The Official Introduction to the ITIL Service Lifecyclekornev-online.net/ITIL/The Official...

The Official Introduction to the ITILService Lifecycle

London: TSO

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First published 2007

ISBN 9780113310616

Printed in the United Kingdom for The Stationery Office

N5635491 c60 08/07

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List of figures vi

List of tables viii

OGC’s foreword ix

Chief Architect’s foreword x

Preface xi

1 Introduction 1

1.1 A historical perspective of IT servicemanagement and ITIL 3

1.2 ITIL today 3

1.3 The ITIL value proposition 4

1.4 The ITIL service management practices 4

1.5 What is a service? 5

1.6 Navigating the ITIL ServiceManagement Lifecycle 5

2 Core guidance topics 9

2.1 Service Strategy 11

2.2 Service Design 11

2.3 Service Transition 12

2.4 Service Operation 12

2.5 Continual Service Improvement 12

2.6 Lifecycle quality control 13

2.7 ITIL conformance or compliance – practiceadaptation 13

2.8 Getting started – Service Lifecycle principles 14

3 The ITIL Service ManagementLifecycle – core of practice 17

3.1 Functions and Processes across the lifecycle 20

4 Service Strategy – governance anddecision-making 23

4.1 Strategic assessment 25

4.2 Developing strategic capabilities 27

4.3 Service Provider types – matching need to capability 27

4.4 Services as assets – value creation 28

4.5 Defining the market space 29

4.6 Service Portfolios 30

4.7 Service outsourcing – practicaldecision-making 33

4.8 Return on investment (ROI) 35

4.9 Financial Management 36

4.10 Increasing service potential 38

4.11 Organizational development 39

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Contents

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5 Service Design – building structuralservice integrity 43

5.1 Business value 46

5.2 Five aspects of Service Design 46

5.3 Identifying service requirements 47

5.4 Service Design models 48

5.5 Delivery model options 49

5.6 Service Catalogue Management 50

5.7 Service Level Management 52

5.8 Capacity Management 55

5.9 Availability Management 60

5.10 IT Service Continuity Management 64

5.11 Information Security Management 66

5.12 Supplier Management 70

6 Service Transition – preparing forchange 73

6.1 Transition Planning and Support 76

6.2 Change Management 80

6.3 Asset and Configuration Management 83

6.4 Release and Deployment Management 86

6.5 Service Validation and Testing Releases 88

7 Service Operation 91

7.1 Business value 94

7.2 Event Management 94

7.3 Incident Management 96

7.4 Request Fulfilment 99

7.5 Problem Management 101

7.6 Access Management 105

7.7 Service Operation functions 106

7.8 IT Operations Management 116

7.9 Application Management 117

7.10 Service Operation and project management 121

7.11 Assessing and managing risk inService Operation 122

7.12 Operational staff in Service Designand Transition 122

8 Continual Service Improvement 125

8.1 Purpose of CSI 125

8.2 CSI objectives 126

8.3 Business drivers 128

8.4 Technology drivers 128

8.5 Service measurement 129

8.6 Continual Service Improvement processes 129

8.7 Service reporting 140

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9 Complementary guidance 145

9.1 ITIL and other frameworks, practicesand standards 145

10 The ITIL Service Management Model 149

10.1 Model element types 149

10.2 Basic elements 151

10.3 Creating a service 155

10.4 Strategy generation 155

10.5 Deciding the course of action tocreate a new service 158

Acronyms 173

Glossary 177

Index 227

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Figure 2.1 The Deming Quality Cycle

Figure 3.1 The ITIL Service Lifecycle

Figure 3.2 Process architecture

Figure 3.3 Continual feedback loop

Figure 4.1 Service Provider capabilities and resources

Figure 4.2 Actionable components of service definitionsin terms of utility

Figure 4.3 Service Portfolio

Figure 4.4 Elements of a Service Portfolio and ServiceCatalogue

Figure 4.5 Service Portfolio management

Figure 4.6 Business impact and ROI outcome

Figure 5.1 Design dependencies

Figure 5.2 Service Catalogue elements

Figure 5.3 The Service Level Management process

Figure 5.4 Component-based Service Level Package

Figure 5.5 Capacity Management elements

Figure 5.6 The Availability Management process

Figure 5.7 Relationship between levels of availabilityand overall costs

Figure 5.8 Service Continuity lifecycle

Figure 5.9 IT Security Management process

Figure 5.10 Supplier Management – roles and interfaces

Figure 6.1 The Service Transition process

Figure 6.2 Normal Change Model

Figure 6.3 Service Asset and ConfigurationManagement – interfaces to the lifecycle

Figure 6.4 Example of a release package

Figure 6.5 Service testing and validation

Figure 7.1 The Event Management process

Figure 7.2 The Incident Management process flow

Figure 7.3 The Problem Management process flow

Figure 7.4 Single monitor control loop

Figure 7.5 Complex monitor control loop

Figure 7.6 ITSM monitor control loop

Figure 7.7 Role of Application Management in theapplication lifecycle

Figure 8.1 Continual Service Improvement model

Figure 8.2 Seven-step Improvement Process

Figure 8.3 Number of incident tickets opened over time

Figure 8.4 Service reporting process

Figure 10.1 Service Management Model element types

Figure 10.2 Service Lifecycle governance and operationalelements

Figure 10.3 Typical Type I Service Provider interactions

Figure 10.4 Type II Service Provider interactions

Figure 10.5 Type III Service Provider interactions

Figure 10.6 Basic Service Management Model processelements

vi |

List of figures

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Figure 10.7 ITIL Service Lifecycle main practice elements

Figure 10.8 Forming and formulating a Service Strategy

Figure 10.9 The Service Portfolio

Figure 10.10 Stage 1 – Service Strategy elements

Figure 10.11 Stage 2 – Design service solution

Figure 10.12 Stage 3 – Transition the service

Figure 10.13 Change Management elements

Figure 10.14 Normal Change Management process

Figure 10.15 Information flows at the Service Transitionstage

Figure 10.16 Stage 4 – Operate the service

Figure 10.17 The Event Management process

Figure 10.18 The Incident Management process flow

Figure 10.19 Information flow in the Service Operationstage

Figure 10.20 Stage 5 – Continual Service Improvement

Figure 10.21 Information flow within Continual ServiceImprovement

Figure 10.22 Integrated lifecycle elements flow

Figure 10.23 Layered view of the main elements in theService Lifecycle

List of figures | vii

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Table 2.1 Roles and core guides

Table 4.1 Factors in strategic assessment

Table 4.2 Types of sourcing structures

Table 4.3 Example of increased Service Potential

Table 4.4 Basic organizational structures for types ofservice strategies

Table 5.1 Delivery model options

Table 8.1 Service metric examples

viii |

List of tables

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As co-founder of the ITIL concept and leader of its earlydevelopment, I’m delighted by the positive impact it hasmade on companies and organizations around the world.What began as a UK government initiative to set out anefficient, successful and reliable approach to servicemanagement is now a global endeavour, withpublications, training and support tools available in variouslanguages. Of course, successful growth doesn’t happenby chance and ITIL has proven itself many times overthrough the benefits it brings to the businesses thatembed its practices.

Since its creation in the late 1980s, ITIL has beendeveloped to keep up to date with a constantly changingservice management environment. Here in the latestversion, I am pleased to see a top-quality product.Consultation with experts on a global scale brings youleading practices, identified through experience andbrought together with the skills and expertise of ourpublishing partner, The Stationery Office (TSO).

I believe ITIL will continue to play an important role withingovernment as an effective standard framework fordelivery. However, the real value in ITIL is that its benefitsare available to every organization, large or small, with agenuine desire to deliver a high-performing serviceprovision. May your organization be one of those!

John StewartOffice of Government Commerce

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OGC’s foreword

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This book is dedicated to the people who practise ITservice management. Through their knowledge andexperiences we have shaped the present and can seefurther toward the future along our journey to serviceexcellence.

