Key Concepts of Digital Product and Service Management
The Service Economy
Since the mid-twentieth century, services have increasingly dominated the global economy. Factors driving this shift include globalization, digital transformation, and the movement from manual to intellectual labor. The COVID pandemic accelerated this trend further.
The services sector now encompasses financial services, professional services, transportation, logistics, tourism, retail, and notably, digital services. Digital technologies enable services across all industries, creating new opportunities for value creation and performance optimization.
Service Value
Value represents the perceived benefits, usefulness, and importance of something.
Service functions as "a means of enabling value co-creation by facilitating outcomes that consumers want to achieve, without the consumer having to manage specific costs and risks."
Service value is the perceived benefits, usefulness, and importance of a service.
Organizations acting as service providers generate outputs enabling consumers to achieve specific outcomes. Understanding this distinction is fundamental to effective service management.
Outcomes and Outputs
Output is a tangible or intangible deliverable of an activity.
Outcome is a result for a stakeholder enabled by one or more outputs.
For example, a wedding photography service's output might be an artfully arranged photo album, while the outcome is preserving memories and enabling easy recall.
Why this distinction matters: Providers focusing solely on outputs may deliver technically excellent results that fail to create value. A photographer could produce stunning work, but if the couple wanted documentary-style coverage, the output doesn't enable the desired outcome.
Three outcome definition patterns exist:
- Co-defined outcomes: Provider and consumer jointly define desired outcomes; Business Relationship Managers regularly engage customers.
- Analysed outcomes: Providers analyze existing consumer needs and design services to meet or exceed them (typical for standardized services).
- Predicted outcomes: Providers predict or create demand for certain outcomes, forming target groups (social networks, smart home solutions, AI assistants).
Unintended effects: Services may prevent or reduce other desired outcomes or introduce undesired ones. Delegating tasks may hinder skill development; social network overuse may affect social skills; extensive AI assistant reliance may negatively impact critical thinking. Providers should capture and analyze such unplanned effects.
Costs: Two Types
Cost is "the amount of money spent on a specific activity, resource, product, or service."
Two cost groups exist from the service consumer's perspective:
| Cost Type | Description | Examples |
|---|---|---|
| Costs removed | Costs reduced or fully removed from the consumer by the service (positive value proposition component) | Staff, technology, and other resources the consumer no longer needs to provide or manage |
| Costs imposed | Costs imposed on the consumer by the service (costs of service consumption) | Price charged by the provider, staff training, costs of resource utilization, procurement |
Full cost awareness: Understanding both cost types is essential when assessing expected service value. Consumers sometimes focus only on price without recognizing eliminated costs. Providers must ensure service delivery remains within budget while meeting financial expectations, supported by effective service financial management practices.
Risks: Two Types
Risk is "a possible event that could cause harm or loss or make it more difficult to achieve objectives."
Two risk types exist for service consumers:
| Risk Type | Description | Examples |
|---|---|---|
| Risks removed | Risks reduced or fully removed from a consumer by the service (value proposition component) | Failure of consumer's server hardware, lack of staff availability |
| Risks imposed | Risks imposed on a consumer by the service (risks of service consumption) | Service provider ceasing to operate, experiencing a security breach |
Providers must manage service-specific risks on behalf of consumers. Often, services reduce rather than eliminate consumer risks, but the reduction may sufficiently support the value proposition.
Digital Products and Digital Services
Digital product is "a combination of an organization's resources based on digital technology and designed to offer value to consumers."
Digital service is "a service that fully or largely relies on digital products."
Digital services always build upon digital products. Products provide capabilities; service offerings describe potential value to customers. One service may be based on one product, or relationships may be more complex: one product enabling many services, or one service based on several products.
The Digital Spectrum
Products exist on a spectrum from purely analogue to purely digital:
| Category | Description | Example |
|---|---|---|
| Purely analogue | Works without digital technology | Hand-crafted furniture |
| Digitally supported | Core functions work without digital technology; uses it for non-core functions | A thermostat with a digital display |
| Digitally enabled | Has analogue/physical components but depends on digital technology for core functions | A modern car with engine management systems |
| Purely digital | Software products with no analogue or physical components | A mobile banking app |
ITIL recommendations apply primarily to digitally enabled and purely digital products.
