Although most analysts predict that it is only a matter of time before
the application service provider (ASP) model becomes the method of choice
for obtaining many types of business functionality, it has not yet
attracted IT buyers to the extent it has captured the interest of the
vendor community. There are a variety of reasons for the slow uptake, but
the perceived newness of the model, fear of loss of control, and the
potential for poor service are three commonly cited reasons for proceeding
with caution. Each of these factors can be exacerbated or alleviated by an
ASP's approach to service-level agreements (SLAs).
The financial and operational benefits of the ASP model have
attracted vendors from all areas of the IT industry. Many of these
vendors, particularly those from a software company background, have
little experience in delivering committed levels of service to buyers.
The quality of an ASP's SLA speaks volumes about whether it "gets
it" as far as service. Weak or nonexistent commitments, lack of
adequate penalty/reward structures, and/or difficult to measure and
manage SLA metrics all point to a vendor not yet ready for prime time.
As most outsourcers have discovered, a well designed SLA provides
client managers with a greater level of control over their purchased
services than those managers ever had with their internal organizations.
To gain this benefit, however, an ASP has to provide a comprehensive SLA
that covers all the parameters its clients will want to adjust to tune
their service. It is unreasonable to expect client executives to feel
comfortable about turning over major functions when the predominant SLA
commitment is the ubiquitous 99.99% availability.
A properly designed and managed SLA is the ultimate tool for
preventing poor service. To be successful, in addition to covering the
parameters important to the client, the SLA must contain realistic and
obtainable service-level commitments and meaningful remedies if those
commitments are not met. To date, very few ASP SLAs offer real
performance commitments, and even fewer provide performance penalties at
a level that gives them major financial incentives to meet or exceed
their commitments.
The ASP industry is starting to wake up to the need for strong and
consistent SLAs. Trade groups such as the ITTA and the ASP Industry
Consortium are developing model SLAs. The smartest ASPs have realized that
their SLAs will be one of their strongest differentiators and are
beginning to offer high-quality SLAs that give buyers the tools they need
to manage their relationships successfully.
However, in the short run, managers must realize that few ASPs have
been around long enough to demonstrate a track record of meeting their
performance commitments. A buyer's best protection is to restrict their
considerations to ASPs that offer quality SLAs and accept strong enough
performance penalties and incentives to assure sufficient motivation to
meet their commitments. If, as a buyer, you are unsure about the strength
of a SLA, don't rely on vendor assurances, retain professional assistance.
In the long run, all vendors will have to offer strong SLAs to remain
competitive. At this stage, the evaluation switches to an examination of
the vendor's performance track record. After all, a SLA without follow
through is only a set of hollow promises.
