Module 2 - Key SM Concepts

• Co-Creation of Value
• ITSM stakeholders
• Service Relationship
• Product and Service
• Value: Outcome, Cost and Risk
 LEARNING OBJECTIVES
By the end of this course, you will be able to do the following:
• Describe the key concepts of value creation and service relationships
• Recall the definitions of a customer, user, and sponsor.
• Recall the definition of utility and warranty.
• Describe the key concepts of creating value with cost, outcomes, outputs, risks, and utility and warranty.
2 Introduction
1 > ITIL History
Key SM Concepts
 What Is Value?
The purpose of an organization is to create value for stakeholders.
Key SM Concepts The term value is used frequently in service management, and it is a key focus of
ITIL 4; it must therefore be clearly defined (AXELOS 2019, 7).
Co-Creation of
Value Value

Value is the perceived benefits, usefulness, and importance of something.

ITSM stakeholders Inherent in this definition is the understanding that value is subject to the perception of the
stakeholders, whether they are the customers or consumers of a service, or a part of the service
provider organization(s). Value can be subjective .
Service
Relationship
Outcome
Product and
Service Outcome is a result for a stakeholder enabled by one or more outputs (AXELOS 2019, 16). It is
important to be clear about the difference between outputs and outcomes.

Value: Outcome,
Cost and Risk
 Service Management

Key SM Concepts Definitions

• Service management is a set of specialized organizational capabilities for enabling

Co-Creation of
Value value to customers in the form of services. In service management, there are many
kinds of stakeholders, each of which must be understood in the context of the
creation of value in the form of services (AXELOS 2019, 6).
ITSM stakeholders • IT service management (ITSM) is the application of service management to IT.

Service Developing the specialized organizational capabilities mentioned in the definition requires an
Relationship
understanding of the following:

Product and • The nature of value

Service
• The nature and scope of the stakeholders involved
• The approaches that enable value creation through services (AXELOS 2019, 6).
Value: Outcome,
Cost and Risk
 What Are Services?

The central component of service management is the Service.

Key SM Concepts

Co-Creation of
Service
Value
A service is a means of enabling value Co-creation by facilitating outcomes
that customers want to achieve, without the customer having to manage
ITSM stakeholders
specific costs and risks (AXELOS 2019, 12).

Service
Relationship

Product and
Service

Value: Outcome,
Cost and Risk
 What Is Value Co-Creation?
In the past, organizations self-identifying as
Key SM Concepts “service providers” saw their role of delivering
value to their customers in the same way as
Co-Creation of companies that focus on only delivering
Value packages to their customers.
This view treated the relationship between
the service provider and the service consumer
ITSM stakeholders as mono-directional and distant. The provider
delivers the service and the consumer
receives value; the consumer plays no role in
Service
Relationship the creation of value for themselves. This fails
to take into consideration the highly complex
and interdependent service relationships that
Product and
Service exist in reality (AXELOS 2019, 8).

Value: Outcome,
Cost and Risk
 What is an Organization?

Key SM Concepts In service management, there are many different kinds of stakeholders, each of which must
be understood within the context of the creation of value in the form of services.

Co-Creation of organization
Value

An organization is a person or a group of people that has its own functions with
ITSM stakeholders responsibilities, authorities, and relationships to achieve its objectives (AXELOS 2019, 9).

Service
Relationship

Product and
Service

Value: Outcome,
Cost and Risk
 What is an Organization?

Organizations vary in size and complexity and in their affiliation to legal entities, from
Key SM Concepts a single person or a team to a complex network of legal entities united by common
objectives, relationships, and authorities. As societies and economies evolve, the
Co-Creation of
relationships between and within organizations become more complex.
Value Each organization depends on others for its operations and development.
Organizations may hold different roles, depending on the perspective under
discussion (AXELOS 2019, 9).
ITSM stakeholders

Service
Relationship

Product and
Service

Value: Outcome,
Cost and Risk
 Service Providers

Service Providers
Key SM Concepts
When provisioning services, an organization takes on the role of a service provider. The
Co-Creation of provider can be external to the consumer’s organization, or they can both be part of the
Value same organization (AXELOS 2019, 9).

In the most traditional views of ITSM, the provider organization is seen as the IT department of
ITSM stakeholders a company, and the other departments or other functional units in the company are regarded
as the consumers (AXELOS 2019, 9).
Service This is, however, only one very simple provider-consumer model. A provider could be selling
Relationship
services on the open market to other businesses, to individual consumers, or it could be part of
a service alliance, collaborating to provide services to consumer organizations. The key is that
Product and the organization in the provider role has a clear understanding of who its consumers are in a
Service
given situation and who the other stakeholders are in the associated service relationships
(AXELOS 2019, 9).
Value: Outcome,
Cost and Risk
 Service Consumers

Key SM Concepts When receiving services, an organization takes on the role of the service consumer
(AXELOS 2019, 10). Service consumer is a generic role that is used to simplify the
definition and description of the structure of service relationships. In practice, there
Co-Creation of are more specific roles such as customers, users, and sponsors involved in service
Value
consumption. These roles can be separate or combined (AXELOS 2019, 10).

