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What is exciting about emergent behaviour and self-optimization are the surprising outcomes. When the previous version of ITIL offered its service management framework, there did not exist such solutions as federated Configuration Management Databases (CMDB), Service-oriented Architectures (SOA) or the convergence of business process, virtualization and service management. ITIL reflects the dynamics of organizations, and their need to continually adapt in a world of changing conditions.

These and other significant lessons learned have been applied to create the improved framework described in this version of the library. ITIL also looks for the first time at some business fundamentals and the relationships between all the players in modern organizations using IT. This publication on Service Strategy covers much of this new ground by examining what exactly a service is, how both the provider and the customer can mutually benefit from one supplying a service to the other, and where each side has choices.

Perhaps the strongest single idea this publication brings to ITIL is the concept of competition. Every provider faces competition. As many internal service providers have found, they will inevitably be tested against the market. The key for providers is to understand how they provide value and differentiate themselves for their target customers. For customers, it is to understand where they should best be concentrating their efforts, and where shared or external service providers can do it better. There are many factors to consider and some unfamiliar concepts may be presented, but this is an exciting journey. Take this publication as your guide.

Sharon Taylor

Chief Architect, ITIL Service Management Practices

Preface

A publication is given life by its readers. In other words, a publication is completed by its readers. This is certainly true for this publication on service management. What follows is a collection of principles, practices, and methods supporting a strategic approach to service management. The guidance is written primarily for senior managers who provide leadership and direction to organizations in the form of objectives, decisions, plans, policies, and strategies. Managers at other levels may benefit as well by understanding the underlying logic of senior management decisions. The guidance is given from the perspective of organizations in the public and private sectors tasked with providing information technology-related business services. Customers benefit from incorporating the guidance into due diligence for sourcing decisions and strategies.

This publication is the core of the ITIL framework. The creation of this version of ITIL refreshes the body of knowledge, so it continues to aid organizations seeking to develop and improve their service management capabilities. A frequently asked question is, ‘Why change something that is not broken?’ and a related question is, ‘Does that mean what we have been following so far is wrong?’ The answer to both is no. Challenges and opportunities faced by organizations change over time, requiring them to continually learn and adapt. Successful innovations gradually become best practices. Best practices quickly become good practices, which become commodities, generally accepted principles, received wisdom, or regulatory requirements. What were once distinctive characteristics of an organization become ordinary traits taken for granted by customers. This compels organizations to seek new ways to improve, and to differentiate themselves from alternatives through innovative services, operating models, systems, and processes.

ITIL is part of a large and growing body of knowledge on which service management depends. The library strengthens and extends the body of knowledge to cover new challenges and opportunities confronting the leadership of organizations. This publication is not about business strategy in general. It describes how strategic thinking is applied to service management and how service management itself is a strategic asset of an IT organization.

This publication has been reviewed by a wide group of CIOs, CTOs, senior managers, practitioners, and consultants who have applied the criteria of usefulness and relevance to the practice of service management in various organizational contexts and business environments. The findings of the OGC Public Consultation for the ITIL Refresh Project have been applied as quality criteria. This publication provides the context and basis for investing in tools and technologies allowing service management to support unprecedented levels of efficiency, scale, complexity, and uncertainty.

Contact information

Full details of the range of material published under the ITIL banner can be found at www.best-management-practice.com/itil

If you would like to inform us of any changes that may be required to this publication please log them at www.best-management-practice.com/changelog

For further information on qualifications and training accreditation, please visit www.itil-officialsite.com. Alternatively, please contact:

APMG Service Desk Sword House Totteridge Road High Wycombe Buckinghamshire HP13 6DG

Tel: +44 (0) 1494 452450

Email: [email protected]

Acknowledgements

Chief Architect and authors

Sharon Taylor (Aspect Group Inc)

Chief Architect

Majid Iqbal (Carnegie Mellon University)

Author

Michael Nieves (Accenture)

Author

ITIL authoring team

The ITIL authoring team contributed to this guide through commenting on content and alignment across the set. So thanks are also due to the other ITIL authors, specifically Jeroen Bronkhorst (HP), David Cannon (HP), Gary Case (Pink Elephant), Ashley Hanna (HP), Shirley Lacy (ConnectSphere), Vernon Lloyd (Fox IT), Ivor Macfarlane (Guillemot Rock), Stuart Rance (HP), Colin Rudd (ITEMS), George Spalding (Pink Elephant) and David Wheeldon (HP).

