ITIL 4 and Digital Transformation White Paper

This white paper considers the inseparability of service management and digital transformation. It also examines how ITIL 4 puts services at the heart of the discussion and reflects the need for new ways of working to accommodate broader technological shifts and other management approaches.

Introduction

The term ‘digital transformation’ is widely used by business and technology leaders, but it is worth pausing to reflect on what it really means, how it emerged and why it is important. This paper will use the fictionalized example of a mobile banking app to demonstrate the concepts of digital transformation. The basic concept of digital transformation is that several significant technological events radically changed the way all enterprises work. Some of these created secondary events, which compounded the transformative power of this convergence of events. The list below is not exhaustive, but it serves to illustrate related advances that are relevant under this broad topic1:

• The availability of cheap and abundant computer power (Moore’s Law2)
• The availability of cheap and abundant storage space (Kryder’s Law3)
• Ubiquitous network connectivity (Gilder’s Law4)
• The explosion of internet-connected devices (Metcalfe’s Law5)
• Precise geographic location identification
• Data analytics, machine intelligence and machine-to-machine interactions
• Real-time feedback via social media.

The combined effect of these advances enabled representation in a machine-readable and actionable format of every document, image, video, sound, transaction, and measurement (typically referred to as digitization). This, in turn, disrupted entire industries with new business models and value-creating opportunities. ‘The business’ and ‘the technology’ became inseparable (often referred to as digitalization).

The advances described above created the conditions to catalyse the growth of other technology-related ideas, such as agile IT, rapid application development, Internet of Things (IoT) and software defined infrastructure. This fuelled a virtuous cycle, the consequences of which can be summarized as:

• The time and cost needed to prototype, build and run technology-powered services has significantly reduced, lowering the entry barriers for new competitive threats and opportunities.
• The cost for customers to change service providers has significantly reduced, which has lowered the barriers for change, therefore making markets more ‘liquid’ and enabling significant shifts in market share.
• The ability of organizations to reach, understand, influence and adapt to changes in customer behaviour has significantly increased, therefore improving the ability to create ‘mass personalization’ experiences through technology-powered services.
• The popularity of social media and the reduced cost of switching has made enterprises susceptible to real-time customer sentiment. Every type of enterprise is subject to an unprecedented level of threats, expectations and opportunities. Competitive forces are accelerating the innovation which is required to improve the way people work and live, changing the dynamics of local and global economies in the process.

For example:

• GE is providing field technicians with cutting-edge augmented reality glasses, which allow remote experts to see exactly what the technicians see as they repair wind turbines. It also provides the workers with hands-free access to information.6
• The Chinese education firm Liulishuo is changing education by introducing a sophisticated English teacher powered by artificial intelligence (AI) that delivers personalized, adaptive learning to millions of people.6
• Thomson Reuters has developed an algorithm that uses streams of real-time data from Twitter to help journalists classify, source, fact-check, and debunk rumours faster than ever before.6 This is a response to the critical need for accurate information which feeds the 24-hour news cycle.
• Amazon’s Echo device is managing customers’ shopping needs and the daily demands of busy lives. Amazon is now so integrated into day-to-day lives that new apartment complexes are designing dedicated Amazon Lockers for their buildings. People now trust the company with physical access to their homes, letting couriers make deliveries via Amazon Key and its smart-lock system.6
• Siemens offers its MindSphere operating system for IoT manufacturing devices to anyone, and as a result is cementing itself as an integral part of the new IoT universe.6
• Guatemalan shoe store Meat Pack pinched customers from competitors through a mobile app called Hijack. When potential customers entered a rival’s store, they were detected using the app and offered a promotion at Meat Pack. A discount countdown began, starting at 99 percent and ticking down by 1 percent every second until the consumer entered the Meat Pack store. When a discount was redeemed, the person’s Facebook status automatically changed to inform the world.7
• Netflix tracks how customers interact with on-demand film downloads to improve its recommendations engine. It looks at metrics such as when customers pause the movie and what scenes they watch again. Amazon Video cut its celebrity interview section of The Grand Tour after its data showed that most of the international audience skipped this section in Season 1 and 2.7
• Knewton incorporates the ability to track specific data about how students use its software to continuously improve the quality and effectiveness of its online class materials. It tracks how long it takes students to complete an assignment and their ultimate score. It also tracks their keystrokes, how long it takes them to answer individual questions, and if they stop in the middle of an assignment or question.7
• Catalina, a global marketing company, is using consumers’ profiles and in-store location, determined by the product QR codes they scan to generate offers as they shop for groceries.7
• Airbnb disrupted an entire industry, moving from initial idea to product in less than eleven months. It hyper-scaled to ten million bookings in less than 56 months.8
• Estonia became the first nation to hold legally binding general elections using the internet. It held a pilot project for the municipal elections in 2005, parliamentary elections in 2007, and parliamentary elections through mobile phones in 2011.9

