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ITIL 4 and VOCR: The Service Value Formula White Paper

White Paper

ITIL 4 and VOCR: The Service Value Formula White Paper

White Paper

  • White Paper
  • Customer needs
  • IT Services
  • ITIL

Author  Tatiana Peftieva

IT Governance, with a background in quality management, process improvement and software development.

March 25, 2019 |

 10 min read

  • White Paper
  • Customer needs
  • IT Services
  • ITIL

In ITIL® 4, organizations exist to create value for stakeholders. One of the most important stakeholders of any organization will be the customers of the products and services created and delivered by the organization. This is clearly expressed in the ITIL 4 definition of service:

Image of definition highlight with words - Service A means of enabling value co-creation by facilitating outcomes that customers want to achieve.


This definition highlights several important elements: value co-creation, outcomes, costs, and risks. Understanding the definition and the relationships between these elements is key to the correct comprehension and application of other ITIL core concepts and recommendations. This is explained in ITIL® 4 Foundation:

“Achieving desired outcomes requires resources (and therefore costs) and is often associated with risks. Service providers help their consumers to achieve outcomes, and in doing so, take on some of the associated risks and costs. On the other hand, service relationships can introduce new risks and costs, and in some cases, can negatively affect some of the intended outcomes, while supporting others.”

The last sentence is very important. It is common to focus on the positive effects of services: supported outcomes desired by the customer and reduced or removed costs and risks. However, it is important for customers to understand the full picture, which includes negatively affected outcomes and introduced costs and risks.

Figure 1.1 image of scales showing blocks of value, outcomes, costs and risk.  Left-side represents affected outcomes, right-side represents supported outcomes which is tipped in this favour

Only when these are fully understood can the customer make a decision about the potential and actual value of the service compared to alternative scenarios, including do-it-yourself and other available services.

This paper provides a detailed illustration using fictional cases of the key elements of service definition and their relationships in IT management and non-IT domains. It is intended to facilitate a good understanding and successful application of these elements.

Scenario 1 (Non-IT Service Management): owning a car vs car rental

Despite significant development of public transport worldwide, a car is still an important and primary means of transport for many people in many countries. Reasons for private (non-business) use of cars may vary and includes (but is not limited to): commute between home and work, shopping and other household needs, recreation, and tourism. The former often implies daily, weekly or other regular trips; the latter may be needed comparatively rarely, but the rides are typically longer in both time and distance.

Cars provide flexibility, decrease dependence on weather and public transportation, and help to carry pets, luggage and shopping. In some cases, they also contribute to one’s public image.

But ownership of a resource is always associated with a cost. And a risk. This is undoubtfully true for cars. In a very simplistic way, the pros and cons of having a car can be described as follows:

Add table image:



Car use patternSupported outcomesCostsRisks
Work commuteComfortable, fast and safe commute between home and work.Fixed costs:

Purchase cost of car
Insurance
Overnight and day parking 
Maintenance and repair
Taxes

Variable costs:


Fuel
Toll roads
Ad-hoc parking

Fines

Ownership risks:

Loss or damage to the car

Operational risks:


Road accidents, including damage to the car, to third parties, and to people

Car breakdown and associated risks of delays, unplanned costs etc. Supported outcomes


Family day-to-day transportation Safe and fast transportation of children to school and from school on weekdays.

Flexible, fast and comfortable ride to shops for weekly shopping.

Ability to transport weekly shopping easily.
Fixed costs:

Purchase cost of car
Insurance
Overnight and day parking
Maintenance and repair
Taxes

Variable costs:


Fuel
Toll roads
Ad-hoc parking

Fines

Ownership risks:

Loss or damage to the car

Operational risks:


Road accidents, including damage to the car, to third parties, and to people

Car breakdown and associated risks of delays, unplanned costs etc. Supported outcomes

Family tourismAffordable, flexible and comfortable family travel to distant areas four ties a year Fixed costs:

Purchase cost of car
Insurance
Overnight and day parking
Maintenance and repair
Taxes

Variable costs:


Fuel
Toll roads
Ad-hoc parking

Fines

Ownership risks:

Loss or damage to the car

Operational risks:


Road accidents, including damage to the car, to third parties, and to people

Car breakdown and associated risks of delays, unplanned costs etc. Supported outcomes



Table 2.1 pros and cons of having a car

Cars are not the only resource we can use to achieve the outcomes above. It could also be a bicycle, for example. It is clear all vehicles come with their own costs and risks, similar in nature to the ones described in the table above, but of different magnitude.

