SA companies start riding international outsourcing wave
ZILLA EFRAT looks at how local firms are contracting out to improve service and efficiency
MANAGEMENT guru Tom Peters exhorted: "Contract out everything except your soul." It seems his advice is being heeded because that is what companies the world over are increasingly doing.
Recent research has estimated that some form of "outsourcing" - handing over part of your operations to an outside contractor - is used by up to 85% of British firms.
Outsourcing has been around for years and has been called many things. However, US presidential hopeful Ross Perot is credited with pioneering it into a major business when he founded EDS in 1962. Outsourcing gained momentum in the late 1980s as US and European companies struggled to contain spiralling costs and the complexity of information technology. Many realised they should specialise in areas where they had core competence and contract the rest out.
EDS SA chief executive officer James Fitzgerald says companies are increasingly looking at how they can add value to their businesses through outsourcing in areas ranging from improving products and services to reducing debtors and stock. Just about every kind of company, large and small, is a candidate for outsourcing and growth in this business looks unlikely to run out of steam.
Fitzgerald says the global IT spend on business improvement and on future systems is forecast to grow by 13% a year between now and 2002 and outsourcing companies should take a good share of this pie.
Contracting out functions like recruitment and training have been around for years in South Africa, as has various forms of IT outsourcing. Nonetheless, South Africa's return to the international arena has put the field in a new dimension. Today, if you phone Standard Bank for authorisation of a Mastercard the person answering the call will be an EDS employee though you may never know it. This follows the R1-billion contract Standard Bank signed with EDS to restructure and manage its card division's operations.
Fitzgerald says outsourcing only took off in South Africa with the return of global players EDS and IBM. IBM's first step back came via outsourcing when it set up International Outsourcing Services in 1993 - a year before it bought back into its former local operations.
It is not only the IT companies that are climbing on the outsourcing bandwagon. Momentum Life recently launched a new arm called MC˛ Solutions which will offer an electronic service for collecting and disbursing money as well as complete administration services.
IBM and EDS arrived when when foreign competition was forcing SA companies, just allowed back into the international fold, to assess how they could become world-class players.
IBM Global Network executive Carl Roberts says: "The SA market is still going through a period of education and has a way to go. Nonetheless, it has woken up and their are some great opportunities out there."
Roberts expects that over the next 18 months the top 10 companies in each SA industry will be seriously considering outsourcing and some large announcements could follow.
Companies that have given outsourcing work to IBM include SA Breweries, Gengold, Premier and Ingwe Coalm, while EDS has recently announced a R500-million agreement with JCI and a R200-million contract with Automakers.
IBM is set to launch a hi-tech commercial network connection throughout Africa which could see it doing much outsourcing work in Johannesburg for multinationals across the continent. In the longer term, EDS and IBM no doubt hope to corner some local government and parastatal business. This is a growth area internationally as governments become leaner, focus more on their core tasks and strive to meet citizen demands for service that matches that of the private sector.