Lesson 04: What is Value?
We talk a lot about ‘value’ (business value), not only in service management, but also in Agile and DevOps, and sometimes in project management. So, let’s take a look at what it means.
Based on AXELOS ITIL® material. Reproduced under licence from AXELOS. All rights reserved.
- 00:06 – So, welcome back and the focus of this lesson is going to be Value.
- 00:11 – So, I hope it turns out to be a valuable lesson.
- 00:15 – Value is a very subjective concept.
- 00:19 – Value is a word that cannot really exist on its own, nor should it exist on its own.
- 00:25 – Value has to be value to somebody, value to a particular stakeholder, customer, user, whatever.
- 00:34 – So, it’s important that we realize that.
- 00:37 – It’s not enough for us to decide we’re delivering value, value has to be something that’s received by somebody who appreciates it as value.
- 00:45 – So, it depends not just on the absolute output that it delivers, it also has to be based upon whether they’re willing to receive that value.
- 00:58 – It’s no good delivering value in a way that the customer or stakeholder doesn’t like.
- 01:04 – It’s no good delivering something that’s perfectly functional, but the wrong color if that matters to them, and it’s no good delivering value, sending out the value from our side, if the recipient of that value doesn’t know that it’s there or doesn’t know that it’s coming.
- 01:21 – If they don’t have the perception to see that the value is there to be used, it will not be used and if it’s not used, it will not deliver value.
- 01:30 – So, value is subjective. It’s based on the actual output.
- 01:33 – It also depends on the preference and the perception of the people we’re trying to deliver the value to, and we understand that in our everyday lives as well.
- 01:43 – I’m sure you have your particular preferences.
- 01:47 – A musician may deliver excellent value in their own mind.
- 01:51 – It will not appeal to somebody who doesn’t like that genre of music, however good it is. So, we do understand these things, and your favorite musician may have produced the most wonderful stuff, but if you don’t know it’s there, you won’t buy it, you won’t listen to it.
- 02:07 – So, again, this is all based on common sense, as everything in this lesson and in this whole course is.
- 02:15 – Value is not just something that one person or one group of people creates and other people enjoy.
- 02:25 – It has to be, to use as a term, co-created. We’re going to look at that in a little bit more detail in a moment.
- 02:31 – It has to therefore depend on collaboration between providers and consumers and organizations, and ITIL uses that word in an important way and value.
- 02:41 – So, we’re going to look at some of those key building blocks in terms of the words that we’re going to use, and these stakeholders, in order to deliver that co-created value, have to have a bigger view across the value chain to see where it’s coming from or where it’s going to and how all the elements fit together.
- 02:59 – So, in order to achieve value, we need to realize that everything costs, as we’ve talked about before.
- 03:08 – So, a service relationship will be seen as valuable only if it delivers more than it costs.
- 03:17 – That could be in terms of the outcomes that are affected or supported.
- 03:23 – It could be in terms of the costs introduced because every time we do something, it will introduce some degree of costs.
- 03:30 – Hopefully, it will also reduce … remove some costs.
- 03:34 – Classic example in the early days of IT, of course, was almost everything we did was designed to do something cheaper, to do something that needed to be done before in a cheaper way.
- 03:45 – That’s how IT got where we are these days. That’s not enough anymore.
- 03:49 – Services will do new things, will remove some risks, but probably also introduce some risk.
- 03:57 – So, value is that balance.
- 03:59 – Typically when we draw this up, we see the value of things delivered being more than the costs and the disadvantages we get.
- 04:08 – And usually in life, we want more.
- 04:11 – If you’re paying a lot of money to a gym to get fit, then maybe your result is less, but by and large, we will see the scales coming down on the value side as a good thing.
- 04:23 – Value depends on whether we deliver what is useful to the customers and we’ve got to be careful that sometimes the customers aren’t so good at knowing that, the people we’re delivering to, maybe we’re not so good at knowing what we received, and the terms that ITIL uses here related to value are important.
- 04:43 – They’re the terms Output and Outcome.
- 04:47 – An Output is a deliverable from an activity, either something you can pick up or something you can appreciate.