Over the past two decades the world of IT has changeddramatically. The IT Infrastructure Library framework hasgrown along with it and has shaped a community ofpractice that has spawned an entire industry. What hasn’tchanged in all that time is the need for us as practitionersof service management to learn how best practices evolveand how they support and influence the customer’ssuccesses or failures.

In a world of growing complexity, choice and globalization,ITIL has remained at the heart of the industry, growing andevolving to meet the needs of service providers. Thecurrent version of ITIL is a product of this evolution.

Within the pages of this book, we will introduce ITIL to thenovice, further educate the practitioner and transform ourunderstanding of IT service management best practices.

This book captures the basic concepts of the ITIL ServiceLifecycle and its benefits. It serves as a reference to ITILservice management practices, but should not beconsidered a substitute for the ITIL core practice set.

It is from here we begin the journey into the ITIL servicemanagement practices.

Sharon TaylorChief Architect, ITIL Service Management Practices

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Chief Architect’s foreword

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Life-cycle (noun) – The various stages through which aliving thing passes (Kernerman English MultilingualDictionary)

The very term ‘lifecycle’ is used to describe the evolutionof many living things in this world from their creation toexpiration. The time between creation and expiration isthe ‘journey’.

We need only look at our own life journeys to see a livingexample.

Creation – the first part of our journey. As an embryodevelops, its life blueprint is being established through thearchitecture of its DNA. The embryo’s genetic structure willdictate its capability, propensity for immunity orvulnerability to disease, and certain personalitycharacteristics it will carry throughout life.

Childhood – the formative stage. We are influenced by ourexposure to the world around us and can influence ourlife blueprint in how we manifest and integrate ourselveswith the world around us. Our understanding of ourneeds, both for growth and creativity, are our‘requirements’ that allow us to create value for ourselvesand those who come into contact with us.

Adulthood – where we hone our skills and perform withinexpected societal parameters. We strive to improve ourcapabilities continually and define our value. By this time,we have built a complex network of relationships anddependencies to others. The world we live in has becomefar more complex than in childhood and managing ourlives more challenging.

If you replace the human metaphor above with thelifecycle of service management, you will see manysimilarities. This is because the ITIL Service Lifecyclerepresents the same evolution – from creation toexpiration – and the stages in the ITIL Service Lifecycle arewhat fall in between.

We often forget that services are living things. Theyrequire sustenance to survive, they must continually adaptand evolve with changing needs of the business, and theywill pass through various stages over their lifetime.

Services are constrained by their genetic blueprint – risks,financial investment, culture and economics – but shouldevolve to influence their value through interaction,evolution, dependencies and relationships, and to exploitthese for positive outcomes.

This book will take you through these Service Lifecyclestages and show how to apply the knowledge containedin the ITIL core lifecycle publications.

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Preface

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Introduction 1

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1.1 A HISTORICAL PERSPECTIVE OF ITSERVICE MANAGEMENT AND ITIL

IT service management (ITSM) evolved naturally as servicesbecame underpinned in time by the developingtechnology. In its early years, IT was mainly focused onapplication development – all the new possibilitiesseeming to be ends in themselves. Harnessing theapparent benefits of these new technologies meantconcentrating on delivering the created applications as apart of a larger service offering, supporting the businessitself.

During the 1980s, as the practice of service managementgrew, so too did the dependency of the business. Meetingthe business need called for a more radical refocus for anIT service approach and the ‘IT help desk’ emerged to dealwith the frequency of issues suffered by those trying touse IT services in delivery of their business.

At the same time, the UK government, fuelled by a needfor finding efficiencies, set out to document how the bestand most successful organizations approached servicemanagement. By the late 1980s and early 1990s, they hadproduced a series of books documenting an approach tothe IT service management needed to support businessusers. This library of practice was entitled the ITInfrastructure Library – ITIL to its friends.

The original Library grew to over 40 books, and started achain reaction of interest in the UK IT service community.The term ‘IT service management’ had not been coined atthis point, but became a common term around the mid1990s as the popularity of ITIL grew. In 1991, a user forum,the IT Information Management Forum (ITIMF), wascreated to bring ITIL users together to exchange ideas andlearn from each other, and would eventually change itsname to the IT Service Management Forum (itSMF). Today,

the itSMF has members worldwide as ITIL’s popularitycontinues to grow.

A formal standard for ITSM, The British Standard 15000,largely based on ITIL practices, was established andfollowed by various national standards in numerouscountries. Since then the ISO 20000:2005 Standard wasintroduced and gained rapid recognition globally.

ITIL’s next revision began in the mid 1990s, until 2004.Version 2 of ITIL, as it is commonly referred to, was a moretargeted product – with nine books – explicitly bridgingthe gap between technology and business, and withguidance focused strongly on the processes required todeliver effective services to the business customer.

1.2 ITIL TODAY

In 2004, the OGC began the second major refresh initiativeof ITIL, in recognition of the massive advancements intechnology and emerging challenges for IT serviceproviders. New technology architectures, virtualization andoutsourcing became a mainstay of IT and the process-based approach of ITIL needed to be revamped to addressservice management challenges.

After twenty years ITIL remains the most recognizedframework for ITSM in the world. While it has evolved andchanged its breadth and depth, it preserves thefundamental concepts of leading practice.

1.2.1 Why is ITIL so successful?ITIL is intentionally composed of a common senseapproach to service management – do what works. Andwhat works is adapting a common framework of practicesthat unite all areas of IT service provision toward a singleaim – delivering value to the business. The following list

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1 Introduction

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defines the key characteristics of ITIL that contribute to itsglobal success:

� Non-proprietary – ITIL service management practicesare applicable in any IT organization because they arenot based on any particular technology platform, orindustry type. ITIL is owned by the UK government andnot tied to any commercial proprietary practice orsolution

� Non-prescriptive – ITIL offers robust, mature andtime-tested practices that have applicability to all typesof service organizations. It continues to be useful andrelevant in public and private sectors, internal andexternal service providers, small, medium and largeenterprise, and within any technical environment

� Best practice – ITIL service management practicesrepresent the learning experiences and thoughtleadership of the world’s best in class service providers

� Good practice – Not every practice in ITIL can beconsidered ‘best practice’, and for good reason. Formany, a blend of common, good and best practicesare what give meaning and achievability to ITSM. Insome respects, best practices are the flavour of theday. All best practices become common practices overtime, being replaced by new best practices.

1.3 THE ITIL VALUE PROPOSITION

All high-performing service providers share similarcharacteristics. This is not coincidence. There are specificcapabilities inherent in their success that they demonstrateconsistently. A core capability is their strategy. If you wereto ask a high-achieving service provider what makes themdistinctive from their competitors, they would tell you thatit is their intrinsic understanding of how they providevalue to their customers. They understand the customer’sbusiness objectives and the role they play in enablingthose objectives to be met. A closer look would reveal thattheir ability to do this does not come from reacting to

customer needs, but from predicting them throughpreparation, analysis and examining customer usagepatterns.

The next significant characteristic is the systematic use ofservice management practices that are responsive,consistent and measurable, and define the provider’squality in the eyes of their customers. These practicesprovide stability and predictability, and permeate theservice provider’s culture.

The final characteristic is the provider’s ability tocontinuously analyse and fine tune service provision tomaintain stable, reliable yet adaptive and responsiveservices that allow the customer to focus on their businesswithout concern for IT service reliability.

In these situations you see a trusted partnership betweenthe customer and the service provider. They share risk andreward and evolve together. Each knows they play a rolein the success of the other.

As a service provider, this is what you want to achieve. Asa customer, this is what you want in a service provider.

Take a moment look around at the industry high-performing service providers. You’ll see that most use ITILService Management practices. This isn’t coincidence at all.

1.4 THE ITIL SERVICE MANAGEMENTPRACTICES

When we turn on a water tap, we expect to see water flowfrom it. When we press down a light switch, we expect tosee light fill the room. Not so many years ago these verybasic things were not as reliable as they are today. Weknow instinctively that the advances in technology havemade them reliable enough to be considered a utility. Butit isn’t just the technology that makes the services reliable.It is how they are managed. This is service management!

