CHAPTER 3
STEP 1: EXPLORE
3 Step 1: Explore
Explore is the first step on the customer journey, which may occur before a relationship between a customer and a service provider has been established. On this step, both parties explore their own needs as well as market opportunities for fulfilling them. Table 3.1 outlines the purpose of this further.
Table 3.1 The purpose of the explore step
Explore |
For the service consumer |
For the service provider |
Facilitate outcome and experience |
To completely understand their own needs and constraints and to be able to articulate them To identify the most suitable service providers and services, as well as the associated benefits, costs, and risks To prioritize the most beneficial service |
To develop the right services for the right customers To gain enough knowledge about the market to be able to establish and promote the services For internal service providers, the ‘market’ means the organization they serve |
Optimize risk and compliance |
To minimize the risk of investing in solutions for the wrong problems To identify service providers and services with the desired risk profile |
To understand and target competitors To prevent relationships with service consumers that impose risk on the service provider |
Optimize resources and minimize cost |
To avoid using resources on the wrong services and service providers To identify service providers that deliver value for money |
To optimize portfolios based on strengths and market opportunities |
From a service consumer perspective, it is crucial to understand the needs of the service consumer and other stakeholders before a service is requested. This chapter will provide commonly used methods for analysing organizational contexts in order to uncover problems and identify needs.
Once the needs are identified, evaluated, and prioritized, possible solutions should be explored in order to solve the problems and satisfy the needs. One option could be to request help from an internal or external service provider. This decision should be based on a good understanding of the opportunities available and how value is created in the organization.
From a service provider perspective, it is important to understand customer needs in order to provide the correct service; its services facilitate value for an organization only when their value is perceived to be higher than the cost and risk of obtaining those services. The service provider should understand what the customer values most and address the customer needs according to its organizational strength and weakness.
Key message
Before obtaining or providing a service, it is important to ensure that there is enough knowledge and understanding of the needs for the service.
The human mind has a natural bias for judging or deciding something too soon, resulting in unwarranted conclusions. When problems are complex, this is counterproductive. In these situations, the right people should be involved in the discussion and enough quality data should be gathered to draw an informed conclusion.
There may be several reasons for guesswork when obtaining or providing services, including:
• Technology focus Many projects fail when technology is implemented simply because it is new. The ITIL guiding principle of focus on value addresses this issue.
• Overconfidence Many organizations think that they already understand the needs of their customers, and they therefore do not ask what their customers value. The ITIL guiding principles of progress iteratively with feedback, focus on value, and collaborate and promote visibility address this issue.
• Acting before checking For example, an organization may develop a service without enough information about relevant legal requirements, and need to revise its plans later. The ITIL guiding principle of think and work holistically addresses this issue.
• Lack of time and resources It takes time and effort for an organization to explore and analyse needs, and it requires specialized skills, competencies, methods, and tools. These resources are often wasted on projects that are not valuable. The ITIL guiding principle of progress iteratively with feedback addresses this issue.
• Failing to consider costs and risks For example, many organizations build in-house products without considering the cost of maintenance and continual improvement. The ITIL guiding principles of think and work holistically and collaborate and promote visibility address this issue.
The ITIL story: Step 1 – Explore
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Mariana: Our eCampus Car Share service has been available for six months. We are using electric vehicles supplied by Axle Car Hire and we are parking those vehicles at allocated charging stations on campus, with the support of the university. |
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Tomas: Mariana should always be looking for new customers for the service. To support this, she needs to understand what motivates customers to choose the eCampus Car Share service over other options, such as traditional car hire, car-pooling, public transport, cycling, and walking. During the explore step, potential customers explore all these options to choose the best one for them at that time. |
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Mariana: Customers are also influenced by their perception of different service providers, and how well each option fits with their values, such as environmental sustainability. Our research showed that younger students are more influenced by a service provider’s sustainability ethics than older age groups. |
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Katrina: Typically, when I need to commute, I will access the internet and search for nearby options. I often share rides with friends or look for the cheapest available option. I saw one of the eCampus Car Share vehicles on campus and decided to investigate. I like that it has the backing of an international car hire company, and I appreciate the environmental responsibility of a local initiative. And it is great to find an option that is right here on campus. If it means delaying my trip for half an hour in order to use an electric vehicle that is right outside my faculty building, that is what I will do. |
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Mariana: Insights such as these are invaluable for understanding what our customers value. It is not only about price, it is about their passion to support what we represent. |
3.1 Understanding service consumers and their needs
Before a service consumer is able to completely understand and articulate its needs for service, the organization’s purpose and any influencing external and internal factors must be understood. When these have been explored, the service consumer is in a better position to make conscious product and service decisions.
