IT Outsourcing: Why You Need to Reengineer Your SLAs

Chances are, a majority of the service level agreements in your IT outsourcing contracts are, at best, outdated, and at worst, utterly worthless. Here are eight tips for creating more modern and meaningful SLAs.

By Stephanie Overby
Wed, July 15, 2009

CIO — How's this for an IT outsourcing metric: 90 percent of the service level agreements (SLAs) in your contract are completely meaningless to your business.

Admittedly, the percentage isn't exact and—in some cases—may be exaggerated. But the fundamental message is on target. Most of the SLAs that IT outsourcing providers agree to—from 99 percent network availability to help desk resolution time—bear little resemblance to anything that actually matters to the end users of those IT services.

"Too many times SLAs are structured around things that can be measured, simply because they can be measured, and have no relationship to the success or failure of the business line," explains Kenneth Adler, chair of the technology and outsourcing group at New York-based law firm Loeb & Loeb.

While the IT outsourcing industry has matured—with customers looking for innovation from providers and attempting to weave together deals with multiple vendors—SLAs have not. As a result, most IT leaders have found that traditional SLAs are inadequate governance tools and performance incentives today.

Traditionally, SLAs have been focused on individual components of vendor performance—server availability, network throughput—rather than the end-to-end user experience. "This is based on the theory that if all individual parts are working, then the overall system must also work," says Steve Martin, partner with outsourcing consultancy Pace Harmon.

But that assumption frequently proves false.

"Business owners often complain that the performance of IT services is inadequate even though the service level reports have green lights—acceptable performance—across service level metrics," says Mike Slavin, partner and managing director of CIO services for outsourcing consultancy TPI.

[ For more information on SLAs, see's handy reference guide to SLAs and SLAs: A CIO's Guide to Success. ]

The reason IT outsourcing customers can be unhappy with their provider's service despite satisfactory service level reports is because in outsourcing, complete satisfaction is more than the sum of adequate performance on a component level. A provider can turn in 99 percent server availability metrics month after month, for example, but if that one percent of downtime means a critical application is unavailable at an important time, the business user certainly wouldn't be pleased.

Despite conventional component-based SLAs' weaknesses, they shouldn't be scrapped wholesale; they are useful in maintaining an incentive for providers to manage critical dimensions of IT systems and potential vulnerabilities, says Pace Harmon's Martin. "Rather, outsourcing customers should focus on those that really matter and augment them with total end-to-end system or business-oriented SLAs."

That's no small task, but customers can take the following eight steps to incorporate more meaningful, business-oriented SLAs into their IT outsourcing contracts.

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