Case Studies, CS-21-7590
S. Mingay
Core Topic
Business Management of IT: Service
Management Strategies
Key Issue
What are the best practices for creating and
executing cost-effective, customer-centric
IT service management strategies?
Research Note
23 January 2004
How Managing Services Using ITIL Profited an IT Department
Our case study shows how a European IS department used the
IT Infrastructure Library (ITIL) of best practices to improve the
way it delivers services. It saved millions of euros and
recouped its investment within a year.
Many IS organizations have planned programs to improve their
service management. Several have used the IT Infrastructure
Library (ITIL) guidelines as a starting point. This case study
focuses on a midsize European IS organization. It has more than
300 IS staff, started its two-year program in 2001 and has spent
around 2.6 million euros on it. Expenditure includes external
resources like training and consulting, software licenses for
service management tools, and internal costs — staff costs
directly associated with the program. The company recouped its
investment within the first 12 months, and benefited from a
stream of less quantitative returns during the second year.
This case study will focus on the costs and benefits that have
accrued. It will look at the details of the program itself only very
briefly, to provide some context.
Problem: The company, and thus the IS organization, had grown
through a series of acquisitions. As a result, processes were
inconsistent and fragmented, making stable, reliable, consistent
service delivery impossible. Multiple tools from different vendors
were performing the same function — but at least tools were
deployed. The organization was not starting from scratch.
The company expected to grow in the future, but the processes
and ways of working used in 2001 simply could not
accommodate growth.
Objective: The intent was to become a best practice service
delivery group, able to compete favorably on price and
performance with external service providers.
Approach: The whole program was dealt with as a substantial
change management program. The company recognized that
service management is about people and behavioral change.
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© 2004 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is
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 Although tools and process definition played a large part in the
work and took most of the investment, they were not the focal
point of the program.

The IS management team chose to use ITIL as the starting point

for the process work that was at the heart of the change
program. Managers decided early on to minimize the use of
external consultants. They believed that using suitably trained
internal staff — where possible, experienced in the ITIL
methodology — to make changes was critical to success. It
forced the organization to take responsibility for the change itself
and encouraged buy-in from the staff. The company used
consultants extensively for ITIL training and tools
implementation, and it used internal consultants from another
part of the company for service-level management.

Deciding where and how to use consultants is vital. The

temptation is to "fast track" the program, but this increases costs
significantly. Managers in the case study chose to limit use of
consultants because they recognized that an IT service
management program is about behavioral change, not about
defining a collection of processes and automating them with
tools.

Consultants and experienced internal experts should be given

roles as mentors, role models and facilitators, assisting the
behavioral aspects of change, rather than the more mechanistic
elements. We encourage companies with little experience in
service and change management to use consultants selectively
to accelerate the pace of cultural change, but to avoid having
consultants arrive with prepackaged solutions.

Figure 1 shows the breakdown of the costs that this organization

incurred, mostly during the first 12 months of the program.

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 Figure 1
Breakdown of the Investment in the Program

Project Management

Services Portfolio

Other Processes

Service Desk Tool Internal Staff Costs

Consultants and
Configuration Management Trainers
Tools (Software and
Service-Level Management Hardware)
Service Model

Training

0% 10% 20% 30% 40%

Percentage of budget

Services Portfolio: A strategic "product management" activity, defining the services

portfolio to ensure it meets customer needs and ensuring all services have a
competitive value proposition.
Other Processes: Service desk, incident management, problem management,
customer management (relationship management), change management,
capacity and availability management, work management (resource planning),
service provisioning, security and contingency planning, financial management
and service invoicing.

Source: Gartner Research (January 2004)

Most programs of a similar nature will spend their budget in a

similar way. The highest proportion of the budget will be spent on
training and tools implementation, and most of this will go on the
service desk and configuration management.

