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Building Better Service Level Agreements
Service level agreements provide a performance benchmark that can build customer trust and attract new users. New solutions are available to help companies create and adhere to their SLAs; however, experts urge finding a good match before adopting one.
Posted Oct 18, 2001
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It's a cultural reality that what one company can provide for us, we expect from another as well--once we experience a new, higher level of service, our standards are raised. If the appliance store delivering your new air conditioner can give you a four-hour window, then you're frustrated by the phone company that won't be more specific than "sometime between 9 and 5." As consumers, we're insisting on better service, and we're willing to pay for it. If you're a vendor making a promise, you'd better be prepared to make good on it, because you'll be hard-pressed to find anyone with patience enough to let you off easy.

The service level agreement (SLA) is where expectations and stipulations are spelled out in black and white, including what the ensuing consequences will be if said expectations go undelivered. Like so many functions of the business process that were once considered a necessary evil, the SLA can work to your advantage--no matter which side of the equation you're on.

Says You

Francis Bacon once said, "A man is but what he knoweth." Today, equally important is what he can prove. As developing technologies enable companies to make good on their promises, as well as provide hard evidence of it, it's becoming increasingly crucial to rethink the function and importance of the SLA.

"I think SLAs are a great thing, once they're met and they're enforced," says John Lee, ViryaNet's telecommunications sector vice president. "But today, most companies that are providing SLAs really have no way to measure performance. And if you call them and say, 'Hey, you didn't meet my SLA, I deserve a credit,' they'll give you one, because they can't prove [they didn't meet the SLA]. Typically they give a credit that's not anywhere near what the penalty would be [had they not met it]. So it's cheaper for them that way." If you're the provider, a good way to avoid such a scenario is by negotiating an SLA that states both parties' expectations as specifically as possible and by using a technology that makes sure you can meet them.

"To the extent that [a company] can really articulate and deliver on an SLA, they can charge higher prices for it," says Michael Blumberg of D.F. Blumberg Associates in Fort Washington, Pa. "Research has shown that the marketplace and customers are willing to pay for faster, higher-quality service." He continues, "[Customers] in many segments are really taking what's being offered to them. Since nobody's offering them better, they accept what's available. But if you sit down and talk to them about what they really want, what they require, they'll tell you. And then one of the challenges for the provider is how to deliver on it. That's where service automation, field force automation and service management systems come in."

The advantages of an SLA-management technology aren't just about being able to charge more for your heightened services but also about earning more customers. "It really differentiates you," says Blumberg. "By having an SLA, you're putting a flag in the sand and saying, 'I'm a very qualified vendor. I offer a high-quality level of service. I have the capabilities to deliver on it, and I'm willing to put my money where my mouth is.'"

What should an SLA specify? That depends on your business, but, on the whole, "[an SLA] would define parts coverage--whether parts are included--[and] labor. If a part isn't available, how long it would take them to get the part," says Blumberg. "It would also describe if they were going to use call screening and avoidance tactics. The SLA would identify the response time commitment of the provider. It would identify the escalation policy, the procedures and processes that will be put into place if the field engineer does not arrive within the timeframe specified in the SLA. It would also describe if loaners are going to be provided, if any rebates will be applied or talk about what happens if the appropriate SLA agreement is not achieved."

The Nuts and Bolts of It

A lot of the talk surrounding SLA-management software has been in regard to ASPs. "The tightest SLAs are on the ASP market," says Brian Burba, vice president of product marketing at Concord Communications. "structuring an SLA with the ASP is essential, because you're really trusting them with everything."

Concord is one of the companies creating the type of software an SP would buy to automate the process of managing its SLAs. "While some [SPs] market themselves as a managed service, they have no way to demonstrate that their resources are managed, so they're at a competitive disadvantage," says Burba. "We've had situations where [an SP] sold its customer a managed service with an SLA tying the whole agreement together, and they had no way to implement. So, they came to Concord so that they could solve that customer's particular SLA requirement but then also roll it out as a broader service to other customers."

Concord's eHealth software generates reports that detail a site's up and down times; it also actively manages, informing the people at the SP when the server is at risk for not performing up to SLA standards. "Say, for example, the Gap has outsourced its Web site," says Burba. "The account manager at the SP who services the Gap could receive a page that says, 'The Gap Web site is slower than normal.' So [that person] can give the customer a call and work out this issue before there's any problem."

