Outsourcing and shared service use in South Africa are mainly driven by companies seeking to reduce opera-tional costs and support growth strategies for expansion into Africa, says KPMG shared services and outsourcing associate director Fritz Dannhauser.

The KPMG Sourcing Pulse survey of the third and fourth quarter of 2012 found that reducing costs has become a base level require-ment for companies.

Companies mostly deploy information technology, finance and accounting and human resources functions in a shared services business model, with procure-ment seen as the next growth area, he says.

“Sourcing and procurement as a function are increasingly a focus area for improvement in businesses,” says KPMG shared services and outsourcing associate director Vandana Ramani.

Key to the success of these models in South Africa is the need to operate shared services as a business and to provide quality service. A key point of failure identified is the need to be competitive with third-party service providers.

“Market demand and changes to business models have caused companies to revisit shared service and outsourcing models; for example, for them to be able to provide services in Africa,” emphasises KPMG shared services and outsourcing director Alida Taylor.

South African service providers ranked poli- tical and governmental gridlock as a signifi-cant challenge, while KPMG advisers ranked talent shortages and labour regulations and labour demands as key challenges. This high- lights the intertwined nature of labour demand and labour regulation in the South African market.

Opportunities within the African market and the improvement in consumer demand were identified as the most significant events for potential sourcing clients.

Sourcing Decisions
Further, sourcing decisions must consider the effect on employees, notes Dannhauser.

Large outsourcing service providers help clients to tackle employee challenges. They have established local training programmes in Africa to conduct intense training programmes and use their large global facilities to train staff, says Taylor.

“This also makes these companies more nimble, as they can have staff trained accord-ing to corporate standards and deployed within six to eight months, while it is challenging for local service providers to train new staff as rapidly,” says Ramani.

Meanwhile, banking, finance and insurance industries display the highest demand for out- sourced services, but government uptake of such services has shown growth, says Dannhauser.

“Government demands are mainly focused on outsourced information technology ser-vices, but it is an important trend.”

Globally, outsourcing among governmental sectors is usually premised on improving service delivery quality and speed, notes Taylor.

The consolidation of skills in a centralised environment can also be a solution for govern-ment as many municipalities struggle to keep up with bureaucratic burdens, with too few skills at their disposal, she concludes.