Outsourcing SLAs & Contracts
Are SLAs mere Goal posts for the Year?
Yes. SLAs are goal posts which defines the goals to be achieved for the year. These are defined as part of the outsourcing agreements and renewed year on year. However, SLAs and KPIs, are well beyond current year goals and be tactical and can turn into strategic by nature.
The service levels be offered by the service provider may be measured as Not meeting the expectations - A negative indicator, Meeting expectations at the minimum level, and Exceeding expectations to signify highest performance. This may be a numerical measure, in % or in numbers.
The principal and the service provider need to ensure appropriate measurement systems are placed in the system, so that the performance as required are regularly captured. measured and reported. In the absence of appropriate measurement systems, there is room for incorrect reporting or false data getting reported as part of the reporting process.
CORE Metrics:
Each and every organization may have some CORE objectives or business metrics to achieve. These must be achieved as part of the annual goals and changes year on year.
Therefore, every SLA need to have certain core metrics, that involves the primary deliverables for the year. The examples are;
Profitability
Annual Sales numbers/Value
Number of Error free transactions
Reduction in Customer complaints
Number of new customers acquired
Volume of Transactions or $ generated
Number of new businesses acquired & $ value
Geography specific growth/spread in volumes or $ value
These are the pivots based on which the business is running effectively. Therefore, businesses need to ensure, these are delivered YOY.
Case Capsule 1 - Need for SLAs aligned to Critical processes:
A large automobile organization has list of SLAs with their service provider. The agreement was also evolved over a period of time and had been seen as satisfactory by the Principal as well as the Service provider.
However, there were series of incidents in which, certain updates made incorrectly in the ERP system triggers incorrect Vehicle chassis numbers which results in incorrect printing of Vehicle identification documents. The dealership identifies such errors and communicate to the Automobile manufacturer. The correction process takes 45 to 60 days from the time of despatch to identification of errors to error fixes in the system and to reprint of corrected document. This results in delays in vehicle registration and ultimately, end customer goes unsatisified.
However, this key error seepage to end customers was not captured as a SLA, either by the service provider or insisted as a key metric by the principal.
Long term metrics:
These must be beyond 2 years to fix Process & Tech issues,
Consolidation of Two geography teams
Zero touches Banking transactions by 2023.
Time bound metrics:
In outsourcing contracts, every business need to look at their targets with a time bound perspective. These can be classified in to the following categories.
Short term metrics:
These must be achievable well within 3 months to 1 year. For example,
Zero duplicate payments in the Accounts payables
Customer e-mails turnaround within 8 hours
Medium term metrics:
These must be achievable within 1 to 2 years. Examples are,
Digitization of Travel expense processing within 2 years
Chatbot setups for AP queries by 2021
Case Capsule 2 - Need for SLAs finding missed good practices:
A multigeography organization has contracts with the service provider for the past 20 years. The service delivery is going smoothly without any process surprises. ,
However, in the recent past the customer disputes in the receivables area are increasing resulting in non collectible numbers growing higher and higher. From the initial 3%, the receivable disputes had grown into 9% in the last year.
A series of such non collections and customer disputes complaints had resulted in the investigation into the standard operating procedures of the past. The SOP, which was 10 years old refers to a procedure wherein, every customer dispute can be logged into ERP and there are set of actions to be followed in the ERP system. By doing this practice, every dispute, customer wise was identified and timely actions were taken earlier. However, this good practice was not effectively followed in the last 3 years and disputes were not escalated timely and closed.
Going Digital:
In today's dynamic environment, every business need to include metrics on digitization or for digital solution.
One of the legacy issues need to be identified and roadmap be drawn to implement a digital solution. This can be tracked through a SLA or KPI month on month and supported by a project plan.
For example - Digitization of Invoicing process or Zero manual invoicing by 2021 can be included as a key metric by the business and can be achieved through colloboration between the principal and the service provider.
There can also be a long term target across the years and can be tracked through a separate annexure to the SLAs.
Strategic Vision:
Generally, SLAs looks at the present and that is not taking us anywhere! The principal and the service provider need to have strategic vision of how to take the process to the next level?
This is not typical head count savings which can be a misnomer. In fact, one of the least savings generated is out of head counts. However, the service provider can provide other value added services, which can be more valuable to the principal in the medium to long run.
These services can be in the form of Business insights, Analysis to Analytics, Global reporting, Powerful visual dashboards to various others. From Sales to Finance and Shop floor to purchasing can be benefitted thru these additional services which are costly to implement, The other strategic value add is the Business Transformation that a service provider can lead from his front.
Case Capsule 3 - Need for SLAs reflecting the Service delivery health:
In a large global bank for the trade services, the bank invoices their customers for the services rendered. This is a mix of fixed charges for each geography as well as a certain percentage of the interest for the Trade document facilitation.
In terms of value, the invoicing value is a sizeable dollar value for certain geographies. In the recent past, there were number of errors in the invoicing and the customers are refusing to pay the invoices citing incorrect calculations. This results in inordinate delay in the collection of Trade invoices from the customers and special teams need to be formed to fix the issues and resolve customer queries around the subject.
However, the individual countries who are getting the services from the GSC are happy with the current SLA/KPIs without reporting the number & $ value of such invoicing errors.
Takeaways:
How many SLAs & KPIs - may be 10 to 12 in number. Larger number does not reflect effectiveness
Strong measurement systems around SLAs and regular audit of such numbers as part of the Governance
Evidencing is the key. Every number reported on the SLAs need to have necessary supporting documents
Look at the present, future and have a strategic vision - Equally do not forget the past & miss good practices
Automate the reporting process of SLA and KPI to ensure minimal human intervention and for better accuracy.