At the heart of ITIL is Service Management. Whether it is sports gear or pedicure, the reason that organizations exists is to deliver quality services that enable the customer to achieve their goals, while at the same time providing value for money for the organization. Service Management is defined as a set of specialized organizational capabilities for enabling value for customers in the form of services. These capabilities include tangible things like capital, people and equipment, and can also include intangible things like knowledge, management and skills. The goal of IT Service Management is to maximise the value delivered and obtained from technology-driven products and services.

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Value Co-Creation

The purpose of an organization is to create value for stakeholders. And here, value is defined as the perceived benefits, usefulness, and importance of something. Value is subject to the perception of the stakeholders, whether they be the customers or consumers or the organization itself. Think about a ride sharing service: for some people the value is convenience, for others cost, and for others flexibility. So value can be very subjective, dependent on the point of view.

In the past, organizations viewed themselves as “service providers”, and saw their role as delivering value to their customers in a mono-directional manner, with the provider delivering value to the customer, while the customer themselves plays no role in value creation. However, this model has become outdated, with organizations recognizing that value is co-created through an active collaboration between providers and consumers, often augmented by the work of other stakeholders which are part of the relevant service relationships.

Stakeholders in Service Management

Because of this new perspective of value co-creation, there is a critical need to identify all the players who are involved. This could include suppliers, consumers, financiers, regulators and even influencers. Let’s identify some of the main stakeholders in service management:

Stakeholder Definition Example
Organization A person or a group of people that has its own functions with responsibilities, authorities, and relationships to achieve its objectives. A company, an institution or an individual
Service Provider An organization that takes up the role of creating and delivering services An airline that provides air transportation services
Service Consumers An organization that takes up the role of receiving services A business that buys and uses internet services from an ISP

The term “Service consumer” can be seen to be generic in nature and therefore can be decomposed further to:

  • Customer: A person who defines the requirements for a service and takes responsibility for the outcomes of service consumption e.g. the IT Manager.
  • User: A person who uses services e.g. the company employees.
  • Sponsor: A person who authorizes budget for service consumption e.g. the Finance Manager.

Note that these terms can be used by a single individual who can act as the customer, user and sponsor of a service they have bought and consumed.

Beyond the consumer and provider roles, there are usually many other stakeholders that are important to value creation. It is important to identify these roles in service relationships to ensure effective communication and stakeholder management.

Service Relationships

Service relationship is defined as a co-operation between a service provider and service consumer. Service relationships are established between two or more organizations to co-create value, and at any time an organization can play the role of provider or consumer interchangeably depending on the situation. Service relationships include service provision, service consumption, and service relationship management. Service relationship management is defined as joint activities performed by a service provider and a service consumer to ensure continual value co-creation based on agreed and available service offerings.

The service relationship model is used to showcase the ever changing interaction between service providers and consumers. An organization can procure services and use them to deliver services to another consumer, thus moving from being a consumer to a provider. For example, a call center may purchase internet services from a supplier, and use them to provide customer relationship management services for its customers.

Products and Services

In ITIL, the service is the ultimate center of focus in every aspect of service management. A service is defined as a means of enabling value co-creation by facilitating outcomes that customers want to achieve, without the customer having to manage specific costs and risks. The services that an organization provides are based on one or more of its products. A product is defined as a configuration of an organization’s resources designed to offer value for a consumer. Resources can include people, capital, equipment, IT software etc.

Service providers usually present their services to consumers in the form of service offerings, which describe one or more services based on one or more products. A Service offering is defined as a description of one or more services, designed to address the needs of a target consumer group. The three main components of service offerings are goods, access to resources and service actions as shown:

Component Description Example
Goods Supplied to the consumer

Ownership is transferred to the consumer

Consumer takes responsibility for future use


Consumer goods


Access to Resources Ownership is not transferred to the consumer

Access is granted or licensed to the consumer under agreed terms and conditions

The consumer can only access the resources during the agreed consumption period and according to other agreed service terms

Web hosting

Cloud Storage

Online gaming subscription

Service Actions Performed by the service provider to address a consumer’s needs

Performed according to an agreement with the consumer

Car maintenance

IT user support

Different offerings can be configured for different target consumer segments depending on demand and capacity to pay among other factors.