When trying to understand an organization, it is easy to focus on what it does, rather than how or why it does it. Sinek has illustrated this with a ‘golden circle’ to remind organizations to focus on their purposes (Sinek, 2009). The golden circle is shown in Figure 3.1 and asks the questions:
• What? Every organization knows what they do.
• How? Some organizations know how they do what they do. Their methods and practices set them apart.
• Why? Few organizations know why they do what they do. ‘Why’ is the purpose, cause, or belief: the reason an organization exists.
Figure 3.1 The ‘golden circle’
Understanding an organization means understanding its purpose and vision. Every organization should have purpose and a strategy for achieving that purpose. A good purpose will motivate employees, affect how work is done, and provide direction for all service-related questions.
A stakeholder analysis is required to understand how service value is created for an organization and its stakeholders. Stakeholder analyses identify important stakeholders and their needs. The stakeholders can be internal and external to the organization, as shown in Table 3.2, an outline of typical stakeholders.
Table 3.2 Typical stakeholders
Internal |
External |
Owners Board of directors Senior executives Managers Employees Users Unions Internal customers Internal suppliers Legal, HR, security Governance, risk, and compliance |
External customers Suppliers Partners Special interest groups Regulators Community Public Media
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A prerequisite for a successful strategy is understanding the context of an organization, including the markets, customers, and other stakeholders. A widely used technique to explore the external context is the PESTLE analysis. A PESTLE analysis is a strategic tool that provides input for the organization’s strategy and direction, as well as for internal policies and procedures.
A PESTLE analysis covers six areas that are likely to affect the business: political, economic, sociological, technological, legal, and environmental. Examples of these areas are given in Table 3.3. A PESTLE analysis helps service consumers to identify opportunities and constraints. By understanding the external factors, the organization can better leverage opportunities and mitigate threats.
Table 3.3 Examples of key areas to address in a PESTLE analysis
a A circular economy (‘circularity’) is an economic system aimed at minimizing waste and making the most of resources.
Internal factors should be carefully assessed before changing or obtaining services. The objective should be to gain a common understanding of the current situation and to establish a baseline. The result of this assessment can be a baseline report that highlights developments and improvements.
The four dimensions of service management should be assessed in order to understand internal factors. Table 3.4 provides examples of key questions to address in an internal assessment for each of the four dimensions.
Table 3.4 Areas and questions to address in an internal assessment
Dimension |
Areas to explore |
Key questions |
Value streams and processes |
Key value streams Processes and services Current services Finance and profitability |
Are the organization’s purpose and objectives being supported? Where are the bottlenecks? Are the users happy with the current services? |
Organizations and people |
Organizational structure Roles and responsibilities Mapping of internal stakeholders Organizational culture Internal skills and competencies Existing policies, processes, and best practice |
Are there efficient management structures? Are roles and responsibilities clearly defined? Is there a service attitude? Do we have sufficient skills and competencies? Is there information security awareness among employees? |
Information and technology |
Data and information Technology platform and architecture Applications Information security challenges |
Does the information model match the business needs? Do we have proper technology and applications to support and digitize our services? Are the right technical controls in place? |
Partners and suppliers |
Existing service providers, partners, and suppliers Contractual obligations |
How well are the existing service providers being leveraged? How well can the existing service providers fulfil our needs? |
There are a number of methods that can be used to assess internal factors and establish a baseline, including interviews, workshops, surveys, and questionnaires. Some, such as external maturity or capability assessments, are more formal and time-consuming than others.
3.1.3.1 SWOT analyses
A SWOT (strengths, weaknesses, opportunities, and threats) analysis is often used to combine the results of internal and external assessments to evaluate whether a service is needed and whether it should be provided internally or not.
A SWOT analysis involves four specific aspects of an organization: the internal strengths and weaknesses, and the external opportunities and threats. A model SWOT analysis is shown in Figure 3.2.
