SLA\'s - Creating Sustainable Relationships by Alsbridge, Ben Trowbridge, Managing Partner, Alsbridge North America, Tim Lloyd, Managing Partner, Alsbridge Europe, SLA, Service Level Agreements, Sustainable relationships, relationship management

1. SLAs - Carrot or Stick?
Creating Sustainable Relationships
SIG Regionals 2007
Europe
North America
22-24 Ely Place
3535 Travis Street, Suite 105
London, EC1N 6TE
Dallas, TX 75204
United Kingdom
Tel: +1 214-696-6410
Tel: +44 (0)207-242-0666
Fax: +1 214-239-0698
Fax: +44 (0)207-242-0667
Email: EnquiryUSA@Alsbridge.com
Email: EnquiryUK@Alsbridge.com
© Alsbridge 2005 Confidential and Proprietary www.alsbridge.com

2. Agenda
• Myths, Facts and Thesis
• Core Concepts
• The Decision Cycle
• What are We Trying to Achieve?
• Common SLA Outcome
• The Foundation
• SLA definition
• KPI definition “Alsbridge brings experience
and independent challenge to
• OLA definition the strategic decision and
business case development
• Managing the Outsourced Service process that is invaluable to
• SLA, KPI, OLA Identification any senior leadership team.”
• SLA, KPI, OLA Description Guy Cowan, Former CFO
• Service Levels: What Works…
• Sticks – Current thinking on pillars
• Carrots – An Example to Consider
• The Way Forward
• Principles to Consider
• Sustainable Value Management
© Alsbridge 2005 Confidential and 1
Proprietary

3. Myths, Facts and Thesis
Myths
• Metrics and best practice comparisons for price and service levels are key
• Penalties systems will make the provider pay attention to me
• Never pay the provider extra for doing their job
• If I collect enough data the service will be good
• Faster, better and cheaper
• Details give the illusion of control
• The Danish effect (hands off or simplistic metrics)
Facts
• Margins of on-shore providers are currently at an all time low
• Significant dissatisfaction is expressed by many clients besides aggressive bid
and negotiation tactics
Thesis
• Behaviors need to change in the way relationships are managed from start to
finish
© Alsbridge 2005 Confidential and 2
Proprietary

4. Core Concepts - The decision cycle
OODA Loop
Observe Orient Decide Act
Implicit Implicit
Unfolding Guidance Cultural
Guidance
Circumstances & Control Traditions & Control
Genetic
Heritage Analyses &
Observations Feed
Forward
Synthesis Feed Decision Feed Action
Forward Forward
(Hypothesis) (Test)
New
Information Previous
Outside Experience Unfolding
Information Interaction
With
Unfolding
Environment
Interaction Feedback
With
Environment Feedback
Note how orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and
other phenomena coming into our sensing or observing window.
Also note how the entire “loop” (not just orientation) is an ongoing many-sided implicit cross-referencing process
of projection, empathy, correlation, and rejection.
From “The Essence of Winning and Losing,” John R. Boyd, January 1996.
© Alsbridge 2005 Confidential and 3
Proprietary

5. Core Concepts - What are we trying to Achieve?
Customer Satisfaction
Dysfunction Function
6 sigma
Kano quality categories
Customer Dissatisfaction
© Alsbridge 2005 Confidential and 4
Proprietary

6. Core Concepts - Common SLA Outcome
© Alsbridge 2005 Confidential and 5
Proprietary

7. The Foundation - SLA Definition
• An agreement between a provider of services (can be internal or external) and a
customer/client
• Relates to the services to be provided by the Service Provider (both internal or external)
to „Client‟
• Identifies the inputs that are required from „Client‟ to allow SP to provide its services
(dependencies – Operating Level Agreements (OLAs)
• Allocates responsibilities for service delivery between SP and „Client‟
• Defines the appropriate level of service to meet „Client‟s‟ needs
• Provides a framework for performance measurement and continuous improvement
© Alsbridge 2005 Confidential and 6
Proprietary

8. The Foundation - KPI Definition
• KPI are quantifiable measurements for evaluating progress towards an organization‟s goals.
• KPIs allow an organization to:
• Analyze aspects of its past
• Challenge its present
• Plan its future
• KPIs should primarily be used to determine the efficiency and effectiveness of the services
provided by the SSC.
• KPIs should focus on a manageable number of the most important measures – often have
“Service Credits” attached
• Key four components:
KPI
Measurement Goals Accountability Service Credits
The Target The Assignment Failure by SP to
The Chosen
Performance of the Goal Meet Agreed KPI’s
Focus
Associated with to a Specific will result in a
Area For
the Measure Individual or discount known as
Management
Team Service Credits
© Alsbridge 2005 Confidential and 7
Proprietary

