1 is correct if organisation is called XY Service and the word work is used as a noun (i.e. the work of XY Service)
If the organisation was called XY Services and the word "work" is used as a noun, the correct answer would be 2. (i.e. the work of XY Services)
If the organisation was called XY Services and the word "work" is used as a verb, the correct phrase would be "XY Services works in Zz" as "XY Services" is still singular despite the word Services being a plural.
- If the organisation was called XY Service and the word "work" is used as a verb, you would then say "XY Service works in Zz".
Does that cover all possibilities and leave the OP totally confused?