SLAs – Essential or Essentially Old Thinking?

Payments Leader

Posted on February 2, 2017

How relevant and realistic are your SLAs today?

Given today’s fast-changing environment, service level agreements (SLAs) between customers and third-party service providers can often drive the wrong outcomes. In some cases, metrics used to judge whether the service provider is performing up to par have become irrelevant. In other cases, the hurdles outlined in agreements are unrealistic and only serve to set up an adversarial relationship between parties. It’s time to rethink service level agreements.

Do Standard Metrics Cover What’s Relevant and Realistic?

Here’s a list of some standard metrics in service level agreements:

  • Abandonment rate (percentage of calls abandoned while waiting to be answered)
  • Average speed to answer a call
  • Time service factor (percentage of calls answered within definite timeframe)
  • First-call resolution of the issue
  • Turn-around time (to complete a task)
  • Mean time to recover (after an outage)
  • Percentage of uptime

On the face of it, nothing is wrong with this list. But note that none of the items on the list take the quality of interactions into account. Are callers satisfied? How has their experience affected their views? What are the business outcomes?

Unless SLAs are updated on a regular basis – e.g., annually – they can create a situation where the third-party service provider simply focuses on delivering the minimal level of service at a minimum cost over time – akin to only “teaching to the test.” The service becomes a commodity rather than something that adds value to the organization.

SLAs often impede innovation. Although the service provider meets SLA standards, there is little incentive for either party to make changes. For example, will the company be inclined to invest in technology that makes it easier for the provider to meet the company’s SLA standards?

Paying Your Provider for Improvement Versus Status Quo

In the words of technology leader Nipa Chakravarti from TransAlta: “Basically, an SLA contract says the provider’s performance is good enough when meeting the SLA [requirements]. But good enough isn’t what we want to buy. We want to stop the issues from happening in the first place. We want to pay the provider for success in improving our environment.”

Static SLAs don’t work in an environment where companies, such as TransAlta, are looking for continuous improvement. Once the service provider consistently achieves the outlined targets, the SLA represents yesterday’s thinking on what problems need to be solved. Parties rest on past successes rather than looking forward for ways to improve the environment or processes.

Moving Toward a “Business Expectation” Model

Instead of using standard SLA metrics as the primary test of whether service providers are doing their jobs, I believe that service buyers need to move their organizations towards a “business expectation” model. The “business expectations” model allows the company to define targets that match IT delivery models to business outcomes. For example, a business-critical service may need 24/7 coverage – 100 percent availability 100 percent of the time. But, a service that’s not business critical may not need 99.9 percent availability. Why ask for it in the SLA and pay extra when those funds can be deployed to move the company forward? This allows IT to focus on procuring “best fit” solutions versus “best-in-class” solutions, which may be overkill in terms of fire power and expense.


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Payments Leader

Payments Leader from FIS provides insights on credit, loyalty, fraud and emerging payments strategies through blog posts from our industry experienced authors.