Why Your Service Levels May Have Lost their Oomph

Of all the factors to consider when executing a sourcing contract with a service provider, conventional wisdom has it that service-level agreements (SLAs) may be one of the most important elements. SLAs do the hard work of aligning expectations between the enterprise client and the service provider. But, in some scenarios across industries and contract types, SLAs have lost their utility, and this can create ambiguity—the exact thing contracts are meant to stamp out.

Here are the Top 5 reasons SLAs can become less effective:

1. You have way too many service levels. It’s possible that, over time, the number of service levels being measured becomes untenable. This has multiple downstream impacts, including diluting the service provider’s attention and distorting their priorities. Each service level also contributes to the total price of service, so you can be hit on both service effectiveness and cost at the same time.
2. Enterprise clients aren’t taking advantage of the entire service-level framework. Enterprise clients often complain that the service level performance they get from their provider is stagnant or straying from the business goals they were meant to achieve. Many contracts today include a framework to support a flexible approach to service levels, which includes provisions to assess, promote or demote certain service levels on a regular basis, as well as a provision for continuous improvement. Taking full advantage of these levers will ensure your service provider’s performance remains aligned with the ever-changing needs of the business. Don’t lose sight of the fact that boosting service-level achievement throughout the life of the contract is meant to improve business outcomes.
3. Service levels are green, but the relationship and performance seem red. This is called the “watermelon effect”—green on the outside, red on the inside. The watermelon effect occurs most frequently when the parties aren’t measuring the right service levels because they are not aligned with the required business outcomes. Deciding what to measure should be a thoughtful process; these decisions will determine the behavior from all parties throughout the relationship.
4. There is a lack of understanding about what is being measured. Service levels are defined to a certain level of detail within the contract. What sourcing buyers often miss is the additional layer of definition required to operationalize them, which can result in misalignment on data sources, exceptions and reporting criteria. Sourcing buyers should consider including these elements in their contracts:
   • specific data sources;
   • instructions for how to handle and approve exceptions;
   • the definition of resolution;
   • ticket details, where appropriate, including assignment groups and specific fields for calculations.
5. Enterprise clients grant too many exceptions to ensure service levels aren’t punitive. Some clients believe enforcing service levels will be detrimental to their relationship with the service provider, but service levels are a defined set of boundaries for which both parties have willingly signed up. Not enforcing them leads to misinterpretation of the boundaries and, ultimately, unmet expectations and an ambiguous contract. Once this happens, neither party is happy and the relationship suffers. Remember that enterprise clients pay for service levels to meet an objective, and service providers include resources to support these in their cost. If you find you are granting exceptions much of the time, it may be time to reassess your service levels as described above.

ISG works with enterprises and service providers to make sure contracts specify the right level of detail and service levels are executable for a healthy, long-term relationship. We can help make your service levels effective again! Contact us to discuss further.