Service Value Chain Explained - Business Chronicler

Businesses exist to create value for their customers. This value can take many forms, but ultimately, the customer decides what is valuable to them. Establishing high-performance business operations requires understanding how to create, deliver and capture value throughout the service value chain.

The concept of the service value chain isn’t new. Michael Porter first introduced the idea of value chains in his 1985 book, Competitive Advantage: Creating and Sustaining Superior Performance. However, the service value chain is a specific application of Porter’s generic value chain model to the service sector.

ITIL 4, released in 2019, introduces the service value system (SVS) as a holistic and integrated approach to value creation. The SVS brings together all the resources, components, and activities required to deliver customer value. The service value chain is one of four interdependent models that make up the SVS.

In a bid to understand how all the pieces of the puzzle fit together, this article will explore the service value chain and how it can help your business deliver more value to customers.

Bottom Line Up Front

The service value chain (SVC) is a subset of the service value system (SVS). The SVC is a specific and integrated set of activities that creates and delivers value to customers. These activities enable the realization of business goals and objectives and are essential to the success of any service organization.

What is Services Value Chain?

ITIL-4 defines the service value chain as a model outlining the critical activities needed to respond to demand and foster value realization by creating and managing services and products. It acts as a guide for structuring the end-to-end process required to develop, deliver and support services.

As with any value chain, the service value chain is a sequence of activities that work together to create value. Businesses can perform these activities either internally or outsource them to third-party providers. Unpacking the service value chain provides insights into how businesses/companies can optimize their operations to serve their customers better.

The service value chain has six main activities businesses need to create value for their customers. These activities include the following:

Plan
Engage
Design and Transform
Obtain/Build
Deliver and Support
Improve

The following sections will explore each of these activities in more detail.

Understanding the ITIL 4 Service Value Chain

ITIL-4 is the most recent iteration of the Information Technology Infrastructure Library (ITIL), a globally recognized set of best practices for IT service management. Unlike previous versions of ITIL, which were process-oriented, ITIL 4 takes a holistic and integrated approach to value creation called the service value system (SVS).

The SVS is a system that combines all the resources, components, and activities required to deliver customer value. The service value chain is one of five interdependent elements that make up the SVS.

The other four elements are:

Governance
The seven guiding principles model
The four dimensions model (Practices)
Continual improvement

The five elements are interdependent. When one changes, the others must also change to maintain alignment. A model won’t function without governance. It will likely lose focus without the guiding principles. The four dimensions provide context, and continual improvement ensures the system evolves to meet the ever-changing needs of the business.

Service Value Chain vs. Service Value System

Once you understand the service value system, it’s easy to see how the service value chain fits into the bigger picture.

The difference between the two models is that the SVS is holistic and integrated, whereas the SVC is linear. The SVS looks at the bigger picture and considers all the elements that influence value creation. On the other hand, the SVC is a sequence of activities that work together to create value.

So when designing or re-designing your service management processes, keeping both models in mind is essential. The SVC will help you understand the activities you need to perform to create value. The SVS will ensure that your processes integrate and align with the other elements of the service value system.

Core Activities of the Service Value Chain

The success of any organization depends on how it responds to customer demands. ITIL-4 emphasizes a proactive approach to business where value is a guiding principle. By establishing a combination of activities that work together for the customer’s benefit, an organization can achieve better results.

The input and output of each of the activities are interrelated. The output of one activity could be the input of another. Each of the six activities of the service value chain has a unique purpose that aligns with a different stage of the customer lifecycle.

Below is an in-depth look at each activity and how it helps create customer value.

1. Plan

The services delivered by an organization address specific objectives. The purpose of the plan value chain is to ensure a shared understanding of the vision, status, and direction across all the dimensions of the organization, including the products and services. As such, the plan value chain should result in the establishment of a clear and achievable service vision, goals, and objectives that align with the overall business strategy.