9. The Foundation - OLA Definition
• Presents a clear, concise and measurable description of 'Client' and SP relationship
• Defines the interdependent relationships among 'Client' and SP
• Describes the responsibilities of 'Client' toward SP, including the process and timeframe for
delivery of their services
• New dynamic: SP cannot be held to account unless 'Client' does what it has to do
© Alsbridge 2005 Confidential and 8
Proprietary

10. The Foundation - Managing the Outsourced Service
• Key word is Service
• You are buying a service, not an F&A team or a process
• Focus on the output you need, not the step by step process
• Focus on how you want to receive the service, not the route in between
• How do you know what are you going to get what you are paying for:
• Service Description
• SLAs, OLAs, Key Performance Indicators
• „Client‟s‟ obligations in the Operating Level Agreement
• But how will I know SP are „doing it right‟?
• Operational Reviews
• Service Governance
• Contract Management
© Alsbridge 2005 Confidential and 9
Proprietary

11. The Foundation - SLA, KPI and OLA Identification
Accounts Payable Overview
Service Provider – AP Process
Invoices to be FTP invoices to
Mail Processing – Invoice Parking /
either sent for DIPS, open Does Vendor
Receive Doc‟s at Yes PO Matching / Invoice Posting Invoice Payment
scanning or back untouched Exist in SAP?
Service Provider Other invoices
to Vendor invoices
Flow
No
CLIENT (OLA)
Approve invoices,
Set up Vendor in
solve PO
System
mismatches
Action all invoices Forward all invoices for All invoices which are
received by SP (i.e. select Vendors not set up to the approved and free for
for scanning or reject) client within 1 Business payment to be paid by later
within 1 Business Day of Day of receiving scanned of invoice due date or next
SLAs
receipt invoice payment run
% of invoices not
% of invoices paid by
actioned within 1 % of Vendors
later due date or next
Business Day of Created in a month
payment run
receipt in a month
KPIs
* Get back to Vendors * Pay approved invoices
quickly if invoices are not * Let the client know of
on time
in order new vendors
© Alsbridge 2005 Confidential and 10
Proprietary

12. The Foundation - SLA, KPI and OLA Description
SLA Sets out Trigger for
Service Line Allocation of Baseline
Description definition of service Sets out what
identifies SLA Definition of activity
describes KPI and credits, ‘Client’ has to
grouping of Description KPI and level
individual current or suspension of do to enable
service levels within service current or which may
service target service SP to reach
within ‘Client’ credit regime target underpin
offered by SP performance charge, etc the service
process… performance pricing
level
Service Service Level KPI and Minimum Service Operating Defined Key activity
Line Agreement current service credit Level OLA level
Description (target) SLA level category Agreement perfor- (volumetrics)
performance Description mance
Pay Pay invoices which 100% invoices in any 95% of B2 Raise accurate, Raise % of invoices for
invoices match with Purchase month which match invoices in properly approved, Purchase inventory items with
Order (and Goods with PO and/or GRN any month properly coded Orders PO
Received Note where paid by invoice due and properly wherever
required) by invoice due date, if invoice priced Purchase required
date, if invoice received received one day Orders as required by
by SP one day before previously corporate
due date. policy
© Alsbridge 2005 Confidential and 11
Proprietary

13. The Foundation - Service Levels: What Works…
• Ensure you can monitor your service providers performance and the service
measures are those over which the SP has total influence
• Determine what is important to 'Client'
• Determine measures that will invoke appropriate behaviours
• Maintain full visibility, if you can‟t measure it, find a measure you can!
• Be „specific’ - loose wording can be misinterpreted and lead to dissatisfaction
• „Time‟ - use working days, to published timetable
• „Accurate‟ - define what this means to you, and how it can be measured
• Build in quality and approval at source (your OLA)
• Eliminate double-handling and hand-offs
• Understand the service model
• Service from 08:30 to 17:30 means your call will be answered between those hours, not
that everyone is sitting at their desks
© Alsbridge 2005 Confidential and 12
Proprietary

14. Sticks - Current thinking on pillars
• Call Center
• Virtually unlimited data available about every action take by provider from readily
available systems
• Cost of cut over to new providers is relatively low and short term contracts are the norm
• Per-minute, seat, talk time, 1st call resolution, etc are used to incentivize the provider to
generate results
• Applications Management
• Large amount of data available to manage the provider
• Very price sensitive with implied pricing by FTE/year
• Burden is on the provider to keep cost under control and maintain application availability
• Cost of moving to a new provider is manageable
© Alsbridge 2005 Confidential and 13
Proprietary

