ITIL: Key Concepts of Service Management

Let's begin by looking at the learning objectives for this course number two. First, you want to describe the relationship between value and its stakeholders. And the term value is used a lot in service management. It's a key focus of ITIL 4, so it needs to be clearly defined.

 

And the stakeholders include the Organization, service providers, service consumers and other stakeholders. We're going to observe the service consumer roles. The three primary roles are customers, users and sponsors. We'll define the concepts of value co-creation through service relationships, and this includes service relationship management, service provision and service consumption. We'll describe the relationship between products, service offerings, and services. We'll describe the key concepts of creating value with services. This includes outcome, output, cost, risk, utility, and warranty. And finally, we'll recall the definitions of utility and warranty.

 

The first thing I want to outline is the most fundamental question. What is service management? Service management is defined as a set of specialized organizational capabilities for enabling value to customers in the form of services. Realize that we're now enabling value for customers as opposed to delivering value as defined in ITIL version 3. In addition, the word capability is being deprecated in ITIL due to the difficulty of translating this word, which is a combination of capable and ability in non-Latin languages. So you'll find this word rarely used throughout the entire ITIL 4 fundamental learning path.

 

Okay, let's define value, value is the perceived benefits, usefulness and importance of something. Now the word perceived is important in this definition, because the concept of value is always subjective. It'll depend on the business case, whether it's derived from a product and/or a service as well as the relationships between all the parties such as the service level agreements, the organizational level agreements, to name a couple. Also, the word something is purposely vague because it's more than just services. Developing the distinctive proficiencies of the organization, demands that the practitioner has an understanding of the nature of value, the aspects and scope of the involved stakeholders. And the way that value creation is enabled through services. In a nutshell, the purpose of an organization is to create value for stakeholders.

 

Let's talk more about organizations because ITIL is for all types of organizations different legal entities like corporations, partnerships, even a sole proprietor can be an organization. It can be a public or private entity. It can be a for profit or non profit entity. It could even be part of a company, an organizational unit, a business unit, a department, a separate business under a holding company. An organization has its own functions with responsibilities, authorities and relationships to meet its objectives.

 

Traditionally, organizations consider their role as delivering value to their customers like a package delivery service. And there was a time when organizations who self-identified as service providers saw their role as delivering value to their customers in much the same way. This view treated the relationship between the service provider and the service consumer as a monodirectional or unidirectional relationship and it created too much distance between the provider and the consumer. ITIL 4 moves away from the term and concept of unidirectional delivering value to a newer bidirectional creating value, in other words, the provider delivers the service and the consumer receives value, but the consumer plays a role in the creation of value for themselves.

 

This new approach takes into consideration the highly complex and interdependent service relationships that exist in the real world today. Organizations are consumers and providers of services and continually participate in the co-creation of value. Organizations recognize that value is co-created through an active collaboration between the providers and the consumers, as well as other organizations that are part of the relevant service relationships. So providers should no longer try to work in isolation to define what'll be the value to their customers and users, but actively seek to establish mutually beneficial, interactive relationships with their consumers. Actively encouraging them to be creative collaborators in the service value chain.

 

Service relationship management consists of joint activities performed by a service provider and a service consumer to ensure continual value co-creation based on agreed and available service offerings. Service provisioning consists of activities performed by a service provider to provide services. Service consumption consists of activities performed by a service consumer to consume services. Creating value is a two way street.

 

When provisioning services, an organization takes on the role of the service provider. But remember, the provider can be external to the consumer's organization. For example, Amazon Web Services, or they can be part of the same organization. For example, like a service desk, and that's a traditional view of ITSM. The provider organization is the IT department of the company. And the other departments or other functional units, are the consumers. But this is a very simple provider-consumer model. A provider could be selling services on the open market, to other businesses, to individual consumers. Or, it could be a part of the service alliance, providing services to consumer organizations.

 

The important thing, is that the organization, in the provider role, has a clear understanding of who its consumers are in certain scenarios. And who the other stakeholders are, in the associated service relationships. So remember, when receiving services, the organization itself can take on the role of the service consumer. Service consumer is a generic role, it's used to simplify the definition and description of the structure of service relationships.

