Many of the top IT players feel that the lack of confidence in the sector is due to the uncertainty around black economic empowerment (BEE) and weak business skills.
[VIDEO]This emerged at ITWeb`s IT Confidence Conference, held recently at Gallagher Estate in Midrand. Around 230 delegates gathered at the event to hear top executives from some of SA`s key JSE-listed IT companies and significant privately-held industry players outline their strategies and expand on their outlook for the year ahead.
Speakers at the conference included CEOs, MDs, FDs and directors from companies such as Dimension Data, CSC, CS Holdings, Comparex, the AST Group, Mustek, Faritec, DataPro, Paracon, BMI-TechKnowledge, Branier Capital and Time Quantum.
[VIDEO]BMI-T director Mark Walker said the industry performed fairly well in 2003, achieving a turnover of $4.7 billion (approximately R33 billion) at an average growth rate (AGR) of 9.8%. However, this was overshadowed by the fact that the Middle East and Africa region had achieved a 15.1% AGR over the same period - a position Walker says SA wants to be in by 2007.
Looking at the market from a company-specific view, CSC director of operations Peter Deering said his company achieved significant growth over the last 12 months and reported global profits of over $13 billion (approximately R90 billion).
However, industry solutions provider AST Group CEO John Miller said "the last 14 months have been for consolidating," after the company had "lost its way" in the hype of the IT boom. He said about 16% of AST`s revenue in the 2003 financial year came from the government.
Doing business abroad
Speaking about companies looking to explore business opportunities abroad, computer distributor Mustek FD Hein Engelbrecht said it was not a viable option for many, and that suitable destinations were limited.
[VIDEO]"To expand into Europe or America would be suicide. Most companies simply do not have the resources, and these markets are saturated." He added that Africa was the hub for further expansion for local IT companies.
Walker believes that working together with other developing nations, specifically India, would be beneficial to the SA IT industry. "This way we can learn from one another, rather than knocking our heads continuously."
While there were varying opinions regarding the future of the South African IT industry, delegates did agree that BEE and the upcoming ICT charter were central issues affecting the industry as a whole.
[VIDEO]"BEE must be at the core of our business plan," said Deering. Finding and placing more black directors - both male and female - is an area he said needed to be addressed by companies, but admitted that this would not be easy. Given the low numbers of suitable BEE candidates, he said it was "almost a case of being able to count them on one hand".
"BEE is a non-negotiable element of the future," said Deering. CSC was serious about empowerment, he noted, and was looking to sell 25% of its shares to BEE companies. "But not recklessly," he assured, "we`re looking for opportunities that bring value."
Faritec CEO Simon Tomlinson said companies should approach the empowerment topic with a more positive view. "It is not just a matter of reaching quotas; BEE partnerships must add value to both partners."
[VIDEO]The problem faced by local companies relates to the uncertainties surrounding BEE. Said Engelbrecht: "There is also no clear understanding of what is meant by empowerment, and what specific demographics are required."
Mustek`s CTO, Dimitri Tserpes stressed the importance of security early on, before moving onto its BEE strategy which is already firmly in place, after Mustek`s 25% share sale to Safika Holdings in 2003.
Chasing the charter
[VIDEO]Lechabile MD Winston Mosiako said he believed the ICT charter would probably set BEE ownership at 30% "as a basic", but added that incentives would be given to companies with a BEE ownership of 51% and above.
While most company executives said much was being done in terms of empowerment, Walker believes they should look to do even more. He noted that companies must "do what is necessary" in order to avoid government intervention.
[VIDEO]"The empowerment issue is expected to intensify with government and large private sector contracts with the release of the ICT charter," said Brainier Capital MD Brian Rainier. During his presentation, Rainier noted that he anticipates the rand/dollar exchange rate to decrease by approximately 35% over the next three years, ending at around R9.02 in 2006.
According to DataPro CEO Douglas Reed: "Commodity margins are collapsing and the only factor is price. Establishing brands have never been as hard to do as it is now. I think employing staff at entry-level and investing in their skills is the way to go.
"IT directors and managers must change focus to become decision-makers of clout," he stated.
Dimension Data`s executive director of strategy Derek Willcocks said investors wanted to be sure about where their money is going. "If SA IT managers better their business skills, it could gain us more international investors."
Customer confidence
[VIDEO]Comparex considers the confidence of clients as its primary concern, said CEO Peter Watt. "The pressures of cost are primarily determined by the clients. If they`re satisfied, it secures return on investment and results in a win-win situation."
Looking further afield, Watt said: "The US needs to be part of IT going forward in SA. We will not survive without their support."
Rethink MD Kem Tissiman felt that reducing the failure rate of software development projects would go a long way to improving IT confidence. "With only 28% of projects being completed within the allocated time and budget, according to Gartner, clearly there is room for improvement."
[VIDEO]Tissiman advised the IT industry to observe and copy the project-based successes of its counterparts in engineering and construction. "Process engineering, management of products and projects, and strategy implementation are key to improving service delivery.
"More structure leads to greater success", emphasised Tissiman. "Improvement in project success rapidly leads to recognition of the need to follow structured methodologies."
Regarding the future of management consulting in the IT industry, Tissiman was optimistic, saying BEE represented enormous potential for new work, particularly in government sectors.
[VIDEO]The IQ Business Group`s head of financial services Les Horne commented that "projects must be focused on business and not technology". He also identified a need for greater business process management in the sector as a way of improving service and ultimately confidence.
Horne told IT companies that to remain profitable they would have to pay particular attention to BEE and compliance. He also recommended a focus on customer needs as an important strategy to rebuilding IT confidence.
"Companies should plan on a strong comeback of IT spend, and should therefore work towards integrating technology and business skills, adopting a project-based approach to demonstrate ROI, building outsourcing capabilities, and optimising existing custom systems."
ICL MD Elvin de Kock said the "key to the way forward is infrastructure management. A modern IT infrastructure facilitates business transformation."
"The IT industry has a great future," De Kock said, "but success depends on making sense of the customer environment, being able to add value to basic IT goods and services, and being able to deliver something that will make a difference to customers` businesses."
(With additional reporting by Cindy-Lee Minnaar and Dejan Jovanovic.)
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