It is important to remember the following key points when completing a SWOT analysis:
• Strengths can be built upon.
• Weaknesses must be managed or turned into strengths.
• Opportunities should be identified.
• Threats must be managed.
Figure 3.2 Model SWOT analysis
When assessing internal strengths and weaknesses, some important questions are:
• Is the strength or weakness within key strategic areas?
• Are the required resources available?
• Is there enough capacity?
• Do the right people possess the right mix and levels of competencies?
• Does the organization have experience with similar services?
If a SWOT analysis shows more weaknesses than strengths, it may indicate a need to improve or obtain services to bridge the gap.
3.1.4 Objectives and opportunities
When a service consumer understands its overall needs for service, it can then convert these into service objectives and explore opportunities. The continual improvement model introduced in ITIL Foundation may be a useful way to do this. The steps of the continual improvement model are outlined in Table 3.5.
Table 3.5 The steps of the ITIL continual improvement model
Step |
Activities to understand needs and identify opportunities |
What is the vision? |
Start with the ‘why’. Seek a good understanding of the overall purpose. |
Where are we now? |
Seek an understanding of the internal and external factors influencing the needs, and establish a baseline for the current situation. |
Where do we want to be? |
Define objectives in the form of desired outcomes and experiences, such as demand. Define the problem and set measurable targets for the desired situation when the problem is solved. |
How do we get there? |
Explore opportunities for satisfying the demand. If a new or changed service is needed, service options should ideally be further explored alongside potential service providers, leading to one or more preferred service providers. A plan for value co-creation should be crafted with the service provider(s) and service levels and conditions agreed. |
Take action |
Prepare and complete onboarding and start service consumption to co-create value. |
Did we get there? |
Track, assess, and evaluate value realization to ensure objectives are fulfilled. If not, initiate the necessary improvements. |
How do we keep the momentum going? |
Achievements should be recognized, successes should be celebrated, and new ways of working should be reinforced. |
Many organizations use the ITIL continual improvement model as a basis for all internal improvement projects because it provides a structured approach, ensuring that service improvement initiatives support high-level organizational objectives. It is also useful as a planning tool when considering a new service relationship. Another advantage is that it gathers facts about the current situation, which can be used to establish a baseline. Combined with clear objectives, this baseline enables continual measurement and value realization tracking.
Risk assessment is a key part of the explore step. The assessment should include weaknesses and threats, vulnerabilities, and the potential impact of all relevant aspects on the current and desired situation. Based on the risk profile results, benefits, and costs, the optimal opportunities for services should be explored further to ensure that any residual risks are either mitigated or accepted.
For example, if an organization has an old legacy information system affected by an increasing number of information security issues, the organization can either continue using the information system or replace it with a new service. In the case of replacement, the organization should decide whether it will provide the service in-house or obtain it from an external provider. Table 3.6 outlines and analyses the options for this example scenario.
Table 3.6 Examples of scenario options
Mitigation options |
Residual risks |
Continue using the old service |
Instability and vulnerability related to frequent incidents. Security issues may lead to loss of privacy data, damage to reputation, and fines. |
Continue with the old service but implement some measures for improved security |
Many incidents will be difficult to solve. Vulnerability due to a lack of maintenance skills and competencies. |
Develop and provide a new service to replace the old one internally |
Lack of resources due to concurrent projects, lack of competency within the development, additional costs related to operation and maintenance. |
Establish an agreement with a service provider to provide a new replacement service |
Lack of control over the service provider and the full value chain, lack of competency managing service providers. |
Readers should refer to the risk management practice guide for more details about risk assessment and mitigation.
The ITIL story: Understanding service consumers and their needs
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Mariana: After the service had been available for six months, we discovered some unexpected needs. For example, some people needed regular weekly commuting hours, but others only wanted the cars intermittently when they were moving to a new house or had an emergency such as a medical appointment. For most users, small cars were acceptable, but others needed space to transport furniture or pets. |
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Tomas: Mariana needs to properly understand what her customers need from the service so that she can be sure it is creating value for them. She can use the four dimensions of service management and PESTLE analysis to identify factors that impact upon her customers, and gain a better understanding of how these shape their needs. |
3.2 Understanding service providers and their offers
When an organization has identified its demand for service and the opportunities for satisfying this demand, the next step is to identify and evaluate options to source this service.
