1. 2009 Global Workforce Symposium
Get Smart on Service Level Agreements (SLA)
Thursday, October 8, 2009
1:00 – 3:30
Presenters:
Richard North, Manager, ZS Associates
Greg Koehlinger, Executive Vice President, Nelson Westerberg, Inc.
Sandy Shipley, Director Global Supply Chain Management, Primacy Relocation
2. Business to Business service providers are facing significant changes
in the relationship we have with our clients
• Hard won personal contacts used to secure new business are being
replaced with across the table negotiations where procurement or
purchasing specialists lead the process
• RFIs and RFPs are now playing a more important role in allowing
procurement and purchasing to compare proposals from multiple vendors
• Procurement and purchasing typically stays involved after the contract or
statement of work is signed. They are interested in making sure the
services are delivered as described in the RFI or RFP response.
• Procurement and purchasing use SLAs as the basis for evaluating on-going
performance levels associated with the work completed by the service
providers
Procurement and purchasing can be very sophisticated in the design
and management of SLAs
3. What typical challenges do you face when working with SLAs?
• There are too many….
– Industry norms state that to be effective you should have between 3 – 5 SLAs
• The weighting of an SLA should reflect it’s importance
• No SLA should be weighted more than 50%
• They are too hard to achieve…
– Service Level Agreements, by definition are agreed upon by both the client and
the service provider
• SLA performance thresholds should be set at a minimally acceptable level
• They are too complicated…
– SLAs should be so straight forward that everyone should understand if current
performance levels are acceptable
• No black-box calculations
• They are too expensive…
– Procurement and purchasing will typically ask for 10-20% of contract value at risk
• Earn-backs show client is focused on performance not recovering fees
4. What typical challenges do you face when working with SLAs?
• There are too many….
– Industry norms state that to be effective you should have between 3 – 5 SLAs
• The weighting of an SLA should reflect it’s importance
• No SLA should be weighted more than 50%
• They are too hard to achieve…
– Service Level Agreements, by definition are agreed upon by both the client and
the service provider
• SLA performance thresholds should be set at a minimally acceptable level
• They are too complicated…
– SLAs should be so straight forward that everyone should understand if current
performance levels are acceptable
• No black-box calculations
• They are too expensive…
– Procurement and purchasing will typically ask for 10-20% of contract value at risk
• Earn-backs show client is focused on performance not recovering fees
5. What typical challenges do you face when working with SLAs?
• There are too many….
– Industry norms state that to be effective you should have between 3 – 5 SLAs
• The weighting of an SLA should reflect it’s importance
• No SLA should be weighted more than 50%
• They are too hard to achieve…
– Service Level Agreements, by definition are agreed upon by both the client and
the service provider
• SLA performance thresholds should be set at a minimally acceptable level
• They are too complicated…
– SLAs should be so straight forward that everyone should understand if current
performance levels are acceptable
• No black-box calculations
• They are too expensive…
– Procurement and purchasing will typically ask for 10-20% of contract value at risk
• Earn-backs show client is focused on performance not recovering fees
6. What typical challenges do you face when working with SLAs?
• There are too many….
– Industry norms state that to be effective you should have between 3 – 5 SLAs
• The weighting of an SLA should reflect it’s importance
• No SLA should be weighted more than 50%
• They are too hard to achieve…
– Service Level Agreements, by definition are agreed upon by both the client and
the service provider
• SLA performance thresholds should be set at a minimally acceptable level
• They are too complicated…
– SLAs should be so straight forward that everyone should understand if current
performance levels are acceptable
• No black-box calculations
• They are too expensive…
– Procurement and purchasing will typically ask for 10-20% of contract value at risk
• Earn-backs show client is focused on performance not recovering fees
7. What typical challenges do you face when working with SLAs?
• There are too many….