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The use of IT today has become the utility of business.Simply having the best technology will not ensure itprovides utility-like reliability. Professional, responsive,value-driven service management is what brings thisquality of service to the business.

The objective of the ITIL Service Management practiceframework is to provide services to business customersthat are fit for purpose, stable and that are so reliable, thebusiness views them as a trusted utility.

ITIL offers best practice guidance applicable to all types oforganizations who provide services to a business. Eachpublication addresses capabilities having direct impact ona service provider’s performance. The structure of the corepractice takes form in a Service Lifecycle. It is iterative andmultidimensional. It ensures organizations are set up toleverage capabilities in one area for learning andimprovements in others. The core is expected to providestructure, stability and strength to service managementcapabilities with durable principles, methods and tools.This serves to protect investments and provide thenecessary basis for measurement, learning andimprovement.

The guidance in ITIL can be adapted for use in variousbusiness environments and organizational strategies. Thecomplementary guidance provides flexibility to implementthe core in a diverse range of environments. Practitionerscan select complementary guidance as needed to providetraction for the core in a given business context, much liketyres are selected based on the type of automobile,purpose and road conditions. This is to increase thedurability and portability of knowledge assets and toprotect investments in service management capabilities.

1.5 WHAT IS A SERVICE?

Service management is more than just a set of capabilities.It is also a professional practice supported by an extensivebody of knowledge, experience and skills. A global

community of individuals and organizations in the publicand private sectors fosters its growth and maturity. Formalschemes exist for the education, training and certificationof practising organizations, and individuals influence itsquality. Industry best practices, academic research andformal standards contribute to its intellectual capital anddraw from it.

The origins of service management are in traditionalservice businesses such as airlines, banks, hotels andphone companies. Its practice has grown with theadoption by IT organizations of a service-orientedapproach to managing IT applications, infrastructure andprocesses. Solutions to business problems and support forbusiness models, strategies and operations are increasinglyin the form of services. The popularity of shared servicesand outsourcing has contributed to the increase in thenumber of organizations who are service providers,including internal organizational units. This in turn hasstrengthened the practice of service management and atthe same time imposed greater challenges upon it.

Definition of a serviceA ‘service’ is a means of delivering value to customersby facilitating outcomes customers want to achievewithout the ownership of specific costs and risks.

There are a variety of contexts in which the definition ofa service can be expanded upon, but as a basicconcept, service is the means of delivering value, andno matter how your organization chooses to define aservice, this must be at the heart of what defines aservice.

1.6 NAVIGATING THE ITIL SERVICEMANAGEMENT LIFECYCLE

Before discussing the principles of ITIL servicemanagement practices, it is helpful to understand theoverall content structure and how topics areas are

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organized within each of the books that togethercomprise the practices.

The ITIL service management practices are comprised ofthree main sets of products and services:

� ITIL service management practices – core guidance

� ITIL service management practices – complementaryguidance

� ITIL web support services.

1.6.1 ITIL service management practices –core guidance

The core set consists of six publications:

� Introduction to ITIL Service Management Practices(this publication)

� Service Strategy

� Service Design

� Service Transition

� Service Operation

� Continual Service Improvement.

A common structure across all the core guidancepublications helps to easily find references betweenvolumes and where to look for similar guidance topicswithin each stage of the lifecycle:

Practice fundamentals

This section of each core publication sets out the businesscase argument of the need for viewing servicemanagement in a lifecycle context and an overview of thepractices in that stage of the lifecycle that contributes toit. It briefly outlines the context for the practices thatfollow and how they contribute to business value.

Practice principles

Practice principles are the policies and governance aspectsof that lifecycle stage that anchor the tactical processesand activities to achieving their objectives.

Lifecycle processes and activities

The Service Lifecycle stages rely on processes to executeeach element of the practice in a consistent, measurable,repeatable way. Each core publication identifies theprocesses it makes use of, how they integrate with theother stages of the lifecycle, and the activities needed tocarry them out.

Supporting organization structures and roles

Each publication identifies the organizational roles andresponsibilities that should be considered to manage theService Lifecycle. These roles are provided as a guidelineand can be combined to fit into a variety of organizationstructures. Suggestions for optimal organization structuresare also provided.

Technology considerations

ITIL service management practices gain momentum whenthe right type of technical automation is applied. Eachlifecycle publication makes recommendations on the areasto focus technology automation on, and the basicrequirements a service provider will want to considerwhen choosing service management tools.

Practice implementation

For organizations new to ITIL, or those wishing to improvetheir practice maturity and service capability, eachpublication outlines the best ways to implement the ITILService Lifecycle stage.

Challenges, risks and critical success factors

These are always present in any organization. Eachpublication highlights the common challenges, risks andsuccess factors that most organizations experience andhow to overcome them.

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Complementary guidance

There are many external methods, practices andframeworks that align well to ITIL practices. Eachpublication provides a list of these and how theyintegrate into the ITIL Service Lifecycle, when they areuseful and how.

Examples and templates

Each publication provides working templates andexamples of how the practices can be applied. They areprovided to help you capitalize on the industry experienceand expertise already in use. Each can be adapted withinyour particular organizational context.

1.6.2 ITIL service management practices –complementary guidance

This is a living library of publications with guidancespecific to industry sectors, organization types, operatingmodels and technology architectures. Each publicationsupports and enhances the guidance in the ITIL core.Publications in this category will be continually added tothe complementary library of practice and will containcontributions from the expert and user ITSM community.In this way, ITIL practices are illustrated in real-lifesituations and in a variety of contexts that add value andknowledge to your own ITIL practice.

1.6.3 ITIL web support servicesThese products are online, interactive services including aGlossary of Terms and Definitions, Interactive ServiceManagement Model, online subscriber services, casestudies, templates and ITIL Live® (www.itil-live-portal.com),an interactive expert knowledge centre where users canaccess time with ITSM experts to discuss questions andissues, and seek advice.

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Core guidance topics 2

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2.1 SERVICE STRATEGY

At the core of the Service Lifecycle is Service Strategy.

Service Strategy provides guidance on how to view servicemanagement not only as an organizational capability butas a strategic asset. Guidance is provided on the principlesunderpinning the practice of service management whichare useful for developing service management policies,guidelines and processes across the ITIL Service Lifecycle.

Topics covered in Service Strategy include thedevelopment of service markets, characteristics of internaland external provider types, service assets, the serviceportfolio and implementation of strategy through theService Lifecycle. Financial Management, DemandManagement, Organizational Development and StrategicRisks are among other major topics.

Organizations should use Service Strategy guidance to setobjectives and expectations of performance towards

serving customers and market spaces, and to identify,select and prioritize opportunities. Service Strategy isabout ensuring that organizations are in position tohandle the costs and risks associated with their serviceportfolios, and are set up not just for operationaleffectiveness but for distinctive performance.

Organizations already practicing ITIL use Service Strategyto guide a strategic review of their ITIL-based servicemanagement capabilities and to improve the alignmentbetween those capabilities and their business strategies.This ITIL volume encourages readers to stop and thinkabout why something is to be done before thinking ofhow.

2.2 SERVICE DESIGN

‘If you build it, they will come’ is a saying from a famous1989 Hollywood movie, Field of Dreams. But if you build itand it doesn’t provide value, they will soon leave!

For services to provide true value to the business, theymust be designed with the business objectives in mind.Service Design is the stage in the lifecycle that turnsService Strategy into the blueprint for delivering thebusiness objectives.

Service Design provides guidance for the design anddevelopment of services and service managementpractices. It covers design principles and methods forconverting strategic objectives into portfolios of servicesand service assets. The scope of Service Design is notlimited to new services. It includes the changes andimprovements necessary to increase or maintain value tocustomers over the lifecycle of services, the continuity ofservices, achievement of service levels, and conformanceto standards and regulations. It guides organizations on

ServiceDesign

ServiceOperation Service

Transition

ServiceStrategy

Continual ServiceImprovement

Continual Service

Improvem

ent Con

tinua

l Ser

vice

Impr

ovem

ent

ITIL

Comp

lementary Publications

Web Support Servic

es

2 Core guidance topics

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12 | Core guidance topics

how to develop design capabilities for servicemanagement.

