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Demand Heterogeneity in IT Infrastructure Services: Modeling and Evaluation of a Dynamic Approach to Defining Service Levels

Author

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  • Sagnika Sen

    (Information Systems and Decision Sciences Department, California State University, Fullerton, California 92834)

  • T. S. Raghu

    (Department of Information Systems, Arizona State University, Tempe, Arizona 85287)

  • Ajay Vinze

    (Department of Information Systems, Arizona State University, Tempe, Arizona 85287)

Abstract

A key feature of service-oriented models of information technology is the promise of prespecified quality levels enforceable via service level agreements (SLAs). This poses difficult management problems when considerable variability exists in user preferences and service demand within any organization. Because variance in expectations impact service levels, effective pricing and resource allocation mechanisms are needed to deliver services at the promised quality level. In this paper, we propose a mechanism for SLA formulation that is responsive to demand fluctuations and user preference variance, with the objective of maximizing organizational welfare of the participants. This formulation features a dynamic priority based price-penalty scheme targeted to individual users. An analytical model is presented and evaluated for effectiveness of a proposed dynamic priority-based pricing scheme vis-à-vis a baseline fixed-price single-quality level SLA. Simulations using data from an existing SLA is used to provide evidence that the proposed dynamic pricing scheme is likely to be more effective than a fixed-price approach from a system welfare perspective.

Suggested Citation

  • Sagnika Sen & T. S. Raghu & Ajay Vinze, 2009. "Demand Heterogeneity in IT Infrastructure Services: Modeling and Evaluation of a Dynamic Approach to Defining Service Levels," Information Systems Research, INFORMS, vol. 20(2), pages 258-276, June.
    • Handle: RePEc:inm:orisre:v:20:y:2009:i:2:p:258-276
    DOI: 10.1287/isre.1080.0196
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    References listed on IDEAS

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    3. Chenglong Zhang & Nan Feng & Jianjian Chen & Dahui Li & Minqiang Li, 2021. "Outsourcing Strategies for Information Security: Correlated Losses and Security Externalities," Information Systems Frontiers, Springer, vol. 23(3), pages 773-790, June.
    4. Cheng, Li & Wang, Yue & Zhang, Xiao & Zhu, Di, 2023. "Double-edged sword of global demand heterogeneity: How service multinationals capture the benefits and mitigate the costs of managing customer knowledge," Journal of Business Research, Elsevier, vol. 154(C).
    5. Chenglong Zhang & Nan Feng & Jianjian Chen & Dahui Li & Minqiang Li, 0. "Outsourcing Strategies for Information Security: Correlated Losses and Security Externalities," Information Systems Frontiers, Springer, vol. 0, pages 1-18.
    6. Antonello Maruotti & Jan Bulla & Tanya Mark, 2019. "Assessing the influence of marketing activities on customer behaviors: a dynamic clustering approach," METRON, Springer;Sapienza Università di Roma, vol. 77(1), pages 19-42, April.

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