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ITIL 4 and Fast Value Co-creation White Paper

White Paper

ITIL 4 and Fast Value Co-creation White Paper

White Paper

  • White Paper
  • Digital transformation
  • IT Services
  • Value
  • ITIL

Author  Mark Smalley

February 2, 2019 |

 27 min read

  • White Paper
  • Digital transformation
  • IT Services
  • Value
  • ITIL

The digital enterprise places high demands on IT. Value has to be co-created quickly. Technology makes it possible to do business differently and even to do different business. It is crucial to understand the value of IT and to know how to articulate that value.


For better and for worse, the societal, political and economic impact of information technology (IT) is unprecedented. Digital enterprises (organizations in which IT drives the business, rather than just supports it), have an increasingly strong moral obligation to consider how they apply IT, beyond their direct economic interests.

The digital enterprise places high demands on IT. Value has to be co-created quickly. Technology makes it possible to do business differently, and even to do different business. It is crucial to understand the value of IT, and to know how to articulate that value.

Digital business has non-trivial implications for the IT capability of an enterprise. It changes the operating model, in other words which resources are needed and how they interact. A major topic is centralization and decentralization of IT and the effect of these options on effectiveness and efficiency. It is important that the operating model is based on co-creation of value by both service provider and consumer to realize actual value from IT investments.

Digital transformation is needed to change how the organization uses IT, and IT transformation to change how IT services are provided. Digital transformation and IT transformation are major parts of the digital roadmap.

This publication is primarily intended for the IT service management practitioner, manager or consultant who is looking for a way to develop digital capabilities.

  • The publication describes:
  • when return on IT investment is realized
    impact of centralization and decentralization on effectiveness and efficiency
    key characteristics of a digital enterprise
    differences and relationship between digital transformation and IT transformation
    demands that digital enterprises place on IT performance
    how high velocity is important for fulfilling digital demand
    importance of co-creation of value by both service provider and consumer to realize value from IT investment
    relationships between business models, operating models, IT operating models and digital operating models, and their differences
    designing for planned and emergent digital capabilities.

Keeping up with high-velocity digital demand

“We’ve got to transform our IT operating model to keep up with high-velocity digital demand.” 

This strong statement frames the challenge that this paper addresses. It pinpoints the need and context for change, specifically the strong demand from the digital enterprise. It also highlights the challenge itself: transforming the IT operating model or, in other words, radically changing the way we work with IT. It focuses on organizations that are IT-driven, rather than those merely supported by IT. 

The paper defines the loosely-used terms digital enterprise, digital operating model, and digital transformation. It offers guidance on digital transformation and the design of the digital operating model.

It is not prescriptive guidance. As Taiichi Ohno said, “you have to think for yourself and face your own difficulties instead of trying to borrow wisdom”1 . It offers a frame of reference by summarizing concepts, principles, practices, and technologies that have been useful in real world digital enterprises. It does, however, provide firmer guidance with regard to an effective mindset with which to tackle the complex and unpredictable nature of rapidly changing digital enterprises. 

Finally, and significantly, this paper reflects what many practitioners currently feel: that, slowly but surely, we are radically changing how we work with IT, normalizing it, making IT a more productive place to work

The IT Renaissance


Ever since the IT industry emerged, the challenge has been how not to make a mess of it. This challenge has proven daunting. Only the inexperienced (or the remarkably lucky) will be unaware of the intrinsic difficulty of software development and the painful vulnerability of operational information systems. Although the industry has grown in mastery, seemingly ever-increasing demands and complexity have maintained the challenge. When big IT projects fail, they fail in a much bigger way than non-IT megaprojects.


Confronted with the risk of business failure and a premature end to their stellar careers, managers have resorted to applying more of what they have been taught to do: control. This has manifested itself in the implementation of stage gates, checklists and segregation of duties to keep those irresponsible developers at a safe distance from the production environment. Viewed from the developers’ perspective, however, IT operations is perceived as the bureaucratic ministry of business prevention. Segregation of duties is intended to introduce functional tension, but in many cases, this has gotten out of hand. There may be an illusion of control, but the situation is dysfunctional. There is a persistent conflict at the core of almost every IT organization, one so powerful it practically preordains horrible outcomes, if not abject failure. Because of diametrically opposed targets, (make changes quickly versus make changes carefully), development and IT operations are in a state of constant battle, with IT service management practitioners in the middle.