Mentors

Phil Montanaro and Bill Powell.

Further contributions

A number of people generously contributed their time and expertise to this Service Strategy publication. Jim Clinch, as OGC Project Manager, is grateful to the support provided by Accenture to the authoring team on the development of this publication, particularly the contribution of Jack Bischof; and to the support of Ralph Russo (Merrill Lynch), Jenny Dugmore, Convenor of Working Group ISO/IEC 20000, Janine Eves, Carol Hulm, Aidan Lawes and Michiel van der Voort.

The authors would also like to thank D. Neil Gissler, Ran S. Mangat, Damian Harris, William McVicker, Cheryl Deitcher, William Farler, Maria Veyon, Ryan J. Thomas and Suzon Crowell of Accenture.

In order to develop ITIL Service Management Practices to reflect current best practice and produce publications of lasting value, OGC consulted widely with different stakeholders throughout the world at every stage in the process. OGC would also like to thank the following individuals and their organizations for their contributions to refreshing the ITIL guidance:

The ITIL Advisory Group

Pippa Bass, OGC; Tony Betts, Independent; Alison Cartlidge, Xansa; Diane Colbeck, DIYmonde Solutions Inc; Ivor Evans, DIYmonde Solutions Inc; Karen Ferris, ProActive; Malcolm Fry, FRY-Consultants; John Gibert, Independent; Colin Hamilton, RENARD Consulting Ltd; Lex Hendriks, EXIN; Signe-Marie Hernes Bjerke, Det Norske Veritas; Carol Hulm, British Computer Society-ISEB; Tony Jenkins, DOMAINetc; Phil Montanaro, EDS; Alan Nance, ITPreneurs; Christian Nissen, Itilligence; Don Page, Marval Group; Bill Powell, IBM; Sergio Rubinato Filho, CA; James Siminoski, SOScorp; Robert E. Stroud, CA; Jan van Bon, Inform-IT; Ken Wendle, HP; Paul Wilkinson, Getronics PinkRoccade; Takashi Yagi, Hitachi.