 

In ITIL version 3, we had two consumer roles. However, in ITIL 4, we have three consumer roles. The customer, the person who defines requirements for the services and takes responsibility for the outcomes from service consumption. The user, a person who uses services. And the sponsor, a person who authorizes the budget for service consumption. For example, if the company wants to purchase mobile phone services for its employees, from let's say a wireless carrier who's this service provider, then the various consumer roles would be this.

 

The Chief Information Officer, the CIO, and the key communication team members will fill the role of customer. When they analyze the mobile communication requirements of the company's employees. Negotiate the contract with the wireless carrier, and monitor the carrier's performance against the contracted requirements. The Chief Financial Officer, the CFO, will fill the role of sponsor when they review the proposed service arrangement, and approve the cost of the contract as negotiated. And then the employees, which also includes the CIO, and the CFO, and the communication team members, will fill the role of users when they order, receive and use the mobile phone services as expressed in the agreed contract.

 

Now these roles can be combined. For instance, it's common for a consumer to be a customer and a user. In the business world, sponsor and customer roles are often combined. As a service provider, it's important to recognize these roles and relationships for your consumers. Also realize, that they may often have conflicting interests. For example, departments competing for budgetary dollars, or certain people with valuable skill sets. Let me use myself as a sample resource. There have been times when the IT group and the business skills group, needs me to produce something at the same time.

 

And then, during the decision-making process, marketing comes in and needs me to write a blog article, or produce a vlog. That represents conflicting interests. And one of those three groups, the IT group, the business skills group or the marketing group will prevail. Let me leave you with one more example. Let's say I'm a step-parent, and I want to buy my stepdaughter, a new iPad. Well, I'm going to use my spouse's credit card, so my spouse would be the sponsor. I'm the customer, but my step-kid is the iPad user.

 

And as mentioned, in the business world, sponsor and customer roles are often combined. For example, my boss Greg determines what is needed for our team within the established budget. He authorizes it, and actually contacts the vendors and makes the purchases. He's a sponsor and a customer.

 

But beyond the consumer and provider roles, there's typically many other stakeholders that are important to value creation. For the success and even the continued existence of an organization, it is vital that relationships with all key stakeholders are understood and managed. If a stakeholder is unhappy with what the organization does or how it delivers its value proposition, the provider's relationship with its consumers could be in jeopardy. Products and services create value for stakeholders in a lot of ways.

 

Some are direct, such as generating revenue, while others are more indirect, such as employee experience. Here we see three examples of common stakeholders, employees, shareholders, and community. So, for example, we could consider employees a direct stakeholder, shareholders an indirect stakeholder, and community an influencing stakeholder. And these three stakeholders have different goals. For example, the shareholders want a rising share price, they want dividends. Employees look at compensation, benefits. The community looks at charitable contributions or sponsorships.

 

Now those don't really add to our core value chain, but they are important. And there's varying levels when the goals overlap, for example, security. Also keep in mind that employees may also be shareholders or options holders. In addition, all three of these types of stakeholders would be concerned with the organization adhering to regulations and governance. But the risk of loss for non-compliance would be different for each type of stakeholder. Here's some examples of other stakeholders in value. The board of directors, bondholders, lenders or creditors, venture capitalists, vendors, strategic partners, trade unions, and government agencies. Other stakeholders would be suppliers, regulators, and various social groups.

 

And we're going to start with services because it's the central component, of service management. The nature of services will be considered. And we'll also get an outline of the relationship between a service and a product. By strict definition a service is a means of enabling value co-creation by facilitating outcomes that customers want to achieve, without the customers having to manage specific costs and risks. The services an organization provides are based on one or more of its products. Organizations own or have access to a variety of resources, including people, information and technology, value streams and processes, as well as suppliers and partners.

 

A product is a configuration of resources, created by the organization, that will be potentially valuable for their customers. Each product that an organization offers, is created with a number of target consumer groups in mind, and the products will be tailored to appeal to, and meet the needs of, those groups. A product is not exclusive to one consumer group, and it can be used to address the needs of several different groups. For example, a software service can be offered as a lite version for individual users, and then a more comprehensive, corporate licensed version. Products are usually complex and not fully visible to the consumer.

