SERVICE LEVEL AGREEMENTS: ENABLING A SUCCESSFUL LONG-TERM RELATIONSHIPBarbara D. Casiere, CRP, GMSVice President, U.S. Operations, MSI

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CONTENTS

I. Introduction 3II. Outsourcing: Friend or Foe? 4III. Avoiding the Blame Game 5IV. What’s in a Name? 5V. Whose SLA is it Anyway? 6VI. When Should the Service Level Agreements be

Created? 7VII. Service Level Agreements with IMPRESSIVE Results 8VIII. I Can’t Get No (100%) Satisfaction 8IX. Seven Steps to Creating Blissful Service Level

Agreements 9X. Conclusion 11

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I. INTRODUCTION

Much has been written about service level agreements (SLAs) and their value to managing client/consultant relationships. Yet how many companies and service providers really make the most of them? According to a survey conducted by Towers Perrin, 39 percent of corporations polled indicated that the outsourcing of HR functions did not result in higher levels of service. In addition, after the implementation of the new service provider, satisfaction with that provider dropped from 92 percent to 40 percent in just two years following the initiation of the contract1. I would venture to guess that much of this would be resolved by a more consistent use of service level agreements.

Service level agreements have been widely used since the late ‘80s. Initially they were used by telecommunication outsourcing firms to monitor service to clients; now SLAs are applied to all types of outsourcing arrangements and even between separate departments within a company2.

Around the same time that SLAs became prevalent, the procurement function itself came to the fore in many large corporations. An evolution of the traditional purchasing function, the procurement function was not only concerned with simply paying for resources, but also cost, supply chain enhancement, and the measurement of product quality. Basically, procurement is purchasing on steroids, with an intense strategic focus on getting the most out of a company’s suppliers for the least amount of money. Requests for Proposal (RFPs) and SLAs have become the main weapons in the arsenal that procurement uses to select and measure its suppliers. Thus, SLAs are here to stay, so HR practitioners would do well to embrace them and use them for the best advantage.

The focus of this paper will be to look at global mobility SLAs from both the client and service provider perspectives and to provide suggestions for obtaining greater strategic advantage through committed usage. Further, our aim is to highlight how SLAs, when properly framed, enable optimal service and communication between a firm and its relocation provider.

1 Geisel, R.W. “Get Star-Quality Service.” HR Magazine. March 2006. Accessed July 20, 2012 from http://www.shrm.org/Publications/hrmagazine/EditorialContent/Pages/0306SRgeisel.aspx

2 “Service level agreement.” Wikipedia. Updated July 12, 2012. Accessed July 21, 2012 from http://en.wikipedia.org/wiki/Service-level_agreement

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II. OUTSOURCING: FRIEND OR FOE?

The advantage of outsourcing enables a company to hire a group of experts to focus on a special-ized service for the organization so it can concentrate on its true raison d’être. Naturally, a com-pany that focuses on developing and creating pharmaceutical products may not be best suited to develop a “best in class” employee transfer procedure on its own.

To HR professionals and employees alike, the idea of outsourcing functions to a third party may strike a degree of fear into their otherwise strong constitutions. After IT, HR processes are the most often outsourced, and, according to a recent study, current trends show this is increasing rapidly (up 70 percent in the last six years)3. The fact is, the movement of HR functions to third parties is becoming more and more common.

It is important to clearly define the goals for the outsourcing. Was the main purpose to save the company money or provide better service? Quite often it’s a combination of the two. Companies that successfully transfer certain functions to a third party, such as global mobility management, can expect benefits that include the following:

> Highly specialized expertise: A third-party firm that specializes in such things as interna-tional payroll and relocation has a high investment in keeping up with changes to a degree that a firm whose income is derived from another source cannot.

> Ability to focus on core activities of the company: In times of rapid growth or downsiz-ing, additional pressures are put on a company’s shared services. When those demands require resources that could otherwise be spent on core activities, companies will look to outsourcing to relieve the pressure.

> Cost savings: Shared services functions can be complex and demand much attention; the size of the company may prevent it from attending to such tasks at a reasonable cost. Outsourcing can bring such costs into line.

