Unit 2 Service Strategy

ITIL: Service Strategy
- Sumit K. Jha
www.process-consultant.blogspot.com
Contents
1. Overview
2. Key Concepts
3. Strategy Mgmt. For IT Services
4. Financial Management
5. Service Portfolio Mgmt.
6. Demand Management
7. Q & A
Sumit K. Jha www.process-consultant.blogspot.com

Overview
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Service Strategy: Goal
To develop organizational ability to think strategically

To support and enable transformation of service management into strategic
asset
To provide details pertaining to the relationship between:
Strategies
Business models
Objectives
Services
Systems
Processes

Service Strategy: Objective
Identifying services and customers for the marketplace

Identification of market differentiator
Value creation for customers and stakeholders
Building business case for strategic investments
Creating financial visibility and control over value creation
Defining service quality
Optimal allocation of resources across service portfolio

Service Strategy: Value to Business
Integration of business and IT capabilities

Clearly defined objectives and performance expectation
Identification, selection and prioritization of proposed services (opportunities)
Financial and risk management
Operational effectiveness

Service Strategy: Scope
Strategy Generation
Service Portfolio Management
Financial Management
Demand Management

Key Concepts

Value Creation
Value:
Quantified in terms of customer’s business outcome
Depends on customer perception
Customer’s perception is influenced by:

Attribute of service that indicate value
Customer’s view of service
Customer’s view of service provider
An innovator
Market leader
Risk taker
Customer’s expectations
Value creation – A combined effect of Utility & Warranty

Utility & Warranty
Utility Warranty
Increase in possible gains from • Decrease in possible losses for the

performance of customer assets; customer from variation in
thereby leading to an increase in performance
probability of achieving outcomes
• ‘Fit for Purpose’ • ‘Fit for Use’
Utility is ‘What’ customer gets and Warranty is ‘How’ it is

delivered

Utility & Warranty (Cont.)
Value is created only when a service is ‘fit for purpose’ and ‘fit
for use’, i.e., it’s a combined effect of Utility and Warranty.

Resources & Capabilities
Types of strategic assets

Used by organizations to create value in form of goods and services
Capability
Ability of an organization/person/process/management CI/IT Service to
perform an activity
Represents ability to coordinate, control and deploy resource to create value
Resources
Includes IT infrastructure, people, money, etc. that helps in delivery of IT
service
Direct input for production
Capabilities are used to transform resources

Resources & Capabilities (Cont.)
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Sumit K. Jha Finwww.process-consultant.blogspot.com

Business Units & Service Units
Business Unit:
Bundle of assets meant to create value for customers in the forms of
goods and services
Its capabilities coordinates, controls and deploys its resources to create
value
Service Unit:
Bundle of service assets that specializes in creating value in the form of
services
Services define the relationship between business units and service units

Business Service & IT Service
Business Service:
Defined by business
Exist in domain of business
Represents business activities with varying degree of granularity and
functionality
IT Service:
A service provided by IT which business does not think to have any
business context

Service Providers: Types
Type I – Internal Service Providers:

These are typically business unit functions embedded within the business units
they serve
Examples
Local IT, Business units finance applications, etc.
Characteristics
Typically funded by overheads and only serve internal purposes
Typically very specialized to serve a very narrow set of business needs
Governance and administration is straightforward
Not measured in terms of revenue or profit – operate on cost recovery basis
Concerns
No competition, but could be outsourced
Local Type I services could be centralized at corporate headquarters into
Type II
Need to demonstrate internal value on the BU’s KPIs

Type II – Shared Services Provider:

These services are typically on a corporate level, however are NOT at the core of
a company’s competitive edge
Examples
Finance, IT and Human Resources, Logistics, etc.
Characteristics
Consolidated into autonomous unit called a Shared Service Unit (SSU)
Focused on serving the corporation or BUs as a direct customer
SSUs can create, grow, and sustain an internal market for their services
Typically have strict governance rules to which they must adhere
Concerns
Fewer protections than Type I, could readily be compared to external
providers
Could be readily outsourced as a group or as a service
Need to demonstrate value and cost constraints on corporate/market KPIs

Type III – External Service Provider:

External Service Providers are companies that provide services to companies on
“hosting” or outsourced basis
Examples
E-mail, HR, Payroll, etc.
Characteristics
Large-scale services, shared among customers, provide lower cost service
Typically offer higher level of knowledge, experience with a broader scope
Typically offer higher level of service, availability, and customer satisfaction
Concerns
Security, since these services are typically hosted externally
Higher level of risk, since these services exist outside of internal control
Contract bound, can lower flexibility and adaptability for future opportunities

4 P’s of Service Strategy
Describes decision
Describes decision
Describes vision
Describes vision and
and
to adopt
to adopt well
well
direction
direction
defined stance
defined stance
Perspective Position
Strategy
Describes aa series
Describes series of
of
Describes means
Describes means of of
consistent decisions
consistent decisions
transforming “As
transforming “As Is”
Is”
&& actions
actions over
over aa
to “To
to “To Be”
Be”
period of
period of time
time
Pattern Plan

Marketing Mindset
An outside-in approach; thinking from customer’s perspective

A key to understand
Your business
Your customer
Your customers needs
Begins with following simple questions:

What is our business?
Who is our customer?
What does the customer value?
Who depends on our services?
How do they use our services?
Why are they valuable to them?

Strategy Management
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Fortitle style
IT Services

Key Activities
Defining the market

Develop offerings
Develop strategic assets
Prepare for execution

Defining The Market
Understanding perspectives of services and strategy

Strategies for service
Service for strategies
Understanding your customer

Service should prevent or reduce the variation in the performance of
customer assets
Understanding opportunities
Customer outcomes not well supported = opportunities to offer a service
Classifying and visualizing your service

Classify based on the service type and utility

Understanding Opportunities:
Outcome Tagging
Managers should gain deep insight of businesses they server/target
For a particular strategy, identify all outcomes for every

Customer
Market space
Classify and code outcomes with reference tags
Services & service assets are tagged with customers outcomes they facilitate
Helps in visualization of services and service assets
Mapping of customer outcomes to services and service assets can be

accomplished as part of a Configuration Management System (CMS)
Develop Offerings
To develop the offering understanding of following is required:

The market space
Defined by a set of business outcomes that can be facilitated by a
service
Represents a set of opportunities for service providers
Outcome-based definition of services

Plan and execute based on value to the customer (Utility and
Warranty)
The Service Portfolio, Pipeline, and Catalog

Develop Strategic Assets
Service Management:
Should be treated as a strategic asset
Should be entrusted with challenges & opportunities (customers, services and
contracts) to support
Begins with capabilities that coordinate and control resources to support a
catalogue of services
Adjust capabilities and resources until goal is reached

Service management grows & matures into a trusted asset

Prepare for Execution
Strategic Assessment: Identify

distinctive capabilities:
Which of our services or service

varieties are most distinctive?
Which of our services or service

varieties are most profitable?
Which of our customers and

stakeholders are most satisfied?
Which customers, channels or

purchase occasions are the most
profitable?
Which of our activities in our

value chain or value network are
the most different and effective?
©Crown Copyright 2007

Prepare for Execution (Cont.)
Set objectives
Align service assets with customer needs
Define critical success factors
Evaluate strategic position in the market by performing competitive analysis
Prioritize investments
Explore potential of your business
Align your services with customer needs
Define strategy for expansion & growth
Define differentiation in market spaces

Financial Management

Financial Management: Why?
To Provide IT Financial
Management Services BY
Facilitating decision making

Containing costs
Optimizing service value
Demonstrating achievements
Recovering costs THROUGH
Knowing the full VALUE of service

Knowing the full COST of service

Cost & Price
Cost:
Value of money used to produce something
Unit Cost:
Cost per standard unit supplied
Price
Quantity of payment or compensation given by one party to another in return
for goods or services
Quantity of payment requested by the seller of goods or services
Source: Wikipedia

Sample Cost Types & Cost Elements
Cost Types Cost Elements

Hardware Mainframes, Servers, Workstations, Notebooks, Networks, etc.
Software Operating Systems, Databases, Applications, Tools etc.
People Salaries, Expenses, Benefits, Relocation, Costs, Trainings etc.
Accommodation Offices, Machine Rooms, Utilities, Secure Storage etc.
External Service Outsourced Services, Disaster recovery etc.
Transfer Cross charged insourced Services