Reviewers

John Adam, HP; Allan Aitchison, KPMG; Nathan Akers, Active Consulting; Oscar Almadin, IBM; Iyas Al-Sarabi, Y-consult; Uade Alukpe; Jens Jakob Andersen, Post Danmark A/S; Steve Ashing, Independent; Hartwig Bazzanella; Charles Betz, EDS; Thomas Betz, EDS; Emma Bevan, Afiniti; Michael Billimoria, ITS; Marcus Binet, Redworld; Janaki Chakravarthy, Infosys Technologies Limited; Constantinos Christofi, EMC/Accenture; Jorgen Clausen, Danfoss A/S; Luiz Antonio Comar; Jorge Luis Cordenonsi, IBM; Petrovic Dalibor, Deloitte & Touche, LLP; Graham Donoghue, Ngrid; David Favelle, Lucid IT; Maamar Ferkoun, IBM; Stephen Fritts, CTG Inc; Franco Gaggia, EDS; Mark Gillett, Alvarez and Marsal (Europe) Ltd; Leanne Gregory, IBM Australia Ltd; Geert Hahn, EDS Business Solutions GmbH; Sandra Hendriks, News Ltd; David Hinley, Gnet; Eu Jin Ho, UBS; Caspar Honee, Unisys; Young Hong, Samsung SDS; Chris Hunter, Network Rail Ltd; Peter Isbell; Rene Jacob, HP; Sharma Jitendra, Satyam; David Johnton, DAJex Ltd; Bill Ye Jun, HP; Jeyaganesh Kannan, IBM; Dwight Kayto, Sasktel; Magda Kilby, Richemont; Eddie Kilkelly, ILX Group; Andreas Knaus, Santix AG; Michael Koerfer; Michael Kresse, Serview; Aron Kumar, Accenture; Soren Laursen, Novo Nordisk A/S; Simon Learoyd, iCore Ltd; Laura Lee, Pink Elephant; Ragnar Loken, RLBR; David Lynch, GCHQ; Jan Mandrup, IBM; Edward Mangiaratti, Court Square Data Group; Jak Marion, Stavtech; Gaetan Mauguin, Bearing Point; Manoj Kumar Mauni, Maersk Global Services Centres; Patrick Mcguire; Daniel McLean, US Cellular Corporation; Chris Molloy, IBM; Michael Muenzinger, EDS; Jason Mugridge, BT; Hamid Nouri, Nouri Associates; Michael Orr, IBM; Joel Pereira, iCore Ltd; Robin Piepjohn, Icisinst; Daniel Rolles, Lend Lease; Oscar Rozalen Gaitan, Comunycarse Network Consultants; Michael Rueggeberg, EDS; Marianna Ruocco, Pink Elephant; Monalisa Sarkar, TCS; Frances Scarff, OGC; Rainer Schmidt, HTV Aalen; Karsten Smet, Microsoft; Martin Steffens, EDS Australia; Harald Steier, Ewico; Thorsten Steiling, Salzgitter Flachstahl GmbH; Mark Ross Sutherland, G2G3; Anil Tamirisa, Accenture; Roy Taylor, Northampton ac; Tikoo Vijay, Satyam; Lief Wadhvana, Canada Ontario Government; Jason Week, Microsoft; Mark Whelan, Servo Computer Services; John Windebank, Sun Microsystems Ltd; Frederieke Winkler Prins, Service Management Partners; Zachariah Wyckoff, Microsoft; John Seah Yam-Sung, Everest Innovation Pte Ltd; Rob Young, Fox IT; Steffi Zoeller, EDS.

1 Introduction

‘How do you become not optional?’

William D. Green, CEO, Accenture

1.1 Overview

In 1937, British-born economist Ronald Coase concluded that the boundaries of firms are determined by transaction costs.2

The concept of transaction costs used here is not to be confused with the discrete cost of transactions such as requests, payments, trades and updates to databases. What is referred to here are the overall costs of economic exchange between two parties, including but not limited to costs incurred in finding and selecting qualified suppliers for goods or services of required specifications, negotiating an agreement, cost of consuming the goods or services, governing the relationship with suppliers, to ensuring that commitments are fulfilled as agreed.

Policing and enforcement costs are the costs of making sure the other party sticks to the terms of the contract, and taking appropriate action (often through the legal system) if this turns out not to be the case.

Sometimes it makes sense for a business to own and operate assets, or conduct activities in-house. At other times, the sensible thing is to seek alternatives from the open market. As prevailing conditions change, boundaries of the firm contract or expand with decisions such as make, buy, or rent. Coase received the Nobel Prize in Economics for this remarkable idea.

The world is changing at a faster pace than ever before. The forces of the internet, inexpensive computing, ubiquitous connectivity, open platforms, globalization, and a fresh wave of innovation are combining in ways that dramatically alter the transaction costs in almost every business. The result is greater dynamism and flexibility in the definition of markets for services. Markets are created almost spontaneously with innovative business models and value propositions. They emerge within enterprises, defy standard industry classifications, and extend farther in geography. The digitization of commercial activities, social interactions and government has meant fewer physical constraints on new business models, strategies and relationships. Knowledge and productive capacity are more dispersed than ever before. Organizations can rent what they were earlier forced to make or own. Generic concepts like rent translate into collaborative relationships with service providers who provide access to capabilities and resources otherwise not available to the organization.

