South African corporations operating in global markets will only be competitively agile if they adopt a more trusting attitude to outsourcing service providers who have the experience and scalability to ensure compliance with corporate governance requirements of their host countries.
This is according to Gerald Naidoo, director: new business at Computer Sciences Corporation’s (CSC) South African operation.
He adds that, unless they put their operational platforms in the hands of experienced international service providers, local corporations run the risk of perpetually being on the back foot when competing with their global competitors who have seen outsourcing as a means of liberating them from the corporate engine room for many years now.
“While IT infrastructure outsourcing should be considered a valuable resource in ensuring corporate information efficiency, South African management seems reluctant to relinquish control of IT operations.
“This, I believe, is because there is a misconception that outsourcing is abdicating control and responsibility. Many companies considering outsourcing haven’t seen that the implementation of appropriate governance is a critical success factor in the working relationship with their outsourcing supplier,” Naidoo says.
They have also felt that, because of the increasingly dynamic nature of business, they are better able to react to changing circumstances and to amend their systems to cater for this faster and cheaper than a service provider.
“This attitude has a foundation of truth. Historically, the success of an outsourcing relationship was measured in specific, measurable deliverables.
“If it couldn’t be measured in terms of ‘up-time’, cost savings and staff cuts, it had no value to the company. These measurables (or Service Level Agreements) hang over service providers like the proverbial guillotine, “ he adds.
Service providers then put all their energy into meeting what they are contractually obligated to do. For the service provider in this situation, putting extra energy into a good idea was seldom contemplated because it was likely to go unrewarded. But this is changing rapidly within many organisations.
It is becoming accepted today that outsourcing relationships, based on mutual trust rather than punitive service level agreements and penalties, benefit from a ‘trust dividend’ worth as much as 40% of the contract’s total value.
But this relationship must be properly managed. Its foundation is a sharing of corporate culture. There must be acceptance of the same business ethics, norms and procedures that are identified and understood at the ‘courting’ stage. If the culture doesn’t fit, both parties may walk away with no hard feelings.
However, if the relationship can move forward, there must be a defined business process in place to monitor relationships, rather than a checklist of technical expectations. An effective governance model should be a strategic consideration for any organisation considering outsourcing.
Corporations and service providers have learned that successful IT outsourcing is not only about systematically reducing costs, it is also about adding value.
But its true business value should not only be measured in purely financial terms. Outsourcing service providers should be seen as long-term collaborators who have ideas, global knowledge and experience, and who can make a material contribution to the ability of the corporation to meet dynamic challenges, delivering continual innovation to the customer.
Globally-competitive companies and their outsourcing providers are beginning to understand that there is a need to improve the ability of the partnership to add value to the way the business operates.
There is also a move away from believing that outsourcing helps address a company’s IT skills staffing problems.
In South Africa, the shortage of experienced IT skills is a recognised issue. Outsourcing should not be seen as a panacea, or cure-all, for skills development within an organisation.
Companies need to recognise that the retained IT organisation must have the skills to effectively manage the outsource relationship.
Problems within an organisation’s management and ineffectual decision-making culture and processes, should not be addressed purely by the outsourcing transaction. Unless these are addressed by management in defined intervention programmes, the outsourcing relationship may suffer from these underlying issues.
Outsourcing is about making the business more efficient, freeing up internal IT management to play an oversight role on operational issues and a more creative role in supporting corporate strategies.