ITIL Car Rental: Digital services and digital products
Alex: "ITIL Car Rental service has evolved significantly. Initially, digital services were optional alternatives: customers could book by phone or website. Later, mobile apps became the primary booking method. New features -- in-app payments, AI-based damage detection, smart fuel-level tracking -- made the entire user journey fully digital. The car rental service became digitally enabled. Today, introducing driverless cars, we offer a digital service of private transportation, built on a digital product integrating partner vehicles with our applications and information systems."
Max: "But is a driverless car a digital product? After all, it's still a vehicle made of plastic and metal, not software."
Alex: "Great question! You're right. However, digital technology's role in these cars and their operation is critical. They simply won't work without it, just as smartphones or laptops. Digital products can include hardware."
Key Differences Between Non-Digital and Digital Products
| Characteristic | Non-digital | Digital |
|---|---|---|
| Resources | Physical resources and materials | Digital resources (software, virtual infrastructure) |
| Delivery | Physical delivery | Instant, digital delivery |
| Diagnostics | Cannot be diagnosed or fixed remotely | Can be diagnosed, fixed, and improved remotely |
| Production/use | Clear border between production and use | Developed, improved, and used simultaneously |
| Value co-creation | Transfer of goods | Access to resources |
Service Offerings
Service offering is "a formal description of one or more services designed to address the needs of a target consumer group. A service offering may include goods, access to resources, and service actions."
Three consumer-provider interaction forms exist:
| Form | Description | Example | Trend in Digital |
|---|---|---|---|
| Transfer of goods | Physical items transferred from provider to consumer | Transfer of equipment or consumables | Rare: providers aim to decrease or eliminate this form |
| Service action | An action performed by the provider or jointly with the consumer | User training, consultations, fulfilment of service requests | Relatively rare: providers aim to minimize this form |
| Access to resources | Consumer gains access to provider's resources under agreed terms | Access to applications, platforms, cloud resources, networks | Main form of digital service interaction: maximizes scalability and availability |
Consumer perception vs provider reality: These three forms have clear boundaries from the provider's perspective, but may appear different to consumers. An employee receiving a laptop may perceive "transfer of goods," but ownership often remains with the provider (actually "access to resources"). A user chatting with a chatbot may perceive a "service action," but from the provider's perspective this is "access to resources."
Service Relationships
A service relationship represents cooperation between a service provider and service consumer, including service provision, service consumption, and service relationship management. Organizations define roles they play in service relationships when establishing purpose and strategy.
Dual roles: An organization acting as service provider in one relationship may play the service consumer role in another. All organizations play both roles; many are also product vendors.
Consumer Roles: Customer, User, Sponsor
Service consumer is a generic organizational role. Three specific roles exist in practice:
Customer is "the role that defines the requirements for products and services and takes responsibility for the outcomes of service consumption."
User is "the role that uses services."
Sponsor is "the role that authorizes budget for service consumption."
Example (mobile phone services): A company acquires mobile phone services for employees from a mobile operator:
| Person | Role | What they do |
|---|---|---|
| CIO and communications team | Customer | Analyse requirements, negotiate contracts, monitor performance |
| CFO | Sponsor | Review proposed arrangement, approve the cost |
| All employees (including CIO, CFO) | User | Order, receive, and use mobile phone services |
An individual private consumer typically acts simultaneously as user, customer, and sponsor.
Types of Service Relationships
Service relationships involve sharing resources, data, and sometimes reputation. Three core types exist:
| Type | Focus | Org level | Typical services | Agreement type |
|---|---|---|---|---|
| Basic | Support and efficiency | Operational | Commercial off-the-shelf, commodity services, standardized | Standard contracts, SLAs |
| Cooperative | Improvement and effectiveness | Operational and tactical | Configured or customized services | Advanced SLAs, experience-based or outcome-based agreements |
| Collaborative (Partnership) | Innovation and growth | Operational, tactical, and strategic | Custom or bespoke services with unique value propositions | Bespoke contracts, outcome-based agreements |
Service Integrators
Specialized service integrators reduce risks of poor integration between multiple service providers. A common example is packaged tour operators, who coordinate transport, accommodation, and activities from different providers into a single consumer experience.
The ITIL Service Journey
Consumers often depend on successful consumption of many services delivered independently by multiple providers. For example, a family attending a concert depends on transport, venue, performance, dining, and return journey. These parts are typically delivered with minimal coordination, yet from the family's perspective, all co-create value. If one fails, the overall experience suffers negatively.
