A Complex but Solvable Puzzle: Service Level Agreements, Key Performance Indicators, & Critical Success Factors

May 24th, 2017 Posted by Jon Sturm

Service Level Agreements (SLAs), Key Performance Indicators (KPIs), and Critical Success Factors (CSFs)

Knowing how to put the SLA, KPI, CSF puzzle together helps IT gain credibility and promote value in partnerships between IT and the business we serve. IT struggles to communicate, let alone justify costs and investments, and has a hard time communicating in terms that business understands. Something is lost in translation. IT services have been commoditized and marginalized, which further increases the challenges of getting funding, accelerating time to market, and delivering innovative products and services.

I imagine that business partners picture IT employees tinkering in a cluttered basement office surrounded by stacked spare parts for systems that aren’t being used. And while maybe that was true at some point in time, the stereotype doesn’t hold today. While we’re not fully moved out of the basement, IT professionals still struggle to speak in business terms. Communication is a two-way interaction. It takes two to tango. Both parties must come to the conversation and attempt to listen and understand. This is essential to achieving the outcomes you want.

Service Level Agreements

Let’s start at common ground with Service Levels. Most professionals are aware of what they are or at least agree they are necessary.  However, service levels, when poorly crafted, promote bad behaviors from IT and business, alike. Poorly designed service levels can be manipulated so that IT appears to be successful, even when they are not.

From the business perspective, SLAs are typically viewed as punitive measures of IT’s performance. A minimum performance tolerance is set and even when IT meets the minimum tolerance, business interprets the result negatively, as only achieving the minimum expectations. With a collective sigh of exasperation and frustration, they react by raising the standard while handcuffing and preventing IT from making the investments to achieve a higher level of service.

From IT’s perspective, SLAs set the boundaries in which they can and should operate to be considered successful. However, confusion and frustration flourish when the objectives are met or exceeded, yet it’s not praised by their business partners. Budgets are cut and SLAs harden, and IT is forced to sacrifice in other areas, putting the business at further risk. Talk about shooting yourself in the foot?

Good SLAs are written in partnership between IT and business. This way, everyone understands what is expected and positive business outcomes are created from achieving and exceeding service level targets. SLAs are a function and extension of systems warranty, including:  availability, responsiveness, capacity, security, continuity, and answers the question, “Is the service fit for use?”  These are a few good areas to focus on for systems infrastructure. The additional question we want to ask is, “Is the service or system creating, enabling, or supporting the desired business outcomes?” and “How do you know?

Key Performance Indicators

While SLAs are a necessary evil (and probably not going anywhere), KPIs are a much more meaningful way to evaluate IT performance and value. SLAs establish a carrot and stick relationship, in which the stick is used most frequently. Defining and managing to KPIs require more intimate knowledge of business objectives, functions, and strategy. They also create higher value and more meaningful relationships between IT and business. Instead of a carrot and stick relationship, IT and business come together as equal contributors and partners to enable and deliver on overall company strategies and objectives. KPIs are the first half of the bridge linking IT to business value.

To complete the bridge, the underlying critical success factors and success criteria must be defined and prioritized by the business. Key performance indicators capture a target zone of ideal performance and the direction the performance should trend. This contributes toward elements of continual improvement, business value, and can be used to measure the value of IT services.

Critical Success Factors

CSFs are the building blocks to achieve outcomes. Standing alone, they represent isolated prerequisites to attaining service, performance, and value targets. Each CSF should be linked to one or more KPI.

Several CSFs categories to consider:

  • Revenue Growth
  • Customers Growth
  • Products or Service Quality
  • Speed to Market
  • Customer Satisfaction
  • Cost Control
  • Technical Roadmap

The most basic of measures for performance involve counting. Many consulting service firms have dishonestly sold kindergarten “mathematics” as a high-value service. Volumetric measures by themselves aren’t all that meaningful, nor do they adequately or accurately convey demand or “service”. IMPO, they’re not as helpful as one might think when it comes to making business decisions. However, multi-million-dollar IT service contracts are won and delivered based on volume, coupled with elementary service levels for penalty purposes. As clients catch on to the hoax, deeper analysis of performance and value will become table stakes of IT services, not only for vendors but also for internal IT groups. Could this be one of the reasons why so many IT organizations fear being measured in meaningful ways? Don’t avoid it, embrace it.

Meaningful measures improve and deepen our understanding of performance and value when taken holistically in organizational context. We should expect vendors to take on more accountability, provide better transparency, more thoughtful analytics, and prove our business value through KPIs & CSFs, and the occasional SLA. For application services, this means optimizing the workforce, processes, knowledge, performance, technologies, and costs.

Whether your organization is focusing on SLAs, KPIs, or CSFs, SmartIT can help you solve this puzzle. Connect with me on LinkedIn today and let’s chat!

About the Author: Jon Sturm is the Client Services Director for ADM with SmartIT. He has over 20 years in IT, management, leadership, and consulting, specializing in application managed services, outsourcing, IT service management, and organizational change. He has a passion for continually improving and maturing IT services. Prior to joining SmartIT, he spent 17 years with a global consulting services firm; helping clients meet and exceed application service objectives and solve complex organizational challenges.