 

The portion of a product that the consumer actually sees, doesn't always represent all of the components that comprise the product and support its delivery. So for an example, when an individual user purchases a light software version, they don't necessarily see the backend code or the development process. Another example would be when a company uses a cloud provider like Amazon Web Services, Google Cloud platform or IBM Cloud. You're basically making API calls against exposed resources. The chances of a customer actually getting on site at a datacenter at Amazon or Google are extremely rare. Organizations will define which product components their consumers see and then tailor them to suit their target consumer groups.

 

Service providers present their services to consumers in the form of service offerings, which describe one or more services, based on one or more products, so the definition to memorize is that a service offering is a description of one or more services designed to address the needs of a target consumer group. A service offering may include goods, access to resources and service actions. Service offerings include goods to be supplied to the consumer, for example a mobile phone. Goods are supposed to be transferred from the provider to the consumer with the consumer taking responsibility for their future use.

 

A service offering may be access to resources granted, or licensed to a consumer under agreed terms and conditions. For example, to a mobile network, or a cloud network like Google Cloud platform, or network storage. The resources remain under the provider's control and can be accessed by the consumer only during the agreed service consumption period. Offerings may be service actions, performed to address a consumer's needs. For example tech support. These actions are performed by the service provider according to the agreement with the consumer.

 

Services are offered to target consumer groups, and those groups may be either internal or external to the service provider organization. Different offerings can be based on the same product, which allows it to be used in multiple ways to address the needs of different consumer groups. For instance, a software service can be offered as a limited free version or as a comprehensive paid for version based on one product of the service provider.

 

I want to return to a diagram from earlier, and I want to focus on the right hand side, these two definitions. To remind ourselves, service provisioning consists of activities performed by a service provider to provide services. Whereas service consumption consists of activities performed by a service consumer to consume services. To create value, an organization must do more than simply provide a service. It must also cooperate with the consumers in what we call service relationships. Service relationships are established between two or more organizations to co-create value.

 

In a service relationship, organizations will take on the roles of service providers or service consumers. The two roles are not mutually exclusive, and organizations typically both provide and consume a number of services at any given time. When services are delivered by the provider, they create new resources for service consumers, or, they change the existing ones. For example, a training service improves the skills of the consumer's employees, or a broadband service allows the consumer's computers to communicate. A car hire service allows the consumer staff to visit clients. Or a software development service creates a new application for the service consumer.

 

So in a nutshell, service relationship is a cooperation between a service provider and a service consumer. Service relationships include service provision, service consumption, and service relationship management. Let's look at some activities of service provision. Service provision includes management of the provider's resources configured to deliver the service. Ensuring access to these resources for users. Fulfillment of the agreed service actions, for example in service level agreements or organizational level agreements. And including service level management and continual improvement.

 

Activities performed by an organization to consume services would include management of the consumer's resources needed to use the service. Utilization of the provider's resources. Requesting of service actions to fulfill, and receipt of or acquiring of goods. Managing provision and consumption is relationship management. Joint activities performed by a service provider and a service consumer to ensure continual value co-creation based on agreed and available service offerings.

 

Here's a diagram that will help visualize the service relationship. Starting at the bottom, we have our resources, which could be our facility, people, hardware and software, trademarks and patents, formulas, IT assets, which is basically anything of financial value. Those resources are used to deliver products. As we saw earlier, products output into three categories. Goods, access to resources, for example with a cloud service provider like Amazon Web Services, and service actions. Those goods and/or access to resources and/or service actions are going to represent the service offering.

 

The service offering is that formal description of one or more services designed to address the needs of a target consumer group. And as we see, a service offering may include goods, access to resources, and/or service actions. At the top we see the service relationship, the cooperation between service provision and service consumption, including service relationship management. Let's use for an example airline services.