Among the key topics in Service Design are ServiceCatalogue, Availability, Capacity, Continuity and ServiceLevel Management.

2.3 SERVICE TRANSITION

Transition [tran-zish-uhn] – Movement, passage, orchange from one position, state, stage, subject, concept,etc., to another; change: the transition from adolescenceto adulthood.

Service Transition provides guidance for the developmentand improvement of capabilities for transitioning new andchanged services into live service operation. Thispublication provides guidance on how the requirements ofService Strategy encoded in Service Design are effectivelyrealized in Service Operation while controlling the risks offailure and disruption.

The publication combines practices in Change,Configuration, Asset, Release and Deployment, Programmeand Risk Management and places them in the practicalcontext of service management. It provides guidance onmanaging the complexity related to changes to servicesand service management processes; preventing undesiredconsequences while allowing for innovation. Guidance isprovided on transferring the control of services betweencustomers and service providers.

Service Transition introduces the Service KnowledgeManagement System, which builds upon the current dataand information within Configuration, Capacity, KnownError, Definitive Media and Assets systems and broadensthe use of service information into knowledge capabilityfor decision and management of services.

2.4 SERVICE OPERATION

Service Operation embodies practices in the managementof the day-to-day operation of services. It includesguidance on achieving effectiveness and efficiency in thedelivery and support of services to ensure value for thecustomer and the service provider. Strategic objectives areultimately realized through Service Operation, thereforemaking it a critical capability. Guidance is provided onhow to maintain stability in service operations, allowingfor changes in design, scale, scope and service levels.Organizations are provided with detailed processguidelines, methods and tools for use in two major controlperspectives: reactive and proactive. Managers andpractitioners are provided with knowledge allowing themto make better decisions in areas such as managing theavailability of services, controlling demand, optimizingcapacity utilization, scheduling of operations and fixingproblems. Guidance is provided on supporting operationsthrough new models and architectures such as sharedservices, utility computing, web services and mobilecommerce.

Among the topics in this book are Event, Incident,Problem, Request, Application and Technical Managementpractices. This book discusses some of the newer industrypractices to manage virtual and service-orientedarchitectures.

2.5 CONTINUAL SERVICE IMPROVEMENT

Continual Service Improvement provides instrumentalguidance in creating and maintaining value for customersthrough better design, transition and operation of services.It combines principles, practices and methods from qualitymanagement, change management and capabilityimprovement. Organizations learn to realize incrementaland large-scale improvements in service quality,operational efficiency and business continuity. Guidance isprovided for linking improvement efforts and outcomes

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Core guidance topics | 13

with service strategy, design and transition. A closed-loopfeedback system, based on the Plan-Do-Check-Act (PDCA)model (see section 2.6), is established and capable ofreceiving inputs for improvements from any planningperspective.

Guidance on Service Measurement, demonstrating valuewith metrics, developing baselines and maturityassessments are among the key topics.

2.6 LIFECYCLE QUALITY CONTROL

Consistent with the structures adopted by high-performingbusinesses today and standards bodies around the world,the ITIL Service Lifecycle approach embraces and enhancesthe interpretation of the Deming Quality Cycle (Figure 2.1)of Plan-Do-Check-Act. You will see this quality cycle usedin the structure of the practices in each of the core guides.

The ITIL framework incorporates the Deming Quality Cycleby applying it to the Service Lifecycle stages. This helpsalign the practices of ITIL to the structure of externalpractices such as COBIT and ISO/IEC 20000.

2.7 ITIL CONFORMANCE OR COMPLIANCE –PRACTICE ADAPTATION

An important aspect of ITIL is the ‘open-source’ nature ofits practices. It is intended and strongly recommendedthat organizations adapt ITIL practices within their owncontext, and entrench their own best practices within anoverall Service Management framework.

For example, within Service Transition, ITIL provides aselection of Change Management models for standard,normal and emergency Changes. In many cases, thesemodels as described in Service Transition may be all youneed and they cover the range of possible change types in

Figure 2.1 The Deming Quality Cycle

Effective Quality Improvement

CHECK

PLANACT

DO

Time Scale

Mat

urity

Lev

el

Consolidation of the level reached

i.e. Baseline

BusinessIT

Alignment

Plan Project PlanDo ProjectCheck AuditAct New Actions

Continuous quality control and consolidation

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an organization. Within each model, a specific flow ofprocess and procedure is provided. If in your organization,more steps for an emergency change make sense to meetyour requirements and objectives, then you should adaptthese into the generic ITIL Change process flow. Doing sodoes not mean you no longer conform to ITIL. As long asthe main ITIL process steps, inputs and outputs areincluded and the objectives met, that is your best practiceand is fit for purpose in your organizational context.

ITIL is a framework an organization conforms to, notcomplies with. There is a major difference between thesetwo things and one that is often misunderstood.

Conformity allows flexibility in the adaptation of practiceswithin an organizational context while maintaining theoverall structure of the framework. Compliance is highlyspecific, often audited to a formal standard and theorganization’s practices must mimic externally definedpractices. There is a need for both within certain contexts,but a key to agile service management practices isknowing which, in what blend and in what contextconformance or compliance should apply.

Many organizations use ITIL as a means to achievecompliance with a formal, audited standard such asISO/IEC 20000:2005. The design of ITIL is particularlyuseful for this purpose since the framework is architectedto ensure that an organization’s service capabilities aredesigned and operated using the practices that align tothese standards.

This standard set outs the key areas of compliance andrequires that organizations can demonstrate that they usethe management systems and practices in these areas inorder to be compliant to the standard. Experts agree thatadopting ITIL produces a framework best suited toachieving ISO/IEC 20000 certification. Later in this book alist of common external frameworks, method andstandards are provided that have a solid alignment to the

practices of ITIL and fit well into any organization’s servicepractices.

2.8 GETTING STARTED – SERVICE LIFECYCLEPRINCIPLES

In the following chapters you will learn about the keyconcepts within the ITIL Service Lifecycle. You begin byworking your way from the core of the lifecycle, ServiceStrategy, then around the revolving lifecycle practices ofService Design, Transition and Operation, finishing withContinual Service Improvement. Afterward, you shouldhave a clear understanding of the basic concepts of theITIL Service Lifecycle and how the core practicepublications can be useful to you. This will help readers tofurther examine particular areas within any of the coreguidance books that offer detailed practice information inareas that support your day-to-day service managementrole.

The following table gives a general view of some of themore common roles in organizations and the ITIL servicemanagement practice core guides that host the day-to-daypractices, processes and activities most related to thoseroles.

14 | Core guidance topics

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Core guidance topics | 15

Table 2.1 Roles and core guides

Role Core guide

Service Desk Manager/staff Service Operation

Incident Manager/Technical Support staff Service Transition and Service Operation

Operations Management Service Transition and Service Operation

Change Manager/Change Requestor Service Transition

Solution Development Service Design

Testing/Production Assurance Service Transition and Service Operation

Service Level Manager All core publications

Application/Infrastructure Architect All core publications

Supplier Relationship Management Service Design

IT Steering/Governance Service Strategy, Service Design

CIO/IT Director All core publications

IT Service Manager All core publications

Portfolio Manager All core publications

NOTE: It is extremely important to reiterate that no one core book exists in isolation, just as no one part of service management practice does.

Organizations interested in adopting ITIL or further maturing their current ITIL practice must consider the lifecycle in its entirety and the benefit

all five of the core books provide. Just as this Introduction book is not a substitute for the core library, one core guide alone is not sufficient to

adopt and use the practices to their full potential.

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The ITIL ServiceManagement Lifecycle –

core of practice 3

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| 19

The Service Lifecycle contains five elements as shown inFigure 3.1, each of which rely on service principles,processes, roles and performance measures. The ServiceLifecycle uses a hub and spoke design, with ServiceStrategy at the hub, Service Design, Transition andOperation as the revolving lifecycle stages, and anchoredby Continual Service Improvement. Each part of thelifecycle exerts influence on the other and relies on theother for inputs and feedback. In this way, a constant setof checks and balances throughout the Service Lifecycle

ensures that as business demand changes with businessneed, the services can adapt and respond effectively tothem.