Internal or external service providers for IT?
There are certain considerations to bear in mind when choosing between internal or external service providers of IT in large organizations.
In some organizations, internal policies state that the internal IT organization is the preferred provider of IT-enabled services. The internal service provider then has the responsibility to identify common needs and synergies between internal service consumers and provide a balanced portfolio of internal services. If the internal service provider cannot provide a service itself, it may source the service from external service providers, but this is dependent on the governance model.
In many organizations, the IT department is subject to free competition from external service providers. If there is no internal service provider, or if the internal service provider cannot provide the service itself, the service customer or the internal service provider will have to explore options for external sourcing.
There may be numerous service providers to choose from for any needed service, so the process of identifying and choosing a provider may be time-consuming. Most organizations widely advertise their brand and services, which may serve as initial input for a shortlist of suitable service providers.
To create a shortlist, it is important to assess:
• products and services offered and their functional coverage
• delivery models, warranties, architectural fit, and integration options
• price
• geographical presence and language capabilities
• service attitude, proactivity, and responsiveness
• competency levels, skills, and experience
• availability of resources and partners
• governance profile (policies, security, etc.)
• size of organization
• flexibility and scalability
• financial situation
• brand, reputation, credentials, certifications, and reference customers
• trust and existing relationship
• charges.
The choice also depends on service provider types, their interests, value propositions, power positions, and histories.
A decision matrix is often used in the decision process, combining the most important criteria and their worth. Intangible aspects should not be reflected in the matrix. To assist in the decision process, it is important to have open and honest discussions to determine the most important criteria for the service consumer.
The final selection of one or more service providers, whether internal or external, will typically occur only when the service consumer has gone through the engage step. For relationships where services must be configured, customized, or developed, the final selection may only take place after requirements have been shaped with the potential service provider(s) in the offer step.
3.2.1 Industry standards and reference architectures
Industry standards and reference architectures may affect the selection of service providers. These standards may be imposed by regulators, supervisory authorities, private sector organizations, or other external stakeholders. Additionally, the service consumer or a group that the service consumer belongs to may adopt existing or target reference architectures that products and services must comply with or be compatible with.
Therefore, the service consumer should assess whether, and to what degree, potential service providers and their products and services comply with applicable standards and reference architectures. The assessment may include:
• scope
• principles
• requirements
• criteria
• classifications
• controls
• objects.
The service provider’s experience and expertise in these standards and architectures may also be relevant.
The ITIL story: Understanding service providers and their offerings
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Katrina: I looked at a number of different options for transport before deciding to try eCampus Car Share. There were several different types of public transport I could have used, and also multiple car rental companies to consider for hiring a vehicle. Each option offered something different and had its own benefits, costs, difficulties, and risks. I decided to try eCampus Car Share as it is endorsed by my university and offers services that are tailored specifically to my needs. It also offers competitive rates to university students which was an added bonus! |
3.3 Understanding markets
A market usually consists of subgroups of service consumers and potential consumers that have one or more characteristics in common, so they have similar product and service needs. To understand who potential service consumers are, a service provider may need to conduct market analysis and planning. A market analysis is a quantitative and qualitative assessment of a market; it explores the market size and opportunities in volume and value. This includes:
• various service consumer segments
• customer expectations and buying patterns
• trends and dynamics
• competition
• key players
• economic factors.
Regular market analysis can contribute to a more market-focused orientation across the organization, even for internal service providers. Some key advantages are:
• systematic identification of emerging opportunities and threats
• understanding of competitive advantage
• more informed communication about customers and markets
• better allocation of scarce resources.
Market segmentation allows a service provider to target a customer with specific needs and desires. Each market segment is unique and should be approached differently.
It is important that service providers understand the reasons behind the decisions customers make. The objective is to enable the service provider to group customers based on their needs and behaviour, so that the service provider can address them accordingly.
Generally, there are three factors that identify different market segments:
• homogeneity or common needs within a segment
• distinction and uniqueness from other groups
• reaction or a similar response to the market.
There are two main segmentation approaches:
• Characteristic-based segmentation Based on the characteristics of the customer and area.
• Need-based segmentation Based on customer needs.
