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11 Ideas For Negotiating A Better SLA Mechanism

11 Ideas For Negotiating A Better SLA Mechanism



When outsourcing your operations or functions, SLA Mechanism form the most important part of the Outsourcing Contract. This presentation covers 11 basic ideas which you can use as a customer to define ...

When outsourcing your operations or functions, SLA Mechanism form the most important part of the Outsourcing Contract. This presentation covers 11 basic ideas which you can use as a customer to define a more effective Service Level Agreement (SLA) mechanism in the contract.

The presenter, Manoj Shrivastava is an expert in Outsourcing and has experience in designing SLA and managing the Outsourcing Engagement with the partner (supplier) in few of the largest Outsourcing Contract in the world. Manoj is currently working in Reliance ADA Group as Vice President - Group IT. Previously, Manoj Shrivastava has worked in Bharti Airtel Limited and this presentation was made in the Annual SLA Conference, Mumbai, India on September 30, 2008



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11 Ideas For Negotiating A Better SLA Mechanism 11 Ideas For Negotiating A Better SLA Mechanism Presentation Transcript

  • 11 ideas for negotiating a better SLA Mechanism Manoj Shrivastava Vice President – Group IT & Technology Reliance ADA Group Presented in – Annual SLA Conference (30- Sep-08)
  • Outsourcing is like Marriage Copyright : Manoj Shrivastava 2
  • Most often between unequals Copyright : Manoj Shrivastava 3
  • Initially both parties are happy Copyright : Manoj Shrivastava 4
  • However, soon you have this situation Copyright : Manoj Shrivastava 5
  • Problem compounded if you have kids Copyright : Manoj Shrivastava 6
  • Outsourcing contracts help both parties handle such unpleasant situations Copyright : Manoj Shrivastava 7
  • Customers think Outsourcing is like… Putting the Monkey off their back Copyright : Manoj Shrivastava 8
  • But many times it becomes… Accountability without Authority Copyright : Manoj Shrivastava 9
  • SLAs are the core of the Outsourcing Agreement Copyright : Manoj Shrivastava 10
  • Service Levels – Hard Realities • Service levels helps in reassuring the customer that the service commitments have “teeth” • They focus the supplier’s attention on key systems and services so that commitments are met • Credits are rarely due and surprisingly more rarely assessed Copyright : Manoj Shrivastava 11
  • 11 Ideas to negotiate a better SLA Mechanism Copyright : Manoj Shrivastava 12
  • 1. Learn to Let Go •Let Go of Control •Avoid Design for Micro Management Copyright : Manoj Shrivastava 13
  • 1. Learn to Let Go • Outsourced functions cannot be remote controlled Copyright : Manoj Shrivastava 14
  • 2. Less is More • Managing 450 SLAs in a large Telco outsourcing Deal was a nightmare in itself Copyright : Manoj Shrivastava 15
  • 2. Less is More Suggestions based on Experience Outsourcing Model Critical SLAs Total SLAs Project Outsourcing 2 5-10 Part Outsourcing 5 25 Full Service Outsourcing 10 100 Activity Outsourcing 2-3 10-15 Copyright : Manoj Shrivastava 16
  • 3. Raise the Performance Bar • Aim for the best in class • Incorporate year wise Improvement targets • Remember that the best-in-class also changes with time Copyright : Manoj Shrivastava 17
  • 4. Assign Performance Decrements Copyright : Manoj Shrivastava 18
  • 4. Assign Performance Decrements • What happens when the service provider fails to achieve the performance levels? – Assign performance decrements for each failure • Service Credits is just a deterrent and not a source of revenue • Service Credits are rarely sufficient to compensate for serious disruption in service • Consequential damages are almost rarely available Copyright : Manoj Shrivastava 19
  • 4. Assign Performance Decrements • Supplier will not agree for credits beyond his margin in the deal • What should you do? – Penalties should be sufficient enough to compensate for administrative cost of processing them – Build a provision to increase the performance credits with time – As the service provider gets more grip of the situation the probability of failure should decrease, hence, higher penalties – If staff continuity is a priority, vendor staff turnover – reassignment and churn can be provisioned in the penalty Copyright : Manoj Shrivastava 20
  • 5. Stay on Top of the Deal 21