At the heart of the Service Lifecycle is the key principle –all services must provide measurable value to businessobjectives and outcomes. ITIL Service Management focuseson business value as its prime objective. Each practicerevolves around ensuring that everything a serviceprovider does to manage IT services for the business

3 The ITIL Service Management Lifecycle –core of practice

Figure 3.1 The ITIL Service Lifecycle

Service Strategy

ContinualService Improvement

ServiceTransition

ServiceDesign

ServiceOperation

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20 | The ITIL Service Management Lifecycle – core of practice

customer can be measured and quantified in terms ofbusiness value. This has become extremely importanttoday as IT organizations must operate themselves asbusinesses in order to demonstrate a clear return oninvestment and equate service performance with businessvalue to the customer.

3.1 FUNCTIONS AND PROCESSES ACROSSTHE LIFECYCLE

3.1.1 FunctionsFunctions are units of organizations specialized to performcertain types of work and responsible for specificoutcomes. They are self-contained with capabilities andresources necessary to their performance and outcomes.Capabilities include work methods internal to thefunctions. Functions have their own body of knowledge,which accumulates from experience. They providestructure and stability to organizations.

Functions typically define roles and the associated authorityand responsibility for a specific performance and outcomes.Coordination between functions through shared processesis a common pattern in organization design. Functions tendto optimize their work methods locally to focus on assignedoutcomes. Poor coordination between functions combinedwith an inward focus leads to functional silos that hinderalignment and feedback critical to the success of theorganization as a whole. Process models help avoid thisproblem with functional hierarchies by improving cross-functional coordination and control. Well-defined processescan improve productivity within and across functions.

3.1.2 ProcessesProcesses are examples of closed-loop systems becausethey provide change and transformation towards a goal,and use feedback for self-reinforcing and self-correctiveaction (Figure 3.2). It is important to consider the entireprocess or how one process fits into another.

Figure 3.2 Process architecture

Data,informationandknowledge

Desiredoutcome

Service control and quality

Process

Trigger

Activity 1

Customer

Suppliers

Activity 2

Activity 3

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The ITIL Service Management Lifecycle – core of practice | 21

Process definitions describe actions, dependencies andsequence. Processes have the following characteristics:

� They are measurable and are performance driven.Managers want to measure cost, quality and othervariables while practitioners are concerned withduration and productivity.

� They have specific results. The reason a process existsis to deliver a specific result. This result must beindividually identifiable and countable.

� They deliver to customers. Every process delivers itsprimary results to a customer or stakeholder. They maybe internal or external to the organization but theprocess must meet their expectations.

� They respond to a specific event. While a process maybe ongoing or iterative, it should be traceable to aspecific trigger.

3.1.3 Specialization and coordination acrossthe lifecycle

Specialization and coordination are necessary in thelifecycle approach. Feedback and control between thefunctions and processes within and across the elements ofthe lifecycle make this possible. The dominant pattern inthe lifecycle is the sequential progress starting fromService Strategy (SS) through Service Delivery (SD) –Service Transition (ST) – Service Operation (SO) and backto SS through Continual Service Improvement (CSI). That,however, is not the only pattern of action. Every elementof the lifecycle provides points for feedback and control.

The combination of multiple perspectives allows greaterflexibility and control across environments and situations.The lifecycle approach mimics the reality of mostorganizations where effective management requires theuse of multiple control perspectives. Those responsible forthe design, development and improvement of processesfor service management can adopt a process-basedcontrol perspective. For those responsible for managingagreements, contracts and services may be better servedby a lifecycle-based control perspective with distinctphases. Both these control perspectives benefit fromsystems thinking. Each control perspective can revealpatterns that may not be apparent from the other.

3.1.4 Feedback throughout the ServiceLifecycle

The strength of the ITIL Service Lifecycle rests uponcontinual feedback throughout each stage of the lifecycle.This feedback ensures that service optimization ismanaged from a business perspective and is measured interms of the value business derives from services at anypoint in time through the Service Lifecycle. The ITILService Lifecycle is non-linear in design. At every point inthe Service Lifecycle, monitoring, assessment and feedbackflows between each stage of the lifecycle which drivedecisions about the need for minor course corrections ormajor service improvement initiatives. The following figureillustrates some examples of the continual feedbacksystem built into the ITIL Service Lifecycle.

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22 | The ITIL Service Management Lifecycle – core of practice

Figure 3.3 Continual feedback loop

FeedbackLessons Learnedfor Improvement


Output

Output

Output




Service Strategies

Strategies, Policies,Standards

Service Design

Plans to create and modifyservices and service

management processes

Service TransitionManage the transition of anew or changed service

and/or service managementprocess into production

Service Operation

Day-to-day operations ofservices and service

management processes

Continual Service ImprovementActivities are embedded in the service lifecycle

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Service Strategy –governance anddecision-making 4

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| 25

As the core of the ITIL Service Lifecycle, Service Strategysets the stage for developing a service provider’s corecapabilities. This chapter will discuss a selection of the keyconcepts from the Service Strategy book to help aid theunderstanding of the role of Service Strategy in the ITILService Lifecycle.

Imagine you have been given responsibility for an ITorganization. This organization could be internal orexternal, commercial or not-for-profit. How would you goabout deciding on a strategy to serve customers? What ifyou have a variety of customers, all with specific needsand demands? How do you define your service strategy tomeet all of them?

Service Strategy provides guidance to help answer thatkey question. It is comprised of the following keyconcepts.

� Value creation

� Service assets

� Service Provider types

� Service capabilities and resources

� Service structures

� Defining the service market

� Developing service offerings

� Financial Management

� Service Portfolios

� Demand Management

� Service assessment

� Return on investment.

4.1 STRATEGIC ASSESSMENT

In crafting a service strategy, a provider should first take acareful look at what it does already. It is likely therealready exists a core of differentiation. An establishedservice provider frequently lacks an understanding of itsown unique differentiators. The following questions canhelp expose a service provider’s distinctive capabilities:

Which of our services or service varieties are the most

distinctive?

Are there services that the business or customer cannoteasily substitute? The differentiation can come in the formof barriers to entry, such as the organization’s know-how

4 Service Strategy – governance anddecision-making

Resource andConstraints

Objectives fromRequirements

Strategies

Policies

Requirements

ServiceStrategy

The business/customers

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of the customer’s business or the broadness of serviceofferings. Or it may be in the form of raised switchingcosts, due to lower cost structures generated throughspecialization or service sourcing. It may be a particularattribute not readily found elsewhere, such as productknowledge, regulatory compliance, provisioning speeds,technical capabilities or global support structures.

Which of our services or service varieties are the most

profitable?

The form of value may be monetary, as in higher profits orlower expenses, or social, as in saving lives or collectingtaxes. For non-profit organizations, are there services thatallow the organization to perform its mission better?Substitute ‘profit’ with ‘benefits realized’.

Which of our customers and stakeholders are the

most satisfied?

Which customers, channels or purchase occasions are

the most profitable?

Again, the form of value can be monetary, social or other.

Which of our activities in our value chain or value

network are the most different and effective?

The answers to these questions will likely reveal patternsthat lend insight to future strategic decisions. Thesedecisions, and related objectives, form the basis of astrategic assessment.

Service Providers can be present in more than one marketspace. As part of strategic planning, Service Providersshould analyse their presence across various marketspaces. Strategic reviews include the analysis of strengths,weaknesses, opportunities and threats in each marketspace. Service Providers also analyse their business

26 | Service Strategy – governance and decision-making

Table 4.1 Factors in strategic assessment

Factor Description

Strengths and weaknesses The attributes of the organization. For example, resources and capabilities, servicequality, operating leverage, experience, skills, cost structures, customer service, globalreach, product knowledge, customer relationships and so on.

Distinctive competencies As discussed throughout the chapter, ‘What makes the service provider special to itsbusiness or customers?’