Value: Outcomes, Costs, and Risks (VOCR)

Service providers help their consumers to achieve outcomes, and in doing so, take on some of the associated risks and costs. However, the service relationship can also result in negative outcomes as well as introducing new risks and costs that were previously unseen. Service relationships are perceived as valuable only when they have more positive effects than negative with regard to impact on outcomes, costs and risks.

Value as a function of outcomes, costs and risks

Value as a function of outcomes, costs and risks

Acting as a service provider, an organization produces outputs that help its consumers to achieve certain outcomes. An output is defined as a tangible or intangible deliverable of an activity e.g. transportation from one location to another. On the other hand, an outcome is defined as a result for a stakeholder enabled by one or more outputs e.g. having an interview or doctor’s appointment. Depending on the relationship between the provider and the consumer, it can be difficult for the provider to fully understand the outcomes that the consumer wants to achieve. In some cases they will work together to define the desired outcomes.

Costs are defined as the amount of money spent on a specific activity or resource. From the service consumer’s perspective, there are two types of cost involved in service relationships:

  • Costs removed from the consumer by the service (a part of the value proposition). For example, for a car sharing service, the customer does not pay for the actual cost of purchasing the car.
  • Costs imposed on the consumer by the service (the costs of service consumption). For example, for a car sharing service, the customer ends up paying for internet services to request the service.

The two types of cost must be fully understood if a service provider is to obtain value for money and ensure the right decisions are made about the service provision. Providers need to ensure that services are delivered within budget constraints and meet the financial expectations of the organization

A risk is defined as a possible event that could cause harm or loss, or make it more difficult to achieve objectives. It is also considered to be an uncertain outcome that can be positive or negative. There are two types of risk that are of concern to service consumers:

  • Risks removed from a consumer by the service (part of the value proposition). For example, for an online streaming service, failure of equipment involved in delivering the service.
  • Risks imposed on a consumer by the service (risks of service consumption). For example, for an online streaming service, the threat of lawsuit for copyright infringement.

It is the duty of the provider to manage the detailed level of risk on behalf of the consumer. However the consumer has a role to play in contributing to risk reduction as a function of value co-creation. The consumer contributes to the reduction of risk through:

  • Actively participating in the definition of the requirements of the service and the clarification of its required outcomes, often on an ongoing basis.
  • Clearly communicating the critical success factors (CSFs) and constraints that apply to the service.
  • Ensuring the provider has access to the necessary resources of the consumer throughout the service relationship.

Utility and Warranty

How do we know that a service is delivering value for the consumer and meeting the requirements of the service provider? We can do this by evaluating in totality the utility and warranty of the service. Utility is defined as the functionality offered by a product or service to meet a particular need, perhaps “what the service does” or whether a service is “fit for purpose”. To have utility, a service must either support the performance of the consumer and/or remove constraints from the consumer.

On the other hand, Warranty is defined as the assurance that a product or service will meet agreed requirements: “how the service performs” or whether a service is “fit for use”. Warranty often relates to service levels aligned with the needs of service consumers such as availability, capacity, security and/or continuity.

The assessment of a service must take into consideration the impact of costs and risks on utility and warranty to generate a complete picture of the viability of a service. Both utility and warranty are essential for a service to facilitate its desired outcomes and therefore help create value. For instance, if one is using a courier delivery service, utility involves the delivery of your packages while warranty is about speed and handling of your packages.

ITIL® is a registered trade mark of AXELOS Limited. IT Infrastructure Library® is a registered trade mark of AXELOS Limited.

New for 2020: ITIL 4 Best Practice e-Books

These all-new for 2020 ITIL e-Books highlight important elements of ITIL 4 best practices so that you can quickly understand key changes and actionable concepts. Download now for free!

Last updated: 04/18/2019

These postings are my own and do not necessarily represent BMC's position, strategies, or opinion.

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About the author

Jon Hall

Jon Hall

Jon is a Lead Product Manager in the BMC Remedy ITSM Product Management team at BMC Software, focused particularly on the evolving toolset marketplace and innovative new solutions for service. He has 18 years of experience in ITSM.

About the author

Joseph Mathenge

Joseph Mathenge

Joseph is a global best practice trainer and consultant with over 14 years corporate experience. His passion is partnering with organizations around the world through training, development, adaptation, streamlining and benchmarking their strategic and operational policies and processes in line with best practice frameworks and international standards. His specialties are IT Service Management, Business Process Reengineering, Cyber Resilience and Project Management.