Friction points in outsourcing exist when client expectations are 1) not aligned with the actual service the provider delivers and 2) not agreed in the contract.
A common example of a friction point is a so called “watermelon SLA”: green on the outside, red on the inside. This is a situation in which the service provider meets the service level agreement (SLA) targets agreed in the contract yet the client is dissatisfied.
Such situation may arise when SLAs are poorly defined, e.g. not aligned with implicit or explicit expectations of end users.
Therefore, when defining SLAs it is vital to ensure they are meaningful to end users. This involves a 50-50 responsibility split between clients and service providers.
Clients’ central outsourcing teams should involve all relevant (global and local) stakeholders to define meaningful SLAs. These are SLAs that are relevant to improving business outcomes and are recognized by the actual (global and local) users.
Clients (reasonably) expect service providers to bring their expertise to the table. Outsourcing is complex. Service providers’ sales pitch is they can take over the client’s processes and deliver them cheaper, better, quicker, etc. Therefore, it is a fair expectation of a client to assume the service provider, as the expert party, will navigate the client through the complexities of outsourcing, including SLA definition.
Clients need to be willing to accept and trust the service providers’ expertise. Otherwise what’s the point of outsourcing?
Service providers have to be critical towards clients as clients may insist on keeping their existing SLAs that may no longer be up-to-date or relevant. If the client persists, it is essential to include provisions in the contract on grace periods and/or baselining periods AND an option to redefine SLAs based on the results of the grace period and/or baselining period.
If these steps are not adhered to, you may run into watermelon SLAs. For example, at the overall level the SLA targets are met (e.g., the EMEA Finance Operations’ Day Sales Outstanding), while for specific countries (e.g., France or Saudi Arabia) the SLA performance is below target.
At the user level a simple example of a potential watermelon SLA is “call response time” in a call center. The traditional call center industry standard service level is 80/20, meaning 80% of calls should be answered within 20 seconds. If the service provider meets this contractual requirement, you might expect the client to be happy. However, when sales drops because of dissatisfied customers, what is the relevance of a call response time SLA? First of all, you have 20% of the customers waiting for a call to be picked up for more than 20 seconds. With the current TikTok generation, they may have already left the call. Second, if a significant portion of the 80% of customers who were responded to within the SLA target perceive the subsequent conversation with the call agent to be unsatisfactory, what might be the impact on sales?
It is therefore important to integrate various stakeholder interests when defining SLAs. A recent development is the shift from SLAs to XLAs (experience level agreements).
XLAs are a reimagining of SLAs that focus on what’s most important to end-users. Within these, XLA targets are end-user-centric metrics and key performance indicators (KPIs) that focus on the perceived quality of services and support. They measure the performance by quantifying the end-user experience and service outcomes. Ultimately, XLAs measure performance in outcome and value terms, whereas SLAs usually focus on operations and outputs.
Note: proper SLAs would also measure outcome, not output.
The shift to XLAs might be a good way forward, provided that the underlying concepts are well understood. Otherwise it runs the risk of being “old wine in a new bottle”.
Already a long time ago, I learned about the situation of “green SLAs yet dissatisfied clients”. Unfortunately it seems the industry is still learning as I encounter these situations even in today’s projects. One underlying issue might be that outsourcing is predominantly approached as a technical project, whereas in essence it is a change management project. One obvious solution is open communication to express both implicit and explicit expectations
Extras
If you want to learn more about watermelon SLAs and XLAs, this article and these ones might be a good starting point.
Picture source: horsesforsources.com
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