Services and their ‘digital characteristics’

Imagine you were asked to build a new mobile banking service for Bank X. How would you define and segment the customers and other stakeholders of the service? How would you know what outcomes they were trying to achieve? And how would you define the components of value that really matter?

ITIL® 4 defines service as follows:

A service is 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 examples above neatly illustrate the importance of the definition of a service. In each case the relationship between customers (or stakeholders), value and outcomes is clear.

What is not always clear is how these things are managed as distinct services, or the role of the service provider in owning the associated costs and risks. When looking at an existing service, it can be difficult to imagine the mindset of the service provider when they first envisioned the service.

As we start to think about the role of the service provider, it is worth considering some of the key characteristics of technology-powered services that evolved from the virtuous cycle of digital transformation.

• Speed-to-market: These services have a quick transition from initial idea to reality. This requires much closer collaboration between teams from ‘the business’ and ‘tech’. Active involvement from those that really understand the customers, their desired outcomes, and what they value, is critical for success.
• Modular: The services are designed based on modular, loosely-coupled components, often focusing on a ‘minimum viable service’ that can quickly benefit from real-world feedback. This architectural style has the added advantage of allowing incremental changes in small batch-sizes, which both reduces the risk of change and increases change velocity. As with the characteristic above, this also requires close ongoing engagement at the business-technology interface.
• Fail or scale: The service leverages the low barriers of entry that come from a digital environment. Experimentation is cheap, rapid scaling is possible and failure is an option. Failure could mean change, and this sometimes presents a cultural challenge in organizations where the appetite for risk is historically low. 
• Cloud economics: The economics of these services are driven by OpEx and variable costs, rather than CapEx and fixed costs. This change in economic approach can often provide the catalyst for investment, but also presents challenges because the costs of using cloud platforms are consumption-based and may be unpredictable.
• Unknown unknowns: Given the pace of change it is important to recognize from the outset that there are some things we just don’t know. Service owners consciously seek feedback from customers and build adaptive systems that allow the service to incrementally evolve. This can be daunting because it involves consciously seeking feedback and asking customers and other stakeholders what they really think.
• Data-driven insights: This type of service leverages an individual’s data for mass personalization, and the entire data set for hidden insights. Not only does this require careful attention to navigate the challenges of information security, it also means that we need to become familiar with manipulating, processing and drawing insights from huge volumes of data.
• Automate to reduce toil: These services leverage automation wherever possible to allow for rapid change, predictable quality and the elimination of low-value human effort. This means that we need to culturally accept and embrace technology and automation and recognize our value. Often the best time to embed this mindset is at the start of service development activities, when technical debt is at its lowest and enthusiasm is at its highest.
• Improve services, not IT: The success of each service is reliant on empowered service teams that are free to be adaptive within certain boundaries. Traditional, top-down leadership, based on functions and rigidly prescribed processes, reduces change velocity and stifles innovation. Leaders should refocus their efforts on setting appropriate boundaries, developing service teams with a broad range of skills, and removing all unnecessary blockers to adaptive and incremental improvements. Service teams should be trusted and empowered to make the right decisions based on their in-depth knowledge, rather than a one-size-fits-all approach to the governance of functions or processes.