Input

Policies, constraints, and requirements provided by an organization’s governance framework (For example, The material approaches of HR services, which employees of an organization must follow)
Consolidated information on demand, opportunity, and third-party service components, from engage (For example, demand can be the number of tickets raised in the help desk, opportunity can be the sales pipeline, and third-party service components can be the SLAs with an external provider)
Information on value chain performance, improvement activities and plans, and other feedback loops, from Improve (For example, information on how well the IT department is performing in comparison to others in the company and what improvements the department plans to make)
Statue reports on improvement from Improve (For example, reports on the implementation of new processes or technologies)
Information about changed services or products from, obtain/build and design and transition (For example, information about a new product launch or an upcoming service retirement)
Information on third-party service components from engage (For example, information about an external provider’s SLAs or the support they offer)

Output

Strategic, tactical, and operational plans that establish the service vision, goals, objectives, and strategies for creating value (The strategic plan would be the long-term vision for the service, the tactical plan would be the steps needed to achieve that vision, and the operational plan would be the transactional level details of service delivery)
Portfolio decisions necessary for Design and transition (Here, portfolio decisions refer to the decisions made about which products and services to offer, including their Design, development, and deployment blueprints)
Policies and structures for design and transition (List of solutions, MIS and tools, processes, and people policies necessary for the successful execution of Design and transition)
Improvement opportunities and plans (For example, opportunities to improve the way new products are designed or how services are delivered to customers)
Agreement requirements, contracts, and Statements of Work (SOWs) for Engage (For example, the consolidated information on demand, opportunity, and third-party service components from engage would be used to generate SOWs for external providers)

2. Engage

Engage value chain aims to build trust-based relationships with customers and other stakeholders by providing them with relevant information, prompt responses, and a positive experience. A service is successful only when stakeholders realize the benefits it promises.

As such, the engage activity of the value chain should result in customers and other stakeholders feeling valued, informed, and supported throughout their interactions with the organization. The organization must devise mechanisms to understand customer needs and expectations and then work to meet or exceed them.

Input

Service or product portfolio from Plan. The entire list of products and services like software, hardware, processes, people, etc.
Requirements and preferences from customers, from Customer Segmentations (For example, in the case of tickets raised in the help desk, the customer’s preferences would be the type of ticket they want to raise, the priority they want it to be given, etc.)
Information on identified demand for services provided by internal and external customers like HR executives, customer support specialists, etc. (For example, regular service available to all or exceptional service for specific customers)
Incidences, feedback, and service requests (For example, detailed information on failure reports, complaints, and recommendations for changes)
Marketing opportunities (From current and potential customers – For example, information about a customer who is unhappy with the service and is likely to switch to a competitor)
Details on completion of support activities/ tasks from deliver and support (For example, information about the closure of a ticket raised in the help desk)
Agreement requirements and contracts from all the value chain, from Design and Transition (For example, information about the SLAs agreed upon with eternal providers)
Improvement initiatives and plans from Plan (For example, initiatives to improve customer satisfaction or reduce the number of complaints)

Output

Consolidate information on demands and opportunities throughout the entire value chain from Design and Transition, Plan and all other value chains.
Service requirements needed for Deliver and Support (An output of the segmentation analysis that would provide a better understanding of which services to offer and how to design them)
Key improvement opportunities and plans for Improve (For example, process improvements or new service offerings based on customer feedback)
Information on third-party services for the entire value chain (For example, outsourced help desk services or cloud storage)
Project change or initiation requests for Obtain and Build (For example, a request for new hardware to support the new service)
Performance reports and feedback for customers, other stakeholders, and upper management (For example, reports on customer satisfaction or the number of complaints

3. Design and Transition

The design and transition activity in the service value chain is responsible for creating service solutions that meet customer requirements, designing new or modified services, and transitioning them into operation. It ensures organizations meet their service-level commitments and delivers new or changed services in a planned, controlled, and repeatable manner.

Ensuring timely and effective transition of new or changed services is essential to the success of any organization. A well-designed and executed transition plan will minimize disruptions to business operations and ensure a smooth transition to the new or changed service. The transition plan should consider the type of change, the potential impact on customers and other stakeholders, and the risks involved.

Input

Portfolio of services provision from Plan (Need to consider all the service and product portfolio)
Policies and strictures as provided by Plan (For example, organizational change management policy)
Service requirements and customer expectations from Engage (For example, information about the type of ticket a customer wants to raise or the priority needed)
Components of service solution from Obtain/build
Information about third-party services from Engage (For example, are there any new or modified service dependencies on suppliers?)
Performance information from Improve (For example, trend data on customer satisfaction or the number of complaints)
Consolidated information about new or changed services from Obtain/Build (For example, information about a new product launch that would impact the service)

Output

Information on specific requirements for new or changed services for Obtain/Build
Contractual agreements needed for Engage (For example, information about the SLAs agreed upon with third-party suppliers)
New services or changed services for Deliver and Support
Consolidated information on improvement opportunities and information on performance for Improve

4. Obtain/Build

The Obtain/Build process in the service value chain is responsible for procuring or developing the components needed to deliver the new or changed service. This activity ensures all the components are available and fit together to form an integrated service solution.