15. Carrots - An example to consider
Wireless Carrier
• Issue:
• Core business costs for wireless carrier is customer churn, customer acquisition cost
and billing customer contact costs
• Solution
• Sustainable Value Management based contract that allows the provider to manage
to meet carrot metrics.
• Contract emphasizes two pricing dimensions:
- Core pricing tied to a series of volume indicators such as number of calls,
customers of record, or talk minutes
- Value pricing tied to and driven by the core underlying business principle that a
long term client is far more profitable than a new customer. For example:
Price/mo/C Acquisition / Retention
$1.12 12 months or less
$2.18 13 -24 months
$3.21 25 or more
© Alsbridge 2005 Confidential and 14
Proprietary

16. The Way Forward - Principles to consider
• Focus on High Level Business Outcome
• Think about value management
• Use business requirements to drive performance requirements
• Use templates to document commodity indicators (but do not think they are an outcome)
• Pick metrics that give control over outcomes
• Set realistic goals
• Strive for alignment
• Plan for proactive management
© Alsbridge 2005 Confidential and 15
Proprietary

17. The Way Forward - Sustainable value management
• Value Creation Management
•Service Level Management
• Contract Management
Performance
• Continuous Improvement
• Operational Oversight
• Change Control
• Continuity Planning
Process
• Relationship Management
• Organizational Structure
• Communications
People
Program • Project & Transition Management
Assurance
• Corporate Standards
• Tools
“Sustainable Value Management”
© Alsbridge 2005 Confidential and 16
Proprietary

18. The Way Forward - Sustainable value management (2)
• Value Creation Management
• Service Level Management
• Contract Management
• Continuous Improvement
Performance
Program
• Operational Oversight Assurance • Organizational Structure
• Change Control • Relationship Management
• Continuity Planning • Communications
Process People
“Sustainable Value Realization”
Sustainable Value Realization requires enabling all aspects of People,
Process and Performance to work together throughout the Outsourcing
Lifecycle
© Alsbridge 2005 Confidential and 17
Proprietary

19. Alsbridge Testimonials
Nestlé – “We could not have achieved what we did in the timescale without Alsbridge. Their vast experience
of international outsourcing enabled us to work quickly and effectively with our chose supplier and with our
legal team to complete a robust contract in near-record time. They were hands-on and pragmatic, and
provided us with both financial and commercial know-how. Alsbridge is continuing to help Nestlé to evaluate
strategic business process outsourcing opportunities.”
Michael Clark, FitNes Program Director
Royal Dutch Shell US – “Alsbridge brings experience and independent challenge to the strategic decision,
business case development and process that is invaluable to any senior leadership team.”
Guy Cowan, Former CFO US
MyTravel – “The team did an excellent job in negotiating and managing our outsourcing contract and were
an integral part of the process; their advice and expertise were invaluable in helping us navigate the
outsourcing route and we are very happy to be working in partnership with Xansa as a result.”
Aidan Connolly, Deputy Group FD
AirGate PCS – “The ability of the Alsbridge team to focus on a larger strategic goal has been exceptional.”
Will Seippel, Former CFO
RoadChef – "Alsbridge played a vital part in helping us get a robust and sustainable contract with IBM, within
four months from their appointment. They acted as a one-stop-shop in managing the process as well as the
suppliers throughout the whole initiative, and allowed us to stay focused on managing business as usual and
maximizing return on investment. We would not have been able to achieve our goals in such short time
without them.“
Colin Brammall, CFO
Kimberly-Clark – "Alsbridge added real value in two areas: 1) knowing the outsourcing market, what works
and what doesn't; and, 2) knowing the offshore landscape and how to benefit from it. In both areas their
experience and knowledge helped us make the right decisions quickly and rigorously.“
Simon Newton, VP of North Atlantic Finance and Shared Services
© Alsbridge 2005 Confidential and 18
Proprietary

20. North America Europe
Ben Trowbridge Tim Lloyd
Managing Partner Managing Partner
Email: Ben.Trowbridge@Alsbridge.com Email: Tim.Lloyd@Alsbridge.com
Tel: +1 214-696-6410 Tel: +44 (0)207-242-0666
Alsbridge North America Alsbridge Europe
North America 22-24 Ely Place
3535 Travis Street, Suite 105 London, EC1N 6TE
Dallas, TX 75204 United Kingdom
Tel: +1 214-696-6410 Tel: +44 (0)207-242-0666
Fax: +1 214-239-0698 Fax: +44 (0)207-242-0667
Email: EnquiryUSA@Alsbridge.com Email: EnquiryUK@Alsbridge.com
www.Alsbridge.com
© Alsbridge 2005 Confidential and 19
Proprietary