Brandon's Notepad

February 11, 2016

ITIL: Service Strategy


To master a body of knowledge means to internalize it and become so intimately familiar with it that the student becomes the teacher. This post was started as a place to capture my notes about the Service Strategy stage of the ITSM model, and with the date scheduled for my ITIL Foundations exam still weeks away, there is already discussion at the office that my team may offer a series of short introductory classes on various aspects of ITSM. That’s why I shifted gears, now less interested in posting yet another set of topical outlines and bulleted lists, and more focused on synthesizing the material and presenting it in my own words, thereby making it more interesting and memorable.

Disclaimer: I wrote this page to capture my perception of the ITIL material, not to provide adequate guidance for passing the ITIL exams. Moreover, this page has been written (so far) without the use of the official ITIL Foundation 2011 Syllabus; therefore, the information may be incomplete.

Service Strategy Overview

The entire ITIL framework is a roadmap for converting IT into a service-oriented business. Of course, external service providers have existed for a long time: web hosting, e-mail, IT outsourcing, and the like. Converting the internal IT department into a more-or-less independent entity is another thing altogether, and can be quite a paradigm shift to many. Service Strategy is the stage of ITSM that most resembles the job of senior management in any given organization. It is the ‘business’ of doing IT.

Purpose. The purpose of Service Strategy is described in the literature as the four P’s: perspective, position, plans, and patterns. (I’ve personally never found mnemonics like this one very helpful, and I only mention it here because it is in common usage.) These are the same concepts found in strategic management textbooks. Perspective is another word for vision, describing the business in terms of customers and services offered. Position basically refers to market position, and includes that which makes the organization unique. Plans and patterns are similar in that they relate to the forward motion of the organization. Patterns refer to the things that the organization does on an ongoing basis, core competencies if you will. Plans are more strategic in nature and focus not just on staying in business, but growing and transforming it.

Objectives. Having a vision is great, but a business must have a concrete foundation if it is expected to survive. If the four P’s constitute the vision/mission statement, then the objectives of Service Strategy is akin to a business plan. The vision must be stated, but the details of how the business plans to get there must be articulated in concise detail. The services to be offered, the value they represent for the customer, how they will be funded and delivered, and what assets will be required are the same sort of details that a bank wants to know before making a loan to a start-up company in any industry.

Scope. All service organizations should have a strategy, even if they operate within a larger organization (such as an internal IT department). It is good to keep in mind that the strategy focuses on two main concerns: how will the organization meet its customers’ needs, and how will the resulting services be managed and maintained?

Value Creation. Ultimately, services will only be used if they provide value, which can take on various forms, from cost reduction measures (such as outsourcing) to value-add items (such as product differentiation). Value comes from the conversion of assets (both tangible and intangible, resources and capabilities) into goods and services. Value must be clearly presented in terms of business outcomes that the customer understands. In a nutshell, the service organization is constantly on the ‘buy’ side of a build-versus-buy cost-benefit analysis. At the same time, the service organization must stay in tune with the customers’ needs and always work toward fulfilling them, even when those needs change. Flexibility can be vital to staying competitive. Of course, these statements are true for any service organization, not just the information technology service provider. Turning the IT department into a profit center (as opposed to the traditional cost center) will drive efficiency and effectiveness. How does the customer perceive the value of a service? Economic value is usually based on a reference point, the cost of the old service that the new service will replace, for example, or even the price of similar services offered externally. This amount is adjusted based on the perceived benefits and costs of switching. The new service may provide many benefits, but at the cost of giving up one or two key features. It is always important to know if there is a gap between what the customer values and what the service organization thinks it is providing.

Risk Management. Customers will usually purchase a service if they don’t want to own the costs and risks of providing the same service to themselves. The service provider must now identify and assess potential risks.

Service Types. Services that are customer-facing may be basic or “core” services or they may enhance a core service and thus differentiate the service provider from the competition. Services that support a customer-facing service but are not visible to the customer are called enabling services. For example, an online e-mail service is a modern commodity, but a feature that presents communications as aggregated conversations instead of individual messages is an enhancement that differentiates the service from other online e-mail services (at least until they all provide that feature as core). The underlying database, the network infrastructure, and even the third-party virus scanner used by the e-mail service are supporting or enabling services.

Service Strategy Processes

As with all of the ITSM stages, great emphasis is placed in the processes of Service Strategy. Different texts order the five SS processes differently. I’ve chosen to order them in what seems to be a natural progression.

Strategy Management. Without the formation of a strategy, the service organization would lack direction, and some or all of the following would not be implemented.

Portfolio Management. An investment portfolio includes a number of varying financial instruments that, in aggregate, help the investor achieve certain investment goals. Some portfolios reduce risk through diversification, whereas others help protect investment dollars from inflation. This concept has been extended into the project management space, as each project in the portfolio has an estimated net worth and return on investment (ROI). A service portfolio is the same concept applied to the mix of services offered by a service provider. The portfolio includes not only the services that are currently being offered (i.e. the Service Catalog), but also services being developed (the Pipeline) and services already retired. Moreover, procedures must exist for determining which services should be added and which should be retired, and when. A business case can be written for each proposed service addition or modification. The documents that describe all services are stored in a configuration management system comprised of several different data sources.

Financial Management. Services are not free to offer. They have operating costs associated with them that can be reasonably predicted at the time the services are designed. Of course, an initial investment is required to design a new service and to implement it in the operating environment of the customer. And it should go without saying that no business should enter into a new deal if there is no hope of turning a profit from it. Some services cost more than they are worth, and some service providers have a propensity to get in over their heads when committing to dead-end service offerings. It can be very costly to implement someone’s ‘good idea’ for which there is no actual demand. Without a financial management component, the service provider may take on significant financial risks such as these with little or no hope for recovery of investment. Financial Management assists in the valuation of services, and provides information needed for demand modelling and the optimization of provisioning activities. This process also ensures compliance with accounting principles, regulations, and reporting requirements as well as the establishment of good budgetary practices and the billing and collection of revenues from the customer if applicable.

Business Relationship Management. As the name implies, the role of the business relationship manager (or what I’ve always called an account rep) is to maintain the relationship between the service provider and the customer. It is not enough, however, for this manager to ensure that the two entities simply stay in communication with one another at least occasionally. Customer satisfaction is the real focus here. The manager must understand the value being provided to the customer, identify new and changing customer needs, and ensure that the service provider adjusts as necessary to meet these needs. Feedback from the customer (including compliments and complaints) is one obvious source of information the manager can draw from, but changes in the customer’s industry, as well as changes in technology should also be monitored. Business Relationship Management falls on the strategic end of the spectrum, whereas Service Level Management is far more operational in nature.

Demand Management. Services cannot be stored in inventory like physical goods can. Costs are incurred and revenue generated as services are consumed. Therefore, the service organization should avoid generating too much (excess) or too little (insufficient) capacity. Analyzing patterns of business activity can help predict the demand for individual services. Uncertainty in demand is a risk.


Nothing in the Service Strategy literature should come as a surprise to someone who has studied business in the university. The contents are a mishmash of topics from strategic management, marketing, cost accounting, and microeconomics. In fact, some of the example scenarios I read were in the context of running a hotel or other common type of business. It appears that ITIL basically expresses what non-IT service organizations already do in an IT context.

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