- 04:55 – It’s tangible or intangible, to put fancy words on it. Deliverable of an activity.
- 05:00 – I do something and this results. I get a drill and I drill something, I get a hole.
- 05:07 – I get in a car and drive somewhere. I’ve gone for a transportation.
- 05:13 – I print something out, I’ve got a printout of it.
- 05:17 – That’s the technique we use, that’s the output.
- 05:20 – What we’re trying to achieve is an Outcome, the end result.
- 05:24 – What does our stakeholder actually get from that?
- 05:28 – And it’s important to understand that if we focus too much on outputs, then we focus on getting better at what we do rather than doing something that is useful.
- 05:43 – We’ve talked about drills and holes as a really good example.
- 05:48 – This famous professor came out with a phrase, “People don’t buy a quarter-inch drill bit because they want to own a quarter-inch drill bit.” “They buy a quarter-inch drill bit because they’ve identified the need for a quarter-inch hole in something.” So, you can imagine somebody goes to the hardware store and says, “Sell me a quarter-inch drill, will you?” and the guy says, “Oh, I’m really keen that I satisfy your needs here and deliver value.” “What output do you require?” and he says, “Look, now I’ve done ITIL courses before,” he says, “I know that I need a quarter-inch hole in something.” “No, no. Seriously, tell me what you’re going to do with the drill?” “Well, okay. We’ve got a very noisy workshop and we’ve got our office on one side of it” and the street to the door … door to the street, silly me, and we’ve got people coming to that door knocking on the door.
- 06:44 – We’re not hearing them because the workshop’s so noisy. We think we’re missing customers.
- 06:48 – We’re getting our suppliers having to wait and waste their time." Very simple, we’re going to put a bell in the office, we’re going to put a push button at the door.
- 06:55 – I need to run a cable under the floor. I need to drill holes in the joists." The guy behind the counter looks and says, “I could sell you a call … very, very good wireless bell.” “That will deliver what you need without the need for the drill.” If we get to the outcome that we’re trying to achieve, there is a very good chance that we will come up with a better way of doing it.
- 07:20 – If we don’t understand what that outcome is, then the odds are we will put a lot of effort into getting better at the way we do something instead of what we do.
- 07:30 – This is absolutely fundamental to good Service Management.
- 07:34 – Many years ago, I had a user of my computer system come and tell me he needed a printout of all the store’s items he had in his building.
- 07:44 – It would’ve stood 2 meters high printed out, and I managed, after some conversation and some coffee, to find out what he planned to do with that printout, and instead I produced a printout that was maybe 2 cm high that only showed the things he needed to deliver that outcome.
- 08:05 – It’s a really critical concept and we need to understand it.
- 08:10 – We need to focus on the overall customer experience.
- 08:14 – What is it they need in order to do it?
- 08:16 – And as I said, it isn’t always the case that they know it yet, so we have to work with them and it depends on the relationship we can set up for them.
- 08:24 – So, we’re talking about creating value, but we need to stop and think about that.
- 08:31 – The traditional approach is I create value for you. Where does that leave me?
- 08:37 – It leaves me just as some kind of disenfranchised supplier.
- 08:41 – That’s not the world we live in.
- 08:44 – When we buy something, whether that’s a car or a cup of coffee, then value is broader.
- 08:50 – I get the cup of coffee. I have value from being refreshed and awake and not being thirsty anymore, or maybe I have value from sitting in a convenient environment, talking to my friends, all those things that come with it, but the maker of the coffee gets value too.
- 09:07 – At the very least, they get paid for it. They have a successful business.
- 09:13 – Good value is co-created.
- 09:15 – Everybody involved in that value chain and the process of creating the value needs to get value from it.
- 09:22 – Otherwise, it is not really sustainable.
- 09:25 – This isn’t about slaves delivering to masters.
- 09:28 – This is about collaboration and relationship, and if you want to think about that, an example of that in everyday life, think about your family.
- 09:36 – In any situation in family life, where value is only being given to one person, it’s going to cause massive disharmony.