 

At the bottom we see our resources are aircrafts, airport infrastructure, the crew, the ground personnel, IT systems, partner systems and more. Those resources are used to deliver products, transporting the passengers, and transporting cargo. Some of the goods would be food, beverages and toiletries. The access to resources will be different types of seats, streaming movie services, or extra space for carry-on bags. Service actions would be piloting, check in, baggage handling, and In-flight services. The specific service offering is all flights and options from New York City to London. The service relationship is a direct first class flight from New York City to London.

 

How about a personal cloud mail and calendar service like zoho.com, or some other softwares as a service? Their resources are applications, servers, networks, cloud services, personnel, third party services and more. Their products are specifically online mail and calendar. They have no goods to offer, but their access to resources, is applications and interfaces to access to manage mail and calendar information.

 

Their service actions are user support, backup and restore services, content scanning for security, and integration. The components of access to resources and service actions leads to their service offering, which is personal and business subscriptions. Their service relationship, mail and calendar accounts. How about workplace support, otherwise known as a service desk.

 

Their resources are server, client and network infrastructure and software, personnel, data, external and internal services. Their products are end-user computing services. The goods could be a mouse, a laptop backpack, and headphones. Their access to resources could be laptops and desktops, printing, network storage, mail and calendar. Their service actions could be user support, troubleshooting, data backup and restore.

 

That combination of goods, resource access, and service actions leads to their service offering which is executive, mobile, and designer workplaces. Which leads to their service relationship which is their overall workplace support for a particular department, business unit, or organizational unit.

 

The service consumer can use its new or modified resources to create its own products to address the needs of another target consumer group. The service consumer can use its newer modified resources to create its own products to address the needs of another target consumer group, thus becoming a service provider. Let's say that organization A is a software development service that generates a new application for a service consumer. Notice that they're going to obtain the developers and the programmers, as well as the software development platforms and SDKs to configure the solution, thus offering and providing a product or a service. Their service relationship is with organization B.

 

Organization B is the car hire service that's using the new application. This new application enables the consumer, the car hire service, to coordinate and manage the visits of the car hire service to their clients. The car hire service organization B, which obtains and configures the software, will offer and provide solutions to organization C, which offers on-site medical and nursing services for elderly patients.

 

Organization C has a service relationship with organization B as a consumer but it's also a provider to organization D, which provides training services to new potential employees, students, and interns who are developing the skill sets to eventually offer on-site health care, support, and hospice. Again, the service relationship is a cooperation between a service provider and a service consumer. Including the provision, the consumption, and the service relationship management.

 

In this example, organization A was a software developer, organization B was a car hire service, organization C was a home visitation service, organization D was the training of students and interns. Organization B was a target consumer of organization A but a service provider to organization C. Organization C was a target consumer of organization B, but a service provider to organization D. In this model, organization A was strictly a service provider, whereas organization D was strictly a service consumer.

 

And we'll look at this diagram here, notice at the bottom, what's kind of supporting this entire relationship is value. So this section is going to focus on how an organization in the role of service provider, should evaluate what its services should do, and how its services should be provided to meet the needs of consumers. Achieving the desired outcomes requires resources and costs and is often associated with risk or risks. Service providers help their consumers to achieve outcomes.

 

And in doing so, they take on some of the associated risks and costs. On the other hand, service relationships can introduce new risks and costs. And in some situations, can negatively affect some of the intended outcomes while supporting others. Service relationships are perceived to be valuable only when they have more positive effects than negative effects and we can see that here in the diagram. On the right hand side, we have more supported outcomes. We've removed costs, we've removed risks, therefore the pendulum shifts in a positive direction.

 

Acting as a service provider, an organization produces outputs that help its consumers achieve certain outcomes. So, an output is a tangible or intangible deliverable of an activity. An outcome is a result for a stakeholder enabled by one or more outputs. For the ITIL 4 Foundation exam, it's important to be clear about the difference between outputs and outcomes. For example, one output of a wedding photography service may be an album in which certain photos are artfully arranged. The outcome of the service however, is the preservation of memories, and the ability of the couple and their family and friends to easily recall those memories by looking at the album.

