Craft effective SLAs in establishing governance best practices. Be realistic in your expectations.
Some think of the SLA as primarily a contractual tool to ensure a service provider can be “penalized” if performance requirements are not met—a stick with which to punish poor performance. At TBI, we think of them more as communication and behavioral guidance tools. When effective, they serve the goals both of customers and their service providers (and the lawyers from both sides). The table below shows this perspective.
Managing outsourced services requires different sources and types of information about service quality and efficiency than does managing insourced services. Instead of directly supervising work (which adds unnecessary overhead and would also, rightfully, annoy the service provider), you need outsourced services to be monitored, performance measured in meaningful ways, and factual trend reports that are regularly reviewed and discussed with your provider.
HRO requires that you balance the cost with the business value of performance requirements. And, HRO also requires that you anticipate change in a manner that you may not have in the past; initial service level requirements may meet your need at the time of contracting, but needs could change over the contract term. So the SLA also needs to provide a formal path for review, revision, and renegotiation of performance requirements.
CRAFTING EFFECTIVE SLAs
A common complaint from companies that have outsourced is that “while SLAs are being met, customers are not happy with performance.” This could be because:
• Critical customer performance requirements are different than what was assumed when contracting;
• Customer expectations of the professional service provider are higher than they were when services were provided by internal resources; or
• The service level metrics are not valid or reliable—they measure the wrong thing or they measure the right thing inaccurately.
The following are steps for establishing effective SLAs:
• Define the scope of services to be outsourced;
• Define the goals of outsourcing these services;
• Identify performance requirements necessary to meet business goals;
• Propose and discuss appropriate service level metrics; gather baseline and benchmark data;
• Specify critical service levels and terms of contract related to non-performance (money at risk, service level credit payment process, multiple failure treatment, excused performance, etc.);
• Negotiate service level metrics and standards; and
• Establish monitoring and update processes for SLAs.
Best-practice service level metrics are clearly defined and provide end-to-end measurement of service. They are constructed in a manner that maximizes measurement reliability and validity and documented to enable root cause analysis of failures and facilitate periodic audit.
Effective service level objectives are realistic and obtainable but aggressive in areas where improved performance should have real business value. Best-practices metrics “dashboards” set performance expectations for each service outsourced and also distinguish “critical service levels” (those that have high business impact) from those that are less important. In this manner, they provide a key objective of HRO governance. This is the foundation for effective service delivery process design, service provider compensation, and objective evaluation of the value proposition for any outsourcing arrangement.
