Structure of Service Level Agreements (SLA) in IT Outsourcing: The Construct and Its Measurement

The increased reliance of companies on IT outsourcing has turned management attention to a set of skills of managing relationships with service providers. While practitioners proclaimed that a key to managing outsourcing relationships was with SLA, there existed very little understanding of how effectiveness and impact of SLA on IT outsourcing arrangements was measured. Using a conceptual framework for measurement development as well as contemporary statistical techniques for assessing dimensionality, this study theoretically develops and empirically tests measurement models of SLA in the context of IT outsourcing. While eleven first order constructs are identified, the results suggest that SLA can be operationalized as three second order factor models. The results of the study are framed as a tool for benchmarking SLA structuring efforts as well as a foundation for the future study of IT outsourcing relationships from a contractual perspective.