SA companies looking to improve their efficiencies in a global market are increasingly opting for outsourcing as they re-engineer their businesses, writes DAVID JACKSON|
Getting down to the business of business
OVER the past decade, many of the world's leading brand names and major financial institutions have re-engineered their businesses and, in so doing, they have redefined the nature of their core activities.
These companies have entered into contracts to outsource their non-core activities which, in the past, the major corporates have traditionally provided in-house.
In South Africa over the past 25 years, many of the "softer services", such as cleaning and catering, have already been outsourced. Out of this early beginning grew several specialist cleaning companies and the emergence of specialist catering firms in the hospitality-services industry.
The move began essentially in the private sector but, in the past 15 years, elements of the public sector have also begun to outsource these softer services.
Now the global market has arrived in South Africa, and companies across a wide spectrum are competing head-on with international firms which have already re-engineered and gone through the process of outsourcing.
This process has not been confined to softer services, but has been extended to the larger and more extensive non-core infrastructural elements, such as mechanical and electrical systems, building-fabric maintenance and information technology and technical services.
Internationally, many of these companies are selling their buildings and leasing them back from financial institutions, recognising that owning buildings is not their core business function. They have also sought out companies that are able to take care of the full range of services around their core business.
Graham Tracey, the managing director of Drake & Scull International FM Ltd, says outsourcing took off in Britain, Europe and the US as markets became more competitive, driven by recession.
Companies had to become more efficient and reduce costs, and they found it difficult to do that effectively through in-house facilities managers, who were often constrained by internal political pressures and vested interests. Often, they also lacked the expertise to manage the change.
Change within a company is a major challenge to any chief executive. By outsourcing to professionals, the outsourcing company becomes the change agent and a company is able to re-engineer and reposition itself more quickly and efficiently.
Says Tracey: "SA companies are looking to improve their efficiencies in a world market. They need to re-engineer, and an outside agent like a specialist outsourcing company can be a catalyst for change."
He believes the local outsourcing market can learn from the international experience - but with an important difference.
In the UK, outsourcing in the 80s was driven by the construction recession. Consultants, architects, construction contractors, mechanical and electrical contractors, quantity surveyors and property agents saw facilities management as an opportunity to plug the gap caused by a loss of business in their core activities.
"The SA market will not have all these emerging facilities management businesses coming from a range of different disciplines," he says.
"It'll be a more structured growth, with international firms which will bring with them a decade of experience and knowledge."
James Fitzgerald, the managing director of EDS Africa, says the trend to outsourcing has become one of the most notable features of business in the 90s and it is likely to intensify.
"Worldwide, across all industries and in the private and public sectors alike, more and more business managers are turning to outsourcing as the answer to their problems."
He says the main factors driving outsourcing's popularity are:
ý An acceleration of change - not just in IT, but in most aspects of the business market.
ý An avalanche of innovations, each one presenting opportunities for increasing competitiveness and enhancing business performance. Perhaps the most notable example, he says, is the Internet.
ý Global competition. The convergence of telecommunications, computing and information services has made it easier than ever for companies to compete worldwide.
"Oceans, mountain ranges and national borders are no longer a major consideration, and language barriers are rapidly disappearing," he says.
"It's enough of a challenge for most businessmen simply to protect their established customer base from global raiders. To aggressively expand their operations into new markets requires something extraordinary."
ý Downsizing/restructuring. A response to all of the above has been the move to smaller, more flexible and agile and more focused businesses. Processes are re-engineered and operations streamlined.
"We've seen the end of the monolithic organisational structure and the emergence of operations that separate out the customer-facing activities from the back office."
ý Third era of IT. The first was process automation, using the computer to run what used to be manual processes. Then came the re-engineering of these processes to make them more efficient.
In the third era, IT is being used to redefine organisations and markets.
"It has become a strategic tool that is being used to reinvent the market and the kind of organisation, structure and processes needed to address this market.
"This is why, for the first time in its 50-year history, IT has become a key issue for the chief executive."
Fitzgerald says the focus of outsourcing must be on business, not on IT. "IT in isolation cannot improve anything. It must be tightly harnessed to the business processes it supports," he says.
"Too often in the past, business processes have been retrofitted to new information systems. If the processes support the business strategy and the information systems are built in parallel to support these, then maximum benefit will accrue.
"This means that those responsible for delivering IT must be present at the boardroom table when the planning starts, and they must continue that close relationship throughout the change process."