Relational Outsourcing and The Role of Service Level Agreements (Part 1)

This study extends the view that formal contracts and relational governance function as complements rather than as substitutes. We investigate how specific characteristics of service level agreements (SLAs) impact relational governance in information technology outsourcing relationships.

from the Abstract of the study The Role of Service Level Agreements in Relational Management of Information Technology Outsourcing: An Empirical Study by Jahyun Goo, Florida Atlantic University, Rajiv Kishore, State University of New York at Buffalo, H. R. Rao, SUNY Buffalo and Kichan Nam, Sogang University

One of the first thoughts that come to mind when one considers the introduction of Service Level Agreements or SLAs into a contractual relationship is that it represents a belt with suspenders mindset that serves as a legal hammer that can be used to purportedly guarantee vendor performance.

Nothing of course could be further from the truth as demonstrated by the high rate of outsourcing initiative failures.

In fact, and as IACCM’s Tim Cummins once pointed out (or perhaps lamented would be the better word), is that once at the negotiating table, senior executives from both the buyer and seller side tend to lie relative to the true lay of the land in terms of organizational capabilities.

While some were surprised by this revelation I have on a first hand basis seen this deception at work, particularly from the vendor side of the equation.  Specifically, I have heard on more than one occasion the expressed sentiment that “we will win the business first, and then we will worry about how we will make it work!” approach to winning a contract.  This is tantamount to going into surgery with a doctor who is of the mind that he or she will figure out what to do during the course of the operation.

I do not know about you but, this learn as you go strategy would give me pause for thought before being put under.

Given the frequency under which contracts are established along similar lines, it is no wonder why the legalese of an SLA have become the equivalent of a loaded gun with a hair trigger as opposed to serving as a valuable guideline to help keep contractual relationships on track.  Or to put it another way, SLA’s have for the most part taken the place of relationship building between buyer and vendor.

So what is the answer?

Over the next two weeks I will examine the above referenced study in an effort to identify what both buyers and vendors need to do to overcome the seemingly inherent tendency to play one’s cards close to their vest at the negotiating table, and forge the kind of trusting, mutual benefit relationship that utilizes SLAs as a collaborative reference point as opposed to a litigious mechanism for what has traditionally been planned failure.


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