In many organizations, the Obtain/Build process is closely linked to the Design and Transition process. For example, new products or services may be procured or developed in response to customer demands identified during the engage process. The components of the new service may also be procured or developed in response to changes identified during the Transition process.

Input

Policies and structures provided by Plan (For example, organizational change management policy)
Contractual information, agreements, and dependencies from Engage (For example, information about SLAs agreed upon with third-party suppliers)
Proposed changes or new services from Design and Transition, requests raised to support the new or changed service (For example, a request for new hardware to support the new service)
Requirement and specifications needed to support the new or changed service from Design and Transition (For example, information about the capacity needed to support the new service)
Information about third-party services from Engage

Output

Contractual information, agreements, and dependencies for Engage
Improvement opportunities and performance information for Improve
Components of service for Deliver and Support and Design and Transition
Information on new or changed services for Deliver and Support

5. Deliver and Support

Services Value Chain-Deliver and Support

Deliver and support is responsible for delivering the new or changed service to customers and providing ongoing support. This activity includes all the processes and functions needed to make the service available to customers and keep it running smoothly. The support function is often responsible for monitoring and managing the performance of the service.

Organizations must ensure that the new or changed service meets the expectations of customers and other stakeholders. To do this, they must clearly understand the customer’s requirements and expectations. They also need to ensure that all the service components properly integrate and work together as intended.

Input

New/changed products or services from Design and transition
Contractual information, agreements, and dependencies provided by Engage
Service components as provided by Obtain/Build
User support tasks from Engage (For example, tasks needed to train customers on how to use the new service)
Third-party service information from Engage

Output

Consolidated information on services supported and delivered to customers
Report on completion of user support tasks for engage
Service performance information for Improve
Change requests for Obtain/Build and Design and Transition

6. Improve

Improve is responsible for continuously improving the service. This activity includes all the processes and functions needed to identify and implement improvements to the service. This activity aims to increase the value of the service to customers and other stakeholders while also reducing costs.

Organizations must continually monitor and evaluate the performance of the service. They must also identify and implement improvements to the service on an ongoing basis. To do this, they need to establish processes and procedures for collecting customer and stakeholder feedback. They must also identify and track the service’s key performance indicators (KPIs).

Input

Product and service performance information from Deliver and Support
Customer feedback from Engage (Including all the stakeholders)
Service performance information from the entire Service Value Chain
Consolidated information on third-party service changes from Engage
Information about new or changed services from Design and Transition

Output

Improvement initiatives for the entire Service Value Chain
Status reports on improvements initiatives for the whole of the Service Value Chain
Performance information of the whole value chain (for example, KPIs) for Plan
Contractual information, agreements, and dependencies for Engage

Service Value Chain Explained (FAQs)

Question: Why is the service value chain important?

Answer: The service value chain is important because it provides a structured approach for thinking about and managing the end-to-end delivery of value to customers. It helps organizations to clarify their roles and responsibilities and to understand how their activities fit together to create value.

Question: What is the purpose of the service value system?

Answer: Elements of the service value system work together to help organizations design, build, and operate services that create value for customers. Given that services are intangible and often complex, the service value system provides a framework for designing, building, and operating them effectively.

Question: What is the difference between a service value system and a service value chain?

Answer: According to ITIL 4, a service value system is a set of components that work together to create value for customers. The service value chain is a subset of the service value system and is the sequence of activities that create value for customers. Therefore, the service value chain is one way of creating value for customers, but it is not the only way.

Closing Thoughts

Understanding the service value chain is critical to unlocking the true potential of your service organization. By aligning your activities with the stages of the service value chain, you can ensure that you are providing maximum value to your customers. The above article gives a detailed overview of the service value chain and how you can use it to improve your service organization.

While the service value chain is a powerful tool, it is important to remember that it is only one piece of the puzzle. To truly transform your service organization, you must take a holistic approach that includes other factors such as organizational culture, customer experience, and technology.

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John Hughes

John Hughes is a seasoned expert in digital marketing strategy, business model analysis, and financial insights. Possessing a robust background in finance, his expertise extends into deciphering complex business models, conducting comprehensive SWOT analyses, and staying attuned to the latest market trends.