 

Depending upon the relationship between the provider and the consumer, it can be difficult for the provider to fully understand the outcomes that the consumer wants to achieve. In some cases, they'll work together to define the desired outcomes. For example, BRMs, Business Relationship Managers, and internal IT or HR departments may talk regularly with customers and discuss their needs and expectations. Finally, some service providers predict or even create demand for certain outcomes, forming a target group for their services. This may happen with innovative services, addressing needs that consumers weren't even aware of before. For example, social networks, or smart home solutions, or IoT, the Internet of Things.

 

Let's understand costs. Costs refer to the amount of money spent on a specific activity or resource. From the perspective of the service consumer, there are two types of costs involved in service relationships. Cost removed from the consumer by the service, which is a part of the value proposition. This may include cost of staff, technology, and other resources, which the consumer doesn't need to provide. And then there's cost imposed on the consumer by the service, the cost of service consumption. The total cost of consuming a service would include the price charged by the service provider, if applicable, plus other costs such as staff training, cost of network utilization, procurement, etc.

 

Some consumers describe this as what they have to invest in order to consume the service. Regardless, both types of costs are considered when the consumer assesses the value which they expect the service to create. To ensure that the correct decisions are made about the service relationship, it's important that both types of cost are fully understood. From the provider's perspective, a full and correct understanding of the cost of service provision is vital. Providers need to ensure that services are delivered within budget constraints, and meet the financial expectations of the organization.

 

A risk is a possible event that could cause harm or loss, or make it more difficult to achieve objectives. Risk can also be defined as uncertainty of outcome. And can be used in the context of measuring the probability of positive outcomes, as well as negative outcomes. Just like costs, there's two types of risk that are a concern to service consumers. There's risks removed from a consumer by the service, part of the value proposition. These may include failure of the consumer's server hardware, or lack of staff availability. In some cases, a service may only reduce a consumer's risks, but the consumer may determine that this reduction is sufficient to support the value proposition. And then there's risks imposed on a consumer by the service, that's the risks of service consumption.

 

An example here would be a service provider ceasing to trade or experiencing a security or a data breach. It's the duty of the provider to manage the detailed level of risk on behalf of the consumer. This should be handled based on a balance of what matters most to the consumer and to the provider. The consumer contributes to the reduction of risk, three ways. By actively participating in the definition of the requirements of the service and clarification of its required outcomes. By clearly communicating the critical success factors and constraints that apply to the service. And ensuring the provider has access to the necessary resources of the consumer throughout the service relationship.

 

To evaluate whether a service or a service offering will facilitate the outcomes desired by the consumers and therefore create value for them, the overall utility and warranty of the service should be assessed. It's important for the ITIL 4 foundation exam that you know the difference between utility and warranty.

 

Utility is the functionality offered by a product or service to meet a particular need. Utility can be summarized as, what the service does. And can be used to determine whether a service is fit for purpose. To add Utility, a service must either support the performance of the consumer or remove constraints from the consumer. Many services do both. Warranty is the assurance that a product or service will meet agreed requirements. Warranty can be summarized as, how the service performs and can be used to determine whether the service is fit for use.

 

Warranty often relates to service levels aligned with the needs of service consumers. This may be based on a formal agreement or it may be a marketing message or brand image. Warranty typically addresses such areas as the availability of the service, its capacity, levels of security, and continuity. A service may be said to provide acceptable assurance or warranty if all the defined and agreed conditions are met. Both utility and warranty are essential for a service to facilitate its desired outcomes, and therefore help create value.

 

Here's an example from my own experience. Let's say you go to a recreational theme park and it offers many exciting rides designed to deliver a thrilling experience for the visitors, that's utility. But if a significant number of the rides are frequently unavailable due to mechanical difficulties or lack of staffing, then the amusement park is not fulfilling the warranty. It's not fit for use and the consumers will not receive their expected value. On the other hand, if the rides are always up and running during advertised hours. But they don't have the features that provide the levels of excitement that's expected by the visitors, then the utility is not fulfilled, even though the warranty is sufficient. Again, consumers aren't receiving the expected value.