The power of flexible SLAs in managing SAP costs

As IT professionals today, we work in the most uncertain of economic times. Never before have we seen such pressures converging on the industry. We are all too familiar with long enterprise application implementations, Euro exchange rate...

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As IT professionals today, we work in the most uncertain of economic times. Never before have we seen such pressures converging on the industry.

We are all too familiar with long enterprise application implementations, Euro exchange rate fluctuation and rapidly changing business requirements - not to mention IT labour shortages in a fragile jobs market.

As a result of these pressures, the CIO has to balance the multiple conflicting priorities around Opex versus Capex, user demand versus organisational priorities, enabling business versus lean IT and the list keeps growing with maturing of IT.

After the business case of substantial investment in SAP has been realised - the focus is on sustaining the operations. The trade-off now is between operational excellence and continuous improvements versus cost management.

It is my view that engaging external service providers and leveraging their expertise and capacity investments through managed services for operations, is an excellent mode of achieving this. Service level agreements (SLAs) and key performance indicators (KPIs) become the metrics to ensure stability of the systems.

The CIO can now review the metrics without having to make substantial internal investments in own manpower. However, one size does not fit all. This is because SAP applications are entirely business process centric.

Furthermore, SLAs and KPIs have to be defined by the nature of the business, demands by the user community, not to mention the need for speed and responsiveness.

While the larger third party advisors do an excellent job of squeezing the best terms for their client organisations from the vendors, for most organisations, the rigor of maintaining, managing and monitoring these SLAs becomes an overhead.

In light of this, a few of the key challenges organisations generally face with SLA driven managed services are on how to measure and match the returns with the cost of managing and maintaining SLA driven managed services.

This is in addition to getting the service provider partners (IT vendors) to understand the organisation’s business dynamics and hence SLAs.

In my experiences - the enthusiasm to get the best out of vendor relationship and an inflexible SLA regime - coupled with a lack of understanding of the state of the business and economic environment - has resulted in a number of organisations changing service providers because of lower returns on SAP investments, high operational cost and reduction in application performance.

An evolution of the business needs driving the application-managed services in SAP has resulted in a Flexible SLA approach for business critical applications.

So, what are flexible SLAs? Unlike engagements where SLAs are hard coded at the start of the engagement and come with a fixed cost, flexible SLAs help tailor the service levels to suit the business criticality and scenario - therefore aligning cost to the expected service levels.

This allows the organisation to get the best instead of going in for expensive change requests or re-bid/ re-contract process. SLAs are generally categorised based on the application classification i.e. Gold, Silver and Bronze, as well as on the priority as Critical (P1), High (P2), Medium (P3) and Low (P4).

While these categories are generally fixed throughout an engagement, organisations should work with their service providers to define SLA categories based on the functional criticality and business need. For example, system performance for batch jobs for financial accounting functionality will be critical for month or quarter- end activities, but may be medium or low for normal days.

CIOs can therefore define their SLAs accordingly to reduce the operational cost and efforts. Currently, we worked with one of the largest entertainment companies - where we support their SAP to define their service levels. This is not only by performance and ticket resolution statistics, but also primarily by the user satisfaction survey.

Recently, we adopted an approach that asked business users to explicitly document their requirement. Then, we evaluated the requirements together with the CIO organisation in the context of technical feasibility and operational costs. This approach - has resulted in the user community financing most of the discretionary spend for the SAP environment including a recently executed SAP usability engagement

In summary, SAP applications are still the backbone of the business. It is therefore critical to ensure that flexibility is built into an organisations contract with the service providers. It is also vital to align the service to the business needs and not linear metrics.

If the flexible service levels yield a measurable and attested change on an organisation’s operational bottom-line, the CIO would have more than delivered on their commitment to the users and the management.


Posted by Ramki Jagadishan, VP and Head of Global Delivery for SAP at HCL Technologies,

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