Key Concepts of IT Service Management

The organization and individuals should have a shared understanding of the key concepts and terminologies defined in ITIL®. This is very critical to ensure the effective use of the framework and to address real world challenges of service management. Some of the most important concepts of IT service management, include;

1. Co-creation of value and the nature of value
2. Organization (Business), service provider organization, service consumer / customer, and all other stakeholders
3. Product and services
4. Service relationships & management
5. Value: output leading to outcomes, costs and risks associated with service.

These concepts are applicable to all organizations and services, irrespective of the nature and underpinning technology. Before that, one has to have a basic understanding of the most fundamental question, “What exactly is Service Management”?

Service Management:

Service Management is “A set of specialized organizational capabilities for enabling value for customers in the form of services”.

Developing the specialized capability for an organization requires better understanding of;

1. The value and its nature.
2. The scope and nature of the stakeholders who are involved.
3. How the co-creation of value is enabled through services.

Example: An organization being a service provider has to keep all the above-mentioned points and ensure the customer gets value by utilizing the services.

Figure 6: Remote Infrastructure Management Services – Logical Diagram

Let us take the example of an organization that provides remote IT Infrastructure monitoring services. This organization’s capabilities includes the team that monitors the IT Infrastructure of customer, the tools, environment, processes, physical (display systems, cable, electrical, AC etc.) & IT infrastructure (servers hosting monitoring tool, laptop/desktop used by monitoring team etc.), Providing these remote IT Infrastructure monitoring services will form the specialized capability of the organization.

Performance of all these have to be monitored & managed by ensuring sufficient capacity, security, availability & continuity. Only then, the value creation to the customers by providing monitoring services is possible.

2.1 Value and Value Co-creation

By definition of ITIL4 manual of AXELOS, value refers to “The perceived benefits, usefulness, and importance of something”. The term “Value” is used through-out the life-cycle of a service.

The value created by service provider will not be termed as value, until the customer acknowledges it and confirms the realization of the value. A service provider will deliver the services which will have intended objectives and directions, which should lead towards value creation.

Customers utilize the service and fulfill their requirements. Customer will perceive the service value, while utilizing the service, based on the service experiences. Accordingly, the service value is realized.

Understanding of the value is subject to the perception of stakeholders. They may be users, consumers of a service, customers, or part of service provider organization(s).

Therefore, value realization is always subjective and is based on the intended purpose of service utilization and the service experiences

Figure 7: The Value model

To understand better, the value of the service (i.e. Remote IT Infrastructure management) which is discussed in “Service Management” section, let us understand why an organization looks for a service provider to monitor its IT Infrastructure.

One should not forget the evolution of modern environment of IT Infrastructure, which has become more dynamic and is now moving towards the cloud environment. With this changed / changing scenario, an organization, whose business is not associated with IT or related IT services, may not find it in their core interest to manage the technology environment. This will become the reason for looking for a service provider who can monitor and manage the IT environment.

Secondly, the modern environment of an organization cannot be imagined in the absence of IT Systems, irrespective of the business the organization is into. With this increased presence of IT & IT systems it is essential need for a business organization to manage their IT environment by a specialized organization. Therefore, one of the core areas of investments done by the organizations is IT and organizations strive to get more value out of it.

Now, while looking at the value created by “Remote IT Infrastructure Management”, let us understand “WHY” of this service. That is, all the IT Infrastructure core components like server, network, database, storage etc. have to be up and running always to ensure the continuous availability of the IT Services. If any of the IT Infrastructure component (service assets) fail to function / perform, the IT services will go down. All the business services running on IT Infrastructure will also go down and business services will become unavailable.

If we assume a business as a bank and one of the services enabled through IT Services is “net banking” services, if any of the service components like the server hosting the net banking service portal, the network through which it is accessed, the server holding the account details for the account holders etc., goes down, the net banking services will not be available to customers of the bank. To ensure the high availability of the net banking services, bank has to monitor and manage the performance of the IT Infrastructure components configured for net banking services.

Higher availability of the IT components configured for net banking services, will result in high availability of the net banking services. So, the IT Infrastructure monitoring services, has to ensure identifying the IT components configured for net banking services and monitor the performance of those components for their performance and availability. Through this, the availability of the net banking services will be high resulting in managing the technology environment customer value creation.

Further, the service experience of the customer also depends on the other service interfaces like over the counter services, ATM services, mobile banking services, the banker on counter, the bank’s product performance etc. Failing in any one of these services and service interfaces, will result in the customer losing faith in the bank.

This stresses the point that the value creation for the customer is a co-creation, with the active involvement of the Service professionals of service provider organization and the Service professionals of the Bank. So, the value is not just associated with the outputs created by an IT service or services, there should be an active involvement of the customer (bank) for value co-creation.

