The Shift to Digital Product: A Full Lifecycle Perspective White paper (extract)

The Shift to Digital Product

A Full Lifecycle Perspective

A White Paper by:

Primary Authors:
Mark Bodman, ServiceNow and Dan Warfield, CC&C Europe
Co-authors:
Dr. Lars Rossen, Micro Focus, Dr. Michelle Supper, ServiceNow,
and Sue Desiderio, Invited Expert

December 2020

The Shift to Digital Product

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The Shift to Digital Product
Document No.: W205

Published by The Open Group, December 2020.
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The Shift to Digital Product

Table of Contents

Executive Summary................................................................... 5

Introduction: The Room Where It Happens ............................... 6

Product, Service, or Application?............................................... 7

Why “Digital Product”? ............................................................ 8

A Few Points of Clarity ........................................................................... 9
The System ............................................................................................. 9
The Service Offer .................................................................................... 9
The Contract ......................................................................................... 10
The Price .............................................................................................. 11

Examples of Digital Products ................................................... 13

Interplay Among Digital Products........................................................... 14

Recursion and Granularity in Digital Products......................... 16

When Should In-House Software and Services be Treated as
Digital Products? ................................................................................... 16
Example: Digital Product Granularity ..................................................... 17
Benefits of Formalism ........................................................................... 17

Managing the Digital Product .................................................. 19

The Digital Product Manager.................................................................. 20
Shared Resources .................................................................................. 20
Digital Product Lifecycle Concerns......................................................... 21
Code, Dependencies, and Instance Resource Management ........................ 22
Data-Driven Opportunities and Concerns ................................................ 22
Contract Lifecyle Concerns .................................................................... 22
Digital Product Fulfilment and Lifecycle Management ............................. 23

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The Digital Product Instance .................................................................. 23
Consumer Types and Interaction Methods ............................................... 24
Complex Product Systems...................................................................... 25

Conclusion .............................................................................. 27
References............................................................................... 28
Acronyms and Abbreviations................................................... 29
Acknowledgements.................................................................. 30
About the Authors................................................................... 31

Primary Authors .................................................................................... 31
Co-Authors ........................................................................................... 31

About the IT4IT™ Forum ....................................................... 33
About The Open Group........................................................... 33

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Executive Summary

This document is a position paper describing current thinking on how Digital
Product can be viewed as the single, simple, unifying element to manage IT and
“smart” products and services. This document is being published to solicit feedback
and comment. It has no formal status. It illustrates how a shift to Digital Product
thinking supports modern Agile and DevOps IT management practices and integrates
traditional product management acumen with IT management disciplines. The Digital
Product concept presented here is designed to be consistent with other digital
standards of The Open Group, including the DPBoK™ Standard.

The authors put forward a position that the Service Model Backbone in the IT4IT™
Reference Architecture, Version 2.1, a Standard of The Open Group, be re-imagined
as a Digital Product Backbone, with the Service Portfolio becoming the Digital
Product Portfolio. It proposes an approach to formal Digital Product Portfolio
Management that applies to product lines for both internal and external consumers.

Perhaps most importantly, the authors propose a formal definition of the concept of
Digital Product for use in effective lifecycle management discipline. This definition
combines elements from an end-to-end IT operational management model and the
traditional concerns of IT Service Management (ITSM) with the financial and
marketing concerns of traditional product management.

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Introduction: The Room Where It Happens

As IT-enabled products and services become the norm in every market, it is increasingly less credible for IT
culture to treat “the business” as an opaque internal customer, or for the business to think of IT primarily as
project brokers, order takers, and machine operators.

In the digital economy, IT and business leaders belong together “in the room where it happens” – active
participants in managing the full lifecycle of technical and financial outcomes of every IT investment, with a
common understanding of the “factory” and a clear line of sight to customer value.

Choosing to change the fundamental job description of enterprise IT management to be Digital Product
Portfolio Management instead of Project Broker & Operations Service changes the way we think about
lifecycle management, dependencies, accountability, IT investment practices, IT financial management, and
the IT Return on Investment (ROI).

We propose that a well-defined concept of Digital Product becomes the fulcrum of this cooperation by
combining an end-to-end IT operational management model and the traditional concerns of IT Service
Management (ITSM) with the financial and marketing concerns of traditional product management.

In the IT management dimension, the IT4IT Standard provides a model for managing the complexity of
modern digital value delivery and the supporting networks of organizations that supply, assemble, and
service components. Multiple contracts and metrics can be found at many points in this supply chain.

Re-imagining the Service Model Backbone concept in the IT4IT Standard as the Digital Product Backbone,
as proposed in this document, supports the transformation to end-to-end management of Digital Products. It
provides a language for describing Digital Product Management that resonates with modern IT methods and
with the semantics of the digital age.

In this proposed mapping to the IT4IT Standard, the Digital Product integrates IT management practices and
digital value delivery.

Strategy to Portfolio

DIGITAL
PRODUCT

Requirement Request Detect
to Deploy to Fulfill to Correct

Figure 1: Digital Product and Value Streams

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The Shift to Digital Product

Product, Service, or Application?

