Ronald Lynn suffers the classic irony of the shoemaker whose children go without shoes. His IT group at Inspire Insurance Solutions Inc., an insurance and technology outsourcing company based in Fort Worth, Texas, serves both external outsourcing clients as well as internal Inspire business units. Money talks when prioritizing service calls, admits Lynn, who is executive vice president and CIO at Inspire. "What do you do when your internal people are screaming for help because you're serving the paying customer instead of them?" he asks.

Lynn and his staff must live by two completely different sets of rules. When his paying customers want more service, they come to the bargaining table. When Inspire customers want more, renegotiating the IT budget is not usually an option. While serving external customers, his staff are revenue generators whose time is money. Internally, they are dedicated "service providers" whose time is undefined—the IT budget clock doesn't have a minute hand or even an hour hand. Performance is harder to measure and harder to control. "With our external clients, we're either above or below the performance level that's set in the contract," Lynn says. "If we've fallen below it there's a penalty, and if we're above it we get a few percent back." He can't apply the same sorts of penalties and rewards internally because most of his internal customers are fighting the same sort of "service bureau" perception and budget constraints that he is. "If I sign a contract with accounting and I don't provide the service they want, they can say, 'Hey, we signed a contract.' And I can say, 'Great, I'll start providing that level of service to you—tomorrow.'"

Bob Quinn, vice president and CIO for computer systems at Sun Microsystems Inc. in Palo Alto, Calif., puts the dilemma even more succinctly: "You can't sue your own IT department."

Though CIOs serving internal customers cannot hope to have the same sorts of ironclad contracts that govern outsourcing relationships, the service level agreement, or SLA, is the next best thing. The concept dates back to the '60s, when IT departments used SLAs to measure technical services like data center uptime, for example. But SLAs have evolved to a new level in the last few years, becoming more broad-reaching and bilateral. These new agreements require IT to work with its business customers to define a short-list of services that are most important to keeping