Today’s Service Level Agreements (SLAs) are not simple documents that define the duration and the service to be delivered against a timetable with a handful of pre-determined performance parameters.
Rather, they are documents that include cleverly negotiated customization, additional provisions, provider and buyer obligations, reporting methodologies, penalties and rewards. A well-crafted and customized SLA document can make the difference between success and failure, especially in outsourced processes.
Forget the fact that service level agreements are largely seen as a way of securing accountability from the provider. Today large and mature enterprises have taken to creating and observing SLAs between internal departments.
There is concealed wisdom in this practice. Well-documented service levels help organizations measure performance—justify or improve it—and enable comparisons between external providers and other internal departments. The case for customizing SLAs gets stronger every day.
Service level agreements bind providers and customers. A well-captured and documented SLA should quickly specify the actions to be taken in the event of uncertainty. But before you can create these, you need to have the following basics in place:
- Service delivery description
- Tools for service delivery (people, infrastructure, knowledge)
- Disaster recovery plans/business continuity plans
- Metrics and benchmarks for service availability
- Performance parameters
- Frequency of measurement of metrics and performance parameters
- Reporting (form, format, frequency)
- Scheduled change management processes
- Unscheduled change management processes
- Response levels for breaches of SLA
- Problem management and escalation
- Quality management criteria
- Provider obligations
- Customer obligations
- Penalties for breaches
- Confidentiality/IP management
- Fees, expenses and payments
- Contract renewal/termination
Each of the above factors/elements in a service level agreement benefits from customization. As an example, think of “service description.” Does it make sense to add the purpose of the service and its relationship to the overall business goal?
Articulating and aligning an organization’s business vision and goals into an SLA document can have an immeasurable impact on the provider’s ability to understand the buyer’s priorities and how various elements in the SLA drive them.
In the event of a problem, the provider will be better placed to take immediate and corrective action based on the buyer’s business goals. It could, in many instances, save the buyer time, money and even reputation.
Five things to remember when customizing SLAs
- Begin by customizing standard metrics that apply to your business. Before adding new criteria and metrics that are specific to you, be sure to apply and customize the standard industry metrics to your requirements.
- Customize the performance level the provider is obligated to provide. Often, the provider will suggest your internal performance or industry level metrics as a benchmark. This is not a sound approach. Your business has specific needs that must be met. Ensure that service levels are created based on your business environment and needs of the moment. Change those service level requirements when the business changes.
- Customize the third-party tools providers typically use to monitor and measure their own performance. Providers use these tools for reporting. However, no tool is completely aligned with your specific needs. Pay attention to customized reporting.
- Providers have “extended partnerships”— meaning when they’ve exhausted their internal capacity, they in turn outsource the “overflow.” Have you addressed this aspect of the outsourcing deal? It may be necessary to agree to “extended partnerships” because of business requirements, but you need to stay in control by specifying the type and nature of the organizations that can be used in the event of an “overflow.” The duration for which such “extended partnerships” can be leveraged should also be limited. The SLA may, for example, specify that a provider is obliged to build capacity after a certain duration. This will minimize your on-going exposure to risk.
- Pay special attention to the legal aspects of the SLA. When a partnership between provider and buyer fails, it leads to various legal ramifications. Basic service level agreements the provider offers are invariably biased towards the provider. Be sure to recognize this and make it a priority to adjust.
A well-crafted SLA demands an understanding of business goals, the external competitive environment and the provider’s capability to deliver—all of which cannot be addressed in standard SLA documents. Customization is the only answer.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, BPO, IT Outsourcing, and Cybersecurity Managed Services. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides valuable insights and guidance to buyers and managed services executives. Contact him at [email protected].