A major alternative to achieving desired outcomes with resources is to achieve them with services. This is the essence of service consumption: we delegate some part of work to a service provider, as well as some part of associated costs and risks. There are at least three types of private transportation services widely available to consumers: taxi, car rental, and carsharing. They remove or decrease some of the costs and risks while supporting some of the outcomes. The table 2.2 provides a brief overview of these effects.

To avoid confusion, here are the Collins Dictionary definitions of the three types:

A taxi, also know as a cab, is 'a car driven by a person whose job is to take people where they want to go in return for money'.

A car rental 'is a company that grants people the right to use their automobiles for a short period in return for payment'.  They are often located in busy areas such as airports or city centres.

Carsharing is a different model of car rental where people rent cars for short period of time. whether for a day or an hour. It can also mean 'to take turns in driving fellow commuters to and from work or friends' children to school and back, so as to avoid unnecessary use of several under occupied vehicles'.

Service typeOutcomes SupportedFixed costsVariable costsOwnership risksOperational risks
TaxiComfort: Yes 
Flexibility: Yes
Speed: Yes
Safety: Yes 
Removed

Removed

Removed

Transferred

Car rentalComfort: Yes
Flexibility: No
Speed: Yes
Safety: Yes

Removed

UnchangedSharedShared or unchanged
CarsharingComfort: Yes
Flexibility: Yes
Speed: Yes
Safety: Yes

Removed

Unchanged

Shared

Shared or unchanged

Table 2.2 Service providers in transport.

In this simplified model, it seems safe to conclude that taxi is the best option to achieve the outcomes, because this service removes most of the costs and risks of car ownership and supports all required outcomes. However, it is clear that this conclusion is not always true, and the most obvious downside of the taxi option is the price attached to the service. But is it the only factor to consider?

It does not take long to realize that all services here are associated with some costs and risk, compensating the positive effect and adding new factors to the value formula. The most obvious costs and risks associated with these services are listed in the table below.

Service typeFixed costs introduced

Variable costs introduced

Operational risks introduced
Taxi-Price of the ridesBad experiences due to the car condition, driver's personal level of professionalism
Car rental-Price of rental: mileage charges*

Bad experiences due to the car condition;
disputes over responsibility in case of accidents and damage to the car;
increased risks of incidents due to unfamiliarity with the car

CarsharingSubscription / membership*Price of rental, mileage / time charges*Bad experiences due to the car condition;
disputes over responsibility in case of accidents and damage to the car;
increased risks of incidents due to unfamiliarity with the car


* - if applicable; subject to service/rental agreement
Table 2.3 Costs and risks of transport service providers.

After careful consideration of all risks and costs for each of the options together with their effect on the desired outcomes, we can make a better judgement about their fitness for purpose and use.

In the car ownership vs car-as-a-service example, it is likely that costs make the taxi option unacceptable for regular use; limited flexibility and price of car rental limit the applicability of this option to the ‘family tourism’ use pattern. Finally, carsharing seems to be a viable option for the first two use patterns but requires very careful selection of service provider and understanding of the liability of the parties. This option is unlikely to fit the tourism pattern due to area of use limitations and time or mileage based pricing.

All these may seem quite obvious in the situation we used as an example; people often make this choice without drawing tables and categorizing decision factors. However, in business decisions the number and structure of outcomes, costs and risks may be significantly higher, and consequences of a mistake might be much more serious. Understanding of the basic structure of service value helps to make better-informed and successful decisions.