- 09:45 – Now, you probably did this at home when you were a teenager.
- 09:49 – So, think back, think guilty, use the lesson.
- 09:53 – Understand that one-way value is rarely a good thing, maybe never a good thing.
- 09:59 – We all should appreciate it.
- 10:01 – So, co-creation, the magic phrase.
- 10:04 – And you saw that term co-creation in our definition of a service, and it’s important that it stays there and that you understand it.
- 10:13 – Aspects of value are worth considering too.
- 10:17 – And ITIL uses the terms Utility and Warranty.
- 10:22 – Now, those words have been around for a while, but they’re still important that you stop and take care with those words.
- 10:29 – If you’re not familiar with those words in the Service Management context, you stop and be careful because they don’t mean what they mean in ordinary everyday English.
- 10:41 – So, it’s an example and there will be more examples as we go through the course of hijacked words, words that have perfectly good everyday use in the English language, but we’ve now chosen to take and give a very specific meaning in our context. So, I say be careful.
- 10:59 – Let’s look at Utility first.
- 11:02 – Utility is the functionality offered by a product or a service or any other item, and it’s about what the service does, whether it’s fit for the purpose I want it for.
- 11:13 – It’s what it does. If you like, it’s how you will utilize it.
- 11:17 – Now, maybe that helps us see where the word has come from.
- 11:20 – Functional requirements in old-fashioned IT speak.
- 11:25 – That’s not enough. It’s not enough for a service to do something we want, to do something useful.
- 11:35 – It also has to be reliable enough.
- 11:38 – It has to be performing in a way that’s satisfactory.
- 11:42 – So, it has to be there when we need it. It has to be fast enough.
- 11:46 – It has to be big enough to cope with what we want.
- 11:49 – These days, particularly, it has to be secure enough so that we know we’re safe using it.
- 11:54 – Those are the Warranty aspects.
- 11:57 – A warranty is an assurance that a product will meet the agreed requirements, that it’s there when we need it.
- 12:02 – It’s how the service performs so it’s fit to use.
- 12:07 – And if you think about value and receiving value, it has to have both of those elements.
- 12:13 – It’s no good us getting a service that does wonderful things, but so unreliably that we can’t use it.
- 12:21 – Think about watching your favorite movie streamed to your computer.
- 12:27 – It’s great that you’ve got your favorite movie being streamed to your PC.
- 12:32 – It’s no value at all if it’s an unreliable connection that goes up and down so much that you can’t actually watch it with enjoyment. You have to have both, and it’s also, of course, no use at all to have a massively stable, high-speed connection to your computer, but not have anything worth watching from your streaming service.
- 12:53 – We need both to get Utility and Warranty.
- 12:56 – We need Utility and Warranty together, working together in concert and harmony to deliver value.
- 13:03 – Again, everyday common sense, given some fancy words and a context, so that we understand them and take them seriously in our work concept.
- 13:14 – What we’re going to look at next is the building blocks relating to people and the roles that they perform.
- 13:21 – We’ve looked at the value that we deliver to them.
- 13:24 – We’ve looked at the services and the construct of services delivery.
- 13:28 – People are still the hardest thing to deal with.
- 13:31 – People are always the potential weak link, so it’s important that we understand their roles and the different kinds of people, different kinds of roles, that build up our Service Management successful mechanism.
- 13:45 – So, that’s what we’re going to do next. See you there.
So, value is a subjective concept, meaning that it’s not an absolute concept independent of its receiver; it’s always “value for someone”. Can you think of something that has different values for different people? Can you describe why this is important to consider this in service management and project delivery?
Again, how is value created according to ITIL? :)
Yes, value is “co-created”.
Do you remember the example of the person who wanted to buy a drill bit? Can you use it to describe the difference between output and outcome?
In your opinion, what’s the output and what’s the [expected] outcome of this course? :)
We’ve tried to be focused on the outcome, instead of the output, but more importantly, we’ve tried to add value. Let us know if we’ve succeeded at the end of the course.
Can you think of a single outcome that can be achieved with different outputs?
Do you remember the difference between utility and warranty?
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