Why Internal Service Level Agreements May Not Be Effective As Many Think

We sure love our internal SLAs (Service Level Agreements). They give us the comfort that work is progressing, and things are moving forward. However, I believe SLAs are doing more harm than good unless you are careful. Why? SLAs can build in a potential excuse to not process work fast and effectively. In fact, SLAs often hide the darker side of productivity… the “hidden factory”.

What is the “Hidden Factory”?

The concept of a "hidden factory" refers to the additional, often unrecognized and unmeasured work that takes place within an organization. This hidden work can include rework, corrections, and extra steps that are necessary to fix problems or inefficiencies in the primary process. Think of another stream of work that is bubbling under the surface. Everyone involved knows that the process isn’t effective but accepts that the workforce needs to constantly fix what wasn’t done correctly in the first place. How does the Hidden Factory impact SLAs? Since rework typically can be under the surface and out of visibility, the organization only looks at the SLA metric instead of what work (and rework) contributes to the achievement of the SLA.

In effect, the SLA metric continues to hide problems.

Causes of Hidden Factories

The existence of hidden factories is often a symptom of deeper issues within the processes. Common causes include:

• Frequent errors and defects that require rework or corrections.
• Ineffective processes that necessitate additional steps or workaround solutions.
• Inconsistent practices across different teams or departments leading to variable outputs.
• Poor communication and coordination that result in duplicated efforts or misunderstandings.
• Insufficient training that causes employees to make mistakes or take longer to complete tasks.

Context (and entertainment), worth watching the I Love Lucy segment where two of the characters are tasked with wrapping chocolates on an assembly.

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Why Many Use Internal Service Level Agreements

SLAs are often implemented with good intentions to streamline processes, set clear expectations, and ensure accountability. We design these to help each other and our customers. However, despite these good intentions, relying on SLAs for internal work processing often leads to several inefficiencies and unintended negative consequences for our customers. I remember an employee telling me “But we are achieving our SLA of 48 hours!”. However, this employee didn't look at the impact of those 48 hours on the rest of the outcome. Without understanding that other teams within the process also had their SLAs. Worse, the end-to-end impact for the total customer delivery was an average of 71 days for a simple procurement approval.

After the process was streamlined, the new work averaged less than 5 days and delivered a superior customer experience!

The Impact of SLAs

• Inflexibility and Rigidity - SLAs are designed to set fixed time frames and performance metrics. While this can be beneficial for external contracts where specific deliverables are essential, applying the same rigidity to internal processes can stifle flexibility. Internal work often requires a dynamic approach to address changing priorities and unforeseen challenges. SLAs can make it difficult to adapt to these changes, leading to bottlenecks and frustration among employees.
• Focus on Metrics Over Outcomes - SLAs emphasize meeting specific metrics rather than achieving meaningful outcomes. Employees may become more concerned with hitting SLA targets than with delivering quality work or solving the actual problem at hand. This focus on metrics can lead to a "check-the-box" culture, where the goal becomes meeting the SLA requirements rather than addressing the underlying issues or improving processes.
• Encouragement of Silos - SLAs can encourage siloed thinking within companies. Departments and teams may focus solely on their specific SLA targets, neglecting the broader organizational goals. This can lead to a lack of collaboration and communication across departments, as each team becomes more concerned with meeting their internal metrics than working together to achieve common objectives.
• Reduced Employee Morale - The pressure to meet strict SLA targets can negatively impact employee morale. Employees may feel stressed and overburdened, particularly if the SLAs are unrealistic or fail to account for the complexities of their work. This pressure can lead to burnout and decreased job satisfaction, ultimately reducing productivity and increasing turnover rates.
• Misalignment with Customer Needs - Internal SLAs are often designed without sufficient consideration of customer needs and expectations. Focusing on internal metrics can create a disconnect between what the organization prioritizes and what the customers value. This misalignment can result in customer dissatisfaction and a negative impact on the organization’s reputation and bottom line.
• Inadequate Reflection of Process Variability - Work processes can vary greatly depending on the type of task, the complexity of the issue, and the specific circumstances. SLAs often fail to account for this variability, applying a one-size-fits-all approach that can be inappropriate for many tasks. This lack of nuance can lead to inefficiencies, as employees may have to work around rigid SLA requirements that do not fit the context of their work.
• Potential for ‘Gaming the System’ - When employees are evaluated based on their adherence to SLAs, there is a risk that they might "game the system" to meet these metrics. Remember the phrase, ‘What gets measured, gets managed’? This can involve prioritizing easier tasks that ensure quick wins or manipulating the way tasks are reported to appear compliant with SLAs. Such behavior undermines the purpose of SLAs and can distort the true performance and health of the organization.
• Barriers to Continuous Improvement - SLAs can create a false sense of security, suggesting that if metrics are met, the processes are effective. This mindset can hinder continuous improvement efforts, as there is less incentive to critically evaluate and enhance processes. Organizations may become complacent, missing opportunities for innovation and optimization that could drive long-term success.

While internal SLAs can provide a sense of structure and accountability, their limitations often outweigh their benefits in the context of internal work processing. Leaders should consider more flexible and holistic approaches that prioritize collaboration, customer satisfaction, and continuous improvement over rigid adherence to metrics. Use metrics and build acceptable cross-functional deliverables? Yes. But don't miss the big picture. By focusing on outcomes rather than constraints, your team can foster a more adaptable, motivated, and effective workforce, ultimately achieving better results and higher levels of satisfaction for both your employees and customers. In short, when reviewing your SLAs (or creating new ones), consider what behavior may occur and ensure the end outcome isn't negatively impacted.

Some related articles:

• Aligning Operations to a Successful Customer Journey: A Blueprint for Success
• Beware of Falling Horses: The Importance of Considering Risk Before Implementing Change
• Motivate Employees and Unlock their Discretionary Effort
• Customer Effort Really Matters.

Articles are listed on my LinkedIn newsletter 'It is About the Outcome' and available here:

https://www.dhirubhai.net/newsletters/it-is-about-the-outcome-7156685798971498496/