AS FADS GO, SLAS (SERVICE LEVEL AGREEMENTS) seemed like regulation issue. Busy sounding acronym—check. Hype—check. Vacuous white papers—check. It seemed headed straight on the road to ignominy. Then something happened on the way to oblivion, and SLAs have been on a tear ever since. What is the catalyst? The BPO boom that is taking the industry by storm.

A Clean SLAte
SLAs certainly started out on a promising, albeit muted note. Even though the buzzword itself came into widespread use following the 1998 release of “Service Level Definitions Implementation Agreement” by the Frame Relay Forum, its genesis goes back much farther. Dating as far back as the 1960s, SLAs were used within organizations to measure IT performance such as data center uptime and network availability. Its merits were obvious and the users understood the limitations. For one thing, SLAs were never intended to replace legal contract agreements. The focus was intentionally kept narrow, enabling SLAs to be a supporting document to the contract agreement. But as the adoption of SLAs became wider, so did the focus. And as the focus was lost, so was SLAs raison d'etre.

As layers of complexity were added the SLAs quickly went from a concise performance contract to a rambling manifesto, with clauses that conflicted with the contractual agreement. Incorrect benchmarking, fuzzy availability statistics, and unrealistic expectations—all combined to create disputes between customers and vendors. It seemed like SLAs—which were originally conceived to improve the quality of service—were instead working to exacerbate the problem and not to resolve it.

The Second Coming
It is obviously a matter of debate whether the recent emergence of BPO alone is responsible for the resurrection of SLAs. Nevertheless, with the profile high and the stakes even higher, outsourcing has forced a certain amount of discipline into the crafting of SLAs. No more vague “five nines” (99.999 percent) that guarantee uptime without guaranteeing business continuity. And definitely no more cursory SLAs that pack no penalty punch. With business executives sitting alongside technical heads while drafting the SLAs, the prominence and clout (and not to mention quality) of present day SLAs have risen considerably.

This has prompted a “back to the basics” approach among service providers, and the stress is now on simplifying SLAs to focus clearly on the business impact. Instead of viewing it as a necessary evil, the idea now is to leverage SLAs as tools in gaining a competitive advantage.

Getting it Right
In its most basic form, a typical SLA would spell out the rights of the clients as well as the responsibilities of service provider. When viewed in the context of an internal SLA, the service provider is the IT department, and the clients are its business partners. In the more general B2B world, the ASPs and ISPs represent the technology side, and the business process outsourcers represent the client side. SLAs also identify and define service offerings, penalty clauses, evaluation parameters, and Quality of Service.

The framework of an SLA is pretty much standard fare. The devil, as they say, is in the details. What separates the good from the ugly is the precise definition of service offerings, the choice of evaluation parameters, the focus on the business needs, and the consistency with other supporting agreements.

There is always an element of risk involved in entrusting the care and maintenance of core business processes to an outside vendor. It is incumbent upon the authors of the SLA to recognize this risk and to fashion an agreement that mitigates any concerns. Instead of stressing on 99.95% uptime of network router, it may make sense to focus on the end result, which is 99.95% system availability. Again, instead of stressing on 99.99% system availability and incurring the high cost of such a stringent requirement, it might make sense (based on business requirement) to opt for a slightly lower (but acceptable) level of system availability. In the ultimate analysis, if the business concludes that cost savings in accepting a 99% uptime (which translates to 88 hours of downtime during the course of a year) outweighs the expense in demanding 100% uptime, then the SLA should make an appropriate choice with the business risks in mind.

From the service providers’ point of view, SLAs are increasingly being regarded as more than just agreements to avoid conflicts with customers. With the competition among service providers heating up, ASPs and ISPs are innovating—by deftly employing their SLAs as surrogate marketing tools. As the application service market gets increasingly commoditized, SLAs have morphed into an effective marketing tool that differentiates a provider’s services from the rest of its competition. Consequently, ASPs are beginning to employ a “define and refine” approach with SLAs, stressing on Quality of Service and superior performance, thereby leveraging SLAs to get a leg up on competition.

Avoiding SLA Traps
The cardinal sin that a service provider can potentially commit is to over-promise and under-deliver. The moment SLAs became marketing props, they became double-edged swords. If the marketing side promises the moon just to win a contract, it is the IT side that will pay the price. The key is to curb the temptation to guarantee fantastic uptime at ridiculous price levels.

Failure to clearly detail the various levels of violation, along with its attendant penalty is another trap that outsourcers should be cognizant of while creating the agreement. The problem will not be evident until something breaks—and if an amicable resolution isn't reached, it’s the relationship that would suffer.

SLAs Ain't SLMs
So you have signed, sealed, and delivered a tight SLA that is extremely well crafted. The deal is now closed. Does this really guarantee the level of service that is expected and agreed upon? Not really. Without an SLM (Service Level Management) program, the SLA is just a document in cold storage. Unfortunately not many managers know even the difference between the two, and use the terms SLA and SLM interchangeably. While the SLA is an agreement, the SLM program functions to monitor, maintain, and manage the SLAs. It is crucial for a service provider to have the capacity to focus on the appropriate metrics, and coordinate service-level oriented improvements. The SLM picks us where the SLA leaves off, and ensures that the quality of service is consistent with the guarantees provided.

Looking Ahead
SLAs may have started out as a newfangled idea forty years ago, but its potential to create business value has become clearly obvious over the past few decades. With the worldwide BPO spending growing at a phenomenal rate, SLAs have grown to assume an increasingly prominent role.

The true merit of an idea becomes apparent when its adaptability is tested. SLAs have adapted admirably to changing business trends and industry needs, constantly evolving into a more tightly focused productivity tool. Instead of just being a vehicle that can justify investment and identify the “right” quality of service, SLAs can help an organization to align all support services (particularly IT) directly to business objectives. Used effectively—be it as a marketing weapon or a strategic tool—the returns realized from a well thought out SLA can be substantial.

V. Anantakrishnan is a senior technology manager at AXA Financial in New York. He has over a decade of experience managing and implementing large scale systems integrations projects in the telecommunication and financial industries. He holds a masters in international business from Columbia University, and a masters in IT management from Carnegie Mellon University. He can be reached at vak88@hotmail.com