The following are involved to ensure service value creation and realization

1. Achievement of Service Objectives
2. Services Availability & Reliability
3. Service Quality & performance
4. Serviceability and Reliability ... etc.

2.2 Organizations, Service Providers, Service Consumers, and Other Stakeholders

The definition of an organization is, “A person or a group of people that has its own functions with responsibilities, authorities, and relationships to achieve its objectives”.

The organizations vary in their size and complexity depending on the nature of the business the organization is into.

This could involve just a few employees, single location, single service / product organization or complex, multi people, multi-location, multi services / products organization. Further, its complexity also varies with the type of business and business environment.

Figure 8: A typical Organization Structure for IT Service Management

The structure defined and adopted by organizations will be based on the dynamics of the business and business environment the organization is involved in. This would also vary based on the evolution of the business environment & market dynamics. Organizations should keep evaluating these dynamics on continual basis (periodically) to ensure sustainability & growth.

Further, there are many different stakeholder types for IT service management where each of those stakeholder’s needs and dynamics has to be understood for creating value. Understanding the context of service consumer is very crucial.

Stakeholders in the organization utilize (consume) the service, service provider organization, Service partners & suppliers etc. The defined organization structure, should consider all the stakeholders & understand stakeholder needs. Each role in the organization will have specific responsibilities and to fulfil their responsibilities they need to interact with other stakeholders regularly. The effectiveness of the organization depends on the level of alignment each stakeholder can bring in to the aspect of the interaction. A successful organization is one which has full & correct understanding of the stakeholders they are engaged with, both internal and external.

The role of an organization is defined based on the kind of engagement they are into with a context. The above shows an example of “Remote Infrastructure Management (RIM) services”, which is availed by a bank, in this context the service provider provides the RIM services, whereas bank will be the customer. Further bank will become service provider to its account holders and the account holder will become a customer of the bank; in other words, the consumer of the services of the bank. Accordingly, the consumer of the bank’s services, is also stakeholder of RIM service provider, in the context of ensuring the performance of service components monitored by them, since the failure of an IT Component directly impacts the consumer of the bank, which leads to dissatisfaction of the customer i.e. the bank.

Taking this alignment into consideration RIM service provider should engage with an organization which enables them to manage the services to create value for the ultimate consumer of the bank’s services. This requires a typical IT Service Management organization, as depicted above, with effective IT Governance, which provides the required direction and Service relationship management to ensure the service value realization by the customer, through IT Services provided by the service provider.

Ultimately, the term organization refers to those who provide services and receive services. That is the Service Provider and Service Consumer. Both need to have the organizational structure that enables them to align with their business dynamics and ensure value creation to their respective customers (or consumers).

The organization in the service provider’s role should have a clear understanding of its consumers, in a given situation and all the other stakeholders who are in the associated service relationships.

Some Key definitions as defined in ITIL® books, for the term “customer”, “User” & ‘sponsor’ are as below:

1. Customer A person who defines the requirements for a service and takes responsibility for the outcomes of service consumption.
2. User A person who uses services.
3. Sponsor A person who authorizes budget for service consumption.

2.3 Products and Services

The main focus of IT Service management is IT Service that is to ensure the delivery of the services as per the need of the customer. Every service is made up of service components i.e. products & services, which are configured a certain way to create a service. All these service components have to be monitored and managed to ensure the achievement of the service objectives.

As per the ITIL® books the following are the definition of products and services;

Product: A configuration of an organization’s resources designed to offer value for a consumer.

Service: A means of enabling value co-creation by facilitating outcomes that customers want to achieve, without the customer having to manage specific costs and risks.

Every product produced by an organization will have its specific features and functionalities which would fulfil the need of each consumer group for whom the product is intended. Further the products are configured to suit the need of the consumers.

For example: A router with certain features and functionalities like number of ports, IOS is used in the network of an organization and they are configured (i.e. IP address, routing etc.) to suit the need of the organization.

A product when it is produced is not intended to be used by one set of consumer groups only, it is produced to address several different consumer groups.

The product will be comprising of various components, some of which are visible to some consumers and others not visible to consumers. The parts which are visible to the consumers do not embody the entire components of the product. It encompasses all the components needed for that product to perform. The consumer of the products configures it to suit their requirements.

Similarly, service is also made of many service components which includes services and products. Consumer of the service will have an interface to use the service which does not represent all the components of the services, instead only to those interfaces which are required to access the services.

For example: The employees of the organization use intranet portal to access the HR services. Here, the intranet portal is the service interface, whereas the servers, LAN service etc. are also present which ensures the service availability to employees.

