Service level agreements (SLAs) are critical components of any vendor contract, however, they are most commonly associated with IT vendors. This guide explains how SLAs boost business service quality, communication, and conflict resolution between clients and vendors. It also provides tips for creating, implementing, and optimizing SLAs.
What is a service level agreement (SLA)?
A service-level agreement (SLA) defines the level of service you expect to receive from a vendor. It specifies the metrics for measuring services and repercussions in the event that the vendor fails to provide the desired service level. SLAs usually occur between a business “buyer” and their external suppliers, but they may also be made between two departments within the same company.
Assume, for example, that a telecom company’s SLA with its customers specifies a network availability of 99.999 percent, which is equivalent to about 5.25 minutes of downtime per year. If the actual downtime exceeds this limit in a particular year, the customer’s payment is reduced by a percentage outlined in the SLA.
This percentage is typically adjusted on a sliding scale: more downtime results in a higher percentage.
What is the difference between a deadline and an SLA?
Within the context of an SLA, a deadline is the amount of time that a process takes to complete before it’s late. SLAs routinely specify deadlines for various tasks and the penalties for missing those deadlines. In addition to formal contracts, vendors may also express deadlines in other ways like informal accordances.
On the other hand, a Service Level Agreement (SLA) represents a more expansive and detailed contract between a service provider and their client. This agreement specifies the anticipated service standards, including key metrics such as service quality, availability and assigned duties. Rather than focusing on a singular deadline, SLAs emphasize the sustained maintenance of service quality over a period of time.
Who is responsible for SLAs?
Put simply, service providers are responsible for SLAs. They typically offer multiple SLAs; they prefer the option of customizing their services for different customers. They sometimes provide more than one SLA for a particular service, reflecting different service levels and price points.
It is customary for vendors to prepare SLAs as well, meaning SLAs tend to favor the vendor over the customer. It’s important for customers to carefully review SLAs to ensure their terms are satisfactory before formally committing to them. Legal counsel is sometimes brought in at this stage to avoid misleading language in SLAs, even by small companies.
What are the objectives of SLAs?
While they may seem relatively simple, SLAs serve many functions. Let’s examine a few of the most common SLA objectives.
Provide information to stakeholders
Like most contracts, the intent of an SLA is, in essence, keeping both parties honest. In the event of a service breach, an SLA documents the details of the original agreement, such as expectations, metrics, and responsibilities. In addition, both parties have full access to the SLA, preventing them from claiming they were unaware of or misinformed about the agreement.
A properly crafted SLA also minimizes the possibility of stakeholders misinterpreting the agreement, which provides legal protection for both parties. As such, providers can refer customers to the SLA when they demand services that weren’t agreed upon, while customers can rest assured that they will receive all of the services they’ve paid for.
Provide clear metrics
SLAs define the metrics that determine service levels, in addition to outlining the details of the services themselves. These metrics provide both parties with an understanding of those services and their effectiveness. The SLA must therefore clearly define and quantify metrics to ensure that the provider is meeting its service level requirements.
Offer recourse for unmet obligations
SLAs also specify what should occur when expectations in the SLA aren’t met, including repercussions and the next legal steps. These consequences generally take the form of financial restitution or legal penalties. Pursuing legal penalties may include actions such as documenting service-level breaches and arbitrating disputes.
Improve provider-business partnerships
A well-designed SLA strengthens the partnership between provider and client. Both parties reap more benefits from this relationship since the worry of wrongdoing from the other party is reduced. The best SLAs allay concerns from prospective customers, thus improving the provider’s brand reputation.
Three types of SLAs
Customer SLA
A customer SLA, also known as an external service agreement, is the most common SLA. It’s a contract between a service provider and a customer; in this case, the two parties are separate business entities.
Internal SLA
An internal SLA establishes service standards between two groups within the same organization. This type of SLA between departments helps ensure that interdependent groups are meeting their goals in support of one another.
Multilevel SLA
A multilevel SLA is necessary when an SLA occurs between more than one client or service provider. In these cases, the SLA divides the contract into multiple levels that detail these relationships. A multilevel SLA may apply to internal and external customers, and it may also specify different service levels.
Key components of SLAs
SLA components widely vary, depending on details like the type of SLA in question and the specific services it describes. Other factors that determine these components include the vendor/customer industry, the organizations themselves, and, of course, circumstances specific to the SLA. A number of components are common among SLAs, however, including:
Breakdowns of essential elements
The details of SLA elements include a description of the services provided, along with excluded services and service availability conditions. Additional details included in SLAs include standards such as time periods of availability for service levels.
For example, SLAs often specify multiple service levels for prime time and non-prime time hours. SLAs also include details like tradeoffs between costs and services, escalation procedures, and the responsibilities of each party.
Service goals, metrics, and measurements
SLAs often focus on the customers’ service goals without providing a connection to the provider’s objectives. Providers should include their own goals in the SLA, along with the metrics to measure them. When providers choose the right goals, client success rates increase. Internal SLAs in particular should outline the objectives of every department involved.
Stakeholders, roles, and responsibilities
The best SLAs specify the roles and responsibilities required of stakeholders to achieve their goals. SLAs that serve customers may detail needs and expectations that go beyond basic services, with ancillary offerings such as consulting, maintenance, and reporting.
For internal SLAs like those between marketing and sales teams, the SLA should describe what each team needs from the other to ensure they hit their targets. For example, a marketing team might need weekly reports on the sales pipeline so that team members can adjust their campaigns to generate leads accordingly.
Escalation procedures
Escalation procedures in an SLA describe the process for resolving an issue such as a service-level breach quickly and effectively. These provisions establish a clear path of communication between the client and the service provider when these problems occur.
