Insourcing, Outsourcing and Service Level Management

This paper describes the concept of Service Level Management (SLM), reviews the scant literature and discusses the negotiation, implementation and monitoring of outsourcing agreements. The SLM concept originated in the context of computer services distributed to users through networks (e.g. banking though automatic telling machines). In this and similar situations the SLM methodology was used to help management balance the quality (exemplified "up time and response times) and the cost of the service. We argue that the SLM methodology should be applied outside the Information Technology discipline and extended in scope to the management of all phases of any outsourcing or insourcing project. Outsourcing is becoming a routine business technique in which responsibility for an activity formerly performed in-house is transferred to an outside supplier. It is appropriate to recognize insourcing, in which an organisational unit formally contracts to supply goods or services to another unit of the organization. Australian businesses have now had appreciable experience of outsourcing and are considering issues that were neglected when the first outsourcing agreements were being negotiated. An emerging view is that both parties should co-operate in improving the client's business processes and share the benefits. Executives are considering what to do when an outsourcing project terminates: under what conditions should contracts be renewed, how should they be modified and how can clients be sure that the prices charged are reasonable?