Service Offerings: 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. (Reference: ITIL4 book of AXELOS)

Service offerings may include;

1. Goods
2. Access to resources
3. Service Actions

Goods to be supplied to a consumer. Goods are supposed to be transferred from the provider to the consumer, with the consumer taking responsibility for their future use. Some of the examples of goods are a physical server, Mobile phone, laptop etc. The ownership of the goods is transferred to the consumer and consumer should take responsibility of the goods and its future use.

Access to resources granted or licensed to a consumer under agreed terms and conditions. The resources remain under the provider’s control and can be accessed by the consumer only during the agreed service consumption period. Some of the example are access to the mobile network, or to the network storage or to a cloud environment etc. The ownership is not transferred to consumer, where the access is granted for the period of agreement (terms & condition) or license provided. The consumer can only access during the period of licence and terms & conditions.

Service actions performed to address a consumer’s needs. These actions are performed by the service provider according to the agreement with the consumer. Some of the examples are, user support like service desk, where the service actions are performed to fulfil the needs of the consumer. In this example of service desk, resolving the incidents of the users will be one of the service actions.

2.4 Service Relationships

Service relationship refers to the model of engagement that the service provider and customer will have with each other to co-create value. An organization should always strive & do more than simply providing a service. There needs to be a collective effort and cooperation to create service value.

To establish the service relationships, organization has to envisage the alignment and value cascading effect from organization to organization and co-create value. In a service relationship, the organizations i.e. service providers & customer (service consumer), should work together towards creating value. These dual roles are not mutually exclusive, but an organization usually provides and consumes a number of services at any given point in time.

As per the definitions depicted in ITIL® books of AXELOS, the “Service Relationship” refers to, “A cooperation between a service provider and service consumer”. Service relationships include service provision, service consumption, and service relationship management.

Service provision refers to the activities performed to provide services to service consumer, by a service provider organization. This includes;

1. Management of all the services provider’s resources, which are configured to deliver the service. That is, hardware, software, supplier’s services etc.
2. Providing access to the users (the service consumers) to access these resources like access to cloud services mentioned earlier
3. Actioning the agreed service actions, to accomplish the service results like resolution of incidents, configuration of a service component etc.
4. Service level management of all the services provisioned and managed throughout the service lifecycle and continually improving the service levels & service performance
5. It may also include the supply of goods, like supply of products which are ordered by the consumer through an ecommerce portal like Amazon or eBay.

Service consumption Activities performed by an organization to consume services. Service consumption includes:

1. Management of the consumer’s resources which are required to access & use the services by consumer. For example, the consumer resource can be a router or network switch, where the internet services from an internet service provider is connected through which consumers can use the internet services.
2. Service actions performed by users, including utilizing the provider’s resources, and requesting service actions to be fulfilled. For example, opening the internet portal through internet browser & entering the login credentials to access the bank account, through net banking services
3. Service consumption may also include the receiving (acquiring) of goods. For example, logging in and ordering goods / products in an ecommerce portal like Amazon or eBay websites.

Service Relationship Management:

As mentioned earlier the service provider and service consumer have to perform the activities to ensure the co-creation of value; continually; and also ensure that the services achieve agreed service levels and are available as per the defined / agreed service offerings.

Whenever a service is delivered to a customer, by the service provider, the service provider has to create new resources to facilitate / enable the service to consumers, so that services consumer gets the necessary platform to customize or modify their existing services. This would further enable the service consumer of a service provider to provide services to their customers.

In other words, the service consumer is using the new or modified resources to create its own products to fulfil the needs of their target consumer group, thus becoming a service provider. These interactions can be seen in the figure below i.e. Service relationship model.

Figure 9: The Service Relationship Model (copyright of AXELOS®, reproduced under the license from AXELOS® Limited)

For example, An Internet service providers’ services are delivered to a bank, wherein the bank receives these services & configures it to enable it to provide a net-banking service. Further the consumer or banking services, is enabled to do the necessary transaction in their account (like payment of invoice, or invest on new services / project of their business etc) and this loop continues further.

This flow of services with continuous value creation requires an alignment & understanding of service relationship

2.5 Value: Outcomes, Costs, and Risks

While understanding the key concepts of the IT Service Management, it is interesting to see that the value of a service is not just its creation. It is subjective & depends on the individuals & groups consuming the services.

To understand this better, let us assume a scenario where an individual living a forest is brought to a city where the environment and its dynamics are different. This individual, used to living in an environment that is not accustomed to fine dressing, cosmetics, make-up etc., may initially have a culture shock in the city.

Further, they are taken to a restaurant, the customers are greeted and treated well, food is serviced in a dining table, there is a chair with a smooth sofa, a chef to cook, a waiter to serve and other facilities which all come at a cost. This may frighten that individual irrespective of the kind of service being provided.