– Industry norms state that to be effective you should have between 3 – 5 SLAs
• The weighting of an SLA should reflect it’s importance
• No SLA should be weighted more than 50%
• They are too hard to achieve…
– Service Level Agreements, by definition are agreed upon by both the client and
the service provider
• SLA performance thresholds should be set at a minimally acceptable level
• They are too complicated…
– SLAs should be so straight forward that everyone should understand if current
performance levels are acceptable
• No black-box calculations
• They are too expensive…
– Procurement and purchasing will typically ask for 10-20% of contract value at risk
• Earn-backs show client is focused on performance not recovering fees
8. SLAs can be used to drive continuous improvement
By using this model with your clients, you can actually develop a more
collaborative relationship by working together to make the process better
Define Measure Examine Correct Guide
Define Key Measure Critical Examine Measured Correct Any Guide Process
Processes Activities Results Deficiencies Improvements
On-going evaluation of the SLAs will help to keep them relevant
Source: Gartner
9. Different types of SLAs are used for different situations
• Cost improvement and efficiency based models
Technical/System – Focus is on lowering costs and reducing cycle times
• System Availability
SLAs
• Response time
IT Managers • Resolution time
• Operational improvement and enhancement models
– Focus is on work processes and activities
Process and People
• Inquiries processed
SLAs • Items produced
Business Unit Leaders • Cases closed
• Business performance improvement and transformation
– Focus is on key or strategic business measurements
Organizational Level
• Revenue
SLAs • Profit
Senior Executives • Market Share
What are the most important business measurements you work with?
Source: Gartner
10. The top 5 ZS SLA Learnings
1. Create a Win-Win situation with your clients
– Show your expertise and confidence by using SLAs in your agreements. If you
don’t your competitors will.
2. Including a standard set of SLAs in RFP responses allows you to
show what you’ve incorporated into your assumptions and pricing
3. Every SLA should have these components:
– Measurement name
– Threshold metric
– Weight of measurement
– Frequency of measurement
4. Plan the end-to-end SLA process starting with the inputs required for
the SLA through the tracking and reporting of SLA performance
5. Ensure your success by keeping it simple, don’t over-engineer
Consistently meeting SLAs shows how well you are supporting your client
12. • Define what a SLA is and what it is not
• Benefits of a Service Level Agreement
• Elements of Service Level Agreements
• Common Mistakes in Developing and
Implementing SLA’s and Vision
13. Define What a Service Level Agreement Is:
• Legally binding contract or informal
agreement mutually developed or
negotiated by a corporate customer
and supplier.
• The SLA has input from the supplier
and customer-it is not one sided.
14. Define What a Service Level Agreement Is:
• Formal definition of service levels by:
Baseline (current experience)
Establish agreed to & quantifiable
performance objectives
Formulate corresponding metrics that
evaluate service received and performance
gaps
– Customer Satisfaction
– Profit: Operating Efficiency-Spend Reduction &
Innovation
15. Benefits of a Service Level Agreement
• Foundation for SLA is continuous
improvement
• All about managing to client
expectations and alignment of
resources around client’s strategies
• Improves/institutes communication
flow between customer and supplier-
opens channels for consistent reviews
16. Benefits of a Service Level Agreement
• Participation and Engagement:
Process for internal/external communication,
alignment of goals, team building, action plans,
measurement and individual contribution to goals
What do customers want and how do they think from
Sr Leadership to transactional?
• SLA’s are outwardly (customer) focused, but done
correctly, they can drive supplier operating
efficiency, compliance to quality standards, retention
and performance based growth
17. Elements of Service Level Agreements
• Services Defined
• Collaborative Objectives
• Strategic Alignment
• Team Engagement-Business units-HR-
Shared Services-Procurement . . .
• Target Process Improvement
• Key Performance Indicators (KPI’s)
Established
18. Elements of Service Level Agreements
• Action Plans Developed to Support
Desired Outcome
• Metrics and Review Process
Determined
• Raise the Bar Culture Instituted
• Innovation is Ongoing Part of Process
• Seamless Supply Chain Management-
Lessons Learned Environment
• Competitive Advantage Created
19. Common Mistakes in Developing-Implementing SLA’s
• Failure to develop communication flow-
review process. Who owns
responsibility from corporate and
supply side?
• Goals are not well thought out, not
mutually agreed to and/or not
measurable
• Lack of buy in and understanding to
SLA process from corporate and/or
supplier
20. Common Mistakes in Developing-Implementing SLA’s
• Failure to develop action plans for
process improvement
• Some suppliers enter into agreements
without understanding what they can
actually deliver
• Objectives are not measured. How do
you know if it is not measured? Rates
become the focal point vs efficiency
and value created.
