ITIL framework recognizes three types of service providers for providing services to customers of IT services. They are broadly classified as below:

• Internal Service Provider
• Shared Service Provider
• External Service Provider

Internal Service Provider

In organizations, you typically have business units or a common lingo being verticals. Every business unit operates more or less as a sub-organization (an organization within an organization).

If you embed IT teams (IT service providers) within each of these business units, you will end up having as many IT teams as the business units. The teams that provide IT service to customers within the business unit are referred to as internal service providers.

This model is fairly expensive and is not optimized. You will have to recreate a number of roles and duplicate a number of activities under every business unit.

Shared Service Provider

Let’s say that from the previous model, you pull out all the IT teams out into the open and bring them together as a single group – centralized IT team. And this central IT team is tasked with providing IT service to all business units alike.

This model is most preferred and is optimized. The only drawback is that business units may not get favored service which would have been the norm in the internal service provider model.

External Service Provider

Now that you know internal and shared service provider, let me introduce the external service provider.

If the central IT team, which we discussed in the shared service provider model gets acquired by a different organization and still provides service to the parent organization, then this set up – where the customer gets IT service from a different organization, the service provider is termed external, as per ITIL.

In fact today, most organizations are outsourcing their IT support to organizations that specialize in it. Especially, the IT arm that develops software comes from outside.

Outsourcing IT helps organizations obtain IT services economically and get the most bang for their buck. They generally hold all the aces at the negotiation table, which would have not been the case if the IT service provider was from the same organization.

It is common for organizations to prefer multiple external service providers. It is prudent not to put all their eggs into a single basket and spread the services they seek across multiple service providers.

General norm is to have the infrastructure with one or two service providers, network with a service provider and applications with multiple service providers. This helps customers keep a good handle on all its service providers as the competition between the service providers will prove beneficial. If there is a single service provider, it is possible that the service provider gets into an unshakable position and could very well dictate terms.