The Key to Service Success: Operating Level Agreements

Mature organizations have long recognized the importance of service level agreements (SLA) in driving up value from outsourcing but service quality often falls short of the mark. Turning the magnifying glass on an organization’s internal working practices through the use of operating level agreements (OLA) holds the answer.

A truly mature service delivery model will manage a business partner equally whether the organization is internally or externally facing.

Driving Value

The majority of organizations have entered into some form of outsourcing arrangement and embraced common best practice to implement an SLA as part of the process. This agreement is externally facing, with the key objective being to drive the right behaviour of the service provider. However, many organizations still experience a gap in service quality with respect to the delivery from the service provider, resulting in customer expectations failing to be met.

In sifting through the root cause of sub-standard service delivery, the common point of failure is an organization’s own internal processes and ways of working. Many organizations are internally powerless to meet their own obligations and to provide the required handoffs to the service provider in a timely manner.

Driving value for the end customer requires all parties, both external and internal, to be aligned as part of an overall value chain. Most organizations have secured the external performance link by contracting to SLAs. The missing ingredient, however, is the equivalent set of internally facing agreements known as OLAs.

Well designed OLAs work in conjunction with the SLA, and support the end-to-end (e2e) business process. They are used to set clear expectations among internal business units regarding their responsibilities within the value chain. In our experience, organizations that are able to craft well designed, consistently applied OLAs that align internal business partners, and link to external service providers, experience significantly lower costs of service and improved output quality, via a measurable reduction of waste.

Where internal organizations have failed to devise OLAs, the business will find it difficult to deliver value, with diminished service quality a common symptom.

To optimize the potential benefits from outsourcing, and to achieve a true balance between internal and external service providers, organizations need to address the missing OLA ingredients. We have constructed a rigorous five pillar approach to embed a cohesive set of OLAs within an organization:

  • Pillar One: Determine what “good” means
  • Pillar Two: Identify the key parties in the chain
  • Pillar Three: Establish consensus, and document the requirements
  • Pillar Four: Recalibrate what “good” means
  • Pillar Five: Embed ownership to service descriptors

Pillar One: Determine what “good” means

Expectations regarding service delivery can only be met by understanding the customer’s key business requirements and value drivers. For example, the business requirement may be to provide a consolidated sales report within five days of a month end close but the value driver is to reduce the ”close-to-report” cycle to provide the sales force with a significant business intelligence advantage in the market.

This requires a thorough understanding of the customer’s business model, value drivers, and the expectations, with priorities including palatable trade offs governing the approach necessary to meet those expectations during any stage of the outsourcing lifecycle.

To reach this point, the internal partnerships for the business and support departments (e.g., IT, Finance, and HR) and the vendor require transparency regarding the role they play in meeting the customer’s needs, the effect they have on each other, and their respective expectations of value contribution. These expectations must be validated (i.e., whether it really contributes value, or is just a nice to have), then ordered to align with the end goal.

When initiating an outsourcing arrangement, these expectations must be defined and agreed upon early on in the negotiation and procurement of services. This enables the establishment of the appropriate service levels and performance metrics, which in turn allows the service providers to properly bid in a manner that optimizes their ability to contribute to the value generation of the agreement.