The Seven Steps of the Service Journey
| Step | Provider's focus | Consumer's focus |
|---|---|---|
| 1. Explore | Understand markets and stakeholders | Understand needs and market opportunities |
| 2. Engage | Foster relationships with consumers | Build trust with potential providers |
| 3. Offer | Shape service offerings to match demand | Articulate requirements and evaluate offerings |
| 4. Agree | Align expectations, plan value co-creation | Confirm scope, quality, and terms |
| 5. Onboard | Integrate consumer resources, provision access | Join the service, receive access and training |
| 6. Co-create | Provide service, deliver on commitments | Consume service, use accessible resources |
| 7. Reflect | Track value, apply continual improvements | Provide feedback, evaluate outcomes and costs |
Band of visibility: The shared space between provider and consumer in the service journey is the band of visibility. Customer experience is shaped primarily by interactions with the provider's management system throughout the journey. User experience is shaped by the design and performance of the digital product and by service interactions during consumption.
End-to-end thinking: Service providers focusing narrowly on their own service without considering the consumer's broader journey risk undermining the overall experience. The ITIL service journey model encourages providers to understand where their service fits in the consumer's end-to-end experience, even when they don't control other journey parts.
Service Quality
Services should enable value co-creation by facilitating desired outcomes. Since outcomes depend on both service consumption and service provision, it is difficult for providers (especially in basic or cooperative relationships) to specify outcomes and take full responsibility for their realization. Instead, the parties should establish a shared understanding of target and acceptable service quality, typically described as a combination of service outputs and user experience.
Organizations translate stakeholder expectations into metrics, then organize and manage resources appropriately. These metrics provide a formal definition of a particular service's service level.
Four Categories of Service Level Metrics
| Category | What it measures | Examples |
|---|---|---|
| Utility | What the service does: its functionality and fitness for purpose | Features available, data processing capability, integration options |
| Warranty | How the service performs: fitness for use | Availability, capacity, continuity, security levels |
| Sustainability | Environmental and social responsibility aspects | Carbon footprint, responsible sourcing, clean energy use, recyclable materials, transparent supply chains |
| Experience | How the service feels to use | Ease of use, attractiveness of interface, ability to access support, perception of value |
All four categories are present in every service to a greater or lesser degree, depending on the type of service and the relationship between provider and consumer.
Sustainability in service quality: Sustainability requirements may originate from national and international regulations, industry standards, or the organization's own sustainability strategy. They affect both the products and services themselves and the way the organization works. Service offerings addressed to individual consumers should take their sustainability preferences and expectations into account.
Service Level Agreements (SLAs)
Service Level Agreement (SLA): a documented agreement between a service provider and a customer that identifies both the services and the agreed level of services.
The common way to establish a shared understanding of expected and achieved service quality is through an SLA. The level of formality, scope, and customization of SLAs depends on the type of service relationship and the nature of the services.
At a minimum, SLAs describing a digital service should describe:
- Utility (what the service does)
- Warranty (how reliably it does it)
- Sustainability (environmental and social aspects)
When services are consumed by users (as opposed to infrastructure and platform services with no direct user touchpoints), it is a good practice to include user experience metrics in the SLA.
Managing service levels and SLAs is supported by the Service Level Management (SLM) practice.
Core Ideas to Remember
- Value is always co-created by provider and consumer together.
- Outputs are not outcomes: focus on what the consumer actually achieves, not what you deliver.
- Costs and risks have two sides each: what the service removes and what it imposes.
- Digital is a spectrum: from purely analogue to purely digital, with different management implications at each level.
- Three forms of service interaction: transfer of goods, service actions, access to resources. Digital services trend toward access to resources.
- Consumer roles are distinct: Customer, User, and Sponsor may be the same person or different people.
- Service relationships vary: from basic (standard contracts) through cooperative to collaborative partnerships.
- Service quality has four categories: utility, warranty, sustainability, and experience.
- The service journey has seven steps: from Explore to Reflect, with the band of visibility between provider and consumer.
Related Pages
- Why ITIL v5? (context and drivers)
- Four Dimensions (holistic view of service management)
- Guiding Principles (principles that guide all decisions)
- Value Co-Creation (service relationship models)
- Glossary (official terminology)
- Self-Assessment Quiz 1 (test core concepts)