FSN: Could a Service Level Agreement (SLA) help you drive out more benefits from your investment in ERP systems and shared services centres?

Could a Service Level Agreement (SLA) help you drive out more benefits from your investment in ERP systems and shared services centres?

30th May 2005
Changes in the way that finance departments are structured, increasingly complex technology and the blurring of organisational boundaries are just some of the factors driving demand for service level agreements between departments in the same organisation.

A Service Level Agreement (SLA) is not a new concept and has been used for many years to manage the relationship between organisations and external service providers. Essentially, they are contractual documents which record the services to be delivered, the roles and responsibilities of the contracting parties and normally a method of benchmarking, measuring and managing performance.

At first sight, the idea of deploying an SLA to manage internal service delivery seems a touch draconian but used as a strategic tool over the long term an SLA can drive out significant benefits for the organisation.

According to Peter Morley, Director of Insight MSC, an independent provider of accounting and finance systems consultancy , the implementation of an SLA can inject much needed fairness into the management of key financial processes. "In many large organisations we find that finance or IT is used as a whipping boy and blamed for all of the organisation's ills. An SLA helps to define what is being delivered and sets an objective standard for performance."

Morley dismisses the notion that an SLA is simply another layer of bureaucracy and points to the many changed circumstances around the finance function that are creating demand within organisations for a more formal process. "Many traditional finance processes are well understood - everyone knows what the relationship is and what it's supposed to do - but these relationships are evolving rapidly and new processes are being introduced". Morley points to large scale ERP implementations as a case in point. "The line between finance and IT is increasingly blurred and much the infrastructure supporting large scale ERP is becoming far more complex. So finance is increasingly required to make changes to systems that have significant business impact."

ERP systems by definition cover many business functions so that changes to organisational hierarchies and charts of accounts have effects far beyond the finance function and their impact can impact far flung places in the organisation.

Morley cites work completed for a services organisation that involved the replacement of hundreds of instances of a mid-range accounting package with a single instance of an ERP system, "In this situation there is huge organisational dependency on the central ERP system. There has to be a way of resolving organisational conflict and ensuring that all parts of the business are treated fairly whilst balancing group needs with local pressures." Without an SLA Morley argues that small entities in the business low down the pecking order will have to wait for attention without any formal means of raising their concerns.

"We did some work with an international auction house to implement a global ERP system. Before the implementation of the system groups of users on either side of the Atlantic thought that the other side received preferential treatment. This drove demands for two regional systems. The implementation of an SLA provided assurance to all of the parties that the required services would be provided but illustrates how the absence of an SLA can sometimes produce dysfunctional behaviour."

There are also more strategic reasons for implementing an SLA . "The old model of implementing an ERP system was to treat it as a standalone project whereas an implementation accompanied by an SLA has long term strategic value. Organisations need to understand the real value of the asset not just its book cost" says Morley. "An SLA helps to establish the value of the system to the organisation and provides a mechanism to constantly drive out benefits over the long term as well as ensuring that users get the quality of service that they need."

Morley dismisses the notion that an SLA in one functional area will drive an SLA culture for all manner of interdepartmental interaction. "It doesn't happen" says Morley, "If the organisational demand isn't there or doesn't serve a real purpose then an SLA will wither on the vine"

Not all organisations succeed in introducing SLA 's. Morley says the most common problem associated with unsuccessful SLAs is the loss of strategic focus - parties involved in drawing up these contracts lose sight of the reasons for creating them and get bogged down by unnecessary detail and bureaucracy. To create an effective SLA it is important to be clear about why it is being created and consider what really matters - i.e. measure only critical business performance indicators. For example, in the case of a shared services centre 'To input invoices within ten working days of receipt' or 'the accounting system to be available from 08:00 to 18:00 five days a week, 98% of the time' Rather than going into too much detail about specific points.

A good SLA according to Morley will recognise the true services on offer, identify the meaningful measures of what the customer needs and acknowledge the capacity and capability needed to deliver the service, for example, resources, skills and availability.

One size doesn't fit all when it comes to SLA 's. It is important to recognise that different organisations may need different types of agreements, and a decision has to be made over the most suitable type for the department in question; for example, contractual or quasi-contractual, or just a clear table of roles, responsibilities and services. Nevertheless the rewards seem to far outstrip the effort. Treated as a strategic tool an SLA can deliver significant performance improvement and ensure organisational fairness at the same time.

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