Configuration management is a big challenge for companies. It

represents a core process, on which many other processes rely,
but it is difficult to get right and demands a lot of resource — too
much, if great care is not taken. We recommend that the person
responsible for configuration management scope the
configuration management exercise very carefully, limiting the
initial phase to the easy wins (typically the network) and critical
systems. The scope can be extended gradually over the next two
or three years. The company we are studying spent seven
months building its configuration management database to a
level it felt was sufficient for launching the program.

Internal staff accounted for just over half of the total cost. This
reflects the organization's decision to avoid using external
consultants other than for training. Some internal consultants
helped set up service-level management. Similar programs in
other companies spend more on external people.

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 The investment in training is money well spent. This company
brought in expertise to build and conduct the formal ITIL training,
something we would always encourage, and something it
believes contributed to its success. It built its own service model
based on ITIL's, and in-house trainers taught the other
employees how to use it.

Every service management program will differ in scope,

problems and budget. But this breakdown of spending is a good
baseline against which to measure your own project plan.

Results: The program has been perceived as a success by IS

and executive management, because it achieved the very broad
goals it was given, and has allowed the company to grow.

Benefits

Tangible effects on revenue and costs:

• A saving of just under 3.5 million euros a year (approximately

7 percent of IS operating costs) as a direct result of improved
asset management — that is, through the identification of
unused or underutilized resources like software licenses.
This represented about 90 percent of the tangible savings
formally identified to date. Asset management, while central
to any service management program, is a weakness of ITIL
itself (see "ITIL Process Gaps for Asset and Configuration
Data"). The new ITIL Software Asset Management guide was
published in September 2003 (www.itil.co.uk).
• Improved productivity, in terms of the number of customers
each member of staff can support.
• Before the change, fewer than 5 percent of incidents were
recognized as a known problem, with a known resolution.
Now, more than 30 percent of incidents have a known
resolution, reducing incident handling times. Half are solved
in less than 1 hour and 80 percent within 24 hours.
• The IS organization is now billing around 1 million euros
(approximately 2 percent of total billings) for services that
were being delivered but were not being charged for.
Intangible effects on costs:

• Improved service levels

• Higher customer satisfaction rating (up from 6.8 to 7.6 out of
10)

• Improved relationship with customers

• Much better reporting to IS and customer management

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 • Improved IS staff satisfaction
• Much better control over the infrastructure, resulting in better
reliability, availability and predictability
Over two years into the program, the IS management team
recognizes that it still needs to make changes to improve the
quality of its services and processes. As with all service
management initiatives, this is a program of continual
improvement. Managers are now focusing on making the
processes more mature and improving linkages between them.

Critical Success Factors/Lessons Learned:

• Measure performance before making changes. Many

companies miss this stage out, yet demonstrating a tangible
return is very important.
• Focus on improving asset management early.
• Use external expertise for the training.
• Treat the service management initiative as a program of
change.
• Try to find a program manager who has been through this
change already, or at least have someone senior with this
experience on the team.
• Build a strong case for change.
• Gain executive-level support. This proved to be a critical part
of this company's success.
• Continue to train staff and communicate with them as the
program progresses, so everyone knows what is going on.
Like most service management programs, early benefits come
from improved asset management, consolidation, standardization
and improved management of incidents. Benefits from later
stages of the transformation come from improved reliability and
service quality. But these benefits can take two years to start
making a substantive difference. This company is only now
feeling those benefits.

Bottom Line: Almost every company that executes a well-

planned, well-run IT service management program based on IT
Infrastructure Library guidelines reports significant benefits. Most
of those benefits are expressed qualitatively because of the lack
of a baseline. The quick and tangible payback of 12 months in
this case study is unusually short, and many of the short-term
benefits could have been achieved without embarking on a full
service management strategy. You don't need a full program to
improve asset management. But the improvements in service
quality and customer satisfaction can only come through a long-
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 term program of change. More than two years in, the IS
management team would be the first to admit it still has work to
do. Companies considering a service management program
should look for similar returns, but over a longer period.

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