ITSM stakeholders Definitions:

▪ A customer or consumer is a person who defines the requirements for a service and
Service
Relationship takes responsibility for the outcomes of service consumption.
▪ A user is a person who uses services.
Product and
Service ▪ A sponsor is a person who authorizes the budget for service consumption. (AXELOS
2019, 10)
Value: Outcome,
Cost and Risk
 What is a Service Relationship?
To create value, an organization must do more than simply provide a service. It must
Key SM Concepts also cooperate with the consumers in 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
Co-Creation of providers or service consumers.
Value The two roles are not mutually exclusive, and organizations typically both provide and
consume a number of services at any given time.
ITSM stakeholders
Service relationship

Service Service relationship: A cooperation between a service provider and service consumer.
Relationship Service relationships include service provision, service consumption, and service
relationship management.
Product and
Service

Value: Outcome,
Cost and Risk
 Service Provisioning and Consumption

Key SM Concepts
Service Provision Service Consumption

Co-Creation of Service provision Activities performed by an Service consumption Activities performed by

Value organization to provide services. Service an organization to consume services. Service
provision includes: consumption includes:
ITSM stakeholders • Management of the provider’s resources, • Management of the consumer’s
configured to deliver the service resources needed to use the service
Service • Ensuring access to these resources for • Service actions performed by users,
Relationship users including utilizing the provider’s
resources, and requesting
• Fulfilment of the agreed service actions
Product and • service actions to be fulfilled.
Service • Service level management and continual
improvement. Service consumption may also include the
receiving (acquiring) of goods.
Value: Outcome, Service provision may also include the
Cost and Risk supplying of goods.
 Service Relationship management

Service relationship management

Key SM Concepts
Service relationship management consists of Joint activities performed by a
Co-Creation of service provider and a service consumer to ensure continual value co-creation
Value based on agreed and available service offerings.

ITSM stakeholders

Service
Relationship

Product and
Service

Value: Outcome,
Cost and Risk
 Product and Service
Organizations provide services based on one
Key SM Concepts or more of their products. Organizations own
or have access to a variety of resources,
including people, information and technology,
Co-Creation of
Value value streams and processes, and suppliers
and partners.
Products are typically complex and are not
ITSM stakeholders fully visible to consumers. Products are
configurations of these resources created by
organizations that are potentially valuable to
Service their customers (AXELOS 2019, 12).
Relationship Products offered by organizations are created
for many target consumer groups, and they
Product and are tailored to appeal to and meet the needs
Service of those groups. For example, a software
service can be offered as a “lite” version for
individual users or as a more comprehensive
Value: Outcome,
Cost and Risk
corporate version (AXELOS 2019, 12).
 Service Offerings
Service providers present their services to consumers in the form of service offerings, which
Key SM Concepts describe one or more services based on one or more products.

Service offering
Co-Creation of
Value
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
ITSM stakeholders resources, and service actions (AXELOS 2019, 13).

Services are offered to target consumer

Service
Relationship
groups, and those groups may be either
internal or external to the service provider
organization. Different offerings can be
Product and created based on the same product, which Service offering
Service allows it to be used in multiple ways to Goods Access to resources Service action

address the needs of different consumer

Value: Outcome, groups.
Cost and Risk For example, 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 (AXELOS 2019, 13‒14).
 Service Offerings

Key SM Concepts
Definitions:
• Goods—to be supplied to a consumer (e.g., a mobile phone); goods are supposed to
Co-Creation of
be transferred from the provider to the consumer, with the consumer taking the
Value responsibility for their future use.

• Access to resources—granted or licensed to a consumer under agreed terms and

ITSM stakeholders conditions (e.g., to the mobile network or to the network storage); the resources remain
under the provider’s control and can be accessed by the consumer only during the
Service agreed service consumption period.
Relationship
• Service actions—performed to address a consumer’s needs (e.g., user support); these
Product and actions are performed by the service provider according to the agreement with the
Service consumer (AXELOS 2019, 13).

Value: Outcome,
Cost and Risk
 The Service Relationship Model
When services are delivered by the provider, they create new resources for service
Key SM Concepts consumers, or modify their existing ones. Here are a few examples:
• A training service improves the skills of a consumer’s employees.
Co-Creation of
Value
• A broadband service allows a consumer to use the Internet.
• A car-hire service enables a consumer’s staff to visit clients.
ITSM stakeholders • A software development service creates a new application for the service consumer.

