The Service Level Agreement (SLA) Explained & Optimized

A service level agreement, commonly referred to as an SLA, is physical or electronic documentation that defines the commitments made to a customer by a service provider. A single SLA may cover one or multiple services.

SLAs have a reputation for being lengthy and tedious, but—as Eric Marcoullier, CEO of the social data company Gnip, has shown—they don’t have to be.

Marcoullier’s approach to SLAs emphasizes three critical points:

  • Clear and reasonable guarantees of service
  • Abundant access to support
  • The right to cancel at any time

These principles are more thoroughly enumerated in the text of an email Marcoullier sent to a customer who’d inquired about Gnip’s SLA.

The customer's response?

"You are class act!  I wish all legal issues can be handled like this."

Main Components of an SLA

Listed below are the typical component sections of a standard SLA:

1. Introduction and signatures

This section introduces the participating parties: the service provider and the service recipient.

2. Service description

This section outlines the nature of the service being provided.

3. Service level targets

This section provides clear, measurable data on target performance.

Not only will this section include data on the final service (customer deliverables), but it will also submit specific data on what’s to be expected and tolerated with regard to service challenges.

These challenges include temporary or permanent interruptions, degradations, or cancellations of other services resulting from the establishment of a new service. This section should also specify security measures relevant to the service and contingency plans for service interruptions or security compromises.

Additionally, this section outlines how customers access support if they have problems with or questions about the service.

4. Reporting and review

This section outlines the processes in place for obtaining performance records and feedback about the quality of the service and the extent to which it’s adhering to the specifications contained in the SLA.

The Cases For (and Against) Clarity in SLAs

Eric Marcoullier’s emphasis on the importance of clearly defining service provider commitments in SLAs is well corroborated.

Helen Morris and Liz Gallacher, authors of the ITIL Foundation Exam Study Guide, warn against what they call the “temptation” of using vague language when defining service commitments in an SLA.

Morris and Gallacher argue that SLAs guaranteeing “reasonable” measures to be completed “as soon as possible” create conditions for less-than-optimal service quality and timeliness.

Therefore, we might conclude that service level agreements are best kept clear and precise with measurable thresholds for both quality and time. Right?

Well, maybe.

Not everyone agrees that clarity in SLAs fosters superior service.

Nipa Chakravarti is an executive vice president at a large Canadian energy company called TransAlta. She believes that one of the factors that makes SLAs more of a hindrance than a help is their tendency to be overly precise.

Quoted in a 2016 article, Ms. Chakravarti bemoaned the hard targets established by the typical SLA.

“They don’t meet our rapidly changing needs; they just meet the service levels stipulated in the contracts.”

Ms. Chakravarti points to the tendency of SLAs to suppress the impulse to exceed customer expectations and to innovate, focusing first and foremost on contract stipulations rather than big picture business goals.

The All-Important Customer Escape Hatch

Here’s where Eric Marcoullier’s final point—“customers have the option to cancel at any time”—comes in handy.

Rather than write intentionally vague SLAs, which would water down minimal service-level guarantees, why not just enthusiastically emphasize the rights of service recipients to cancel service when it no longer meets their needs and expectations?

This approach allows SLAs to retain both their precision as well as establish baseline standards.

All while still providing an urgent incentive for continual innovation and a surpassing of minimum level requirements.

Reality Check

One of the persistent themes of IT Service Management is the need for communication and alignment between an organization’s business objectives and its IT service providers.

Without this alignment intact, SLAs can grow stagnant; just ask Ms. Chakravarti.

The service provider will gravitate to the path of least resistance, which is usually opposite the paths of maximum value generation and maximum profitability.

Just Say No to Silos

IT service providers in particular have a persistent and dangerous tendency to form “silos,” metaphorically walled-off work zones that don’t effectively share information with or pay close attention to the needs of other departments or the business as a whole.


Marcoullier’s customer escape hatch may not provide such a ready solution when the service provider is internal and can’t be abandoned or swapped out for a competitor.

A silo’d IT department, when challenged to integrate and communicate more effectively, will often point to its SLA or OLAs (see below) as justification for preserving the status quo.

In their view, so long as the minimum specified standards are being met, all’s right with the world.

Such complacency and inflexibility, if left unchallenged, will surely hinder the vitality of the business or organization.

Competing IT environments can also produce inflexibility that challenges goal completion for a business organization.

Creative Solutions

A study of the “service management” ITIL process should inspire effective and creative methods for producing optimized SLAs.

Documented under the service management process you’ll find a subprocess called “service level monitoring and reporting.” This subprocess emphasizes the importance of measuring results using surveys, focus groups, or other means.

Surveys and focus groups in particular can add a qualitative lens to the generally quantitative character of SLA compliance. IT personnel, when exposed to qualitative feedback, are forced to see their role in the organization as less rigid, more fluid, and more responsive to the evolving needs of the greater team.

Surveys, focus groups, and interviews are collectively a means to uncover the voice of the customer (VOC). VOC data collection methods are an ITIL carryover from the business world and the ITIL goal of aligning IT efforts with the needs of the business.

This same ITIL subprocess emphasizes the use of a “service level report,” which may be used not only to verify and document SLA compliance, but may also be used to form an overall assessment of a service provider’s strengths, weaknesses, and opportunities for improvement.

Terminology Distinctions, OLAs and UCs

Up to this point we’ve only discussed the definition, structure, and controversies surrounding SLAs. Similar agreements, namely OLAs and UCs, are also used to define performance expectations.

Operational level agreements (OLAs) document and describe services provided from one part of an organization to another in support of the IT department’s delivery of services to customers.

An example might be the encryption of sensitive customer data that’s been submitted to a bank or other organization in confidence.

In this case an OLA might exist between the general database management team and the data security team, governing protocol on how incoming customer data is to be reliably secured yet available as necessary for use by authorized parties.

Click or tap to enlarge

Underpinning contracts (UCs) document and describe services provided by a third party in support of the IT department’s delivery of services to customers.

An example might be a website and domain management company that pays a third party to host sites for its customers. In order for the website company to deliver its service—websites—the hosting company’s services are essential and should be formalized by a UC.

The Bottom Line

SLAs and their counterparts (OLAs and UCs) are useful to the extent that they establish appropriate and precise standards for service, and so long as they’re not exploited by tone deaf or over silo’d service providers.

Whenever possible, external customers can be put at ease by an SLA guaranteeing their right to stop payment at any time for unsatisfactory service.

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