The phenomenal growth in outsourcing in SA is being driven mainly by a critical shortage of skills, claims Frost & Sullivan ICT research analyst Mogen Naidoo.
With IT becoming more complex every day, Naidoo says SA companies increasingly find themselves lacking qualified personnel to manage highly complex IT services in-house and are forced to look to third-party service providers.
The result is a projected growth of more than 100% in the SA managed services market between 2009 and 2015. New analysis from Frost & Sullivan finds that revenues of $1.92 billion in 2009 will reach at least $4.25 billion by 2015.
The main driver of this huge growth, according to Naidoo, is that managed services have emerged as business-critical in SA, but are just too complex, resource-intensive and expensive to operate efficiently in-house.
Agreeing with Naidoo is the chief executive of the service division at Business Connexion, John Jenkins, who says with skills shortage as a challenge, more and more organisations are now starting to consider new technological approaches to service provision like managed services and outsourcing.
There has been more pressure in the market to take up outsourcing, as there are compliance issues nowadays, he says. “It has become difficult for CIOs because now they are looking for efficiency in IT so that they can meet the company's needs in a cost effective manner.”
Naidoo adds that companies have been shifting away from a capex models to opex models. This reduces their total cost of ownership through a 'do it for me' instead of a 'do it yourself' paradigm.
At the same time the managed services market is poised to experience a huge growth in capacity due to improved bandwidth from the introduction of Seacom undersea cables and wire and cable services cable. Until this is in place, however, Naidoo warns that the cost of outsourcing will continue to be high.
He points out that in most outsourcing deals, particularly in areas such as software-as-a-service (SaaS), the challenges of integrating outsourced services with existing in-house systems have forced many companies to run SaaS systems parallel to their existing systems, greatly increasing the overall cost.
Furthermore, says Naidoo, the customer service of many third-party companies, especially local ones, has been characterised by long response times and poor technical innovation.
To take advantage of the boom in managed services, Naidoo argues that providers must start promoting total cost of ownership benefits rather than cost savings.
Not only do cost savings often turn out to be a hollow promise, he says, but with business data services becoming mission critical, companies are now focusing on reducing the total cost of ownership rather than obtaining ROI.
"It is also crucial that service providers improve their customer service," Naidoo points out. As the managed services market heats up, customer service strategies will become 'the competitive differentiator' for operators.
Offering access to wide support networks, providing a better range of technical solutions and facilitating knowledge sharing will be the key factors that enable the best providers to maximise their share of a market due to double in size over the next four years.
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