Make Sure Your SLA is A-OK
I hope that you like Alphabet Soup. Ready? If you outsource technology functions to an IT (Information Technology) provider like an ISP (Internet Service Provider) or SaaS (Software as a Service) vendor, or outsource your internal business processes in a BPO deal (Business Process Outsourcing) you need an SLA (Service Level Agreement). Was that sentence fun or what?
An SLA details the service levels you can expect from an outsourcer and the consequences for failing to achieve them. Consequences could include things like credits against future fees and the right to end the contract. Some SLAs add a carrot to the stick by including bonuses if the provider exceeds service levels.
SLAs are not really a separate agreement, but should be an addendum to the main agreement with your vendor. While the main agreement will deal with things like warranties, price, payment, limitations of liability, indemnification, intellectual property, confidentiality and other basic terms, it's your SLA that details things like downtime, response time, lost packets, ping times and other technical minutia, which used to only interest vampires turned techies. Now, as our reliance on technology has increased, these things interest or should interest CEOs, too.
While smaller organizations doing smaller deals may rely on vendor-provided boilerplate SLAs, the fact is that it's best to avoid these forms if you can. As somebody who sometimes sits on the vendor side of the table and sometimes on the customer's side, here's the scoop from the trenches.
If you're a vendor, you should be sure to create a form SLA. It should be tilted in your direction, but not too much because you don't want to encourage the buyer of your services to negotiate the SLA from scratch. It's a fine line.
Sophisticated customers will always negotiate SLAs, but a form still smacks of legitimacy. If nothing else, it sets the agenda.
Once you create your form, a little subtle tinkering can make it even more effective as a negotiating tool. One thing you should do is arrange it in a two-column format in eight-point type. Then when you provide it to the other side to review, you either should fax a hard copy or, if you e-mail it, send it as a PDF file. I suggest the PDF because it's a file format that's less inviting to edits when compared to a Word document, which is begging your customer to edit it. You do all this to create the illusion of a "standard" form, which reeks of "non-negotiable."
If you're the customer, your response to this PDF should be, "Please send it to me in Word format so that I can work with the document." Just that request sends a powerful message to your vendor. They now know that you are not going to be a pushover and that they're going to have to enter into a meaningful negotiation designed to find the middle ground if they want your business.
Even form agreements are negotiable. Yes -- they're always negotiable.
The fact is that a clear SLA benefits the deal, not either party. From the vendor's perspective, it prevents the customer from having unrealistic expectations. For the customer, it helps to define what they expect as a way of insuring that they get it.
Negotiating an SLA will require both sides to bring their team to the table. At a minimum, each team should include the business folks affected by the deal, as well as their respective technical people and a tech lawyer.
A good SLA does more than list service indicators and measurements, and lay out the ongoing monitoring and response process. It should also clearly define each party's responsibilities, deal with corrective action and escalation, and include consequences for failure to meet the required service level.
For example, an SLA may measure the user experience. It could require that the screen be refreshed in three seconds after the user hits the Enter key. If you're dealing with financial trading though, you might need to require sub second response.
For a BPO deal, your SLA should be used to set user and management expectations, meet end user requirements, and monitor performance. The SLA gives you the opportunity to set out how the vendor is going to demonstrate its performance of the underlying BPO agreement. It also allows the parties to come up with a framework to establish a monitoring and reporting process so the parties can determine areas where the vendor needs to improve and where the vendor is hitting SLA targets.
BPO SLAs are naturally going to move away from technical measurements of IT performance to measuring more traditional business process data such as cost savings, time to hire new employees, and new hire retention rates.
The point is that your SLA negotiation is the time to discuss and agree upon how to quantify vendor performance.
As the customer, the SLA negotiation is your chance to define what it is you expect and create penalties for failing to achieve these expectations. If you don't get whatever you need in the SLA, you'll be in a weak position to demand it from your vendor later.