> Operational control: Growth places increased demands on back-office functions. These often bring with them spiraling costs and management difficulties. When a department’s increased costs outweigh its contribution, it’s time to consider outsourcing4.

Better service at a lower cost is a compelling argument for outsourcing. One way to fully realize its rewards is to ensure that HR contacts for the service provider understand the value of service level agreements and how they can improve overall communication, alignment, and service with a supplier. With the current outsourcing trend, the vendor-management skill is quickly becoming an important prerequisite for corporate HR positions just about everywhere.

3 Rosenstein, A. “Reclaim Your Business: How Human Resources Outsourcing Will Enable Companies to Rebuild in 2012.” CPE HR. January 26, 2012. Accessed July 22, 2012 from http://www.slideshare.net/CPEhr/reclaim-your-business-hr-outsourcing-in-2012

4 Bucki, J. “Top 7 Outsourcing Advantages.” About.com. Accessed July 25, 2012 from http://operationstech.about.com/od/officestaffingandmanagem/a/OutSrcAdvantg.htm

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III. AVOIDING THE BLAME GAME

When a relocation company is hired, who is assigned to manage the relationship and ensure that the provider meets stated goals? Chances are it’s someone whose primary focus is on day-to-day issues (e.g., inevitable exception requests, emergency casework, etc.) rather than big picture concerns. To remedy this, consider measuring internal HR professionals’ performance relative to a provider’s service level.

Is it fair to hold the HR vendor managers accountable for a third party’s performance? While the service provider always measures itself by account performance for the company’s people, this may not always be the case for HR. Rating the company’s effectiveness in leveraging its providers will foster an environment of shared accountability. The overall goal is to enable the best service possible. Without shared responsibility internally and by the provider, one could ask how truly invested a company is in ensuring program success.

While many factors come into play when a relationship is not working, we know from experience that a winning partnership is one that leverages the strengths of each side. Though it may be immediately satisfying to cast blame when things go wrong, it’s wasted energy in the long run. Furthermore, the goal cannot be for issues to never come up, but how well the provider addresses them when they do.

If you accept that an outsourced agent becomes, in a way, a virtual employee of the hiring organization, the service provider will – to a large extent – also be dependent upon the nature of the relationship between the organization and the provider. Many times, the client will need to rely upon the expertise and direction of the partner to build a successful program. After all, isn’t this why the service provider was hired in the first place?

IV. WHAT’S IN A NAME?

From a service provider’s perspective, being called a vendor doesn’t really describe the kind of relationship that is required for success.

The word vendor may lead one to believe that the work being done is a one-way transaction. It’s as if the service provider is dispensing a standalone product to the company that has hired it. It doesn’t capture the two-way exchange required to create a successful outsourced relocation program. Therefore, replacing the “vendor” mindset with the desire to build a partnership is a win-win for both parties.

vendorn vendor [ˈvendə(r)]a person who sells ice-cream, hot dogs, souvenirs etc from a stall1.

1 Kernerman English Multilingual Dictionary © 2006-2010 K Dictionaries Ltd. Accessed July 22, 2012 from http://www.thefreedictionary.com/vendor

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V. WHO’S SLA IS IT ANYWAY?

A discussion of service level agreement development for relocation programs would be incomplete without taking into consideration the hiring company’s overall operational health. Indeed, some “pain points” may actually be self inflicted. Here’s a quick look at some possible areas of dysfunction:

The recruitment process: Who is the first person that reaches out to candidates to discuss the relocation package? If it’s a recruiter, he or she will never be as familiar with the relocation benefits as the program manager. In an effort to close the deal, too often the resourcing contact may misquote benefits or inadvertently make promises to the candidate that run counter to policy. Investigate whether your relocation service provider could collaborate with recruitment in pre-acceptance briefings to ensure consistent messaging about relocation benefits. The push-and-pull of recruiting pitted against benefit managers, though common, is absolutely counterproductive.

The exception process: Who decides when an exception to policy will be made? Establishing a clearly articulated exception processes will establish this. If a firm doesn’t have a distinct process for exceptions to policy, or if there is a delay in addressing exception requests, there is the risk that hiring managers will offer to make things “right” and decide these matters independently. The resulting havoc caused by program inconsistencies is damaging to the program’s well-being.