3.3.1.1 Characteristic-based market segmentation
Characteristic-based market segmentation is the process of segmenting service consumers based on their characteristics, attitudes, or behaviour. Figure 3.3 shows examples of this method.
Commonly used categories are:
• Geographic By region or area, service consumer location, rural or urban, climate, or market size.
• Demographic By age, gender, income, occupation, family size, education level, or religion.
• Behavioural By benefit, rate of usage, loyalty, or readiness to purchase.
• Psychographic By lifestyle, personality, attitude, social class, values, or beliefs.
This type of segmentation can be useful as a first step, but it will not be conclusive because there will be differences within these categories. To address their needs, the target group must be analysed further.
Figure 3.3 Four bases for market segmentation
3.3.1.2 Need-based market segmentation
Need-based market segmentation is the process of segmenting the market based on the needs of the service consumers. Tailoring a message to their needs will lead to a better response rate with marketing campaigns.
Commercial service providers often analyse the existing customers currently generating the most sales. The Pareto principle (the 80/20 rule) can help to identify the 20 per cent of the service consumers that generate 80 per cent of the sales.
A need-based market segmentation includes the following steps:
• Analyse existing service consumers to identify the customers that generate most sales (use the 80/20 rule).
• Explore customer satisfaction, including why customers buy certain products and if/how services fulfil their needs.
• Perform an internal SWOT analysis.
• Categorize selected service consumers into different market segments.
• Prioritize the market segments based on SWOT results.
Because need-based market segmentation may require extensive investigation, each service provider should focus on a few market segments. This should result in the ability to build a good relationship with a prototype customer and explore their needs further.
3.3.2 Identifying and analysing service consumers
Analysing current and potential service consumers for the market as a whole is possible, but it may be more efficient to explore a segment or smaller group.
A useful approach is to understand why current or potential service consumers hire a product or service; this helps service providers to identify potential customers and to develop products and services that align with what service consumers need.
Another approach is to use predictive analytics (for example, cognitive technologies, such as machine learning) based on historical market data and service consumer data. This includes demographics, buying behaviour, conversion, retention, churn, up-sell, cross-sell, organizations with attributes similar to existing customers, etc. Predictive analytics may lead to an increased understanding of existing service consumers, reveal customers who need attention, and identify and qualify new leads.
Exploring service consumer needs is an ongoing task, but it is equally important to track the changing needs of existing service consumers. The service provider portfolio is used to track, evaluate, and prioritize the market and service consumer needs for services and products. Readers should refer to the portfolio management practice guide for more details.
The ITIL story: Understanding markets
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Mariana: To help us understand our customers, we carried out a market segmentation. We know that our customers all have one important feature in common: they all need to be on or near campus at some point during a regular working week. However, their needs may differ in other important ways. Some need to keep a vehicle overnight to return to campus the next day. Others who live closer to campus may only be interested in weekend or occasional use to explore the local region of São Paulo. |
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Tomas: Groups who typically kept the cars overnight were usually women and parents who commuted regularly. They appreciated the safety and convenience of a nearby vehicle. |
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Mariana: We have been able to leverage Axle’s internal marketing department to help promote and strengthen our service offering. We can now target our marketing messages at two different segments: at women and parents by focusing on safety, and at students by emphasizing cost and convenience. |
3.4 Targeting markets
To build a brand and attract target customers, internal and external service providers should invest in marketing. Marketing promotes products and service offerings and strengthens brands. Marketing is a comprehensive domain; many service providers have a specialized marketing department to undertake the work.
A value proposition is a statement that clearly identifies what benefits a service consumer will receive from a particular service offering (Buttle, 2009). It is an excellent way to quickly differentiate your service or product from that of your competitors.
Definition: Value proposition
An explicit promise made by a service provider to its customers that it will deliver a particular bundle of benefits.
Value propositions should be tailored to targeted customers by addressing their needs. They should concisely tell customers:
• how the product or service can solve their problems
• what they can expect if they obtain the product or service
• the advantages of doing business with the company over its competitors.
A well-written value proposition is one of the most important elements of marketing, as it immediately highlights the benefits of the products or services.7
Tip
Consider the perspectives of typical decision-makers in the organizations you are targeting. For example, for a recruitment tool, an HR manager is likely to be a decision-maker, so it would be useful to consider an HR manager’s perspective when designing the value proposition.