It is important to note that sourcing decisions are rarely binary. There are multiple resource options (car vs bike), there are more than one service options, and they vary in what exactly is replaced with service and to what extent (we can delegate car ownership but retain driving, or delegate both). A higher level of delegation requires a higher level of trust from service consumer to service provider, and a higher level of responsibility from the latter.

Scenario 2 (ITSM): Service desk outsourcing

There has been a familiar trend for many years: organizations aim to formalize and simplify user support, and then outsource service desk to a specialized service provider, usually located in a region with cheaper labour costs. However, some organizations later decide to reverse the decision and bring the service desk back in. Why do they change their minds, and why do they decide to outsource user support in the first place?

We should start by considering the pros and cons of service desk outsourcing from the V-O-C-R perspective. First, desired outcomes, or ‘what do we want from user support practice’? The answer usually includes:

  • great user experience from interaction with service desk
  • effective and fast communication of the information from user to relevant support team.

It may also include:

  • effective and fast resolution of some of user tickets
  • processing of some monitoring data
  • contribution to organization’s support knowledge base
  • ownership of some user support tasks

Organizations define requirements for service desk personnel and other resources based on the expected outcomes. If considering outsourcing, the organization will need to decide which of these outcomes are to be supported by a service provider and to what extent.

By replacing in-house resources with external services, organizations try to reduce associated costs and risks. The costs of having and running a service desk typically include:

  • locations and accommodation costs
  • staff-related costs (hiring, learning and development, salaries and associated taxes, insurance)
  • IT assets (equipment, software, telecom and IT services such as internet access…).

It is important to understand which of these costs may be removed or reduced. It is very unlikely to have them all removed, especially if the organization’s requirements for supported outcomes are high. Cost optimization is often the main driver for service desk outsourcing, so this is a very important consideration.

The risks associated with service desk are mostly related to insufficient staffing and expertise. These may include:

  • staff turnover resulting in low capacity and loss of expertise
  • bad user experience
  • ineffective communications between support teams.

Like costs, these risks can be partially reduced by service provider, but it is very unlikely that they will be removed.

These three aspects of running a service desk should be reviewed together when an organization considers delegating them to a service provider.

However, understanding of the outcomes to support, as well as costs and risk to reduce, is just one part of the outsourcing decision. The other part is to review possible negative impact of outsourcing, negatively affected outcomes as well as new or increased costs and risks. These may include:

  • negatively affected outcomes (something we might have achieved with internal service desk, but less likely to achieve when it is an external service):
  • creation of product-focused teams
  • orientation towards business goals
  • expert user support for knowledgeable users
  • closer relationship with users
  • new or increased costs:
    • price of the service desk service
    • cost of tools integration
    • increased telecom services costs
    • cost of service desk training
  • new or increased risks
    • privacy and information security risks
    • increased time to market due to longer service desk training
    • worsened user experience and satisfaction
    • loss of support knowledge
    • longer resolution times

This second part of the value balance formula can never be obtained from a service provider’s marketing materials. This information should result from a thorough analysis of current and future needs and priorities of the organization, as well as its structure, culture, positioning and current status.

This is important to understand the holistic picture of positive and negative impacts of a service on the organization’s outcomes, costs and risk. This understanding helps to make informed sourcing decisions and improve the organization’s resources.

Conclusion

Although services are designed to enable value creation for consumers, they usually have side effects, which may be overlooked.

ITIL 4 highlights the need for a balanced approach to service value. This includes evaluation and analysis of both positive and negative effects services have or may have on consumer’s outcomes, costs and risks. Understanding the full picture helps organizations to make well-informed and sound sourcing decisions.

On the other hand, understanding both the positive and negative effects of services helps service providers to optimize their service offerings and to better understand their consumers. Focus on consumers’ outcomes, costs and risks is essential to continual improvement of services, and eventually to the success of service provider.

ITIL 4 and VOCR: The Service Value Formula