Business strategy The perspective, position, plans and patterns received from a business strategy. Forexample, a Type I and II may be directed, as part of a new business model, to exposeservices to external partners or over the internet.

This is also where the discussion on customer outcomes begins and is carried forwardinto objectives setting.

Critical success factors How will the Service Provider know when it is successful? When must those factors beachieved?

Threats and opportunities Includes competitive thinking. For example, ‘Is the service provider vulnerable tosubstitution?’

Or, ‘Is there a means to outperform competing alternatives?’

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potential based on un-served or underserved marketspaces. This is an important aspect of leadership anddirection provided by the senior management of ServiceProviders. The long-term vitality of the Service Providerrests on supporting customer needs as they change orgrow as well exploiting new opportunities that emerge.This analysis identifies opportunities with current andprospective customers. It also prioritizes investments inservice assets based on their potential to serve marketspaces of interest. For example, if a Service Provider hasstrong capabilities and resources in service recovery, itexplores all those market spaces where such assets candeliver value for customers.

4.2 DEVELOPING STRATEGIC CAPABILITIES

To operate and grow successfully in the long term, serviceproviders must have the ability to think and act in astrategic manner. The purpose of Service Strategy is tohelp organizations develop such abilities. The achievementof strategic goals or objectives requires the use of strategicassets. The guidance shows how to transform servicemanagement into a strategic asset. Readers benefit fromseeing the relationships between various services, systemsor processes they manage and the business models,strategies or objectives they support. The guidanceanswers questions of the following kind:

� What services should we offer and to whom?

� How do we differentiate ourselves from competingalternatives?

� How do we truly create value for our customers?

� How can we make a case for strategic investments?

� How should we define service quality?

� How do we efficiently allocate resources across aportfolio of services?

� How do we resolve conflicting demands for sharedresources?

A multi-disciplinary approach is required to answer suchquestions. Technical knowledge of IT is necessary but notsufficient. The guidance is pollinated with knowledge fromthe disciplines such as operations management,marketing, finance, information systems, organizationaldevelopment, systems dynamics and industrialengineering. The result is a body of knowledge robustenough to be effective across a wide range of businessenvironments. Some organizations are putting in place thefoundational elements of service management. Others arefurther up the adoption curve, ready to tackle challengesand opportunities with higher levels of complexity anduncertainty.

4.3 SERVICE PROVIDER TYPES – MATCHINGNEED TO CAPABILITY

The aim of service management is to make availablecapabilities and resources useful to the customer in thehighly usable form of services at acceptable levels ofquality, cost and risks. Service Providers help relax theconstraints on customers of ownership and control ofspecific resources. In addition to the value from utilizingsuch resources now offered as services, customers arefreed to focus on what they consider to be their corecompetence. The relationship between customers andService Providers varies by specialization in ownership andcontrol of resources and the coordination of dependenciesbetween different pools of resources.

Service Strategy defines three broad types of ServiceProviders with whom a customer is likely to engage inaccessing services.

� Type I – Internal Service Provider

Type I providers are typically business functionsembedded within the business units they serve. Thebusiness units themselves may be part of a largerenterprise or parent organization. Business functionssuch as finance, administration, logistics, human

Service Strategy – governance and decision-making | 27

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resources and IT provide services required by variousparts of the business. They are funded by overheadsand are required to operate strictly within themandates of the business. Type I providers have thebenefit of tight coupling with their owner-customers,avoiding certain costs and risks associated withconducting business with external parties.

� Type II – Shared Service Provider

Business functions such as finance, IT, human resourcesand logistics are not always at the core of anorganization’s competitive advantage. Hence, theyneed not be maintained at the corporate level wherethey demand the attention of the chief executive’steam. Instead, the services of such shared functions areconsolidated into an autonomous special unit called ashared services unit (SSU). This model allows a moredevolved governing structure under which an SSU canfocus on serving business units as direct customers.SSUs can create, grow and sustain an internal marketfor their services and model themselves along the linesof service providers in the open market. Like corporatebusiness functions, they can leverage opportunitiesacross the enterprise and spread their costs and risksacross a wider base.

� Type III – External Service Provider

Type III providers can offer competitive prices and drivedown unit costs by consolidating demand. Certainbusiness strategies are not adequately served byinternal Service Providers such as Type I and Type II.Customers may pursue sourcing strategies requiringservices from external providers. The motivation maybe access to knowledge, experience, scale, scope,capabilities and resources that are either beyond thereach of the organization or outside the scope of acarefully considered investment portfolio. Businessstrategies often require reductions in the asset base,fixed costs, operational risks or the redeployment offinancial assets. Competitive business environments

often require customers to have flexible and leanstructures. In such cases it is better to buy servicesrather than own and operate the assets necessary toexecute certain business functions and processes. Forsuch customers, Type III is the best choice for a givenset of services.

Today, it is common to see all three types combiningcapabilities to manage services for a customer. The power ofthis approach lies in selecting the right blend and balance.

The Service Strategy publication provides detailedguidance on provider types and how to decide on theright blend.

4.4 SERVICES AS ASSETS – VALUECREATION

A good business model describes the means of fulfilling anorganization’s objectives. However, without a strategy thatin some way makes a Service Provider uniquely valuable tothe customer, there is little to prevent alternatives fromdisplacing the organization, degrading its mission orentering its market space. A service strategy thereforedefines a unique approach for delivering better value. Theneed for having a service strategy is not limited to ServiceProviders who are commercial enterprises. Internal ServiceProviders need just as much to have a clear perspective,positioning and plans to ensure they remain relevant to thebusiness strategies of their enterprises.

Service assets have two main characteristics:

� Utility is perceived by the customer from theattributes of the service that have a positive effect onthe performance of tasks associated with desiredbusiness outcomes. This is fit for purpose.

� Warranty is derived from the positive effect beingavailable when needed, in sufficient capacity ormagnitude, and dependably in terms of continuity andsecurity. This is fit for use.


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Utility is what the customer gets, and warranty is how it isdelivered.

Resources and capabilities are types of assets that, whencombined in various ways, produce service utility andwarranty. Organizations use them to create value in theform of goods and services. Resources are direct inputs forproduction. Management, organization, people andknowledge are used to transform resources. Capabilitiesrepresent an organization’s ability to coordinate, controland deploy resources to produce value. They are typicallyexperience-driven, knowledge-intensive, information-basedand firmly embedded within an organization’s people,systems, processes and technologies.

Customers perceive benefits in a continued relationship,and entrust the provider with the business of increasingvalue and also adding new customers and market spacesto the realm of possibilities. This justifies furtherinvestments in service management in terms ofcapabilities and resources, which have a tendency toreinforce each other.

Customers may initially trust the provider with low-valuecontracts or non-critical services. Service management

responds by delivering the performance expected of astrategic asset. The performance is rewarded with contractrenewals, new services and customers, which togetherrepresent a larger value of business. To handle this increasein value, service management must invest further in assetssuch as process, knowledge, people, applications andinfrastructure. Successful learning and growth enablescommitments of higher service levels as servicemanagement gets conditioned to handle bigger challenges.

4.5 DEFINING THE MARKET SPACE

A market space is defined by a set of business outcomes,which can be facilitated by a service. The opportunity tofacilitate those outcomes defines a market space. Thefollowing are examples of business outcomes that can bethe bases of one or more market spaces:

� Sales teams are productive with sales managementsystem on wireless computers

� E-commerce website is linked to the warehousemanagement system

� Key business applications are monitored and secure


Figure 4.1 Service Provider capabilities and resources

Management

Organization

Processes

Knowledge

People

A1

A2

A3

A4

A5

Financial capital

Infrastructure

Applications

Information

A9

A8

A7

A6

People

Capabilities Resources

7238-TSO-ITIL-13 28/8/07 14:01 Page 29

� Loan officers have faster access to information requiredon loan applicants

� Online bill payment service offers more options forshoppers to pay

� Business continuity is assured.