Cost Categories
Capital Cost: Operational Cost:

Outright Purchase of Fixed Day to Day Running Cost
Assets
Direct Cost: Indirect Cost:

Cost directly attributable to a Cost arbitrarily apportioned
Customer or Group between customers or
Groups
Fixed Cost: Variable Cost:

Not varying with Usage Varying with Usage

Key Activities
Budgeting
Accounting
Charging
RoI

Additional Activities
Service Valuation
Direct vs. indirect cost
Labor costs
Variable cost elements
Cost account data to service account information
Demand modeling
Funding model alternatives
Business impact analysis
Plan, Analyze, Design, Track, Implement and Measure Financial
management

Budgeting
Main activity of Financial mgmt.

Has key influence on strategic and
tactical plans
WHY?
Predicting IT expenses (money
required to run IT) for a period of
time
Ensuring that actual spending
matches the predicted spending at
any point of time
Ensuring that the revenue is
available for spending
Reducing the risk of overspending

Budgeting: Benefits
Ensures sufficient fund is

provided by business to IT
Ensuring that IT is able to
maintain its committed service
levels
Provides an early warning for
under or over consumption

Accounting
WHY?
• Accounting for IT expenses
(money spent on providing IT
services)
• Calculate the cost of providing IT
services
• Perform cost-benefit analysis
• Perform Return on Investment
(RoI) analysis
• Identification of cost of changes

Accounting: Benefits
Provides management information

on:
Cost of providing IT Services
Justifying IT expenditure
Assesses of cost effectiveness of
service provisioning
Enables better business decision
related to IT or IT service
investments
Financially demonstrate under or
over consumption of IT services
Provides information on possible
financial impact of doing or not doing
a change
Provides cost basis for cost-benefit
analysis

Charging
Recover cost of IT services from

customers
Influence user/customer
behaviour related to IT services
Enables IT to operate as a
business unit

Charging Types
Notional Charging
Bills are produced but no monetary transactions happen
Used to ensure that customers are aware of the costs they incur
Real Charging
Actual money changes hands
Used to ensure that customers are aware of the costs they incur

Charging Policies
No Charging
Cost Recovery (Zero Balance)
Cost plus a Margin (Positive Balance)
Cost Minus a Loss (Subsidized Service, -ve Balance)
Going Rate (Internal Cost Comparison)
Market Rate (External Cost Comparison)
Fixed Price (Potentially Arbitrary)
Differential Charging

Service Portfolio
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title style

Service Portfolio
Describes services in
terms of its business value
Complete set of services

provided by a service
provider
Service Portfolio Management is the process responsible for

managing service portfolio

Service Portfolio (Cont.)
Consists of:
Service Pipeline
A database or structured document
Lists all IT services under consideration/development
Provides a business view of possible future IT services
Not normally published to customers
Service Catalogue
A database or structured document
Lists all live IT services
Published to customers
Retired Services

Service Status
Requirements: A set of outline

requirements have been received from the
business or IT for a new or changed service
Defined: The set of requirements for the
new service are being assessed, defined, and
documented, and the SLR is being produced
Analyzed: The set of requirements for the
new service are being analyzed and prioritized
Approved: The set of requirements have
been finalized and authorized.
Chartered: The new service requirements
are being communicated and resources and
budgets allocated.
Designed: New service and its components
are being designed and procured, if required.

Service Status (Cont.)
Developed: The service and its components

are being developed or harvested for reuse
Built: The service and its components are
being built
Tested: The service and its components are
being tested
Released: The service and its components
are being released
Operational: The service and its constituent
components are operational within the live
environment
Retired: The service and its constituent
components have been retired

Activities
Strategy
Generation
STRATEGY
SERVICE
Service Portfolio Management
Define Analyze Approve Charter
Prepare Enhance Finalize Communication

inventory of portfolio value proposed of decision
service portfolio
Analyze and Resource
Ensure prioritize Authorize allocation
availability of services services and
business resources Charter
cases Ensure services
supply and
Validate demand
portfolio data equilibrium