Operational health: The success of the outsourcing project is not only dependent upon hiring a quality service provider, but also upon the hiring company’s internal operational effectiveness and relocation policies. Participation and engagement in a detailed review of policies against best practice recommendations, as well as the SLA creation and process, can result in greater operating efficiency and transferee retention, as well as a more successful mobility program overall. Communication between both parties is key to a successful engagement.

Outsourcing program accountability: Key performance indicators (KPIs) should focus on employee and client satisfaction as well as cost containment and compliance. SLAs offer a way to measure the program’s effectiveness. The client assesses whether the relationship is achieving what was envisioned, whether their relocating employees’ perceptions of the program are solid, and whether there is a cultural fit. If the overall SLA is mutually crafted and agreed upon, and not one sided, the measurement of the program will yield invaluable data and clearly define areas that are working well, as well as those that may require or benefit from process improvement.

Out of sight and mind: Another challenge is that the service contract may be managed at a headquarters location and SLAs may not be communicated to satellite offices. Is it possible that the person managing the relocation relationship may not even know of the SLAs? This would be like hiring a crew of carpenters and then preventing them from using their best tools!

A healthy relationship with a service provider will enable a valuable inward look from an external perspective. Ideas on how other organizations may have solved common issues can be learned. Avoid becoming defensive and remain open to feedback.

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VI. WHEN SHOULD THE SERVICE LEVEL AGREEMENTS BE CREATED

As noted, although SLAs have been widely used for more than 30 years, not every client-provider relationship truly leverages the power of this tool.

“[An] ESI survey on outsourcing shows that organizations are not as diligent about [service level agreements] as they need to be. Only 26 percent say they always clearly define requirements. That means three-quarters of organizations come up short when managing a key driver of project success. Is it any wonder that most contract files are stuffed full of change orders?”5

It’s true that a company can run and manage a program without SLAs, but, if so, the firm is probably not getting the most from the relationship, and is likely dealing with service issues piecemeal rather than with an appreciation of the gestalt.

Valuable time is lost on both sides if SLAs are not in place to frame the dialogue. Also, if there are no SLAs in place, the relocation management company must make assumptions about what is important to its client – assumptions that may not always be on target.

Developing strong and effective SLAs is an art form. Ideally SLAs are created at the very start of the relationship, before the first service provider is called in to make its bid, and are included as part of the Request for Proposal (RFP) process. The RFP process will naturally allow both parties to provide feedback on the measurements and hone them as the bidding process refines them.

At their best, such agreements come about through collaboration between the company and service provider and have the following in common:

> They are in sync with company goals for its relocation benefit program and recognize how program configuration influences SLA results

> They ensure that the relocation benefit fits with company goals and culture

> In their design, they recognize the true purpose of the SLA

> They incorporate goals that are clear and measurable

> In addition to service, they also measure the quality of the relationship

> They may include measures and incentives for operational performance, but should not be looked at as a revenue stream

The truth is, however, that some service providers and companies create SLAs after being plagued by service issues. Though this paper advocates the use of SLAs to ensure optimal service provider performance, timing is important. A reactionary stance to SLA development is counterproductive. In her book on establishing service level agreements, Noami Karten observes the following:

“Dissatisfied customers may hope to use an SLA as a sledgehammer with which to bludgeon the service provider whenever service slips. But just as the service provider won’t win

5 Ward, J.L., “Get to the Core of Vendor Management Problems.” Quality Digest. September 1, 2010. Accessed July 21, 2012 from http://www.qualitydigest.com/inside/twitter-ed/get-core-vendor-management-problems.html

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customer favor by using an SLA as a complaint-stopper, neither will the customer experience service improvements by using the SLA as a club.”6

Though either side of the relationship may be pushing for SLAs as a way to resolve problems, we recommend that any service issues are addressed separately and resolved prior to creating SLAs.