Each of the conditions is related to one or more categoriesof customer assets, such as people, infrastructure,information, accounts receivables and purchase orders,and can then be linked to the services that make thempossible.

Customers will prefer the one that means lower costs andrisks. Service Providers create these conditions throughthe services they deliver and thereby provide support forcustomers to achieve specific business outcomes.

A market space therefore represents a set of opportunitiesfor Service Providers to deliver value to a customer’sbusiness through one or more services. This approach hasdefinite value for Service Providers in building strongrelationships with customers. Often it is not clear how

services create value for customers. Services are oftendefined in terms of resources made available for use bycustomers. Service definitions lack clarity in the context inwhich such resources are useful, and the businessoutcomes that justify their cost from a customer’sperspective. This problem leads to poor designs,ineffective operation and lacklustre performance in servicecontracts. Service improvements are difficult when it is notclear where improvements are truly required. Customerscan understand and appreciate improvements only withinthe context of their own business assets, performancesand outcomes. It is therefore important the ServiceProviders identify their market spaces by ensuring theydefine service by business outcomes such as thosedescribed above and in Figure 4.2.

4.6 SERVICE PORTFOLIOS

The Service Portfolio (Figure 4.3) represents thecommitments and investments made by a Service Provideracross all customers and market spaces. It represents


Figure 4.2 Actionable components of service definitions in terms of utility

being constrained bylocation or time

slowing down theloan process

disruption or lossfrom failures or

disastrous events

(Constraints removed)

field staff securelyaccess enterprise

applications

loans officersdetermine credit-

rating of applicants

business processescontinue to operate

(Outcomes supported)

Utility Part A Utility Part B

Mobile workspaceservices

Credit reportingservices

Businesscontinuity services

(Catalogue)

Lines of Service

provide value tothe customer

whenwithout

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present contractual commitments, new servicedevelopment, and ongoing service improvementprogrammes initiated by Continual Service Improvement.The portfolio also includes third-party services, which arean integral part of service offerings to customers. Somethird-party services are visible to the customers whileothers are not.

The Service Portfolio represents all the resources presentlyengaged or being released in various phases of the ServiceLifecycle. Each phase requires resources for completion ofprojects, initiatives and contracts. This is a very important

governance aspect of Service Portfolio Management (SPM).Entry, progress and exit are approved only with approvedfunding and a financial plan for recovering costs orshowing profit as necessary. The Portfolio should have theright mix of services in development for the market spacesand the Service Catalogue (Figure 4.4) to secure thefinancial viability of the Service Provider. The ServiceCatalogue is the only part of the Portfolio that recoverscosts or earns profits.


Figure 4.3 Service Portfolio

ServiceImprovement

Plan

Customer3

Customer2

Customer1

MarketSpace 1

MarketSpace 2

MarketSpace 3

Linked byservices

Third-partyServices

Market potentialfor services

ServicePortfolio

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If we think of SPM as a dynamic and ongoing process set,it should include the following work methods:

� Define: inventory services, ensure business cases andvalidate portfolio data

� Analyse: minimize portfolio value, align and prioritizeand balance supply and demand

� Approve: finalize proposed portfolio, authorize servicesand resources

� Charter: communicate decisions, allocate resourcesand charter services.


Figure 4.4 Elements of a Service Portfolio and Service Catalogue

Service Portfolio

Description

Value proposition

Business cases

Priorities

Risks

Offerings and packages

Cost and pricing

Service Catalogue(s)

Services

Supported products

Policies

Ordering and requestprocedures

Support terms andconditions

Entry points andescalations

Pricing and chargeback

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Figure 4.5 Service Portfolio management

4.6.1 Service PipelineThe Service Pipeline consists of services underdevelopment for a given market space or customer.These services are to be phased into operation by ServiceTransition after completion of design, development andtesting. The Pipeline represents the Service Provider’sgrowth and strategic outlook for the future. The generalhealth of the provider is reflected in the Pipeline. It alsoreflects the extent to which new service concepts andideas for improvement are being fed by Service Strategy,Service Design and Continual Service Improvement. Goodfinancial management is necessary to ensure adequatefunding for the Pipeline.

4.6.2 Service CatalogueThe Service Catalogue is the subset of the Service Portfoliovisible to customers. It consists of services presently activein the Service Operation phase and those approved to bereadily offered to current or prospective customers. Itemscan enter the Service Catalogue only after due diligencehas been performed on related costs and risks. Resourcesare engaged to fully support active services.

The Service Catalogue is useful in developing suitablesolutions for customers from one or more services. Itemsin the Service Catalogue can be configured and suitablypriced to fulfil a particular need. The Service Catalogue isan important tool for Service Strategy because it is thevirtual projection of the Service Provider’s actual andpresent capabilities. Many customers are only interested inwhat the provider can commit now, rather than in future.

4.7 SERVICE OUTSOURCING – PRACTICALDECISION-MAKING

A service strategy should enhance an organization’sspecial strengths and core competencies. Each componentshould reinforce the other. Change any one and you havea different model. As organizations seek to improve theirperformance, they should consider which competenciesare essential and know when to extend their capabilitiesby partnering in areas both inside and outside theirenterprise.

Outsourcing is the moving of a value-creating activity thatwas performed inside the organization to outside theorganization where it is performed by another company.What prompts an organization to outsource an activity isthe same logic that determines whether an organizationmakes or buys inputs. Namely, does the extra valuegenerated from performing an activity inside theorganization outweigh the costs of managing it? Thisdecision can change over time.

• Inventories• Business Case

• Service Portfolio• Authorization

• Value Proposition• Prioritization

• Communication• Resource allocation

Analyse

Define

Approve

Charter

ServiceStrategy


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Table 4.2 Types of sourcing structures

Sourcing structure Description

Internal (Type I) The provision and delivery of services by internal staff. Does not typically includestandardization of service delivery across business units.

Provides the most control but also the most limited in terms of scale.

Shared services (Type II) An internal business unit. Typically operates its profit and loss, and a chargebackmechanism. If cost recovery is not used, then it is internal not shared services.

Lower costs than Internal with a similar degree of control. Improved standardizationbut limited in terms of scale.

Full service outsourcing A single contract with a single Service Provider. Typically involves significant assettransfer.

Provides improved scale but limited in terms of best-in-class capabilities. Delivery risksare higher than prime, consortium or selective outsourcing as switching to analternative is difficult.

Prime A single contract with a single Service Provider who manages service delivery butengages multiple providers to do so. The contract stipulates that the prime vendor willleverage the capabilities of other best-in-class Service Providers.

Capabilities and risk are improved from single-vendor outsourcing but complexity isincreased.

Consortium A collection of Service Providers explicitly selected by the service recipient. Allproviders are required to come together and present a unified management interface.

Fulfils a need that cannot be satisfied by any single-vendor outsourcer. Provides best-in-class capabilities with greater control than prime. Risk is introduced in the form ofproviders forced to collaborate with competitors.

Selective outsourcing A collection of Service Providers explicitly selected and managed by the servicerecipient.

This is the most difficult structure to manage. The service recipient is the serviceintegrator, responsible for gaps or cross-provider disputes.

The term ‘co-sourcing’ refers to a special case of selective outsourcing. In this variant,the service recipient maintains an internal or shared services structure and combines itwith external providers. The service recipient is the service integrator.

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Sourcing requires businesses to formally consider asourcing strategy, the structure and role of the retainedorganization, and how decisions are made. When sourcingservices, the enterprise retains the responsibility for theadequacy of services delivered. Therefore, the enterpriseretains key overall responsibility for governance. Theenterprise should adopt a formal governance approach inorder to create a working model for managing itsoutsourced services as well as the assurance of valuedelivery. This includes planning for the organizationalchange precipitated by the sourcing strategy and a formaland verifiable description as to how decisions on servicesare made. Table 4.2 describes the generic forms of servicesourcing structures.

Partnering with providers who are ISO/IEC 20000compliant can be an important element in reducing therisk of service sourcing. Organizations who have achievedthis certification are more likely to meet service levels on asustained basis. This credential is particularly important inmulti-sourced environments where a common frameworkpromotes better integration. Multi-sourced environmentsrequire common language, integrated processes and amanagement structure between internal and externalproviders. ISO/IEC 20000 does not provide all of this but itprovides a foundation on which it can be built.