Service management: thinking differently

Returning to our example of the creation of a new mobile banking service, we start to think about our responsibilities as a service provider. Certain characteristics of the service lead us toward different ways of funding, architecting, ‘developing’, ‘operating’ and ‘managing’ the service.

The below examples of ‘thinking differently’ are driven by the context and characteristics of the service in question. A different service with different context and characteristics might require other forms of adaption. For example, a service with brittle architectures, high technical debt and limited need for regular enhancements may struggle to seize the benefits of digitalization. In fact, the service management mantra of adopt and adapt has never been more relevant than in situations where there is an abundance of choices. When developing our mobile banking app for Bank X we will plan for the following:

• Speed-to-market is important, with an acceptance that a ‘minimum viable service’ will be launched quickly to lay the foundations for rapid, incremental enhancements.
• The team will apply design thinking techniques and seek out skills in user experience (UX)/customer experience (CX). This will ensure good understanding of the customers’ expectations and desired service outcomes. A lot of focus will be placed on the bank’s external customers, but the design workshops will also include representatives from other key stakeholder groups to ensure that compliance, security, reporting and other dimensions of the service have been considered.
• A feature roadmap will be defined and prioritized to deliver the sufficient minimum viable service. This will include enrolling in the service, checking account balances and recent transactions, intra-account transfers, payments to others and ATM and branch locations. The features and functionality to deposit cheques using the smartphone’s camera, create and amend standing orders and direct debits, and block or unblock a card will be recorded on the service backlog but deferred to future releases.
• The service will require a loosely-coupled architecture, based on small blocks of code (microservices) and APIs, to allow for these rapid, incremental enhancements.
• A few service architectures will be proposed and assessed against the key dimensions of cost, performance, speed and risk. The team will settle on coding the application in Python and leveraging simple infrastructure-as-a-service capabilities. Furthermore, a rigorous information security assessment will be performed to gain approval for utilizing Public Cloud Provider X.
• As different architectures will be assessed, items may be added to the service backlog. For example, a simple approach to data back-up and archival may be agreed to balance speed and risk, but the team may then decide that there are other approaches to optimize for cost and performance after the minimum viable service has been launched. These approaches would then be reviewed and prioritized along with the roadmap of features and functionality as part of a holistic service backlog to create an appropriate balance between cost, performance, speed and risk.
• While the rest of the IT organization is designed around the traditional boundaries of applications, infrastructure, development, operations and security, the service team will be established as a separate entity with all the necessary skills required to manage the end-to-end service. A service owner will be appointed from IT with responsibility for facilitating the outcomes that stakeholders want to achieve from the service, whilst owning the specific costs and risks associated to it.
• A representative from the bank’s retail business unit will also be appointed to own the ‘voice of the customer’, to secure funding for the evolution of the service and make decisions on behalf of the business. Given the agreed approach of ‘start small, scale-fast’, this business representative will meet regularly with the IT service team to help steer efforts.
• During the initial development of the service, the service team may decide that they would incorporate continuous integration and continuous delivery (CI/CD) pipelines, highly-automated testing and blue-green deployments to maximize change velocity, minimize the risk of changes and reduce the impact of service failures.
• The application developers will quickly produce working code, along with the mechanisms to evolve it at speed and with increased quality. Meanwhile, the platform engineers will spend time understanding the key metrics of success (sometimes referred to as service level objectives) and defining appropriate error budgets to act as a throttle between the desire for change and the desire for stability. Furthermore, platform engineers will leverage centralized cloud platform management capabilities to ensure corporate standards are embedded, platform capabilities can be instantiated through automation, cloud-consumption costs are fully transparent and the ‘toil’ of repeatable, manual activities is automated where possible.
• Eventually, all stakeholder groups will agree the minimum viable service is ready for launch. The marketing campaign will be based on a ‘soft launch’ in a single country and v.1 of the new mobile banking service will be launched as a ‘blue deployment’, with feature flags set to control the initial roll-out.
• Once initial customer feedback is positive, the uptake of the mobile banking service may quickly exceed expectations. The transparency of cloud-consumption costs might show that demand is high and indicate that there are some parentless elastic IP addresses associated with the service that are incurring costs. The elastic IP addresses will be ‘stopped’ to optimize for cost.
• The service team will quickly move to reviewing and prioritizing items on the service improvement backlog and decide when to introduce new features into the next version whilst making operational changes to the underlying platform to improve monitoring.
• The CI/CD pipeline and automated testing established for v.1 will mean that the service team can quickly build and test the next version of the code. And the platform engineers will have new security standards so that the platform capabilities are instantiated through automation. Within a short time, version 2 of the Mobile Banking Service may be launched as a ‘green deployment’, using the same feature flags to control the roll-out.
• If monitoring the data suggests that the service is not performing adequately and highlights a need to roll-back to the ‘blue deployment’, the team will identify how to resolve the issues and quickly have a new version for the ‘green deployment’. Furthermore, the team may identify and introduce new automated testing to ensure repeat situations are caught before launch and new auto-scaling rules so that similar situations don’t impact the customer experience.
• The service team will continually identify, assess and prioritize opportunities to improve, evolving the service based on nearer-term business needs, rather than commitment to a fixed, multi-year plan.