There is similar growth in consumer services driven by various social and economic factors and technology. Among the forces driving the consumption of services are rising per capita incomes, demand for social services, size and role of the public sector, complexity of work environments, increased specialization (division of labour), and relaxation of trade barriers.3 These trends are contributing worldwide to the growth of the service economy in a remarkable fashion.

Information technologies (IT) enable, enhance, and are embedded in a growing number of goods and services. They are connecting consumers and producers of services in ways previously not feasible, while contributing to the productivity of numerous sectors of the services industry such as financial services, communications, insurance, and retail services.3 Government agencies, too, have experienced similar gains associated with the use of IT.

 Organizations exploit resources as and when needed without owning them, even when those resources are remotely located and simultaneously shared.

 They use self-service channels such as websites, mobile phones, and kiosks to expose business functions such as billing, order processing, reservations, and technical support to consumers. Quality of service is no longer constrained by the capacity of branches, stores, and other staffed locations.

 Entrepreneurs and individuals compose new services assembled from existing services available in the commercial and public space.

 Service-oriented architectures are allowing organizations to not only reduce complexity of their business applications and infrastructure but to further exploit such assets in new ways.

Tremendous change and growth is taking place in information-based services. Information, previously a supporting element, has become the basis for value by itself. The relaxation of physical constraints has changed our thinking about how information is produced and consumed. Recent years have seen significant increases in valuation for businesses that simply facilitate interactions or the exchange of information. Capabilities and resources in the management of IT and the management of services are no longer perceived as merely operational concern or detail. They are the basis for creating value, for competition, and distinctive performance.

The trends noted above require IT organizations to have a keener sense of the nature and dynamics of services as a means for providing value to customers. It is not surprising that growth and prosperity of a trade are accompanied by greater demands on the tools of the trade. The practice of service management grows, learns, and matures under the pressure of new challenges and opportunities.

Imagine you have been given responsibility for an IT organization. How would you decide on a strategy to serve your customers? Perhaps you would examine requirements in detail and plan appropriately. You might track ongoing demand and adjust accordingly, while maintaining operational efficiency. Surely an attentive service provider with low costs must inevitably succeed. Unfortunately, while these are all necessary factors, things are rarely so straightforward.

First, issues surrounding services are complex. Not only in their individual details but also in the dynamic complexity that comes with many moving and interrelated parts. Long-term behaviour is often different from short-term behaviour. There are many tools for dealing with details but few offer insight into how the problems we have today have developed over time. What are needed are methods to help organizations understand the likely consequences of decisions and actions.

Second, customer specifications are not always clear, certain or even correct. Much is lost in the translation from requirements document to service fulfilment. The most subtle aspect of strategic thinking lies in knowing what needs to happen. Customer outcomes, rather than specifications, are the genesis of services. Strategic plans, while critical for enacting change, are not enough.

A strategic perspective begins with the understanding of competition. Sooner or later, every organization faces competition. Even IT organizations with a relatively captive internal market of owner-customers are not entitled to a perpetual monopoly. The recent trends in outsourcing of business functions and operations have made that clear. A change in prevailing business conditions or a new business strategy pursued by the customer can suddenly expose the IT organization to competition. Even government and non-profit IT organizations have shown themselves to be subject to competitive forces. It is important for IT organizations to review their positions and know for sure how they provide differentiated value to their customers.

Customers perceive value in economic terms or in terms of social welfare, as is the case with pure public services offered by government agencies, or both. The differentiation can be in traditional terms such the organization’s knowledge and experience with the customer’s business, excellence in service quality, capabilities to reduce cost, or innovation.

The idea of strategic assets is important in the context of good practice in service management. It encourages IT organizations to think of investments in service management in the same way businesses think of investing in production systems, distribution networks, R&D laboratories, and various forms of intellectual property such as brands and patents. Assets such as people, processes, knowledge and infrastructure are by themselves valuable for the benefits they generate for their owners. Strategic assets are those that provide the basis for core competence, distinctive performance, durable advantage, and qualifications to participate in business opportunities. IT organizations can use the guidance provided by ITIL to transform their service management capabilities into strategic assets.