This tension between development and operations is based on a familiar mental model in which change disrupts stability, and stability controls change; the fewer the changes, the lower the risk to stability. In the past decade, a different way of thinking has emerged. By reducing the size of change, the risk of disruption is reduced. Smaller changes means that change happens more frequently. By changing more frequently, the organization’s capability to change is improved. Increased change capability leads, in turn, to lower risk of disruption. Suddenly, the mental model has switched from ‘less change is good’ to ‘more change is good’.


This radically different way of thinking exemplifies the on-going transformation of working practices around IT. Agile and DevOps communities are making encouraging progress in fostering a more fluid and Lean way of developing, deploying and running information systems. Where possible, silos are avoided. Where silos are a fact of corporate life, silo-thinking is addressed. Corporate concerns such as governance and compliance are of course still valid, and alternative ways to fulfil these requirements are in development. This is happening with the full engagement of auditors who approve of automated deployment pipelines with audit trails and restricted access to production environments.


Many other changes are happening. Automation is being utilized to support IT processes, including experiments with artificial intelligence, chatbots, etc. The interrelated concepts of immutable servers and infrastructure as code are changing behaviour. Instead of repairing defective servers, new servers are generated, which demonstrates the employment of an engineering mindset. Holistic systems thinking is becoming prevalent. Scientific thinking, based on hypotheses and data, is being adopted. Unpredictability and ambiguity are increasingly recognized for what they are, facts of life that require a different approach based on complexity thinking. We live within the service and experience economy, and there is a shift from the manufacturing mentality of delivering value to service-dominant thinking based on the co-creation of value. External services are often acquired and integrated for fast development of digital capabilities, either as an alternative or an addition to the internal agile approach. These changes should not be seen in isolation. They are manifestations of a more enlightened way of working with IT. Major change is needed to respond to the demands of the digital enterprise, and IT is a strategic component of its business model.

Digital Transformation


The term ‘digital enterprise’ is a poorly-defined and loosely-used term but, in essence, it refers to a new approach to business which stems from new possibilities within IT. Digital is a customer-centric value proposition that redefines a business, even an industry. In order to understand the digital enterprise and the equally confusing term, digital transformation, we first need to understand the value of information and IT. 


The value of information technology has traditionally been perceived as increased efficiency: automated information systems that process and serve data more quickly, reliably and cheaply than possible without the aid of technology. More recently, artificial intelligence (aka machine learning) has utilized IT not only in the processing and provision of data but in the creation of new information. The information derived from these information systems is mostly used within the organization for internal decision-making. This is the primary function of information: to reduce uncertainty. The value of information is only realized when people, organizations or technology act on decisions that have been illuminated by information.


This statement contextualizes the value of IT: return on IT investment is realized only when people, organizations or technologies act on decisions that have been improved by information derived from automated information systems. 

The concept of ‘done’ is commonly used by application developers. The Scrum community defines ‘done’ as having produced “potentially releasable software increments”. In DevOps circles this has been extended to ‘released to production’. This extension is still insufficient when viewed from an end-to-end perspective. It is no good having released the required functionality if the user uses it poorly, interprets the data incorrectly, takes the wrong decisions, or fails to act on good decisions. “But that’s not our responsibility,” says the centralized IT department, “it’s the organization’s responsibility”. 

This illustrates the concern with business/IT alignment. The word alignment is significant: it emphasizes and assumes the existence of two separate entities that need to work in unison. The difficulty is that the performance of the business unit is measured against effectiveness whereas the targets of the IT department are centred around efficiency. This disparity can be a legitimate organizational construct to create functional tension and keep both parties in check. But when effectiveness is more important than efficiency, a centralized shared IT centre is the wrong choice. In the past, when the computer was a scarce resource, the business had to be taken to the computer. But in the digital age, where there is less distinction between the roles of business and IT, it is wiser to take the computer to the business, and to focus on the convergence of the business are IT. The IT part might be less efficient, but the business benefits outweigh the costs. The emphasis is shifting from the cost of IT to the value of IT.