In the IT4IT Standard, as well as in ITIL® and other mainstream IT management best practices, the term
“service” has been used to describe the core element that IT should be managing throughout its lifecycle.

For example, “service” is often used in the sense of ITSM and ITIL practices. It also appears in terms such as
Service Broker, Service-Oriented Architecture (SOA), and Enterprise Service Bus (ESB). None of these uses
of “service” exactly matches the others.

We put forward the position that as digital becomes more mainstream, “Digital Product” has become a much
better terminology than “service” which, in the IT management context, is more ambiguous.

Using “Digital Product” rather than “service” aligns with the semantics of trends such as DevOps and Agile,
“Shift to Product” initiatives, reorganization of software development work into cross-functional teams, and
the evolving language of Digital Transformation.

This proposed change in semantics also brings product management as a practice into the foreground.
Product management is a more proven and mature competency than Service Management and Application
Management: product management roles, activities, frameworks, lifecycle management, and so on are quite
standardized. By adopting “product” as a governing metaphor, executives in digital enterprises are adopting a
common vocabulary that will improve communication between business and IT.

One pivotal influence on our understanding is the book Project to Product by Mik Kersten (see References),
which describes the practical effects of digital disruption on traditional models of enterprise IT. In the
foreword, DevOps evangelist Gene Kim describes the situation:

“… in the Age of Software, the methods that served us well for over a century are truly coming to an end:
project management, managing technology as a cost center, traditional outsourcing strategies, and relying
on software architecture as the primary means to increase developer productivity.”

Kersten argues that IT’s primary focus must shift to end-to-end management of Digital Products.

For the most successful organizations, he says, product management and IT management roles will converge
and unite into a new competency called Digital Product Management. We agree.

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Why “Digital Product”?

“Digital Product” has become a widely used term but without a widely agreed definition. The major
technology analyst firms admit that business leaders agonize over the definition of Digital Product.1

We propose a definition of Digital Product that highlights the distinction between digital and non-digital
products and provides clarity about use of this term, both in an IT management context and when describing
the expanding universe of “smart” products ranging from roller bearings to cars.

Our definition flows from widely accepted definitions of both “digital” and “product”:
Merriam-Webster defines “digital” as “characterized by electronics, especially computerized technology”.
The Business Dictionary defines “product” as “a good or service that most closely meets the requirements of
a particular market and yields enough profit to justify its continued existence”.
The Economic Times defines “product” in more detail as:
“A product is the item offered for sale. A product can be a service or an item. It can be physical or in virtual
or cyber form. Every product is made at a cost and each is sold at a price. The price that can be charged
depends on the market, the quality, the marketing, and the segment that is targeted. Each product has a useful
life after which it needs replacement, and a lifecycle after which it has to be re-invented.”

We propose the following definition for Digital Product:

A service, physical item, or digital item that provides an agreed and specific outcome for a consumer;
that incorporates and requires software to realize that outcome; that is expected to require active
management of the software by the provider over its lifecycle; and that is described by a formal offer
of value that typically includes explicit pricing.

Typical characteristics of a Digital Product defined in this way are that it:
• Includes one or more Service Offers that define Contract options for consumers
• Is delivered as a Digital Product Instance (defined below) described in a Contract that is based on a
Service Offer
• Has a Digital Product Instance that includes a System containing technology resources and software
• May be consumed within an organization or externally
• May have dependencies on other Digital Products and non-digital products
• Provides interactions via a machine and/or human interface

1 Gartner Research: Summary Translation: Don’t Get Stuck Defining ‘Product’ – Success Requires Designing your Product Portfolio Instead; refer to:
https://www.gartner.com/en/documents/3989071/summary-translation-don-t-get-stuck-defining-product-suc.

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A Few Points of Clarity

To avoid misinterpretation, note the intention of terms as used in this document.

Digital Product addresses the perspective of a product manager and represents a complete product line over
its lifetime, to include product variants, types and locations of consumers, annual and lifetime financial
models, dependencies on other products and services, supplier relationships, capacity, service-level options,
distribution models, pricing and usage rules, delivery and management of Digital Product Instances, and so
on.

Digital Product Instance refers to a single Instance of the Digital Product, which is described in the
Contract created when a discrete Service Offer (see below) is accepted by a consumer. The Instance is often a
system or part of a system that includes assets, physical goods and services (e.g., food delivery), seats,
licenses, or other resources and access controls specific to the consumer’s entitlement under a Contract.

Product – we may simply use “product” instead of Digital Product or Digital Product Instance where the
meaning is clear. We distinguish “digital” products from non-digital products when required.

The System

The System comprises those technology components of a Digital Product Instance that will be managed by
the provider.

The system may recursively include any configured supporting resources or assets upon which the system
relies, including other digital or non-digital products. Resources might be as simple as a few intangible lines
of code to be deployed on hosted infrastructure in the cloud, or might be comprised of a large and complex
number of interrelated components, or separate Digital Products accessed through a network connection and
program interface, for example.