21. SLA VISION-OUTLOOK
• Focus on Zero Defect Quality-seamless
supply chain
• Eliminate Service Gaps in Entire Delivery
System- From policy management, order
entry, exceptions reporting, billing . . .
• CYCLE TIME REDUCTION- Better, faster,
more efficient
• Small Shipment Containerization- Expedited
Transportation: Lump Sums, Temp
Assignments, Increased Renters . . . tied to
policy benefits
22. SLA VISION-OUTLOOK
• 24/7/365 Global Customer Service
• Quality Surveys- 100.0% Compliance
• Technological Capabilities Aligned With
Clients
• Human Capital Accountability-Talent
Acquisition
• Asset Control, Utilization &
Tracking=Yield
24. • Use of S.M.A.R.T. concept to develop your
SLA
• Selecting SLA Metrics
• Importance of Good Metrics
• Why Service Level Metrics Fail
25. Use of S.M.A.R.T concept to develop your SLA
• Specific
• Measurable
• Attainable
• Realistic
• Timely
26. Use of S.M.A.R.T. concept to develop your SLA
• Specific – goal must be specific rather
than general and answer:
• Who
• What
• When
• Which
• Why
27. Use of S.M.A.R.T. concept to develop your SLA
• Measurable – establish criteria for
measuring progress
• Attainable – identify goals that are
reasonable and leave room for
improvement. Use a baseline from historic
data
• Realistic – set an objective that both
parties are able to accomplish
• Timely – include timeframes to meet the
goals set
28. Selecting SLA Metrics
Performance metrics are the key to an
effective SLA. If chosen properly, they
will:
2. Measure the right characteristics
3. Be collected easily with appropriate
detail
4. Tie commitments to reasonable,
attainable performance levels
29. Selecting SLA Metrics
• Poor choice of metrics will result in SLAs
that are difficult to enforce and could
motivate the wrong behavior.
• Selection process is complicated by the
number of potential metrics, the type of
behavior to motivate, and the cost of
collection.
• The goal is to collaborate to ensure a
positive working relationship between the
client and the supplier.
30. Selecting SLA Metrics
1. Choose measurements that motivate the right
behavior. Are they objective or subjective and
leave room for interpretation?
2. Ensure metrics are within the service
provider’s control.
3. Choose metrics that are easily collected with
minimal overhead.
4. Less is more. Choose metrics that will provide
information which can be easily analyzed to
manage the service.
5. Set a proper baseline drawn from historic data.
31. Selecting SLA Metrics
• For relocation, group them into reasonable
categories, for example:
Service satisfaction
Costs to deliver home sale programs
Expense processing time
Gross up accuracy
Timely reporting
32. Selecting SLA Metrics
• Decide how the information will be
reported and in what timeframe
• Set target and minimum levels of service
• Penalties and rewards can be determined
33. Importance of Good Metrics
• Good metrics describe performance standards
and develop a framework to monitor ongoing
delivery of service.
• If chosen wisely and implemented correctly,
they can provide:
Delivery standards for quality,
responsiveness, and efficiency.
Determine if performance meets
expectations
Provide trend and operational data for
identifying and correcting issues.
Provide a foundation for informed
adjustments in service delivery.
34. Why Service Level Metrics Fail
1. Wrong metrics used – typical mistakes
are:
• Going for ease of measurement first
• Not considering collection and analysis
effort
• Not identifying how metric will be used
• Measuring things outside of provider’s
control
• Not clearly defining the metric
• Using the supplier’s metrics by default
35. Why Service Level Metrics Fail
2. Wrong target settings – use both metrics and
targets.
3. Insufficient metrics for sound decision making.
4. Improper set up to support metric use – monitor
and adjust through life of contract.
5. Misused penalties or incentives – could motivate
the wrong behaviors or set up a contentious
relationship.
6. Overemphasis on cost – make sure whether
cost cutting is the primary objective or service
satisfaction.
36. Why Service Level Metrics Fail
Conclusion
• Choose the right metrics early in the
process
• Verify the metrics against past
performance
• Determine the best collection method
• Include the use of metrics and targets
• Don’t rush
• Revisit goals and targets after experience
is gained.