Figure 2. Business/ IT alignment versus convergence


Every modern organization relies on IT, so it is legitimate to ask when an enterprise is digital and when it is non-digital. What do we mean when we say ‘digital’? To the citizen and individual consumer, digital is simply ‘something to do with IT’. But in an enterprise context, digital usually means ‘the more valuable kind of IT’. It is important to realize that digital is an adjective, not a noun: it merely qualifies a process or an object. You cannot actually do anything with digital: you can only act on IT artefacts such as infrastructure, data and applications. 

The value of technology comes from a new approach to business introduced by new possibilities within IT. In the digital enterprise, IT is an integral part of the organization’s products and services, and the way their customers and other stakeholders engage with the organization. 

The value of information and IT in the digital enterprise is therefore more directly related to sales volume and prices than to the traditional benefit of efficiency. 

In the digital enterprise, IT significantly informs and influences the organization’s business. A working definition for digital enterprise is “an enterprise in which IT is strategic for its business model”. When is IT strategic? A pragmatic delineation is that when IT is on the board’s agenda, it is strategic: if it is not on the agenda, they have more important concerns. It is as simple as that. 


A transformation is often needed to deliver on the promise of the digital enterprise. Just to be clear, the term transformation means major change; changing the form or the structure of the business. The major change needs not be achieved by one giant step; it is usually advisable to take many incremental steps which combine to effect a major change.

When we talk about digital transformation, we are talking about major change to the way that the organization uses IT to benefit its goals. In other words, making better use of the potential of IT.


It is useful to make the distinction between digital transformation and another, often misunderstood term, IT transformation. Where digital transformation changes how the organization uses IT, IT transformation is about changing the way IT systems and services are developed, deployed, operated and supported. The distinction is between what and how. They are interrelated: digital transformation places much higher demands on IT, often triggering IT transformation. This is not always the case but, in practice, digital transformation and IT transformation go hand-in-hand. Nevertheless, it is good to make the distinction between the two.


Figure 3 IT transformation and digital transformation


In a digital enterprise, IT is strategic for its business model, requiring a combination of: 

  • valuable investment: strategically effective application of IT potential
  • fast development: quick change and delivery of IT services and digital products
  • resilient operations: highly resilient IT services and digital products
  • value co-creation: effective interaction between service provider and consumer 
  • assured compliance: within GRC requirements


Figure 4 Five interrelated digital capabilities

Digital transformation and/or IT transformation may be needed if significant improvement is required in these areas.


Scope: identify and justify IT-related investments that contribute significantly to business strategy. 

The potential value of IT investment and digital investment is determined at this stage. This is where the functionality (fitness for purpose, also known as utility) is defined. Utility is what determines the potential value. The non-functional requirements (fitness for use, aka warranty) are also determined, but these do not add to the potential value of the functionality. Warranty ensures that the potential value is not adversely affected by outages, poor use, etc. 

This stage is about research and development. New digital products and services are envisaged and evaluated in terms of profitability. Both the substantive quality of the products and services, and the timing with which they are launched, are crucial for gaining and maintaining competitive advantage. 

The sooner a potential investment is envisaged and evaluated, the sooner benefits such as competitive advantage can be realized.

It is also important to continually evaluate investments after they have been justified and approved. Whether they are in development or are in use, there may be better options for investment. 


Scope: realize new and improved IT services and IT-related products frequently, quickly and reliably. 

The sooner IT services and IT-related products are delivered, the sooner the value can be realized. An IT service is, for instance, a website that customers can use to order products. An example of an IT-related product is an app for which customers pay a fee. Note that the term product refers to both services and goods, and, in the service economy, usually a combination of both. 

One way of delivering more quickly is to break down the service and product into a series of deliveries of small increments. This enables the user to realize value earlier than waiting for the whole service or product.

In addition to delivering quickly and frequently, delivery must be reliable. 


Scope: ensure that IT services and IT-related products are available for use. 

The potential value of IT investments and digital investments can only be realized when the services and products are available for use. Fulfilment of the non-functional requirements provides warranty and reduces the risk that issues will adversely affect the value of the service or product. 

Increasingly, information systems rely on so many components that behaviour cannot be predicted or guaranteed. Failsafe systems are an illusion. The organization must prepare for inevitable and unexpected failure. The emphasis is no longer on a long interval between failures; it is on restoring the service quickly when the issue occurs. This reduces the disruption to business operations.


