A report commissioned to establish global demand for business process outsourcing and offshoring (BPO&O) services, and how well SA is positioned to meet this demand, was released recently by McKinsey and Company.

The report found that, if the country is proactive, and acts quickly, it can create 100,000 new jobs over the next five years. This would require a concerted effort from government, labor and the private sector, however, something which the group that commissioned the report aims to address.

The report was commissioned in September last year by the City of Johannesburg, in partnership with the ComMark Trust (a regional initiative aimed at addressing poverty in the Southern African Customer Union) and the South Africa Foundation (an association of local companies which promotes growth and business interests in SA).

Using the study as a base, government, the Business Trust, South Africa Contact Centre Community (SACCCOM) and other stakeholders are now in the process of putting in place initiatives to ensure that action is taken to enable SA to take advantage of this window of opportunity.

Five-year plan

These include compiling a sector strategy document and five-year business plan to drive the sector forward. The draft sector strategy document has been based on the report, and outlines five steps that need to be taken to get the country to the point where it is a Tier 1 BPO&O destination.

The business plan has also been based on the report, and will outline a vehicle to be created to train some 100,000 people over the next five years, to meet the demand that will be generated should the sector strategy be successful.

The report highlights seven areas that need attention: The availability of quality talent; cost of operations; risk of operations; ease of set-up; enabling regulations; vendor landscape and marketing effectives.

Regarding the talent pool, the report states that SA needs to train some 40,000 agents to 60,000 agents a year. Cost of operations relates to the ongoing high telecommunications costs, as well as cost of labor, which could be reduced by skilling students at matric level. Most call center agents in SA today are graduates, hence the higher labor costs. Risk of operations refers to the high crime rate, which could pose a security risk to personnel, for example. In terms of ease of set-up, the time to complete set-up requirement and company registration could be shortened.

On the regulatory front, McKinsey says concerns have been raised around the flexibility of labor regulations, particularly around overtime work. Also -- SA would need to put more financial and nonfinancial incentives in place. SA has far too few vendors locally with the necessary experience of migrating international business, the report says. Lastly, SA needs to proactively market itself as a desirable BPO&O destination.

SACCCOM CEO, Mfanu Mfayela, says the completed business plan for the sector was handed to the Department of Trade and Industry (DTI) on June 8, and that the community is now waiting for it to finalize its sector support strategy. The plan has also been handed to the Business Trust in a bid to solicit its support in terms of its mandate to facilitate enterprise development and community rehabilitation -- something the contact center sector is well-positioned to do.

?We are looking to create an entirely new public-private partnership between SACCCOM, the DTI and the Business Trust,? Mfayela says. ?They are still processing the business plans, but we will be talking within the next three months.?

Industry mobilization in progress...

The business plan is based on five pillars, the first of which is the need for industry/stakeholder mobilization. In a bid to address this issue, SACCCOM will be holding its inaugural industry conference on July 29. ?The morning of the conference will be dedicated to looking at international case studies (how they got it right), and the challenges that were overcome. The afternoon will focus on local case studies, and local challenges.?

The morning?s first keynote speaker will be Kiran Karnick, president of the National Association of Software and Service Companies (NASSCOM), the chamber of commerce of the IT software and services sectors in India.

Mfayela says SACCCOM has formed a relationship with NASSCOM, and is accessing its expertise to assist the local market. Given the scope of NASSCOM?s activities, Mfayela says they hope to extend discussions beyond contact centers to other ?offshoring? markets, like offshore software development, something in which a number of Western Cape developers are very successfully involved.

The conference will also see further information on the SACCCOM business plan and a presentation from Trade and Investment SA (part of the DTI which runs the sector support programs) on its BPO support program.

?After the conference we will be embarking on road shows to communicate the business plan and mobilize the regions,? Mfayela says.

What the research says...

Of 281 companies and governments interviewed by Gartner for its ?User Survey: Business Process Outsourcing, Western Europe 2004?:

-- 221 were outsourcing administration processes or planning to do so in the next 12 months. 60

organizations expressed no intention to outsource any administrative business processes.

-- Accounts payable is the most frequently outsourced process in F&A.

-- Companies outsourcing payroll tend to outsource other HR processes, too.

-- Organizations currently considering or evaluating an outsourcing initiative in the next 12 months consider that BPO could help them address critical business issues -- primarily cost reduction and process re-engineering.

-- For most organizations, using offshore services is not an option. A very small percentage of the

organizations interviewed have, or plan to have, offshore operations, but, in most cases, these will be

managed in-house. The main inhibitors are social implications, loss of expertise and cultural mismatch.

-- Most organizations go through a step-by-step maturity model prior to actually outsourcing, which

is more complex and takes longer in Western Europe than in the U.S. The path toward outsourcing

generally takes internal re-engineering on a country- by-country basis, before a multi-country or pan-

Western European shared service center is implemented. This may take two to five years to

implement before the next step to BPO adoption is taken. As a result, the market is maturing slowly.

-- Organizations with experience of process outsourcing tend to extend the scope of their initial

contract. However, when contract scope is extended, it may not be with the same provider.

-- The main trigger for an outsourcing initiative in F&A, HR or procurement in large organizations is a

strategic decision at the board level.

-- The second trigger for BPO is the existence of a sponsor within the organization. And the third trigger is the existence of a business transformation or business process re-engineering program.

-- The main concerns that lead companies to consider outsourcing are that the cost of performing

transactions is too high, and they spend too much time on day-to-day operations.

-- The CFO and the CEO or board are the most influential stakeholders. The CFO is seen as being

the most influential in the outsourcing decision.

-- The role of the ?BPO champion?, the person who is sponsoring the initiative, is key in the process. In

27 percent of the companies that outsource administration processes, or are considering doing

so, the CFO is recognized as a BPO champion.

This role is most critical in F&A deals. In 22 percent of the respondent companies, the CEO is the BPO champion.