Inseparability of service management and digital transformation

It is important to note that our approach to funding, architecting, developing, operating and managing the fictitious mobile banking service is not meant to be comprehensive. It simply aims to articulate the interrelated nature of many of the ideas often associated with digital transformation and ‘modern’ IT management. Although all organizations should consider how they can benefit from the technological advances associated with digital transformation, they will also need to master different IT management techniques.

Trying to break down the complexity of IT management is not a trivial task and the traditional IT domains of applications, infrastructure, development or operations are counter-productive to creating agile environments that foster innovation. ITIL 4, the latest iteration in the world’s leading service management framework, is unique in that it puts services at the heart of the discussion and reflects the need for new ways of working to accommodate broader technological shifts and other management approaches. This framework recognizes that true value does not reside in IT processes, functions or digital transformation programmes, but in the uniqueness of each service. Rather than promoting a rigid, one-size-fits-all approach, it also provides guidance that can be adopted and adapted to the uniqueness of each service.

References

1 Jim Miller, Forbes (https://www.forbes.com/sites/jimmiller/2018/08/13/what-is-a-digital-transformation-and-why-should-you-care/) [Accessed 22nd February 2019]

2 https://en.wikipedia.org/wiki/Moore%27s_law [Accessed 22nd February 2019]

3 https://en.wikipedia.org/wiki/Mark_Kryder#Kryder’s_law_projection [Accessed 22nd February 2019]

4 https://www.netlingo.com/word/gilders-law.php [Accessed 22nd February 2019]

5 https://en.wikipedia.org/wiki/Metcalfe%27s_law [Accessed 22nd February 2019]

6 Accenture Technology Vision (2018) https://www.accenture.com/t00010101T000000Z w /gb- en/_acnmedia/Accenture/next-gen-7/tech-vision-2018/pdf/Accenture-TechVision-2018-Tech-Trends-Report. pdf#zoom=50 [Accessed 22nd February 2019]

7 Accenture Technology Vision (2013) https://www.accenture.com/us-en/_acnmedia/Accenture/ Conversion-Assets/Microsites/Documents8/Accenture-Technology-Vision-2013.pdf [Accessed 22nd February 2019]

8 https://en.wikipedia.org/wiki/Timeline_of_Airbnb [Accessed 22nd February 2019]

9 https://en.wikipedia.org/wiki/Electronic_voting_in_Estonia [Accessed 22nd February 2019]

Source: axelos.com