Scope: co-create value from IT services and IT-related products in close collaboration with the service provider and consumer. 

Return on IT investment is only realized when people, the organization or technologies act on decisions which have been improved by information derived from automated information systems. 

The users have to understand the IT services, information systems, and information, as well as understanding their use in the context of business processes. Not only should they understand the functionality well enough to use it appropriately, they also need to be able to correctly interpret the information in order to improve decision-making. Finally, these decisions have to be acted upon. Only then is value realized.


Scope: assure that service provision and service consumption comply with corporate and regulatory directives. 

High velocity delivery is often associated with risk-taking. From a commercial perspective, it may be necessary to take risks. Paradoxically, the biggest risk an enterprise can take may be not taking enough risks. Nevertheless, risks must be justified, and there are internal rules and external regulations that need to be complied with. The governing body must be assured that their directives have been followed. 


An operating model is a key part of an organization’s business model. It describes how value is co-created, delivered and captured. It can be used as a description of the current state of the organization, or as a design of the future state. Its value often resides as much, if not more, in the process of creating the operating model as in the operating model as end product. The operating model concept can be applied to the whole enterprise or part of it.

IT operating models and digital operating models can be based on the same generic structure as an operating model for the enterprise. However, they have their own specific characteristics. For instance, the emphasis is on the co-creation of value through close collaboration between service provider and consumer. As opposed to the service provider delivering value to the consumer by transferring ownership of goods. Another typical characteristic, particularly when high velocity is required, is continual evolution in response to uncertain, ambiguous and rapidly changing circumstances.


A business model describes how an enterprise co-creates, delivers, and captures value, while sustaining itself. It can be described as the building blocks of an organization and the relationships between them. 

The Business Model Canvas is often used as a frame of reference for creating a business model.


Figure 5 Components of the Business Model Canvas

This reference model comprises nine buildings which fall into the following four categories:

  •  Infrastructure: the most important activities, resources and partners
  • Offering: one or more value propositions that ideally distinguish it from its competitors
  • Customers: customer segments, the channels that distribute the value propositions, and customer relationships that ensure the enterprise’s survival and success
  • Finances: the cost structure and the revenue streams


Business models describe how an enterprise co-creates, delivers and captures value and sustains itself in the process; operating models are the ‘back end’ or infrastructure (activities, resources and partners) of the business model that describe the co-creation and delivery of value. Just like the business model, the operating model can be described as the building blocks of an organization and the relationships between them.

The Operating Model Canvas is a good frame of reference and approach for creating an operating model.


Figure 6 Components of the Operating Model Canvas in the context of the Business Mode Canvas

In the Operating Model Canvas, the key activities, resources and partners in the Business Model Canvas are deconstructed into six elements: processes, organization, locations, information, suppliers, and a management system, which can be abbreviated as POLISM: 

Processes: how the organization co-creates and delivers the value propositions to the customers or beneficiaries. The sequence of steps required to deliver goods or provide services is called a value stream. If the value propositions differ significantly from each other, there may be multiple value streams. The value streams (or ‘processes’) form the heart of the operating model. ‘Process’ is used in a looser sense than a set of predetermined activities. It refers to more loosely defined case management and patterns of activities that emerge in complex adaptive systems.

Organization: how the people who do the work steps in the value stream map are structured (in teams, departments, etc.), and how supporting activities such as finance, HR, and IT complement the structure. It describes the responsibilities for activities, and the different skill groups that execute the work, their accountabilities, decision rights, plus the culture that governs and motivates each skill group.

Locations: where the work is executed (from country and city to building and floor) and the required assets.

Information: the information and the information solutions that support each process. Business ownership of information solutions are also defined.

Suppliers: the outsourced work and the transactional or collaborative relationship with each important supplier.

Management System: the calendar of processes, meetings and scorecards for planning, target-setting, decision-making, driving improvement, and managing performance. 

Depending on the context in which the operating model is created, it can be described at a high level in a single canvas with a description of about ten pages, or can be detailed across hundreds of pages. The scope of an operating model can include the whole enterprise or a function, a unit or even a team. Operating models can be used to describe how goods are delivered or how services are provided. 