Key Questions: Business Case
What is the REASON customer will buy these services?
What is the REASON customer will buy these services from us?
SWOT analysis for our Organization’s service capabilities
What could be our pricing models?
How best to allocate resources and capabilities

Elements: Service Portfolio & Catalogue

Role: Product Manager
Evaluate new market opportunities/evolving customer needs/operating

model/technology
Provide leadership on:
Development of business cases
Strategy for line of service
Deployment of new services
Schedule for service life cycle management
Responsibilities:
Manage services as a product over the lifecycle
Coordinate and focus organization around Service Catalog
Work with Business Relationship Manager (BRM)
Coordinate customer portfolio
Serve as Subject Matter Expert on lines of service and Service Catalog

Demand Management

Demand Management
A critical aspect of service management
Source of Risk for Service provider – Poorly managed demand (results in

uncertainty of demand)
Comprises of activities that understand and influence:

Customer demand for services
The provision of capacity to meet these demands
At Strategic Level: Involves analysis of patterns of business activity and user

profiles
At Tactical Level: Involves use of differential charging to encourage

customers to use IT services during ‘off-peak’ hours

Pattern of Business Activity (PBA)
Primary source of information for anticipated service demand
Influence the demand patterns
Involves identification, analysis and codification of demand patters
Is used as a basis for capacity management
It can be termed as a workload profile of one or more business activities
Defines the dynamics of a business and include interactions with customers,

suppliers, partners, and other stakeholders

Pattern of Business Activity (Cont.)
500
Peak Demand
400
# of Transactions
300
200
100
9 a.m. 10 a.m. 11 a.m. 12 p.m. 1 p.m.
Time of Transactions

Tracking PBA
Group naturally similar activities together under a group code

Only activities that are very different get a unique code
Classify each activity, on several factors, such as:

Is this a high frequency activity?
Is this a high or low revenue activity?
What IT services are required for this activity?
PBA, along with Core Service Package (CSP) and Service Level
Package (SLP), reduces complexity and overall cost of services.

PBA: Benefits
Service Portfolio Management: Approval of investments in additional capacity,

new services, or changes to existing services
Financial Management: Approve differential charging to influence demand
Service Design: Design optimization to suit demand patterns
Service Catalogue: Mapping demand patterns to appropriate services
Service Operation:
Balance resource allocation and scheduling
Identification of opportunities for demand consolidation by grouping PBAs

Service Packages
Core Service:
Delivers basic outcomes desired by customers
Represents the value that customer wants and is willing to pay for
A basic factor
Supporting services:
Enhances or enables the value proposition
An excitement factor

Example: Core and Supporting Service
For A Mobile Service Company

Core service:
Providing mobile services to individuals and enterprises
Value creation
Only when the company can provide Connectivity when required
Supporting Service:
Aid offered by sales representatives in plan selection
Application processing service
Hand set provisioning
etc.

Developing Differential Offering
The packaging of core services and supporting services, i.e. bundling of core
and supporting services, to develop an offering for the customer
Requires analysis of:

Prevailing market condition
Need of the target customer segment
Available alternatives (Competition)

Service Level Packages (SLP)
Means to provide Customer

Segment
differential service
Z2
Customer
Each SLP: Segment
X Customer
Provides a definite level Customer Segment
of utility and warranty Segment Z1 ‘OEM’
Y Segment
Capable of fulfilling one
or more patterns of Service
demand Package
D
Service Service
SLPs are associated with a Package Package Service Package C
set of levels, pricing policies, A B
and a core service package
(CSP – Package of core Core Service Package
services)

Q&A

Quiz
Q1. Which of the following is not an activity of Financial Management

a) Budgeting
b) Financing
c) Accounting
d) Charging
Q2. Which of the following is not a responsibility of Financial Management

a) Cost estimation
b) Monitoring cost
c) Pricing of IT services
d) Establishing charging policy
Q3. Which of the following identifies two Service Portfolio components within the Service Lifecycle?
a) Requirements Portfolio and Service Catalogue
b) Service Knowledge Management System and Service Catalogue
c) Service Knowledge Management System and Requirements Portfolio
d) Requirements Portfolio and Configuration Management System
Q4. Differentiate between cost and price.

