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Embracing governance through smart service levels

By Scott Trimble, CGEIT, CISA, Senior Consultant, Clearview Management, Dallas TX.

High-quality performance is what everyone looks for in an outsourcer. But in the spirit of “what gets measured gets done,” can you be sure your service level agreements support your high-performance expectations? Often, the value to be derived from Service Level Agreements (SLAs) is diminished due to the reactive nature of SLA corrective actions. Most often, SLAs tend to address specific service delivery performance and not governance performance whether applied in a traditional outsourced relationship or other outsourcing based disciplines such as hosting, managed services, business process outsourcing, etc. What if agreements were structured to also address the performance of the governance committee? What if governance Level Agreements (GLAs) were structured to indicate failure of a specific service delivery SLA before it happens?

Characteristics of Smart SLAs

As with many industries, the outsourcing industry has matured and improved over the decades through service refinement and improved accountability. Through the infusion of thought leadership, primarily by consulting firms, outsourcing clients today receive more value from the services they outsource than ever before. As a result of this maturity, service level definitions are better written, more specific and provide a better framework to represent what the client wants to buy. In addition, they enable better management of technical service delivery by defining under what circumstances service delivery is valid. However, many outsourcing buyers today regard basic service levels as commodities and overlook the pitfalls that inadequate governance can have on service delivery. The following are characteristics of good service levels as represented by today’s mature outsourcing industry:

•      Service levels that support the business needs of the client through a better definition of the objectives and improved description of what the service level is to achieve for the client

•      A more detailed explanation of how service level attainment will be calculated

•      The method by which attainment will be judged including what data will be collected, what tools will be used to collect the data, how it will be compiled, how often it will be collected and how it will be reported upon including what format

•      A more thorough understanding of what business units within the client organization will be impacted if the service level is not met

•      What party is responsible for attainment of the service level, the service supplier or the client (service levels that are the responsibility of the client will be discussed later)

•      The period during which the service level will be measured and reported on

•      The corrective process that will be executed by both the supplier and client if the service level is not met

•      Contractual definition of penalties associated with missed service levels including increased penalties of repeatedly missing the same service level(s)

As a benefit to the more recent advent of hosting services and managed services, the service refinement and improved accountability of the more mature outsourcing industry has served as a good template for their respective SLA development. Though these newer industries may address more specific functions such as power availability and managed telecomm infrastructures as examples, they generally have learned to apply the resultant quality developed by the outsourcing industry without having to reinvent the wheel.

The Governance Dilemma

Numerous consulting firms over the years have attempted to address governance related service levels on their client’s behalf during the creation of an outsourcing relationship. This motivation stems from observations related to deficient governance performance. One of the greatest frustrations reputable consultants endure is the reality that a well structured, clearly written and effectively negotiated agreement is placed on a shelf until a service level is missed and the client business suffers as a result. Thus the value of proactive governance appeared to be underrated by many clients. In an attempt to address this deficiency some governance related service levels were added to the ever growing list of specific service delivery SLAs and included all the usual treatments including penalties for missing service levels, corrective actions to remedy deficient service level attainment, etc. Some of the more commonly used governance related service levels included:

•      Change management

•      New ideas and recommendations

•      Help desk satisfaction survey

•      Monthly status reporting

•      Strategic Planning

While this constructive approach served to increase the visibility of deficient governance it also introduced several deficiencies of its own, notably:

The dilution of penalties and thus the consistent delivery related to specific service delivery SLAs as many of the common penalty calculations typically used were based on the sheer number of service levels involved.

Reinforcement that the supplier could only be penalized for deficient performance.

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To this last point, over the past decade of conducting competitive bid processes (RFx’s) of various forms, I have almost always encountered the argument from bidders that if we are to be penalized for deficient performance why should we not be rewarded for outstanding performance? This is a fair and equitable question deserving of discussion. First and foremost specific service delivery related SLAs are representations of what the client wants to buy to support their unique business needs, goals and strategies. No more and no less. As such, they do not lend themselves well to being a point of negotiation in respects to penalties and rewards. In a traditional outsourcing environment where numerous clients may be run from a single supplier’s data center, why should any single client provide rewards because other clients in the same data center demand higher levels of service thus benefitting both clients? In an effort to address this discrepancy, it has been simply stated by some consultants that outstanding performance would be rewarded with additional opportunities. While this approach was psychologically sound and logical (rewarding good behavior) it provided no tangible benefit that could be forecast and scheduled by the supplier. Any resultant additional opportunity was often left to a subjective assessment made by the client.

A Different Approach

While privileged with the opportunity to participate on the team (consultants and lawyers) that was selected to conduct a competitive bid process for one of the 5 largest counties in the United States, it became apparent that we needed to develop a large number of service levels to address the scope of the stated services. Many of the identified service levels were governance related. In an effort to reduce the penalty dilution associated with so many service levels we divided the service levels into 2 categories, critical service levels and non-critical service levels.

The critical service levels were largely comprised of specific service delivery related service levels while the non-critical service levels were largely comprised of governance related service levels. We were then able to develop a different relationship and contractual treatment for each category. The critical service levels were constructed with the characteristics of good service levels as discussed above as were the non-critical service levels. The critical service levels were treated in the traditional fashion in respects to penalties for missing service levels, corrective actions to remedy deficient service level attainment, etc.

We approached the non-critical service levels in a rather different fashion. Although we still had to structure the relationship and contractual treatment of these non-critical service levels under the same dilution restriction, we also wanted to achieve the following goals:

•      To increase supplier management involvement and exposure to the governance aspect of the new relationship

•      To increase client (County) management involvement and exposure to the governance aspect of the new relationship

•      To include service levels that the client was responsible for achieving as well as service levels that the supplier was responsible for achieving

•      A mechanism whereby the supplier would be rewarded for outstanding service related to governance activities rather than specific service delivery related service levels

Our approach entailed prioritizing the non-critical service levels based on the impact to ongoing governance and which would result in proactive supplier behavior in support of the critical service levels, such as change management. Next we developed more robust descriptions of the governance related activities than was typically observed in the current outsourcing agreements. We then developed the contractual treatment of the non-critical service levels whereby the 5 highest priority non-critical service levels, if missed, would equal the penalty associated with a single critical service level. If all non-critical service levels were attained by the supplier, service credits would be accumulated (up to a maximum) that could be used to reduce any potential penalties to be assessed for deficient critical service level performance. In addition, this same service credit approach for the supplier was applied in the case of the client missing any service levels that they were responsible for attaining. The supplier would receive the service credits if the client failed to achieve their governance related service levels.

While we continue to refine this approach to embracing governance we feel it is a step in the right direction. By soliciting more proactive supplier support we anticipate increasing the value to be derived from SLAs by raising exposure to events that may put achievement of service levels in jeopardy before they are actually missed. The intended benefit is to reduce the occurrence of reactive processes associated with missed service levels because fewer service levels will be missed in the first place.

Clearview has been providing IT outsourcing services since 1996. Clearview builds upon each customer experience and uses that knowledge to stay positioned with products and services that address current issues and requirements. Clearview also address the very current needs surrounding business continuity and disaster recovery. Its executive team consists of experts in the field of technology and business process outsourcing. Collectively, they share over 150 years of hands-on experience. Every senior team member has a direct role with customers and maintaining a close business relationship keeps Clearview in line with its customers’ needs. For more information see http://www.cvglobal.com.

At Clearview we focus on your business, technology, and operational results. With offerings ranging from consulting to managed services to enterprise hosting, we bring leadership, expertise, and action to everything we do.

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13 Technical Support | June 2009 www.NaSPA.com