  • 5. Stay on Top of the Deal • Create provision for exit if the Service Levels fall beyond – A limit – A predetermined number of times in a period • Another option is to invoke exit clause if performance credits exceed a predetermined limit • Provision for exceptions because… Copyright : Manoj Shrivastava 22
  • 5. Stay on Top of the Deal Murphy’s Law has a role to play in long duration contracts Copyright : Manoj Shrivastava 23
  • 6. Create a Business focused SLA mechanism Copyright : Manoj Shrivastava 24
  • 6. Create a Business focused SLA mechanism • Do not incorporate IT SLAs in the Contract • Uptime and Availability of server has limited benefit specifically as users access applications and not servers. • Link business measures with IT deliverables and incorporate business measures in the contract – Call Handling Time v/s Screen Refresh time – Customer Satisfaction v/s Billing errors Copyright : Manoj Shrivastava 25
  • 7. Avoid Averages Copyright : Manoj Shrivastava 26
  • 7. Avoid Averages • The PC of the CEO, CFO or EA going down has a different impact than the PC of an account executive going down • Averages often hide problems and are misleading • You may end up paying bonuses even if there is rampant dissatisfaction with the services Copyright : Manoj Shrivastava 27
  • 7. Avoid Averages Some ideas to avoid Average based SLAs Average Based SLA SLA avoiding Averages Average Resolution Time < 2 Hrs % of errors where the Resolution exceeds 2 hrs should be < 5% Average Downtime < 2 Unplanned Downtime < 2 hrs/month hrs/month Number of Downtime instances < 2/month •% of CRs in a month which remain open Average time to Close Minor CRs < 1 week for more than a week < 10% •% of CRs in a month which remain open for more than a month < 1% Copyright : Manoj Shrivastava 28
  • 8. Incentivize the Service Provider Copyright : Manoj Shrivastava 29
  • 8. Incentivize the Service Provider • Be as generous at incentivizing higher performance as you want to penalize lower service levels • Incentives work as better “behavior driver” than penalties • Customers should ensure in the contract that a significant portion of performance bonuses are used to reward account management team to encourage retention Copyright : Manoj Shrivastava 30
  • 8. Incentivize the Service Provider • The Service Provider’s Team is an extension of your team • Include them in your Employee reward & recognition programs Copyright : Manoj Shrivastava 31
  • 9. Define Clear Boundaries • There is probably nothing more divisive than one party believing they have delivered and other does not agree Copyright : Manoj Shrivastava 32
  • 9. Define Clear Boundaries • Many business processes have active involvement of both Customer and Service Provider personnel • It is at this point-of-handover that boundary conditions should be clearly defined • Each task should have a responsibility matrix with no concept of Joint Responsibility • Exclusions should be defined as clearly as inclusions Copyright : Manoj Shrivastava 33
  • 10. Negotiate internally first externally second Copyright : Manoj Shrivastava 34
  • 10. Negotiate internally first externally second • Before negotiating SLAs with the Service Provider have an internal buy-in with all stakeholders • It is very important to set the expectations correctly • More often than not expectation mismatch is the main reason for an outsourcing contract to fail Copyright : Manoj Shrivastava 35
  • 11. Design for flexibility Copyright : Manoj Shrivastava 36
  • 11. Design for flexibility • Design for following flexibility in the contract 1. Frequency at which SLA targets will be reviewed 2. Number of consecutive months if a target is over achieved should it be dropped from computation of bonuses 3. Frequency at which the SLA Measures can change (rules of the business can change during the tenure) 4. Service Provider’s plan to automate SLA Measurement Copyright : Manoj Shrivastava 37
  • 11. Design for flexibility A contract without flexibility is like… Copyright : Manoj Shrivastava 38
  • Summary • Learn to Let go • Create a business focused SLA Mechanism • Less is More • Incentive the Partner • Raise the performance • Define clear boundary bar conditions • Assign performance • Negotiate internally decrements before you negotiate • Stay on top of the deal externally • Avoid Averages • Design for flexibility Copyright : Manoj Shrivastava 39
  • Thanks… Contact me @ http://www.linkedin.com/in/manojshrivastava Copyright : Manoj Shrivastava 40