Ask, Listen and Do
I was talking with my brother-in-law when his eighteen-year-old son approached and commented, "I know the secret of having a good relationship with women." He was home from his first college semester and had taken a course on the psychology of women. My brother-in-law and I, each a veteran of multiple decades of marriage, looked at one another and smiled: "Please, enlighten us. We can always use the help."
My nephew explained that his professor had summarized their textbook with two words of advice for men in communicating with women: "Ask, and then Listen." A short silence followed, and then my older and wiser brother-in-law responded, "Well, your professor got two-thirds of it right. He just left off the final part. For the real secret is contained in three words: Ask, Listen, and then Do."
Ask. Listen. Do. Good advice not only for husbands, but also appropriate for shared services. How often do you talk with your customers about what they really want? Have you asked which of your products and services they value most, and then listened to discover what they really expected versus what you were actually providing them? And then did you actually do what they requested, structuring your processes, services, products and costs to support what your customers value? Most don’t do well in understanding the true needs and perspectives of their customers.
It reminds me of an interview that Bill Gates gave in 2002. When asked to rate Microsoft’s software on a scale of 1 to 10, Bill gave Microsoft a 9 – but later acknowledged from the customer’s point of view it’s probably a 1. You can chuckle, but how well do you know what your customers really think about your products and whether they meet expectations? Some try customer surveys to gather such information. However, most of you know how difficult it is to build good survey tools, get reliable feedback and then interpret the results correctly. Although surveys can be useful, the SLA and chargeback processes and discussions actually provide better insight and a more complete approach to honest and open communications with your business unit customers – if you keep it simple and follow basic guidelines.
Service Level Agreement Basics
SLAs are a common practice in shared services. When effectively implemented they can impact the cost and quality of your processes, products and services. To make SLAs effective, let’s get back to the basics. An SLA is simply an agreement with business units/customers for the purpose of managing the services and products provided in such terms as quantity, timing, quality and cost. Since the SLA for Shared Services is typically an internal document, it can be fairly simple and straightforward.
Does length matter? No, it’s more important to be clear, though clarity is usually associated with fewer pages. Must it be written? No: SLAs could be verbal or based on executive direction. However, in the early stages of shared services implementation, SLAs are typically written, but these written documents may disappear over time as you develop better relationships with business unit customers. What must be included in an SLA? At a minimum, it needs to include a list or description of what products, services and processes shared services is providing and the responsibilities of the business units. Other popular elements include: pricing, metrics/quality standards, process improvement initiatives and reporting processes. The major goal is to keep the actual SLA simple and understandable, concentrating your primary efforts on developing the process of improving communications with your business unit customers.
In summary, the SLA provides an effective mechanism for communication by:
- developing a partnership with your business units and providing accountability
- documenting what’s being delivered
- providing a forum for process improvement discussions
- quantifying the value of the shared services option
Chargebacks are another common tool for communicating with your business units and are often implemented in conjunction with SLAs. The basics of chargebacks are again simple: they are fees charged to business units based on actual usage or other allocation factors.
In general, chargebacks serve two primary purposes:
- balancing revenue and expenses and generating fully absorbed product costs for the company
- creating internal economic discussions on services provided, including their cost, quality and timeliness
When considering chargebacks, you only have three basic options. You can do nothing, which is simplest, but provides no incentives for discussions or change. You can use simple cost allocations, which again provide few incentives and will almost always generate incorrect chargebacks. Or you can use service pricing.
For those interested in the latter option, a best practice for determining service pricing is activity-based costing and management: a fairly simple process where costs are traced directly to activities, processes and business units based on usage factors. Even those considering option two and cost allocations might want to use the activity-based process to prevent extensive over- and under-charges to their business units.
Now the first time you generate the chargeback data using activity based processes, be prepared for surprises, both from your shared services staff and from your BU customers. Those within shared services will often be shocked at the total costs of their activities, process and services. Such a shock can be beneficial as this is the first step in getting the message across about the need for improvements. Your BU customers will also be shocked at their total chargebacks, particularly if their initial charges were lowballed or were based on what they could afford to pay to get them on board. Again, it shouldn’t be a deal-breaker, but rather it’s an opening to discuss why improvements such as process standardization, simplification and automation are necessary to benefit the entire company.
Keeping it Simple with Chargebacks
When developing chargebacks consider keeping to a simple set of rules as your baseline:
- Develop rates/costs once per year and charge back on an annual basis at budget time, or even consider memo/show-back billing: i.e., showing business units what the actual charges would have been based on usage without the official accounting reconciliations. This latter process can eliminate accounting complexities and the problem of customers taking inappropriate action to eliminate charges.
- Minimize the number of service options/levels for clarity. If you’ve looked into buying a TV lately and decided to postpone your decision because of the complexity – too many choices and much confusion with HD, LCD, Plasma, DLP, etc. - you can understand how complex service levels can be just as confusing to your business unit customers.
- Integrate improvement as a fundamental element of the discussions with customers, for the final goal of improving communication is to improve overall operations.
- Minimize or eliminate cross-charging among shared services groups, e.g., HR charges AP, who charges back to HR, etc., as the actual difference in the overall costing and chargeback results are usually minimal.
- Implementing a formal timekeeping system to track costs and charges is overkill.
- Including facilities costs in the chargebacks may skew results, since facility costs are often fixed and would not necessarily be eliminated from the company GL with process improvement.
- Charge actual costs versus market pricing, otherwise you have to do the analysis twice, generating your own costs and an equivalent commercial price.
Again, the above are just guidelines and you can get more complex and precise in your chargeback process as opposed to taking this simple approach: it just costs you more, both in terms of real dollars and staff time. The question is: will the added complexity and administrative costs generate any real value or pay-off in improving customer communications or overall internal processes?
I’ve seen many complexities with SLAs and chargebacks: extensive and complex services catalogs, some numbering hundreds of pages and almost an inch thick; data that provides limited or no visibility into true costs or cost buildup; limited focus on improvement options; and minimal linkage with overall corporate goals. None of these are positive indicators. Instead, getting back to the basics is a surefire approach for relatively simple and effective implementation if you remember the following lessons learned:
- Develop an agreed-to methodology with internal customers for the process in terms of rules, review times/updates, chargeback data types, etc.
- Simple wins over complex. As a corollary, provide a clear and easily understandable list of services, products and their associated costs, i.e., would your CEO understand it?
- Continual customer coordination is a must, since such a partnership helps reduce cost drivers and inefficiencies.
- The total process will hopefully evolve over time, maybe to where you eventually eliminate formal SLAs altogether.
- What’s the underlying purpose of SLAs and chargebacks? Rank ordering in terms of their true value would probably be:
1. communication tool
2. to assist in improving processes and changing behavior
3. to document costs and rationale
4. to provide expected performance criteria.
- The SLA and chargeback process allows you to establish real communications with your customers, focusing on facts and data versus hearsay. The processes of developing costs, responsibilities and charges forces you to ask your customers what they value, to listen as they discuss their needs and goals, and then to set up your systems to do and provide what they need. Good advice for anyone wishing to improve communications.