In this case, for those who are privileged and utilize the service of the restaurant regularly, it may be a normal affair. But for this person who has come from a forest, it might come as a shock, or a frightening or extreme experience.

If the person stays there for long and gets used to this environment, and continues availing the restaurant services, there may be change of perception and that would lead towards, “give me more or make it better”. This is a normal, natural tendency of a consumer. This has led towards evolution of technology & practices to ensure continual value creation.

From this it is evident to us that, value realization is perceived rather than being created.

For example: Let us assume an organization decides to introduce an HR intranet portal to enable its employees to submit their claims like leaves, local conveyances etc. Assuming, currently it is done manually, which is taking more time and tedious transaction leading to errors and delay. So, in this scenario the expected results can be;

1. Output – Intranet portal for claims submission
2. Outcome – improved speed of clearance, Reduced errors etc.
3. Value (Benefits) – Increased productivity of employees

The above examples help us to understand the real meaning of value. Ideally, a value has to be created by utility & warranty of the services, with the reduced impact of affected services, cost & risk where the outcomes should be supportive.

By definition provided in ITIL® books of AXELOS,

Output refers to, “A tangible or intangible deliverable of an activity”

Outcome refers to, “A result for a stakeholder enabled by one or more outputs”

It is very important to understand this difference, which is evident in the example mentioned above. It is very easy to visualize and understand the output and outcome, while we refer to such examples which are in a controlled environment like an organization.

But in cases where the organization has no easy access to these services, like retail services, it is challenging to describe and narrate easily. So, organizations do these through survey, consumer feedback, marketing campaign etc.

Figure 10: Achieving Value: Outcomes, Costs & Risks

Further, while we speak about value, we need to understand about the utility, warranty, costs & risks.

Utility refers to, the features and functionalities of the product or service, which offers to meet a particular need of the consumer. Utility addresses the point ‘what the service does’ and what the service is used to determine. Is a service being ‘fit for purpose’. Services with utility must support the performance of the consumer & remove constraints from the consumer or at least one of these.

Warranty refers to assurance that a product or service will provide and meet agreed requirements. This means ‘how the service performs’ and whether the service is ‘fit for use’. Warranty, basically refers to and addresses issues of service ie availability, capacity, security, and continuity.

For example: Referring to the HR portal scenario, the utility of the portal services can be;

1. Submission of claims,
2. Scanning & uploading of the proof documents,
3. Defined templates, speed of processing etc.

whereas the warranty shall refer to;

1. The availability of portal like 24/7 available,
2. Can provide the concurrent access of 1000 users (capacity),
3. Every user has unique credentials to login (security),
4. Having a secondary site to ensure the continuous availability of the services even after primary data centre fails due some reasons (continuity)

Cost refers to the, “amount of money spent on the specific activity or resources while creating the service, provisioning the service and managing the service”.

This involves the money spent on service components like hardware, software, facility, people services etc., which are essential for a service.

Besides, from the perspective of the customer, while the services incur cost during its lifecycle for the consumption of the service, it also removes certain cost by utilizing the services.

For example: for HR Portal services, the service components are website, hosting server, internet, data centre, skilled people etc., where these are the cost components incurred by the organization, whereas the cost associated with printing, travel to submit the claim, cost impact due to impact productivity etc.

Risk refers to the uncertainties associated with the services throughout its lifecycle. It may cause harm or loss, and it may make it more difficult to accomplish the service objectives. The risk can be positive or negative. The positive risk is called as opportunity and negative risk is called as threat.

Identification of the risk, assessing & analysing, defining & implementing a risk response throughout the lifecycle of a service is essential. Risk is assessed qualitatively and quantitatively. The qualitative risk analysis is done by checking the probability and impact of the risk by defining the probability and impact matrix. The quantitative risk analysis checks the risk impact by quantifying it with a specific cost of impact.

In the service perspective (basically perspective of service consumer), if we look at the risk scenario risks are removed by utilizing the services and at the same time, some risks are introduced. The value creation happens when the risk removed vs risk introduced, as depicted in the Figure 12: Achieving value: outcomes, costs & risks.

In the example of HR portal for claim processing, risks removed can be;

1. Delay in submission & processing claims
2. Impact on productivity
3. Employee dissatisfaction etc.

Whereas, the risks introduced can be;

1. Unavailability of the HR Portal
2. Degraded performance
3. Time taken by an employee to get used to portal environment etc.

Summary:

To summarize, in this module we looked at the key concepts in service management, value and value co-creation, organizations, products, services, consumer value, benefits, costs, risks, and how important it is to understand the needs of the customer when designing and delivering services.