Quiz (Cont.)
Q5. Which of the following should be taken into account when trying to understand the value of the
service?
1. The financial benefits received by the customer
2. The customers preferences
3. The customers perception of the service
4. The service providers perception of the service
a) Only 1
b) 1 and 2
c) 1,2 and 3
d) All of the above
Q6. Which of the following statements is CORRECT about patterns of demand generated by the
customer’s business?
a) They are driven by patterns of business activity
b) It is impossible to predict how they behave
c) It is impossible to influence demand patterns
d) They are driven by the delivery schedule generated by capacity management

Quiz (Cont.)
Q7. You are designing a new service that must create value for your customer. Which combination of
features could help achieve this?
1. Improved performance of business assets

2. Appropriate availability
3. Removal of constraints
4. Sufficient security
5. Appropriate service continuity.
a) 1,2,5
b) 1,3,4
c) 2,3,5
d) 2,3,4,5
Q8. Should an organization charge every customer for using IT Services?

Quiz (Cont.)
Q9. ITIL describes a service as a means of delivering value to customers by facilitating outcomes that
customers want to achieve without ownership of specific costs and risks. The warranty of a service
ensures that customers do not incur losses from shortfalls or variations in delivery.
From a service lifecycle perspective, which of the following controls in service Management gives
service providers the confidence to make warranty commitments.
a) service portfolio management ensures adequate spending on infrastructure and related assets to
support service level options in service catalogue
b) availability management is a shared concern between service design and service operation.
c) A service design package specifies requirements for availability, capacity, continuity, and security
of underlying services and infrastructure components.
d) The Conf Mgmt system
Q10. Setting policies and objectives is the primary concern of which of the following elements of the
Service Lifecycle?
a) Service Strategy
b) Service Strategy and Continual Service Improvement
c) Service Strategy, Service Transition and Service Operation
d) Service Strategy, Service Design, Service Transition, Service Operation and Continual Service
Improvement

Quiz (Answers)
Q1. b.
Q2. d. Establishing charging policy is done by the company/management.
Q3. a. Service pipeline (requirements portfolio) and service catalogue
Q4. Refer to Slide 31
Q5. c
Q6. a
Q7. d
Q8. Not necessarily. It is a decision that has to be made by the management, and the level of charging
must be determined as well.
Q9. c
Q10. a

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ITIL: Service Strategy

3. Strategy Mgmt. For IT Services

5. Service Portfolio Mgmt.

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

To develop organizational ability to think strategically

Sumit K. Jha www.process-consultant.blogspot.com

Identifying services and customers for the marketplace

Sumit K. Jha www.process-consultant.blogspot.com

Integration of business and IT capabilities

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

Customer’s perception is influenced by:

Value creation – A combined effect of Utility & Warranty

Increase in possible gains from • Decrease in possible losses for the

• ‘Fit for Purpose’ • ‘Fit for Use’

Utility is ‘What’ customer gets and Warranty is ‘How’ it is

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

Types of strategic assets

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha Finwww.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

Type I – Internal Service Providers:

Sumit K. Jha www.process-consultant.blogspot.com

Type II – Shared Services Provider:

Sumit K. Jha www.process-consultant.blogspot.com

Type III – External Service Provider:

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

An outside-in approach; thinking from customer’s perspective

Begins with following simple questions:

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

Defining the market

Sumit K. Jha www.process-consultant.blogspot.com

Understanding perspectives of services and strategy

Understanding your customer

Classifying and visualizing your service

Sumit K. Jha www.process-consultant.blogspot.com

Managers should gain deep insight of businesses they server/target

For a particular strategy, identify all outcomes for every

Classify and code outcomes with reference tags

Helps in visualization of services and service assets

Mapping of customer outcomes to services and service assets can be

To develop the offering understanding of following is required:

Outcome-based definition of services

The Service Portfolio, Pipeline, and Catalog

Sumit K. Jha www.process-consultant.blogspot.com

Adjust capabilities and resources until goal is reached

Sumit K. Jha www.process-consultant.blogspot.com

Strategic Assessment: Identify

Which of our services or service

Which of our services or service

Which of our customers and

Which customers, channels or

Which of our activities in our

©Crown Copyright 2007

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

Sumit K. Jha www.process-consultant.blogspot.com

Facilitating decision making