If you have been struggling with building a services business, then ITIL has provided some help in the form of a new definition for services targeted to the business owner or leader of a services organization. It builds upon the conceptual economic definition of service and provides an excellent foundation for creating a service business. The foundation, however, is not the whole building and service managers need more specificity and operational detail to truly deliver on the service management promise.
The ITIL definition reads, “A service is a means of delivering value to customers by facilitating outcomes customers want to achieve without the ownership of specific costs and risks.”
This definition builds on the conceptual economic idea that a service is one of only two ways to deliver economic value. It then focuses in on one of the core differences between goods and services, the fact that services produce intangible outcomes. When you seek a shoe shine service, the outcome you want is shiny shoes. When you seek a messenger service, the outcome you want is to have some item, such as a document, delivered to a recipient. When you seek an email service, the outcome you want is the ability to deliver and receive email. All of these outcomes are valuable to somebody who is willing to pay for them and is completely intangible.
Furthermore, customers don’t want to become experts at shining shoes or managing email servers. Those things aren’t central to their business and aren’t the best use of their time. Customers, businesses particularly, are focused on producing their own goods or services, and they receive value from service providers when the service provider takes ownership of some essential but peripheral aspect of their process and produces the desired outcome in a way that is preferable to the customer. This, in essence, is the business model of every service provider.
Successful service providers understand their customers and their customer’s processes well enough to identify desired outcomes where ownership of the factors of production for those outcomes are not essential to the customer. The service owner of a messenger service understands that although some customers, like attorneys, need rapid delivery of critical documents on a regular basis, managing and scheduling a group of couriers would take away from the time they spend helping their clients with specialized professional skills that take years to develop. Anytime an attorney can reduce the time spent not directly helping clients and increase the time they spend directly helping clients, both the client and the attorney win. This concept can be applied to all businesses and even individuals.
The job of the service owner is to figure out which factors of production, if owned by the provider, would make the customer better off to the degree that they would be willing to pay the provider. In the shoe shine scenario, for example, customers are better off by not having to carry around shoe polish and brushes.
If you have difficulty relating to the idea of owning “costs and risks”, try thinking of owning all of the elements required to deliver the desired outcome, or in economic terms, the factors of production. In the shoe shine example, this includes polish, brushes, buffing towels, learning technical tricks, etc. In the email example, it includes owning servers and software, the technical expertise needed to install and maintain them, the regular maintenance of software updates, and all of the associated costs, (none of which adds any competitive advantage for most companies, even though they couldn’t function without email.) The concept of the “Internet Cloud” is driven by this simple equation and you can expect many companies to begin off loading these types of activities to a service provider, simplifying email provision to a highly predictable monthly charge with few other worries. The major barriers to this transition today are legal uncertainty, security concerns, and cultural inertia not the desire of companies to rid themselves of these menial tasks.
The truth of this definition can be seen even in very traditional industries as demonstrated in this passage from the Harvard Business Review article Pricing to Create Shared Value, HBR June 2012.
In an industry accustomed to selling tools to construction companies, Hilti decided to provide a service instead. Customers subscribing to Hilti’s Fleet Management program pay a monthly fee – customized to fit their business models – that covers the use, service, and repair of all tools. Driving the creation of Fleet Management was the realization that construction companies cared not about owning tools but about the productivity they could achieve from using them. Hilti’s approach is best captured in the slogan, “we manage your tools, so you can manage your business.” By removing the burden of ownership, the company simplified customer’s financial planning and reduced their administrative work and downtime. Customers report finding new types of intangible value in the relationship, such as the enhanced professionalism of using a set of high quality tools.
In this example, Hilti has built a successful business model and a win-win situation for itself and its customers by following the concepts expressed in the ITIL definition of service.
I believe in always understanding the importance of the fundamentals and executing them with excellence. Enterprise IT is a business within a business and as such it must focus on delivering value in exchange for value. This exchange is the magic of creation through business, where both parties to the exchange are better off from the exchange, value is created, and the proverbial pie gets larger. The ITIL definition builds on these fundamentals and gives service business owners a powerful conceptual way to think about creating value in the form of a business.
As every service management practitioner can tell you though, there remains a big gap in understanding that limits the organization’s ability to implement the thousands of individual services that make up an enterprise IT department, to align costs and ownership to them, and to fundamentally align the organization’s activity with value creation. The next aspect of service definition, the concrete business definition, provides the operational detail needed to close this gap.