4.7.1 Sourcing governanceThere is a frequent misunderstanding of the definition of‘governance’, particularly in a sourcing context. Companieshave used the word interchangeably with ‘vendormanagement’, ‘retained staff’ and ‘sourcing managementorganization’. Governance is none of these.

Management and governance are different disciplines.Management deals with making decisions and executingprocesses. Governance only deals with making sounddecisions. It is the framework of decision rights thatencourages desired behaviours in the sourcing and thesourced organization. When companies confuse

management and governance, they inevitably focus onexecution at the expense of strategic decision-making.Both are vitally important. Further complicating matters isthe requirement of sharing decision rights with the ServiceProviders. When a company places itself in a position tomake operational decisions on behalf of an outsourcer,the outcomes are inevitably poor service levels andcontentious relationship management.

Governance is invariably the weakest link in a servicesourcing strategy. A few simple constructs have beenshown to be effective at improving that weakness:

� A governance body – By forming a manageably sizedgovernance body with a clear understanding of theservice sourcing strategy, decisions can be madewithout escalating to the highest levels of seniormanagement. By including representation from eachService Provider, stronger decisions can be made.

� Governance domains – Domains can cover decision-making for a specific area of the service sourcingstrategy. Domains can cover, for example, servicedelivery, communication, sourcing strategy or contractmanagement. Remember, a governance domain doesnot include the responsibility for its execution, only itsstrategic decision-making.

� Creation of a decision-rights matrix – This ties allthree recommendations together. RACI or RASIC chartsare common forms of a decision-rights matrix.

4.8 RETURN ON INVESTMENT (ROI)

Return on investment (ROI) is a concept for quantifyingthe value of an investment. Its use and meaning are notalways precise. When dealing with financial officers, ROImost likely means ROIC (return on invested capital), ameasure of business performance. In service management,ROI is used as a measure of the ability to use assets togenerate additional value. In the simplest sense, it is thenet profit of an investment divided by the net worth of


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the assets invested. The resulting percentage is applied toeither additional top-line revenue or the elimination ofbottom-line cost.

It is not unexpected that companies seek to apply ROI indeciding to adopt service management. ROI is appealingbecause it is self-evident. The measure either meets ordoes not meet a numerical criterion. The challenge iswhen ROI calculations focus on the short term. Theapplication of service management has different degreesof ROI, depending on business impact (see Figure 4.6).Moreover, there are often difficulties in quantifying thecomplexities involved in implementations.

While a service can be directly linked and justified throughspecific business imperatives, few companies can readilyidentify the financial return for the specific aspects ofservice management. It is often an investment thatcompanies must make in advance of any return.

4.9 FINANCIAL MANAGEMENT

Operational visibility, insight and superior decision-makingare the core capabilities brought to the enterprise throughthe rigorous application of Financial Management. Just asbusiness units accrue benefits through the analysis of


Figure 4.6 Business impact and ROI outcome

Improved Reliability

Improved Maintainability

Improved Services

Tangible Measure:Product orders can now be placed on-lineImpact:Product orders can be placed 24 x7

Tangible Measure:MTRS (Mean Time to Restore)Impact:MTRS to 2 hours from 6 hours

Tangible Measure:MTBF (Mean Time Between Failure)Impact:MTBF to 200 hours from 600 hours

Business Impact

Customer Satisfaction

Tangible Measure:Repeat Rate of BusinessTarget:Improve rate to 60% from 25%

Business Objectives

7238-TSO-ITIL-13 28/8/07 14:01 Page 36

product mix and margin data, or customer profiles andproduct behaviour, a similar utility of financial datacontinues to increase the importance of FinancialManagement for IT and the business as well.

Financial Management as a strategic tool is equallyapplicable to all three Service Provider types. Internalservice providers are increasingly asked to operate withthe same levels of financial visibility and accountability astheir business unit and external counterparts. Moreover,technology and innovation have become the corerevenue-generating capabilities of many companies.

Financial Management provides the business and IT withthe quantification, in financial terms, of the value of ITservices, the value of the assets underlying theprovisioning of those services, and the qualification ofoperational forecasting. Talking about IT in terms ofservices is the crux of changing the perception of IT andits value to the business. Therefore, a significant portion ofFinancial Management is working in tandem with IT andthe business to help identify, document and agree on thevalue of the services being received, and the enablementof service demand modelling and management.

Much like their business counterparts, IT organizations areincreasingly incorporating Financial Management in thepursuit of:

� Enhanced decision-making

� Speed of change

� Service Portfolio Management

� Financial compliance and control

� Operational control

� Value capture and creation.

One goal of Financial Management is to ensure properfunding for the delivery and consumption of services.Planning provides financial translation and qualification ofexpected future demand for IT services. FinancialManagement planning departs from historical IT planning

by focusing on demand and supply variances resultingfrom business strategy, capacity inputs and forecasting,rather than traditional individual line item expenditures orbusiness cost accounts. As with planning for any otherbusiness organization, input should be collected from allareas of the IT organization and the business.

Planning can be categorized into three main areas, eachrepresenting financial results that are required forcontinued visibility and service valuation:

� Operating and capital planning processes are commonand fairly standardized, and involve the translation ofIT expenditures into corporate financial systems as partof the corporate planning cycle. Beyond this, theimportance of this process is in communicatingexpected changes in the funding of IT services forconsideration by other business domains. The impactof IT services on capital planning is largelyunderestimated, but is of interest to tax and fixed-assetdepartments if the status of an IT asset changes.

� Demand representing the need and use of IT services.

� Regulatory and environmental-related planning shouldget its triggers from within the business. However,Financial Management should apply the properfinancial inputs to the related services value, whethercost-based or value-based.

4.9.1 Service valuationService valuation quantifies, in financial terms, the fundingsought by the business and IT for services delivered, basedon the agreed value of those services. FinancialManagement calculates and assigns a monetary value to aservice or service component so that they may bedisseminated across the enterprise once the businesscustomer and IT identify what services are actually desired.

� Hardware and software licence costs

� Annual maintenance fees for hardware and software


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� Personnel resources used in the support ormaintenance of a service

� Utilities, data centre or other facilities charges

� Taxes, capital or interest charges

� Compliance costs.

Financial Management plays a translational role betweencorporate financial systems and service management. Theresult of a service-oriented accounting function is that fargreater detail and understanding is achieved regardingservice provisioning and consumption, and the generationof data that feeds directly into the planning process. Thefunctions and accounting characteristics that come intoplay are discussed below:

� Service recording – The assignment of a cost entry tothe appropriate service. Depending on how servicesare defined, and the granularity of the definitions,there may be additional sub-service components

� Cost types – These are higher-level expensescategories such as hardware, software, labour,administration etc. These attributes assist withreporting and analysing demand and usage of servicesand their components in commonly used financialterms

� Cost classifications – There are also classificationswithin services that designate the end purpose of thecost. These include classifications such as:

� Capital/operational – this classification addressesdifferent accounting methodologies that arerequired by the business and regulatory agencies

� Direct/indirect – this designation determineswhether a cost will be assigned directly or indirectlyto a consumer or service:– Direct costs are charged directly to a service

since it is the only consumer of the expense– Indirect or shared costs are allocated across

multiple services since each service mayconsume a portion of the expense

� Fixed/variable – this segregation of costs is basedon contractual commitments of time or price. Thestrategic issue around this classification is that thebusiness should seek to optimize fixed service costsand minimize the variable in order to minimizepredictability and stability

� Cost units – a cost unit is the identified unit ofconsumption that is accounted for a particularservice or service asset.

4.9.2 Variable cost dynamicsVariable cost dynamics (VCD) focuses on analysing andunderstanding the multitude of variables that impactservice cost, how sensitive those elements are to variation,and the related incremental value changes that result.

Below is a very brief list of possible variable service costcomponents that could be included in such an analysis:

� Number and

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