Another SLA-ripe opportunity is between an FSO and its customers. These days, it's the rare FSO that doesn't have an automation system in place. However, when that company has customers calling in every few minutes, each with an individual SLA, not just any automation system will do. "The SLA is basically a prioritization of [a company's] day-to-day activity, because you're going to want to deliver prioritized service from a financial perspective," says ViryaNet's Lee.

Two customers may call in with the same problem, says Lee, but if one has an SLA that guarantees service within 24 hours, and the other has a "platinum plan" that guarantees service within four hours, your system needs to acknowledge those requirements to make sure that the SLAs are met. "Our system has smart engines that look at things like technicians' schedules, parts availability, timing--this guy needs two hours before he hands it over to the next guy, or whatever--to make sure that if it's a four-hour requirement, we can get there," says Lee.

Blumberg advises: "If you really want to blow the lid off of meeting SLA commitments, you'll adapt to your basic dispatch system an optimized scheduling software solution. There are two that are very strong in that area. One is ClickSoftware, the other is ServicePower, and what these do is allow a service organization to manage multiple constraints, like response time, cost, customer satisfaction, travel time...and determine what's the best schedule for all field engineers."

Loose in the Marketplace

"An SLA is one aspect of putting in a system," says Blumberg. "You want to look at your organization, what your processes and procedures are, and you want to benchmark it and make sure you're best in class. And if you're not, you put in new processes and procedures, and then you write up a functional spec, identifying specifically what you need in a system."

"How you shop for [a system] depends on the size of your company," says Dan Griffin, COO of MobileVillage, San Francisco. "If you're Sears, you're going to have a dozen companies that want to come in and do the whole solution for you. But if you're Jim & Joe's Pool Repair, you probably don't have the same level of clout."

If you're somewhere between those extremes, though--say you have between 50 and 100 service vehicles--Blumberg estimates that there are more than two dozen available systems to choose from, and the number is growing.

"In basic form," says Griffin, "they don't vary all that much. A system is indicative of the business process you're trying to apply it to, so everybody that does service has some pretty basic components that are transferable across segments, if you will.

"What's most important, once you've gotten your base list [of potential candidates]," he continues, "is to have them give you a client list and contact information and let you pick who you want to contact. Because, quite honestly, if you tell them to hook you up with a customer, you're going to get their absolutely most happy customer on the phone."

Other points to consider, Griffin says, are:

• What's your commitment to the segment I represent?

• What is your typical start to finish time?

• How many installations have you done?

• How well does your technology match up with the mainstream technologies in my company?

• How dependent am I on you once you've installed the system?

• How flexible is it?

• How scalable are you?

Asking these types of questions will help narrow the field on both sides, and the best match-up will be mutually beneficial.

Win/Win

SLA management technology isn't just about staying on top of your game--it's something you can work with to make the most of every business relationship. "One of the things [to consider] about service is that it's intangible, so it's difficult to market and sell," says Blumberg. "So what happens is that people buy the perception and the reality. With a service contract or an SLA, it gives the provider the ability to market and sell both perception and reality."

Another advantage of the SLA is you're dealing with a fixed-price fee, versus charges for time and materials. This benefits the customer, who doesn't have to worry about any unpredictable charges, and it benefits the FSO, in several respects. "First of all," says Blumberg, "you're guaranteed the money, whether you [get called in] or not--and then if you're really smart about it...if you're a provider, you can put in technology to manage the resources--the parts, people, process, etc.--to profitably deliver on SLAs."

The key to an SLA, Griffin says, is that it's an actuarial thing, similar to a car company that considers issuing a recall. They weigh how much it is going to cost if they do versus if they don't. "SLAs are designed to be under-promised and over-delivered," he says. "So promise as much as you can that you can't possibly mess up."

Regarding the SP offering 100 percent uptime, Griffin says, "Once again, that's actuarial--what's it gonna cost? If everyone else offers 99.9 percent, but I can offer 100, and the way I've written my contract is that it only costs me 1 percent of operating revenue to make that claim, I'm going to lose a percent of profit this year by not being able to meet that claim, but I get 30 percent more revenue because people switch to me or choose me instead." He adds to that: "The only key is, it has to be believable. If everyone in the industry is saying 40 percent, and I'm offering 90, I'm shooting myself in the foot."

As ViryaNet's Lee points out, thanks to advances in technology, now we do know--and can prove--the types of facts that previously couldn't be pinned down with much accuracy. A blank in the business process has been filled, but the consequences of this advancement will only be as precedent-setting for your business as the SLA you design to manage it.

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