inability to convince others of its competence, and attracting too little demand to make the credit reporting service economically viable.

By using a credit reporting service rather than operating a credit reporting system, the lending division is deliberately avoiding specific risks and costs. In effect, the lending division frees itself from certain business constraints. Sets of constraints are often traded for others provided the overall performance of the business is not lessened. Such trade-offs are made by the senior leadership of customers who are in the best position to decide. The senior leadership of service provider s become business partners when they are able to support their counterparts in managing constraints on business strategies.

From the business perspective in the example above, service providers support the business strategies of their customers by removing or relaxing certain types of constraints on business model s and strategies. The constraints are of the type that imposes specific costs and risk s that customers wish to avoid, as follows:


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