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The Art of Defining Service Level Agreements

Esa Eerola
By Esa Eerola - 21-Jul-2020 10:38:10

The Art of Defining SLAsIn B2B Service Business, SLAs play an integral part of the business. The clearer the individual needs of the customer, the better the value for money the service provider can deliver. At Landis+Gyr, we have been in the service business for over a decade. We have worked with over 30 managed metering reading service customers with different SLA levels in EMEA, each of them tailor-made and individually defined. Here we are sharing some of our learnings.

We have probably all been there: having to choose the right internet connection at home. For this, you need to make a decision on the required service level. To find out what that is, you speak to the service provider and they will be asking you things like: “How many devices do you want connected? Do you stream movies or games? Do you need your connection for working from home?” Based on your needs, you will receive an offer for a specific service for a specific price. Once you have placed your order, you have entered into a Service Level Agreement (SLA).

Basics of defining Service Level Agreements

A good start is to define what is meant by “service”. To put it very simply, service happens when one party does something on behalf of another party. If it is not clearly defined and even if things go well, the service provider can never be sure if they have delivered as expected. Likewise, the customer might not be able to establish whether they only pay for what is necessary. It has proven to be good practice to also list the things not included in the service. It helps both parties to understand the service scope in a more concrete way. From a well-defined Service Level Agreement, the customer sees clearly which tasks they need to perform themselves and which tasks are being taken care of by the provider.

When signing an SLA, the service provider and the customer agree on:

  • The service itself.
  • The way it is to be delivered.
  • The exact criteria and thresholds on when the service has been delivered and received, and the agreement has been fulfilled, for example 99.5% availability of a service.

Typically, meeting the criteria triggers billing for the service. Therefore, the content and criteria of the SLA has an essential role in the service business. The higher the value of a service, the higher the price for the extra benefits.

Defining SLAs based on Business Needs

Active customer participation is a key to successful SLA definition. If the service provider does not have the involvement of the customer and understand what their business is like, they will not be able to ensure that they are serving the customer according to their specific needs and in the best possible way.

Business needs which turn into requirements in the form of SLAs must be realistic to ensure that the costs stay in a meaningful ratio towards the value delivered. It is “too easy” to just ask for a 99,95% service level. Of course, this is possible. However, asking for too high service levels might economical not make sense and is also not necessary to run the business. The same goes for aiming too low – because then the service provider cannot provide enough value. Therefore, working in an active dialogue with the question “what makes sense” in mind is the possible way forward.  For the service provider, SLAs are also important to be properly do the resourcing of both project work and daily operations.

Cost and Penalties in SLAs

Even though players in the B2B environment usually understand that a cheap service does not necessarily get you want you need, cost is one of the most discussed topics. This is why they need to be thought through with the business continuation of both parties in mind. The same goes for penalties. They make clear where the business-critical items for customers are and what is needed to recover potential loses.  The nature of a professional service provider is to guarantee a “trouble-free” environment framed by realistic SLAs and balanced between the added value delivered as well as the competitive price connected to it. Mutually beneficial terms and conditions, especially when it comes to penalties and costs, are what the negotiations for Service Level Agreement should always aim for.

Landis+Gyr as the SLA Expert

Listing what is in and what is out is not enough. A good SLA also defines exceptions where meeting the agreed SLA target is not mandatory and if this service is still delivered successfully the customer gets invoiced. Different force majeure conditions are typical examples of such exceptions. They include extraordinary events or circumstances beyond the control of the parties, such as a war, strike, riot, crime or as we are experiencing now, pandemics. It is important to know that a force majeure clause frees both parties from liabilities, not just the service provider.

As many services are not tangible by nature, defining and verifying the SLA levels is sometimes hard. Our experience with various customers has taught us on how to define and tailor the right approach – depending on the customers number of metering points, number of required services, customer functions or the length of the agreements. And it is definitely good practice to agree on frequent and regular check points between service provider and customer where SLA levels are discussed. This helps spotting possible trends early on allow to take actions or adjust the SLAs when appropriate.

Balancing for realistic SLA Levels

Realistic SLA levels benefit both the service provider and the customer. Experienced service providers will propose options and discuss them with their customer. Customer needs must be in balance with the cost demands. The more demanding the service levels, the more it will cost. As a service provider, we could suggest: “Yes, we can provide 99,95%, but based on your operating experience, 90% maybe sufficient for you. We can e.g. offer reports by 4 am every morning, but if 7am is cheaper, would that be enough for you? How does your business benefit from a tighter service level and is it worth the higher price?”

If the demands are too high, the delivery of service can get unnecessary expensive. Also, it may often be that requirements from the service provider to the customer, will then be stricter, too. However, if demand levels are too low, it may attract vendors who lack expertise and experience and there is always the threat of additional costs at a later stage. Finding the right balance in an open and transparent dialog between customer and service provider is key for a long-term success.

Benefits of well-defined SLAs

Defining Service Levels is not only about cost and balance. The customer always benefits from services and the better the SLA is built, the more benefits the customer can expect.

Landis+Gyr service subscribers have a key contact with support coming out of one hand with a single point of entry 24/7. They also enjoy flexibility of choice. The best choice will be defined by the customer needs, with selected options based on operational needs. In addition to flexibility, also scalability comes into play: if customer demands change, the subscription can be adjusted to the changing needs.

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