The Service Offer

The Service Offer (sometimes shortened to Offer) describes Contract terms available to the potential
consumer of a Digital Product Instance. The full set of possible Offers will be filtered for presentation to
specific consumers. Offers may be time-limited. A well-formed Offer formalizes the value statement for the
consumer/provider interaction and must include all terms that will become part of the Contract if the Offer is
accepted.

Promises articulated in the Service Offer are recorded in the Contract as part of the agreed criteria for how
the Digital Product and its systems will be managed. Longer-term contracts may be defined as subscriptions
that track ongoing consumption and billing.

Offers are derived from the specific definition of the Digital Product, which is documented by product
managers and must describe all available consumable product variants and all possible Contract terms per
consumer or consumer type. This can include specific prices or pricing rules as well as specific Offer
configurations or features. The example in Figure 2 shows the presentation of a Digital Product Offer for
business software.

Complex product rules can give rise to thousands of potential Offers for a single Digital Product. In this
example product management has determined a set of options to be presented to US Dollar-based customers

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and includes a time-limited configuration option. Sophisticated products may vary the modularity and pricing
of Offers shown, based on factors such as consumer characteristics, time of day, regulatory jurisdiction,
currency chosen, regional support availability, etc.

Figure 2: Example of Four Related Service Offers

The consumer of a Digital Product can be a human or organizational actor, or alternatively a machine actor
such as another Digital Product.2 The structure of both Offer and Contract may vary significantly based on
the type of actor involved.

The Contract

When an Offer is accepted by a consumer, an Instance of the Digital Product is created in which the
relationship between provider and consumer is captured in a Contract based on the relevant Offer. The
Contract includes all the details required for financial recording, governance, measurement, charging,
support, and servicing of the Digital Product Instance.

The Contract may include a subscription in the usual sense of the word, describing ongoing usage rights with
a periodic charge. However, the Digital Product Manager’s toolkit can contain many styles of delivery,
warranty, usage rules, and pricing.

For example, a Wi-Fi network in a public place is made available to consumers. When a consumer logs on to
the network using credentials supplied by the network owner, a Digital Product Instance is created. The
Product is not the Wi-Fi network itself. The Product is provision of access to the network and its resources.

2 This aligns with the TOGAF® metamodel definition of Actor.

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The Contract may be implied or explicit and will probably be governed by a range of legal and technical
constraints, all of which form part of the Contract.

In its simplest form, a Contract may record a single transaction that is not normally expected to have
recurring charges, usage charges, or to require support. However, even such a one-off transaction will
typically include mutual commitments to rules and metrics about possible future circumstances governed by
the Contract terms, such as regulatory compliance, warranty, repair, refunds, Service-Level Agreements
(SLAs), consumer support, product recalls, offers on related items, commitments to keep the software up-to-
date, and so on.

The Contract structure includes Offer terms as agreed for the Instance which may include things such as:

• Warranties and SLAs

• A record of transactional commitments made by both parties
For a consumer product sold online this may be an identifier for a series of web page interactions in
which terms are accepted and money is taken. For an internal machine-to-machine Contract, this may be
the digital record of a “handshake” acknowledgement between two systems.

• Usage and financial rules, especially where there is a recurring financial payment
In the IT4IT Standard, this Contract data forms the basis for managing chargeback/showback and
penalties for breach of SLAs.

• A description of the usage monitors needed for governing the Instance to ensure operational status
Depending on the relationship between provider and consumer of the product, this may include legally
binding terms with provisions for events such as returns, subscription renewal, refunds, warranty claims,
recourse for breach, and so on.

• A right for the provider to audit the consumer, for such things as license compliance audits or
conformance to usage rules

• Long-term ownership rights and maintenance obligations regarding physical components as well as
intangible assets such as intellectual property (e.g., software)

The Price

Each Offer and Contract describe an explicit Price which, depending on product rules and what is agreed,
may require direct payment by a consumer, or indirect payment through mechanisms such as usage-based
chargeback, a payment plan, an agreement to receive advertising, a value exchange, or a less specific pricing
mechanism such as corporate overhead expense allocation.

Price need not be related to cost.

In some cases, the price may consist entirely of indirect benefits anticipated by the provider. This often
applies in the public sector, for Digital Products supplied within an organization, or to online services such as
social media platforms.

The element of price is still meaningful for effective product management. In every case the product manager
should be able to describe the ROI over the product lifecycle. Offering a Digital Product Instance with no

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direct price should always be a deliberate pricing decision that is explained in the product’s lifetime financial
model.

Even in cases where the Digital Product is perceived by the consumer primarily as software, it will always
include other components defined by the Digital Product Manager including those required by the business or
legal context of product delivery, as well as provision of supporting infrastructure.

These other associated components – which may not be explicit in the Offer or Contract – may include, for
example, hardware in which software is embedded (disk drive, smartphone, IoT doorbell, automobile). They
may also include contractual elements (SLAs, chargeback terms, warranties, software maintenance
commitments, customer support).

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