In addition, escalation procedures help prevent delays in addressing issues and reduce the risk of conflict. Finally, they can be very useful in identifying recurring problems with service delivery, thus contributing to the service’s continuous improvement.
Compliance and penalties
The compliance requirements and penalties specified in an SLA hold the provider accountable by incentivizing them to provide a minimum level of service for the client. These terms also incentivize both parties to resolve incidents quickly and effectively, fulfilling all commitments in the SLA.
Additional services can comprise a type of non-financial penalty for failing to meet service level targets. Incentives for exceeding service goals include bonuses, which provide a motive to provide the highest possible service level.
Why are SLAs important?
When vendors and customers repeatedly adhere to the SLAs they’ve signed, meeting all expectations and deadlines, their reputation within their industry continually improves. The terms of an SLA are usually straightforward, but they serve a variety of critical functions. What follows are a few of the most important.
Improving service quality
The standards specified in SLAs improve service quality. Incentivizing service providers to consistently meet or even exceed these expectations also increases customer satisfaction, thus building brand loyalty. This benefit is particularly important to modern businesses, who are increasingly likely to compete on customer service rather than price or quality.
Enhanced communication
SLAs facilitate communication between customers and service providers by specifying terms on regularly reporting performance, holding review meetings, and other feedback mechanisms. These terms allow stakeholders to air their concerns, especially recurring issues and changing requirements. They also help ensure that the provider’s services remain aligned with the client’s business requirements.
Conflict resolution
SLAs routinely include procedures for settling disputes related to service delivery. A clear conflict resolution process is essential for minimizing service disruptions and maintaining strong customer-client relationships.
Creating effective SLAs
The path to an effective SLA includes several steps, each of which requires careful preparation:
Define clear objectives
The goals stated in an external SLA are primarily those of the customer. In these cases, providers should ensure the capabilities of their services align with the client’s needs, typically by including the appropriate goals and metrics in the SLA.
In internal SLAs, the goals of both parties should be outlined in the relevant section. An SLA between a sales and marketing department, for example, should include marketing goals that allow the sales department to reach its own goals, and vice versa.
Setting realistic metrics
The service goals specified by an SLA must be realistic, based on the provider’s capabilities. In addition, SLAs should include relevant information like the duties and responsibilities of each party, remedies for breach of service level, and protocols for adding and removing metrics. Metrics should take all of these factors into account to ensure that neither party is rewarded for bad behavior.
Involving stakeholders
An SLA should formalize communication that grants stakeholders structured conversations reaffirming agreement terms. This stipulation prevents difficulties that can occur between clients and providers, especially with IT issues.
For example, providers don’t want to hear from customers multiple times per day about minor issues. On the other hand, they don’t want customers to sit in silent resentment over a failed service.
Documenting and reviewing SLAs
After completing the draft of an SLA, review it for clear language and content. Portions of an SLA will often be fixed by your company, so you won’t be able to go back in and modify it.
Ensure that these sections are included in the SLA and in the right locations. In addition to mechanical errors, you also need to ensure that the language in the SLA conveys the appropriate degree of authority and professionalism.
SLA performance metrics
The primary purpose of metrics in an SLA is to provide a means to compare the services’ actual performance with the specified service level. Metrics are therefore an essential component for both parties, as they provide an objective measurement of service quality.
In addition, metrics identify areas of improvement for the provider’s services. The number of metrics in an SLA can vary greatly depending on the provided services and the client’s business requirements.
Successful SLA implementation: real-world examples
The required components of an SLA generally include the following:
- Agreement summary
- Party objectives
- Schedules for reviews
- Points of contact
- Compensation for unmet goals
- Cancelation conditions
However, the exact terms of an actual SLA are highly variable. The following two case studies from Pipefy illustrate the benefits that a successful SLA can provide for clients.
Capgemini case study
Capgemini’s HR team increased their HR SLA achievement rate from 38 percent to 98 using their “Talk to HR” portal within one year after implementing Pipefy’s HR platform. Stakeholders who have benefited from this solution include the HR team, managers, and requesters, who are internal clients.
HR requests are now accessible from a single portal, allowing team members to transition from manual work to focus on more complex requests that add greater value for the company.
Pipefy also improved results for HR managers by reducing the staffing requirements for HR requests from five to 1.5 full-time employees. Managers can also measure the impact of each step in this process with greater granularity, allowing them to further improve their workflows.
Lacoste case study
Lacoste implemented Pipefy’s procurement platform in February 2020, helping the company scale its processes for handling reimbursement requests in response to its growth in online sales without increasing staff.
The total processing time for reimbursement averaged about 45 days before Pipefy and is now 20 days. The automation of processes is another factor driving Lacoste’s efficiency gains in procurement. This benefit has saved a total of over 1,000 hours of manual labor, including sending emails to customers and exchanging information between teams.
Increased control over indicators was another benefit to Lacoste’s operation. The standardization of processes meant that staff members could generate their own reports, allowing managers to measure team efficiency and make better decisions regarding reimbursements. Managers estimate they processed about 1,300 requests in 2020, which probably wouldn’t have been possible without Pipefy.
Service Level Management with Pipefy
The right SLA can go a long way toward improving user expectations by improving service levels, which is essential for maintaining profitable business relationships. In order to meet SLAs, increase overall efficiency and cut costs, businesses are turning to automation solutions like Pipefy.
Pipefy’s no-code solution gives autonomy to business line users while optimizing IT resources, cutting costs and enhancing productivity and visibility for business processes across the board. Pipefy’s AI assistant creates efficient, error-free workflows in minutes, so teams start seeing value on day 1.