The enterprise’s products are likely to be a combination of services and goods. As such, it is important to consider service-dominant logic when designing operating models. Service-dominant logic considers the operating model as the dynamic configuration of the resources of the service provider and the service consumer. ‘Resources’ here is used in the broadest sense; they can be human, physical, logical (e.g. algorithms), information or financial. ‘Dynamic’ is an important word in this context because it emphasizes the need for the flexibility to adjust to unexpected circumstances on-the-fly, the dynamic configuration of resources. This differentiates it from the need to follow predetermined processes which are more appropriate for the manufacturing of goods in a low-variability environment. It is crucial that the operating model addresses how the service consumer participates in the co-creation of value.


As described above, the operating model can be used to describe part of the organization. When applied to an IT function, the basic structure of the operating model remains the same, resulting in an IT operating model that describes:

  • IT processes
  • IT organization
    IT locations
    IT information (that supports the IT processes)
    IT suppliers
    IT management system

The important topic of governance of IT is addressed in the IT organization and IT management system. In IT operating models, particularly models for centralized IT departments, the value proposition is typically the catalogue of IT services that are offered. The diversity of the IT services will often be reflected in the diversity of value streams (processes). For example, IT services based on a third-party ERP system will have a different value stream to IT services for a website that have been developed and operated by the enterprise itself. There is an important relationship between the operating model of the part of the enterprise that consumes IT services (e.g. a business unit), and the IT operating model that describes how IT services are provided. In the operating model of the business unit, the information element can be regarded as the interface with the IT operating model. A significant part of the information element is provided by the value proposition in the IT operating model. When the business unit and the IT department are separate organizational entities, there are also two distinct operating models. However, when the IT function is an integral part of the business unit, when business and IT are converged rather than aligned, then it may be better to converge the operating models. This might mean utilizing two different views of the same operating model if the distinction between ‘business’ and ‘IT’ is still relevant and useful.


The convergence of business and IT is most likely to happen in a digital enterprise. From a customer experience perspective, both the digital experience and the physical experience should not only be attractive but also consistent. This gives the customer a much better experience of the whole enterprise. Because the digital enterprise places higher demands on IT, the digital operating model is designed to address these specific demands:

valuable investment: strategically effective application of IT potential
fast development: quick change and delivery of IT services and digital products
resilient operations: highly resilient IT services and digital products
value co-creation: effective interaction between service provider and consumer
assured compliance: all within GRC requirements.


Figure 7 Context for digital operating model design. The letters H, P, L, I and F represent the five kinds resources: human, physical, logical, information and financial.

These five forms of digital demand influence the choice of the enterprise’s resources (human, physical, logical, information and financial) and how they are configured, including how they work with the resources of providers and consumers. The digital operating model describes these resources and how they are configured to co-create value. The six elements of an IT operating model are:

  • IT processes
    IT organization
    IT locations
    IT information (that supports the IT processes)
    IT suppliers
    IT management system.
    This is a more specific way of describing the generic categories of human, physical, logical, information and financial resources and how they are configured.  Digital operating models translate digital demand into a design for IT in a digital enterprise. The digital operating model has an architecture in terms of the elements that form the digital operating model and how they are related to each other. The Operating Model Canvas can be used as an architecture or reference model, proposing the use of processes, organization, locations, information, suppliers, and a management system as elements with which to create the design.


    Figure 8 Translating digital demand into a design for IT in a digital enterprise

    Planned and emergent digital capabilities


    Designing digital operating models is just a part of the development of digital capabilities. It is preceded and informed by the development of strategy, where the nature of the enterprise is decided. After design comes the actual change or transformation of the organization, after which the organization is managed based on model (or blueprint) defined in the strategy.

    It is tempting to see these as four planned sequential, unidirectional and circular steps, each of which is formally completed before the next step starts:


    Figure 9 Planned digital capabilities

    But life is messy, and design is messy. 

