Service Level Agreements – Enabling a Successful Long-Term Relationship

Much has been written about service level agreements – SLA (s) 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 company.

Around the same time that SLA s 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 SLA s have become the main weapons in the arsenal that procurement uses to select and measure its suppliers. Thus, SLA s 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 SLA s 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 SLA s, when properly framed, enable optimal service and communication between a firm and its relocation provider.

The advantage of outsourcing enables a company to hire a group of experts to focus on a specialized 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 international 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 downsizing, 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 SLA s 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.

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