ITIL - Service Strategy Concepts Tutorial

1 Service Strategy Concepts

This lesson introduces you to the key concepts in service strategy. It also focuses on the classification of services based on the customer's requirement.

2 Objectives

After completing this lesson, you will be able to: •Describe the basics of value creation through services •Explain business case

3 Service Utility and Warranty

One of the key concepts in service strategy is to determine how to create service value. The two key elements that combine to provide service value are utility and warranty. Service utility is the functionality offered by a product or service from the customer perspective. Warranty is a promise that the product or service will meet agreed requirements. Utility is what the customer gets, whereas warranty is how service is delivered. Utility should meet the customer needs, that is, it should fit for purpose. Warranty is the ability of the service to operate reliably, that is, it should fit for use. There are three characteristics of warranty. They are as follows: •Firstly, warranty should be provided in terms of availability or capacity of services. •Secondly, warranty makes sure that customer assets continue to receive utility, even if degraded, through major disruptions. •Finally, warranty ensures security for the value-creating potential of customer assets. Utility increases performance average whereas warranty reduces performance variation. Describing both service utility and service warranty enables the service providers to establish the value of the service. It helps service providers to differentiate themselves from their competitors. It also helps to indicate a monetary value that a potential customer may pay for.

4 Service Utility and Warranty (contd.)

The image illustrates how the two key elements combine to create value in IT services. Utility is perceived by the customer from the attributes of the service. These attributes may have a positive effect on the performance of tasks associated with desired results. Removal or relaxation of constraints on performance is also perceived as a positive effect. It means that if you are able to support the performance of a customer service or remove the challenges at the customer end, the service utility is on the higher side. Warranty is determined by four parameters that are availability, capacity, continuity and security. These parameters determine if a service is fit for use for a customer and can achieve business outcomes. Suppose a customer wants to use email as a service. In this case, utility refers to the ability of the service to allow the customer to send and receive emails. Warranty is derived from the positive effect of being available when needed, in sufficient capacity or magnitude. It is dependable in terms of continuity and security. For example, if the email service is available 24/7, the warranty in this case should be to provide security, so that nobody hacks your account.

5 Service Assets

Now we will focus on service assets. Service assets help to deliver the utility of a service. These assets include resources and capabilities. Both resources and capabilities are equally important, and a service provider cannot exist without them. Resources are the tangible assets of an organisation that can be ‘purchased’ to deliver the service. Capabilities, on the other hand, are the intangible assets of an organisation and cannot be ‘purchased’. Capabilities are developed and maintained over a time span. Resources are the direct inputs for the production of goods. Capabilities have the ability to co-ordinate, control and deploy resources to create services. Resources include the IT infrastructure, people and applications. Capabilities are basically driven by experience and are based on information. Capabilities are knowledge intensive, and nested within an organisation’s management, people and processes. The table includes the nine types of assets.


Let us do a quick recall of the concepts related to service utility and warranty.

7 Value Creation

Now let us discuss value creation. Values are defined by customers. The customers select a service or product that represents the best mix of features at the price they are willing to pay. Value changes over time and circumstances. The service needs and values change as the customer faces new challenges to adapt to their changing environment. Value needs to be defined in terms of three areas. These areas are business outcomes, customer’s preferences and customer’s perception.

8 Value Creation (contd.)

To understand the value of IT, the following questions need to be answered: •What services do IT provide? Services from the IT perspective should be linked to specific business activities and outcomes of customers. •What did the services achieve? The customers identify what they are able to do with the service and how important the service is to them and their organisation. •What is the cost of a particular service? When a customer compares the service cost with the service that helps to achieve their desired outcomes, they are able to determine how valuable the service is.

9 Factors that Influence Customer Perception of Value

Let us now discuss the factors that influence customer perception of value. Perceptions are influenced by service features, present or past experiences with similar features and relative competency, self-image, peers and position in the market.

10 Customer Perception of Value

Customer point is the reference value and is based on Do It Yourself or DIY strategy. The positive difference is based on the perceived additional benefits and gains provided by the service provider. The negative difference is what the customer may lose by investing in the service. The net difference is the customer’s actual perception of the service offered after ignoring the negative difference. The economic value is the sum of reference value and net difference.

11 Business Outcomes

Now we will focus on how service management enables business outcomes. Service management uses its service assets to deliver a service that meets the business outcomes of the customer. It is a set of organisational capabilities specialised in providing value to customers in the form of services. The capabilities interact with each other to function as a system for creating value. Service management acts as an operating system for service assets in effectively deploying them to provide services. Service assets are the sources of value, and customer assets are the recipients. Service management enables the service assets to perform according to customer requirements, while identifying and reducing the impact of constraints on the service assets. IT service management does this by managing IT capabilities and resources. This is done either internally, or through the support of external service providers and technology vendors. Service management enables the service assets to achieve desired business outcomes. From a business point of view, IT service management enables the delivery of services that are used to achieve business outcomes.

12 Business Outcomes (contd.)

We will now discuss the relationship between service providers, business units and business outcomes of the customer. Organisations are becoming less focused on the IT infrastructure, and more on how to automate end-to-end business processes and deliver business services. The challenge is to understand the operational objectives of the business process, and translate them into activities that can be provided by the IT infrastructure. Overcoming this problem is the objective of the processes. The image illustrates the relationship between the service provider, the business unit and the customer’s business outcomes. In the image, an IT service provider delivers services to an internal business unit. This enables the business unit to achieve its desired business outcomes. The nature of the business outcomes determines the customer assets that the business unit needs. The service provider uses their service assets to deliver a service that meets the needs of the business unit. To achieve the outcomes, the business unit needs a minimum level of service. The performance potential of the service indicates the utility and warranty of the service. This will indicate, in business unit terms, the performance that the service is capable of. The business unit can then determine whether the performance of the service is suitable to enable its customer assets. This helps to determine whether the service can produce the desired level of outcomes. The more the utility and warranty, the higher the performance potential.