3.4.2 The marketplace and the marketspace
Service providers must explore different channels in order to reach their customers in targeted markets in the marketplace and marketspace. The marketplace is the physical world, whereas the marketspace is defined by all the possible channels made available on the internet.
Examples of marketing initiatives in the marketplace include:
• places to meet potential customers
• breakfast seminars
• sales meetings
• conference presentations
• newspaper announcements
• magazine articles
• flyers and brochures
while examples of initiatives in the marketspace are:
• social media
• websites
• newsletters
• adverts
• webinars
• podcasts
• profiling
• bots
• big data, IoT, and artificial intelligence (AI) used for targeted marketing.
‘Today, businesses compete in two worlds: a physical world of people and things called a marketplace and a virtual world of information called a marketspace (Bordoloi et al., 2018).’
3.4.3 Personalizing and profiling
Profiling is a method of tracking service consumer behaviour in order to understand consumers’ needs and to enable targeted marketing campaigns. Personalizing is about knowing what range of service offerings the customer is most likely to want to obtain and presenting those specific offers to the customer.
With an accumulation of personal information about customers and users, it is important to protect the privacy of individuals by asking for consent. Many countries have strictly regulated privacy legislation, but with consent, the service provider can add value for its customers and users through the marketspace.
Marketing campaigns work best when the service provider tailors the message to a specific group of people and their needs and desires. To do this effectively, specific user profiles (personas) must be used. This will allow the service provider to write a personal message to potential customers which addresses their true needs.
To formulate the message, simple techniques, such as AIDA (awareness, interest, desire, action), can be used (see Figure 3.4). These tools help to explain the message and improve the chance of it reaching the target audience. They help to raise customers’ awareness of an offer, stimulate interest and desire, and trigger actions.
Figure 3.4 The AIDA model
A brand is a combination of someone’s perception of an organization and its products and services in the market. Therefore, developing a good relationship with the target market is an essential part of influencing a brand. A brand is built iteratively and is reflected in the way people speak about the organization and its people, products, and services.
3.4.6 Sustainability and the triple bottom line
Sustainability is an area that greatly impacts brand and reputation. Sustainability can be defined as ‘the development that meets the needs of the present generations without compromising the ability of the future generations to meet their own needs’ (Brundtland et al., 1987).
The term ‘bottom line’ normally refers to accounting. However, sustainability goals have become increasingly important, so to address sustainability, organizations often adopt the triple bottom line (TBL) approach (Elkington, 1994), which is an accounting framework that covers financial, social, and environmental aspects, as shown in Figure 3.5 (Bordoloi et al., 2018). TBL marks a shift away from short-term financial goals to long-term sustainability goals as an integrated method of doing business. Aiming for sustainable goals not only improves an organization’s brand and reputation, but drives stakeholder value for customers, employees, and society in the form of better health, climate, and resource utilization.
Figure 3.5 Sustainability and the triple bottom line approach
3.4.7 Importance of existing customers
Keeping existing customers happy is important for attracting new customers. The three main reasons for this are:
• Cost New customers are more difficult, time-consuming, and expensive to reach than existing customers.
• Resale Happy customers are more likely to obtain new services.
• Brand Happy customers may recommend services to other consumers.
As soon as stakeholders understand the opportunities for co-creating value, they are ready to establish a good service relationship.
The ITIL story: Targeting markets
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Mariana: Knowing that we have a combination of customers, from regular users to people who use our service intermittently, we were able to target markets with different subscription offerings. Regular users appreciated lower costs per hour and kilometre, and were willing to pay a monthly fee to support that. Intermittent customers did not want to pay a monthly fee if their use was less frequent. However, they were willing to pay more per hour for car use. |
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Radhika: Intermittent users usually bundle their errands into one trip, hiring a car for several hours in one day, rather than making use of a car daily. |
3.5 Summary
The customer journey often begins before the service provider and service consumer have established a relationship. Both groups may explore their own needs as well as market opportunities for identifying partners that may contribute to the fulfilment of their respective needs. This may include aspects such as organizational purpose and capabilities, operational context, and strategic objectives and opportunities. A service provider must understand its market and market segments to target specific service consumers and their needs.