The service consumer can use its new or modified resources to create its own
Service products to address the needs of another target consumer group, thus becoming a
Relationship
service provider (AXELOS 2019, 14‒15).
Product and
Service

Value: Outcome,
Cost and Risk
 Services Facilitate Outcomes
By acting as a service provider, organizations produce outputs that help their
Key SM Concepts consumers achieve certain outcomes.
While an output is a tangible or intangible deliverable of an activity, an outcome is a
Co-Creation of
Value result for a stakeholder enabled by one or more outputs (AXELOS 2019, 16). It is
important to be clear about the difference between outputs and outcomes.

ITSM stakeholders
Depending on the relationship between the provider and the consumer, it can be
difficult for the provider to fully understand the outcomes that the consumer wants
Service to achieve. In some cases, they will work together to define the desired outcomes.
Relationship For example, business relationship managers (BRMs) in internal IT or HR
departments may regularly talk with customers and discuss their needs and
Product and expectations (AXELOS 2019, 17).
Service In other cases, the consumers articulate their expectations quite clearly, and the
provider expects them to do so, especially when standardized services are offered to
Value: Outcome, a wide consumer group.
Cost and Risk
 Services Facilitate Outcomes
A service is a means of enabling value co-creation
Key SM Concepts by facilitating outcomes that customers want to
achieve, without the customer having to manage
specific costs and risks (AXELOS 2019, 12).
Co-Creation of
Value Achieving desired outcomes requires resources
(and therefore costs) and is often associated with
ITSM stakeholders
risks. Service providers help their consumers to
achieve outcomes, and in doing so, take on some
of the associated risks and costs. Service
Service relationships can introduce new risks and costs,
Relationship
and in some cases, can negatively affect some of
the intended outcomes, while supporting others
Product and (AXELOS 2019, 16).
Service
Service relationships are perceived as valuable
Value: Outcome, only when they have more positive effects than
Cost and Risk negative (AXELOS 2019, 16).
 Understanding Costs

Cost
Key SM Concepts
Cost refers to the amount of money spent. on a specific activity or resource
Co-Creation of
Value From the service consumer’s perspective, there are two types of cost involved in service
relationships:
• Costs removed from the consumer by the service (a part of the value proposition); this
ITSM stakeholders
may include costs of staff, technology, and other resources, which the consumer does
not need to provide.
Service
Relationship • Costs imposed on the consumer by the service (the costs of service consumption); the
total cost of consuming a service includes the price charged by the service provider.
Product and • (if applicable) and other costs such as staff training, costs of network utilization, and
Service
procurement. Some consumers describe this as what they have to “invest” to consume
the service (AXELOS 2019, 18).
Value: Outcome,
Cost and Risk From the provider’s perspective, a comprehensive, correct understanding of the cost of
service provision is essential. Providers need to ensure that services are delivered within
budget constraints and they meet the financial expectations of an organization (AXELOS
2019, 18).
 Understanding Risks

Risk
Key SM Concepts
A risk refers to a possible event that could cause harm or loss or make it more difficult
to achieve objectives. It can also be defined as an uncertainty about an outcome and
Co-Creation of
Value can be used in the context of measuring the probability of positive outcomes as well as
negative outcomes (AXELOS 2019, 18).

ITSM stakeholders As with costs, there are two types of risk that are of concern to service consumers:
Risks removed from a consumer by the service (part of the value proposition); these may
include failure of the consumer’s server hardware or a lack of staff availability. In some cases, a
Service
Relationship
service may only reduce a consumer’s risks, but the consumer may determine that this
reduction is sufficient to support the value proposition.
Risks imposed on a consumer by the service (risks of service consumption); an example of this
Product and would be a service provider ceasing to trade or experiencing a security breach (AXELOS 2019,
Service 18).

Value: Outcome, It is the duty of the provider to manage the detailed level of risk on behalf of the consumer.
Cost and Risk This should be handled based on a balance of what matters most to the consumer and to the
provider.
 Understanding Utility and Warranty
To evaluate whether a service or service offering will facilitate the outcomes desired by the
Key SM Concepts consumers and create value for them, the overall utility and warranty of the service should be
assessed.
The assessment of a service must take into consideration the impact of costs and risks on
Co-Creation of utility and warranty to generate a complete picture of the viability of a service. (AXELOS 2019,
Value 19)
Utility Warranty
ITSM stakeholders
Warranty Assurance that a product or service will
meet agreed requirements. Warranty can be
Service Utility The functionality offered by a summarized as ‘how the service performs’ and can
Relationship product or service to meet a particular be used to determine whether a service is ‘fit for
need. Utility can be summarized as ‘what use’. Warranty often relates to service levels aligned
the service does’ and can be used to with the needs of service consumers. This may be
Product and
Service determine whether a service is ‘fit for based on a formal agreement, or it may be a
purpose’. To have utility, a service must marketing message or brand image. Warranty
either support the performance of the typically addresses such areas as the availability of
Value: Outcome, consumer or remove constraints from the the service, its capacity, levels of security and
Cost and Risk continuity. A service may be said to provide
consumer. Many services do both.
acceptable assurance, or ‘warranty’, if all defined
and agreed conditions are met.