VII. SERVICE LEVEL AGREEMENTS WITH IMPRESSIVE RESULTS

When SLAs are designed to monitor relocation services (unlike the production of widgets), their success is something that can be difficult to measure. SLAs need to be grouped into specific categories to stay balanced. Examples of these categories include costs of home sale programs, service satisfaction, expense processing time, and accuracy of gross up. For the best results, keep the following guidelines in mind when creating SLAs with your relocation provider:

I Incentives are tied to SLA achievement

M Measurable – if you can’t measure it, don’t track it

P Partnership of client and provider enabled

R Relationship between parties clarified

E Extension of the hiring organization

S Short – less is more, five or six goals are ideal

S Strong commitment to the client by the service provider is demonstrated

I Income – SLAs should never be viewed as a revenue stream

V Virtuous – keep SLA measures honest

E Equitable – SLAs should be fair and balanced

The best agreements have ensured that the above points are taken into consideration in their construction. By demonstrating these attributes, you will have an effective SLA program.

VIII. I CAN’T GET NO (100%) SATISFACTION

It’s possible for SLAs to be written with unachievable goals that set the provider up to fail. In an effort to win an account, some providers may be tempted to make promises they can’t deliver. Therefore, beware of promises that greatly inflate the industry standard. Such agreements – like providing 100 percent transferee satisfaction, when the highest standard is 95-98 percent, or keeping HHG claims to an amount significantly under the industry average – should be viewed with skepticism. SLAs should stretch providers to give the best service, but they should not set them up to fail. Good providers don’t make promises they can’t keep; instead, they provide realistic counsel

6 Karten, N. “How to Establish Service level agreements.” Karten Associates. 2009. Accessed July 25, 2012 from http://www.nkarten.com/sla.html

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on what is achievable based upon their own track records and overall industry standards.

Satisfaction is a favorite measure in service level agreements; however, consider the following points:> Who completes surveys? Often, respondents may be motivated by a bad experience. > It’s not the job of a benefit program to make everyone happy.> Are you approving many exceptions? Each exception sets a precedent and should be an

invitation to modify the program to address the issue and all future issues consistently.> Number scales tell no tales.

When it comes to measuring satisfaction, beware of “survey-itis.” Granted, surveys provide essential data points, but it’s best to keep them short and focused on specific SLA measures. Also, ensure that the survey truly gets to the heart of the matter and provides telling data to improve the program and the provider’s service.

IX. SEVEN STEPS TO CREATING BLISSFUL SERVICE LEVEL AGREEMENTS

If the service provider is to become a real partner, then the SLAs are the commitments made by each party at the start (like marriage vows or a prenuptial agreement). With a divorce rate in the U.S. of about 50 percent, you’d expect the current prenup rate of three percent to be higher7. But in business, unlike marriage, just believing and hoping it’ll work out is never a good plan. Similarly, it’s not fair to hire someone and not clearly explain what’s expected of them, and what to expect from you.

The SLAs should be fair and balanced; in other words, a provider shouldn’t design the survey to ensure it gets high points. Instead, SLAs should always measure how the program itself is meeting the goals set by the company through its provider. Like healthy committed relationships, great SLAs will clarify each side’s commitment to one another. The best SLAs are reciprocal, meaning that each side should have some “skin in the game.” Service level agreements can keep your relationship with a service provider healthy by:

> Facilitating and improving communication> Clarifying and managing expectations> Determining responsibilities> Creating a mutually beneficial relationship

Creating powerful SLAs takes time and careful customization; the process should not be rushed. Relocation service providers, such as MSI, take great pains to ensure that the team charged with development of the SLAs focus on the following key healthy relationship goals:

7 Petrecca, L. “Prenuptial agreements: Unromantic, but important.” USA Today. March 11, 2010. Accessed July 22, 2012 from http://www.usatoday.com/money/perfi/basics/2010-03-08-prenups08_CV_N.htm

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1. Get to know each other

To get the best out of one another, both the client and the service provider need to have a solid understanding of each others’ business. Ahead of the RFP, a company should articulate what service elements are most important and prioritize them. In addition, the service provider should know what it can realistically provide to its clients before making any commitments.

