Death of the SLA
Service Level Agreements have become a sacrosanct element of today’s contracting practices. They provide the basis for defining and measuring performance and therefore also for judging failure and associated financial penalties.
However, SLAs have their critics. They are too complex; they often result in a ‘green’ dashboard when service users are complaining about quality; they fail to adjust to shifting needs; they result in an environment of blame and recrimination …. the list goes on.
Today I was reviewing a dynamic on-line performance management system, capable of capturing and reporting on numerous criteria. It is therefore flexible to business needs and priorities, which inevitably change over time and also vary by functional group. With a system like this, do we really need the complexity of the SLA, or can we return to the simplicity of a much smaller number of key performance indicators (KPIs)?
Research suggests that there should be no more than 5 KPIs and ideally less. These are the critical success criteria. But rather than drive performance via these fundamental measures, we decide to introduce dozens (on average more than 20) additional ‘service level criteria’, which introduce confusion and complexity.
With on-demand metrics, the parties could instead have contract terms that specify the mechanisms to review and address problems. “Penalties’ would be based not on specific service levels that might have little or no real value, but instead focus exclusively on the achievement of the KPIs.