ITIL 3.0: Service Strategy is about Value Creation

The ultimate purpose of Service Strategy is to provide the customer with the intended outcome of what they expect from the service or product.

”People do not want quarter-inch drills. They want quarter-inch holes.”
– Professor Emeritus Theodore Levitt of Harvard Business School

Service Strategy is providing superior performance versus competing alternatives. Successful service strategies are primarily focused on taking advantage of your organization’s unique capabilities when delivering superior value to customers through your services. How can you distinguish high-performing organizations? The heart of high-performing organizations is primarily synergistically balancing the three core pillars of a high-performance strategy: distinctive capabilities, market focus and performance anatomy.¹

1. Distinctive capabilities means the organization is offering a unique service or product that is very difficult to duplicate. More importantly, the product or service provides a customer outcome that is very difficult to duplicate.
2. Market focus is when the organization knows precisely what its current service or product offering entails. More importantly, they know precisely who their customers are and what outcome the customer expects to receive from their product or service.
3. Performance anatomy is about staying ahead and on the cutting-edge of your service or product offering – always out-performing your competition. It is the relentless pursuit of perfection by looking at services as a strategic asset, increasing employee productivity, measuring selective key performance metrics and ensuring continual service improvement.

What factors influence the value that is provided by a service or product other than meeting the customer outcomes? There are three other factors that can influence value creation to the customer: perceptions, preferences and attributes.¹

Perceptions are influenced by the attributes of the service and the customer’s expectations of the service. Customers use a reference point from either a past service experience or a similar service experience to assist them in measuring the value of the service. For example, you decide to purchase a new Lexus luxury vehicle and, in the past, have purchased a Mercedes luxury vehicle. Since both vehicles fall in the luxury category, you expect to receive superb service on your new Lexus based on your past Mercedes service experience. In addition, you expect the attributes of the service being provided to you by Lexus for your vehicle to be similar to the attributes provided when you owned a Mercedes, including free pickup of your vehicle for maintenance and a free loaner luxury vehicle while your vehicle is undergoing scheduled or unplanned maintenance.

What is needed to deliver the customer outcomes?

Resources and capabilities create value for the customer in terms of goods or services. Resources represent direct inputs for production. In the earlier Lexus example, the resources are the service department, sales personnel, company and customer information, financial capital, manufacturing plants and infrastructure supporting the Lexus organization.

Capabilities involve coordinating, controlling and deploying resources to deliver value to the customers. Capabilities are considered knowledge-intensive and experienced-based. Lexus’ relentless pursuit of perfection has resulted in building superior manufacturing capabilities. Its slogan, “We pursue perfection, so you can pursue living,” says it all. It is important to note that capabilities are developed and enhanced over time through experience obtained by servicing customers, developing services and products, servicing contracts and servicing different market segments.

How do we know what to deliver and how much it costs?

Service economics assist us in understanding the return provided by the organization’s service or product. This can be determined effectively by having robust Financial Management and Service Portfolio Management processes. Financial Management assists the organization in understanding the true costs of providing services to the customer. More importantly, it enables efficient and effective budgeting and accounting for all service costs. A Service Portfolio describes a provider’s services in terms of business value. The Service Portfolio clarifies the value the service is bringing to an organization when compared to services of similar nature offered by competing providers.

A great example of a service where the return on investment has always been a challenge is e-mail. Today, many organizations are extremely dependent on e-mail for conducting their day-to-day business and communication. Why can’t we just use the old standby for communicating: the telephone? Well, it’s not that simple. The beauty of e-mail is that it can cross international boundaries and deliver written information and attachments in a matter of seconds, and it can manage tasks and schedules effectively across multiple time-zones. Since so many critical organizational functions and tasks are dependent on e-mail, an outage can cause losses of thousands of dollars per hour. For example, many e-mail solutions have built-in calendar features, by which CEOs live and die. Without calendar access, executives could miss critical meetings and negotiations, generating a negative impact on multi-million dollar deals and the organization’s future.

The biggest challenge with e-mail is effectively performing a service cost breakdown for e-mail services by user or organizational department. Compare this to your local phone or cable service. With either, it is easy to get a cost breakdown of phone usage by the minute or by the cable offering purchased. The cost breakdown is sent back to the user or organization as a monthly charge in the form of a bill. So why can’t we take the same approach for e-mail? The primary reason many organizations have not been successful in this area is that they have not taken a services-based approach to IT provisioning.

Financial Management and Service Portfolio Management are the crucial elements in assisting organizations with grasping the true cost of providing e-mail services. The first step in tackling this issue is to develop your messaging and collaboration offerings within the Service Portfolio. To effectively develop your Services Portfolio, you first have to understand what outcomes the customers are looking for in a messaging collaboration solution and which services the IT department within your organization is currently offering. You will want to address any final gaps that exist between expected customer outcomes and current IT capabilities when finalizing your Service Portfolio.

Based on your Service Portfolio, you now create a Services Catalog with the description and accompanying details for each of the identified messaging and collaboration services and determine the associated cost of providing these services. The Services Catalog is the only customer-facing component of the Service Portfolio published to customers and includes information such as service description, prices, and deliverables.

For e-mail, costs are comprised of people, accommodation, software, hardware, equipment and external service for providing messaging and collaboration. Once you have a good handle on the total cost of ownership (TCO) for providing messaging and collaboration services, you will have a strong start toward creating a detailed Services Catalog with a menu of offerings, at associated price points. Taking this approach will minimize the tendency of your organization to go postal with e-mail, because you will have a crisp and accurate Services Portfolio to assist your organization in truly understanding the value that IT brings to the business.

“However beautiful the strategy, you should occasionally look at the results.”
– Sir Winston Churchill

 Alex Hernandez is a qualified ISO/IEC 2000 certified consultant and ITIL service manager at Plexent, an IT service management (ITSM) company and leading provider of ITSM-focused intellectual property.  www.plexent.com

Sources:

  ¹ Iqbal, Majid; Nieves, Michael; Taylor, Sharon, ITIL Service Strategy, First impression, Published by The Stationary Office (TSO) for the Office of Government Commerce under license from the controller of Her Majesty’s Stationery Office, United Kingdom, © Crown Copyright 2007, pages. 55-56.

  ² Iqbal, Majid; Nieves, Michael; Taylor, Sharon, ITIL Service Strategy, First impression, Published by The Stationary Office (TSO) for the Office of Government Commerce under license from the controller of Her Majesty’s Stationery Office, United Kingdom, © Crown Copyright 2007, pages. 31-32.