2. Don’t go along to get along

Both sides should agree on what the SLA can really do for the relationship. Although each side may have different views on the capabilities of a service level agreement (and both may be equally valid), a disagreement at this level can hurt an otherwise harmonious relationship. If the client and service provider can get in sync on what the SLAs are for, it will go a long way.

3. Establish house rules

Though sometimes overlooked, it’s also important that both parties agree upon how the SLAs will be developed. Call it an agreement to the agreement. Elements to be addressed should include:

> The individual(s)/department(s) accountable for SLA development> The availability of team members and time constraints> Concerns regarding potential obstacles> Communication preferences

4. Write your own vows – or get a prenup!

Writing the key performance indicators (KPIs) for the SLA is only one part of the overall process. Both sides will collaborate on the SLA document, working through each element to come to an agreement. It may take several weeks or months to finalize. The length of time may be determined by the working preferences of each side, as well as the current relationship between the two.

5. Meet the in-laws (and get their blessing)

Just because you’ve written out your intentions doesn’t mean that you’ve become a couple yet! You need to ensure that everyone with a stake in the success of the relationship has reviewed the draft SLAs and has had the opportunity to either revise or offer suggestions. Without core stakeholder buy-in, you’ll be missing the support critical to see them through.

6. Planning for the big event

Identify what needs to be done prior to the implementation of the SLA. Tasks should include the following:

> Addressing tracking techniques> Creating reporting procedures> Communicating expectations> Reviewing the expectations set by the SLAs with staff so that all parties understand the goals

and expectations

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7. Renew your commitment

The best SLA isn’t worth the paper it’s written on if it’s not properly managed. There should be a point of contact assigned to handle any issues related to the agreement. Frequent service reviews should be conducted, as well as modifications implemented to the SLAs in the spirit of keeping them up to date and open to continuous improvement8.

As mentioned in the tips outlined above, it helps to include incentives. These can be either incentives for achieving or over-achieving SLA measures or penalties for failing to live up to SLA promises. It really doesn’t matter if the reward is 25 cents or $100,000, incentives are an important part of the SLA and help to encourage the service provider to achieve (or exceed) the client’s expectations.

X. CONCLUSION

Ideally, service level agreements are considered on a daily basis and formally reviewed quarterly. During reviews, we suggest that the SLA be reviewed at the same time that progress against the key performance indicators is reviewed. If the initial work on the SLA was thorough, the agreement will not require an overhaul, but more of an assessment to ensure that the goals remain meaningful and up to date.

Expect that measures will need to be tweaked over time, with the addition of new focus areas and the removal of others. For example, for programs with guaranteed buyouts, an SLA measure typically added during the housing crisis was the number of homes in inventory and the length of time they were there. Prior to the downturn, these measurements might not have even been on the radar.

Also, stay connected to the highest aspirations for your relocation program. Why was the expertise of a service provider sought in the first place? What were your company’s goals? Are these now being achieved? All would agree that going through an RFP and the subsequent integration process requires considerable time and effort; the last thing any company wants is to not reap the rewards of this.

Beyond this, don’t necessarily be lured into going with the biggest providers. Sometimes these providers can afford to underbid to get in the door in a way that smaller firms cannot. However, larger firms often cannot compete with the customization, empathy, and high-touch level of customer service often provided by smaller, more specialized organizations9.

Though most service providers will come to the RFP with an SLA straw man, it takes focused effort to develop useful and meaningful SLAs tailored to a specific company’s goals and aspirations. Time invested by a company in customizing SLAs to match overall corporate objectives is generally time well spent - as long as the company commits to keeping them current and meaningful.

8 Karten, N. “Establishing Service Level Agreements.” Accessed July 25, 2012 from http://www.nkarten.com/sla.html

9 Tjan, A. “Why Small Companies Are Better at Customer Service.” Harvard Business Review Blog Network, September 21, 2009. Accessed July 26, 2012 from http://blogs.hbr.org/tjan/2009/09/why-small-companies-are-better.html

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In conclusion, good service providers do not dread nor avoid well constructed SLAs, as they want expectations established up front and view the agreement as an effective tool to measure their performance against mission critical objectives. The ultimate goal is to identify any areas for improvement so that the client is receiving the highest levels of service at all times.

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