ITIL® 4 Foundation

THE KEY
CONCEPTS
OF SERVICE
MANAGEMENT
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ITIL® 4 Foundation
ITIL®4 is all about service management. Throughout this course, there are a number
of frequently used key concepts which provide the context for everything that you’ll
learn, so it’s important that you understand what they are. In the ITIL4 foundation
exam, you’ll need to recall the definitions and descriptions of the key concepts used
to create value with services and be able to describe the key concepts of service
relationships.

ITIL® is a registered trade mark of AXELOS Limited, used under permission of

AXELOS Limited. The Swirl logo™ is a trade mark of AXELOS Limited, used under
permission of AXELOS Limited. All rights reserved.
Copyright© AXELOS Limited 2019. Used under permission of AXELOS Limited. All
rights reserved.

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Contents
ITIL® 4 Foundation 2
Creating value with services 4
Activity8
Service relationships 10
Definitions12

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Creating value with
services
Value and value co-creation

Organizations strive to provide value

for their customers when providing a
service. Value is simply ‘the perceived
benefits, usefulness, and importance of
something’. Traditionally, organizations
perceived the value relationship with
their customers to be mono-directional:
the organization provides the service,
and the customer receives the value.

Recently, this has shifted to the view

that the relationship is two way. Value
is co-created in collaboration with the
customer by creating outputs and
outcomes which take into account the
costs, risks, utility and warranty of the
service.

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Organization

An organization, according to ITIL 4, is

‘a person or a group of people that has
its own functions with responsibilities,
authorities, and relationship to achieve
its objectives’.

This definition allows ITIL 4 to have a

wide scope, making it incredibly flexible.

Outputs and outcomes

Organizations co-create value with their

customer by creating outputs which
have valuable outcomes. Outputs are ‘a
tangible or intangible deliverable of an
activity’, while outcomes are ‘a result for
a stakeholder enabled by one or more
outputs’.

For instance, a coffee shop makes a

cup of coffee for a customer. This is
an output. The relaxation and joy of
drinking a delicious cup of coffee is
the outcome. It’s important that you
understand the difference between
outputs and outcomes.

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Cost

We’re all familiar with the concept of

cost: ‘the amount of money spent on
a specific activity or resource’. ITIL 4
differentiates between two sorts of cost.
From the consumer’s perspective, there
are costs removed and costs incurred by
consuming the service.

Costs removed are savings to the

customer due to valuable outcomes.
Costs incurred are the price customers
are willing to pay for the valuable
outcome. As cost is such an important
element of any value proposition,
organizations need to understand how
to maximise costs removed from the
customer, and maximise costs incurred
by the customer for their service.

Risk

All outputs and outcomes are subject to

risk. Risk is ‘a possible event that could
cause harm or loss, or make it more
difficult to achieve objectives’. Similar to
cost, ITIL 4 differentiates between two
sorts of risk; risks removed and risks
imposed on the customer by the service.

Risks removed by a service create

security and stability for the customer,
which is a part of the value proposition
of any outcome. Risks imposed on the
customer can create uncertainty and
negatively impact the value proposition.
Organizations need to maximise the risk
removed and minimise the risk imposed
by their outcomes to increase the value
of their proposition.

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Utility and warranty

The value proposition of any outcome

is massively impacted by both its utility
and warranty. The utility is the degree
to which ‘the functionality offered by a
product or service…meets a particular
need’. Outcomes need to have specific,
powerful functionality for consumers to
view them as valuable.

The warranty is ‘the assurance that a

product or service will meet agreed
requirements’. Regardless of how much
utility a service provides, if it has a poor
warranty, the value proposition will be
negatively impacted.

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 Activity

Let’s do a quick thought experiment. Think about your

own organization for a moment and identify an output
or a number of outputs which result in an outcome for
your customers. Type the output/s and outcome into
the box.

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 Now think of the costs and risks associated with the
outcome. Enter into the box: 1) the costs and risks your
outcome removes from the customer and 2) the costs
and risks your outcome imposes on the customer.

Lastly. type what you think the utility of your service

is into the box. Do you think the warranty your
organization offers on the utility is sufficient? If not,
why?

If you’ve typed all of these out, you have a strong idea

about what your organizations value proposition is for
this specific outcome!
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Service relationships

Service offering

Now that you understand more about

how organizations co-create value with
their customers, let’s take a closer look
at how they think about the services
they offer. A service offering is ‘a formal
description of one or more services,
designed to address the needs of
a target customer group’. A service
offering can include goods supplied
to the customer, customer access to
resources, and services actioned for a
customer.

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 Service provision

Service provision is the way the service

offering is delivered to the customer. It
includes the management of the service
offering, making sure that customers
can access the offering, fulfilling the
agreement with the customer (the
warranty) and the focus on continual
improvement.

Service consumption

Services are consumed by organizations

to provide their own services. Service
consumption is about managing the
resources customers need to consume
services, and service actions performed
by users.

Service relationship
management

ITIL 4 defines service relationship

management as the ‘joint activities
performed by a service provider and a
service customer to ensure continual
value co-creation on agreed and
available service offerings.’

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Definitions

Service offering
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.

Customer
A role that defines the requirements for a service
and takes responsibility for the outcomes of service
consumption.

User
A role that uses services.

Sponsor
A role that authorizes budget for service consumption.

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 Utility
The functionality offered by a product or service to
meet a particular need. Utility can be summarized as
‘what the service does’ and can be used to determine
whether a service is ‘fit for purpose’. To have utility, a
service must either support the performance of the
customer or remove constraints from the customer.
Many services do both.

Warranty
Assurance that a product or service will meet agreed
requirements. Warranty can be summarized as ‘how
the service performs’ and can be used to determine
whether a service is ‘fit for use.’ Warranty often relates
to service levels aligned with the needs of service
customers. Warranty could be based on a formal
agreement, or it may be a marketing message or brand
image it typically addresses areas like the availability of
the service, its capacity, levels of security and continuity.
A service may be said to prove acceptable assurance, or
‘warranty’ if all defined and agreed conditions are met.

Service management
A set of specialized organizational capabilities for
enabling value for customers in the form of services.

ITIL® is a registered trade mark of AXELOS Limited, used under permission of

AXELOS Limited.

Based upon AXELOS® ITIL® materials. Material is used under licence from AXELOS
Limited. All rights reserved.

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