13 Service Packages

Let us now focus on service packages. No two customers will have the same need. There is no ‘one size fits all’ service. Any IT service provider has multiple customers with different needs. IT service providers meet their customer requirements through the concept of service packages. The images help to understand service packages, service level packages and how they are used to offer various choices and values to customers. Let us take support to email service as an example of the packages provided by an Internet service provider. This support service may be offered as two different service level packages suiting the business needs of two different customers. Suppose, one is a smaller organisation with less than 20 employees and another is a corporate customer. For the smaller organisation, support to email service is used only during office hours and the service level package might be offered for online support during 9 AM to 5PM. But for a corporate customer, an exhaustive service level package is required because of the following reasons: •There may be more users using it 24 hours a day and hence 24/7 support is required. •Further, the corporate customer can have needs for a different response and resolution time too. The service level package offered in this case is different from the one provided to a particular customer.

14 Service Packages (contd.)

A service package provides a detailed description of a package of bundled services that are delivered to customers. It defines the level of utility and warranty provided by the service package. The service package includes: •the core services provided; •any supporting service provided or enabling service packages; •any enhancing service packages, which are often the excitement factors used as differentiators and; •service level packages. The service level packages can be at various levels as shown by the image.

15 Business Case and Its Uses

Now we will discuss business case and its uses. A business case is a documented justification, which demonstrates that by adding a new service, the service provider can attract many new customers who are willing to invest in the new service. A business case is prepared to evaluate the business viability of providing a new service. It uses qualitative and quantitative terms and links business impact or benefits to the defined business objectives. A business case is used as a: •decision support and planning tool that projects the likely consequences of a business action. •justification for a significant item of expenditure. •report that includes information on costs, benefits, options, issues, risks and possible problems.

16 Business Case Structure

A business case structure includes: •an introduction that addresses the business objectives; •methods and assumptions, which define the boundaries of the business case; •business impacts in terms of financial and non-financial impacts, and recommendations in terms of any specific action; •risks; and •contingencies that can impact the objectives.

17 Risk

Let us now focus on risk. Risk is defined as an uncertainty that can have a positive or negative outcome. If the outcome of a risk is positive, it helps to fulfil the business objectives of an organisation. Such risks are called opportunities. If the outcome of a risk is negative, it is called a threat. Managing risks requires identification and control of the exposures to risk, which may have an impact on achieving business objectives. There are two distinct phases of risk. These are Risk Analysis and Risk Management. Risk Analysis involves gathering information on risk exposure, so that the organisation can make timely decisions and manage risks appropriately. A risk is a possible event that could cause harm or loss, or affect the ability to achieve objectives. The technique used to manage a risk is called risk management. Managing risk involves risk assessment and risk analysis. The aim of risk management is to reduce the impact of a negative outcome and increase the impact of a positive outcome.

18 Service Management Technology and Automation

We will now discuss service management technology and automation. Automation can have significant impact on the performance of service assets such as management, organisation, people, process, knowledge and information. Automation is considered to improve the utility and warranty of services. Automation provides real-time and historical data for analysis, and correlates data from multiple devices. It also analyses service impact for prioritisation of incidents, problems and change tickets. It optimises service performance, for example, by adjusting capacity based on demand.

19 Automation Benefits

The automation of service processes helps improve the quality of service, and reduce costs and risks. The costs and risks are reduced by minimising complexity and uncertainty, and resolving trade-offs efficiently. Some of the areas where service management benefits from automation are as follows: •Design and modelling, typically a What-If analysis •Pattern recognition and analysis of service issues •Detection and monitoring of events and alerts •An online service catalogue, and optimisation of services and underlying technology •Classification, prioritisation and routing of incident, problem and change tickets

20 Service Management Tools

Now we will discuss service management tools. The service management tools include the following: Service desk self-help, which is a web front-end, offers a menu-driven range of self-help and service requests. This is done with a direct interface into the back-end process-handling software. A workflow or process engine allows responsibilities, activities, timescales, escalation paths and alerts to be pre-defined and automatically managed. It is usually a part of the ticketing tools used for service management. An integrated Configuration Management System or CMS stores Configuration Items, relationships, records related to incidents, problems, known errors and changes. In discovery and deployment tool, CMS data is populated and can be verified. It assists in license management and deployment of new software at target locations. Remote controls, commonly known as remote desktops, allow relevant support groups to take control of the user desktops. Diagnostic scripts, utilities, reports and dashboards are also examples of automation enabling service management.

21 Summary

Let us summarise what we have learnt in this lesson: •Utility and warranty are the two components of service value. •Service assets deliver utility of a service, and include resources and capabilities. •A service package provides a detailed description of a package of bundled services available for customers. •A business case is used as a decision support and planning tool that projects the likely consequences of a business action. Next, we will focus on the third lesson—Service Strategy Processes.

  • Disclaimer
  • PMP, PMI, PMBOK, CAPM, PgMP, PfMP, ACP, PBA, RMP, SP, and OPM3 are registered marks of the Project Management Institute, Inc.

Request more information

For individuals
For business
Phone Number*
Your Message (Optional)
We are looking into your query.
Our consultants will get in touch with you soon.

A Simplilearn representative will get back to you in one business day.

First Name*
Last Name*
Phone Number*
Job Title*