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

1. 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)

2. Outsourcing is like Marriage
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3. Most often between unequals
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4. Initially both parties are happy
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5. However, soon you have this situation
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6. Problem compounded if you have kids
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7. Outsourcing contracts help both parties
handle such unpleasant situations
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8. Customers think Outsourcing is like…
Putting the Monkey off their back
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9. But many times it becomes…
Accountability without Authority
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10. SLAs are the core of the Outsourcing
Agreement
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11. 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
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12. 11 Ideas to negotiate a better SLA
Mechanism
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13. 1. Learn to Let Go
•Let Go of Control
•Avoid Design for Micro Management
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14. 1. Learn to Let Go
• Outsourced functions cannot be
remote controlled
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15. 2. Less is More
• Managing 450 SLAs in a large Telco
outsourcing Deal was a nightmare in itself
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16. 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
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17. 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
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18. 4. Assign Performance Decrements
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19. 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
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20. 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
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21. 5. Stay on Top of the Deal
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22. 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…
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23. 5. Stay on Top of the Deal
Murphy’s Law has a role to play in long duration contracts
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24. 6. Create a Business focused
SLA mechanism
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25. 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
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26. 7. Avoid Averages
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27. 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
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28. 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%
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29. 8. Incentivize the Service
Provider
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30. 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
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31. 8. Incentivize the Service
Provider
• The Service Provider’s Team is an extension of your team
• Include them in your Employee reward & recognition
programs
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32. 9. Define Clear Boundaries
• There is probably nothing more divisive than
one party believing they have delivered and
other does not agree
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33. 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
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34. 10. Negotiate internally first
externally second
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35. 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
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36. 11. Design for flexibility
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37. 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
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38. 11. Design for flexibility
A contract without flexibility is like…
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39. 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
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40. Thanks…
Contact me @ http://www.linkedin.com/in/manojshrivastava
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