    Design is particularly messy in the beginning when requirements are ambiguous or unarticulated. It is tempting to attempt to adopt best practice that has been applied successfully elsewhere, but that is usually a recipe for disappointment. Taiichi Ohno, father of the Toyota Production System (the precursor of Lean), wisely said “You have to think for yourself and face your own difficulties instead of trying to borrow wisdom”. Even though other organizations’ experiences are a useful source of inspiration and reflection, it is better to focus on discovering an effective way of working for the organization’s specific circumstances. As such, guidance regarding digital operating models should not promise an end product that can be ‘implemented’, but instead should offer a way to make sense of the mess. 

    Change often has unexpected positive and negative consequences that trigger revision of design and sometimes strategy. Some operational incidents require strategic intervention. Change happens organically during operations, creating a gap between operations and design. In real life, progress is a mix of planning and emergence.


    Figure 10 Planned and emergent digital capabilities

    These are not inconvenient exceptions to the structured box-and-arrow approach, it is simply an acceptance of how things work. The more complex and therefore unpredictable the environment, the more the approach should be incremental, recognizing that behaviour cannot be dictated, but that it emerges as a response to changed circumstances. 


    Assuming that the digital enterprise has to adapt to frequent, significant and unpredictable change, the digital operating model should reflect this emergent nature. Emergent risks are mitigated. Emergent opportunities are seized. This does not mean that planning is futile, but that it should be possible to realign priorities. The organization should take advantage of new information. The digital operating model should not dictate detailed activities, but focus more on identifying resources that dynamically configure themselves according to changing circumstances. Select the right people, partners and technologies, organize them with an appropriate degree of autonomy, and provide them with the context and boundaries that enable them to make the right decisions. Behaviour cannot be changed directly, but some conditions that influence behaviour, can be changed. 

    Digital operating model design is therefore not an isolated activity but something that is intertwined with strategy, change and operations


    In digital enterprises, IT drives the business rather than just supports it. This places higher demands on the organization’s capabilities for: 

    • valuable investment: strategically effective application of IT potential
    • fast development: quick change and delivery of IT services and digital products
    • resilient operations: highly resilient IT services and digital products
    • value co-creation: effective interaction between service provider and consumer assured compliance: all within GRC requirements. 

    The significance of IT as a core business capability has consequences for the IT operating model. For example, it is more effective and preferable when IT activities are decentralized and embedded within the various product lines or lines of business. Value co-creation between service provider and consumer is another key concept; value from IT investments is only realized when people act on decisions that have been improved by information derived from automated information systems. This implies a shift from the IT function as a subservient order-taker to a role as equal co-creator. 

    The digital operating model describes the key resources and how they are dynamically configured to respond to the inherent unpredictability of complex systems. The digital operating model is therefore designed for both planned and emergent digital capabilities. The digital operating model informs digital transformation and IT transformation. Digital transformation changes the way the organization utilizes the potential of IT, and IT transformation radically improves the way IT services are provided. Digital transformation and IT transformation are separate but interrelated topics: digital transformation often triggers IT transformation. Some change is planned and other change happens organically during operations. So, in real life, progress is a mix of planning and emergence. Digital operating model design is therefore not an isolated activity but something that is intertwined with strategy, change and operations.


    1. Taiichi Ohno, father of the Toyota Production System, the precursor of Lean Manufacturing, source of quote unknown
    2.  Rob England (2015) The IT liberation movement – an IT Renaissance, [25th February 2019] 
    3. Gene Kim (2013) ITSM and DevOps are not at odds, Files/White-Papers/devops-kim.pdf [Accessed 25th February 2019]

    About the author

    Mark Smalley, also known as The IT Paradigmologist, thinks, writes and speaks extensively about IT ‘paradigms’ – in other words our changing perspectives on IT. His current interests are the digital enterprise, IT operating models, value of IT, business-IT relationships, co-creation of value, multidisciplinary collaboration, working with complexity, and as the overarching theme, management of information systems in general. People collaborate with Mark to discover where they are and to visualize where they want to be. Mark is a Trainer/Consultant at Smalley.IT and Master Trainer for GamingWorks’ The Phoenix Project DevOps business simulation. He is Global Ambassador at the DevOps Agile Skills Association (DASA). Mark has contributed to various bodies of knowledge, the most recent one being ITIL 4. He has lectured at various universities and has spoken at hundreds of events in more than twenty countries.

    Author Mark Smalley

    ITIL 4 and Fast Value Co-creation White Paper